Latest increases in Dublin prices does not mean market will not see further falls
Pent-up demand may explain the latest trend but repossessions could see price falls
Reports this week that the South African bank, Investec, will enter the mortgage market are to be welcomed, but this will not be a game-changer
The figures speak volumes. After an uninterrupted freefall in property prices over many years, a very clear inflection point was reached early last year when the precipitous rates of decline suddenly stopped. Since then, the national market has been broadly stable.
That is not in question.
What is in question is whether there will be another fall in prices, whether a rebound will take place in the months and years to come, or whether – as is to be hoped – prices in the future rise in line with other prices in the economy, thus preventing the highly destabilising volatility that has shattered the Irish economy and the lives of so many people in it.
The main reason to believe an increase in prices is possible relates to the pent-up demand for house purchases. While unemployment stands at just above 13 per cent, almost 87 per cent of the labour force is working. Many younger people who are fortunate enough to have a job and who, by dint of their youth, good sense or sheer luck, did not become indebted during the property frenzy, are now settling down. Most of them want to own a home.
A broken banking system has failed to provide the mortgages many of them would have little trouble acquiring if the system was not crammed with non-performing loans from the bubble era.
Reports this week that the South African bank, Investec, will enter the mortgage market are to be welcomed, but this will not be a game-changer as the amounts it intends to lend will not come close to meeting all the pent-up demand that exists.
The South African institution is likely to aim to take less than 10 per cent of the residential mortgage market.
What about a renewed fall in prices? The biggest domestic risk is a flood of properties on to the market if indebted people use new personal insolvency mechanisms to offload unaffordable mortgages, handing the keys back to the banks in the process, and if the banks move towards the levels of repossessions that take place in peer countries.
A big increase in the supply of properties on the market if either or both of these things happen would push prices down further.
Urging the granting to those struggling with debt more powers vis-a-vis lenders is uncontroversial, but advocating more repossessions is to invite the kind of excoriation that those who warned of a property bubble before 2007 experienced.
Gregory Connor, an academic economist, and Karl Deeter, a mortgage broker, have both been vilified for correctly stating that a near non-existent level of repossessions is usually not good for those directly involved and certainly not in the collective good.
If the supply and demand fundamentals mean further price falls must happen, best that it happens soon. Dragging it out further will only prolong the pain of adjustment.