Sellers advised to drop their prices as secondhand homes market slows down

For Sale signs are not coming down as quickly as they used to, as the frenzied buying of past seasons eases off

The "For Sale" sign went up outside 60 Park Court, Park Avenue, Sandymount in July. It's a modern house with a good address in Dublin 4, but five months on the property remains unsold.

It is not an isolated case. More houses are remaining on the market for longer with little or no interest from buyers, and with vendors anxious to sell before the New Year.

Is this seasonal adjustment or could it be the first signs of a serious slowdown? Advice from estate agents is that sellers with unrealistic price expectations need to take a critical look at the market and readjust their prices downwards. Rising interest rates and the Government's curb on investors have contributed to a fall-off in house sales.

Put simply, the heat has gone out of the market, and while some sectors - such as first-time homes - continue to sell well, sales at the mid to upper end of the market are distinctly sluggish. This can be seen clearly in the auction rooms where sales have been poor throughout the autumn, particularly for expensive homes. The empty auction rooms are in sharp contrast to the frenzied bidding of seasons past.

From the dizzying heights of the early boom days, when economic analysts and taxi drivers predicted the bubble would burst and the overpriced house market would come crashing down, it was inevitable that some day, price growth would hit a wall. "This is the slowdown, there's no question about it," said Martin O'Mahony, of O'Mahony Auctioneers in Dublin 14. "In the last three months we have seen a changing market where some houses are just not selling. After five or six years of property values rising and rising, prices were pushed to the limit. Now potential purchasers have become more realistic about the value of properties and about what they could afford."

Auctions, traditionally only used to sell properties at the top end of the market, became the preferred method of selling all properties and sellers could almost guarantee the final price would be in excess of the guideline price. Now people are failing to show up at many auctions and viewing interest is poor, says city centre-based auctioneer Neil Harper of Harper O'Grady. In some cases, he adds, no bids have been received on properties that have been on the market for six weeks. Worst affected are houses in the £400,000 to £600,000 price bracket, according to Sandymount agent Nigel Bennet. Houses that would have once been snapped up are now sitting unsold for a longer period of time.

"Sellers may have to consider readjusting prices downwards. Houses in this range are just not moving and properties that remain unsold by the end of the year will have to be relaunched in the spring," Mr Bennet said. Oversupply, and strong interest rates, have resulted in a marked slowdown in prices since September, and although Paul Newman of Douglas Newman Good feels recent market conditions can be attributed to seasonal trends, he warns that sellers are increasingly pricing their properties beyond market value.

House price increases are falling, according to the Douglas Newman Good's House Price Index. Third quarter returns are down one per cent on second quarter figures to 4.5 per cent and Douglas Newman Good economist Paul Murgatroyd predicts that the fourth quarter figures will show a further decrease to 3.9 per cent. Most financial institutions and economic analysts agree that the market is in reverse, and that the effects of the slowdown will be felt quickly on the property market. One of the most telling signs that the market has levelled out is that potential buyers are waiting until they have sold their own property before agreeing terms on a new one. This time last year such caution was considered unnecessary, according to agents, as sellers could be confident of disposing of their own properties in a short enough time period.

It all comes back to price, says Mr O'Mahony. Vendors determined to hold out for the "right" price should re-evaluate their position, he says. "If your house has been on the market for longer than expected with little interest from buyers, then it's time to cast a critical eye over it and to question the asking price."

While the climate of rising interest rates may be affecting some potential purchasers, auctioneers are also critical of the Bacon measures which have dampened investor demand.

On the recommendations of the third Bacon Report, the Minister for Finance, Mr McCreevy, passed legislation in July which saw the imposition of 9 per cent stamp duty on properties purchased for investment. Number 60 Park Court in Sandymount is a telling example of the Bacon effect. The initial asking price for this two-storey, two-bedroom townhouse was £310,000. Having remained on the market for four months with no bids, this house has now been reduced to £290,000.

"Prior to June last, these houses were very popular with investors but now most of the viewings are for owner occupation," says agent Mr Bennet. And while this property has yet to find a buyer, the estate agent adds that demand in the rental market is so strong it is almost impossible to find reasonably priced two-bedroom accommodation to rent.

"The third Bacon Report has driven investors from the market but has not tackled the problem of supply," says Mr Newman.

The first-time buyer market is still strong, and the lack of affordable houses in the Dublin region is still a headache for young buyers; however, other initiatives in the Bacon Report should see more development land in key areas being released.

Areas like Lucan, Celbridge, Maynooth and Kildare have seen many new schemes aimed at the first-time buyers' market over the past few years and Sue Tuite, from Coonans Auctioneers in Maynooth, says that while first-time buyers and an overflow of Dublin purchasers are still supporting a strong market, the more expensive properties have begun to meet market resistance.

Traditionally, autumn is a slow season with spring the preferred time for buying a house, but the current market climate has its roots in more complex and serious factors. Interest rates had been at historically low levels and while they are still low in comparison to 10 or so years ago, the past nine months have seen five increases in rates and more are due.

Potential buyers may be put off by the uncertain financial climate. Mr Harper also points out that banking institutions and mortgage brokers are laying down more stringent criteria for borrowers.

Estate agents are confident that the market will kick off once again in spring, but with more realistic asking prices. There are a lot of properties in all categories and all areas. As buyers enjoy a better choice than they've had in years, vendors need to be more realistic about prices.