ANALYSIS:Central Bank is correct in saying affordability has improved but market is still moribund
MANY WILL find it hard not to arch an eyebrow after reading the Central Bank’s claims that Irish property prices were undervalued by 12-26 per cent as of the end of last year, not least because the very same august institution so woefully and catastrophically failed to identify the property bubble as it inflated in the early part of the last decade.
Despite its previous failings, its latest report makes for interesting reading and could indicate the bottom of the market is finally being reached.
It comes in the wake of the first vaguely positive news on property prices in nearly two years which came out of the Central Statistics Office last week. While it found that prices for homes fell by an average of 16.3 per cent on an annual basis last month, on a monthly basis there was no change in March when compared with February. The last time there was a halt in monthly price declines was August 2010.
Yesterday, in what many people would regard as a blindingly obvious statement, the Central Bank said property prices could shoot up if investor confidence was restored and would-be purchasers adopted a more positive view of future prices. It also suggested that more certainty in the economy would help and highlighted the fact “the requirement for substantial deleveraging within the Irish financial system and the associated issue of mortgage credit availability are also considered as significant reasons for the decline”. It stopped short of explaining that snow was white and the sky is sometimes blue.
Unsurprisingly, the Construction Industry Federation – a body with more than most to gain from a property bounce – practically fell over itself in its haste to agree with the bank’s findings, saying their figures “tallied with indications from within the building industry”.
The reality is that the bank surveyed 10 other international examples of very large declines and found the average duration between peak and trough is six years. Ireland has been in decline for five years so it probably has at least another year to go before the bottom is finally reached.
While the Central Bank is correct in saying that affordability has improved significantly, particularly for first-time buyers, that does not mean people are yet willing or able to take the plunge.
The market remains moribund for two key reasons. There is still a huge level of fear, over prices which have fallen by at least 50 per cent since 2007 and the broader economic situation which remains perilous. Of equal concern is that banks appear to be doing their best to turn would-be buyers down for loans. Anecdotal evidence from mortgage brokers all over the State suggests banks are turning away people with almost immaculate credit histories and a clear ability to make repayments on loans, simply because they are terrified of making the same mistakes that all but entirely destroyed the State’s banking system five years ago.
Branch managers have been stripped of their decision-making powers and all loans have to be approved by committees in head office who appear to live to say no. Just 11,000 new mortgages were issued last year, down from 10 times the number in 2006.
Good news for landlords, however. Rents relative to prices have risen to levels last seen at the turn of the century. Anyone lucky to have financing and the ability to drive a bargain could perhaps not make a killing but at least manage to hang on to their shirt.
