Key Post The impact of Covid-19 on house prices

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Things are evolving daily - they'll have a lot more information by the time that comes along
3 days ago, I didn't have a view other than wait and see how it pans out.

Now my view is this will definitely have an impact on house values. It can't not have an impact. This is my opinion, no science or data behind it, and I fully respect the views of others that have contributed to the topic.

I don't want to descend into a doom & gloom post - I'm firmly of the view that anything that can be done will be done to get the economy kick started again after this. But the reality is that the effects will be felt long term.

We're currently looking at up to 400k people being out of work. Hopefully most of that will be short term.

Yes, the majority of the 400k losing their jobs are at the lower end of the salary scale. However, particularly outside of Dublin, these are the 2nd earners of a couple.

High earners are not all insulated from this either. I know of several temp / contract people who earn over 100k that are seeing massive reductions in their hours, and risk of being let go completely. Consultancy firms can't get on-site with clients. Aer Lingus is cutting almost all pay by 50%. Bonuses will disappear across many companies. Investment / funds industry where income is based on Assets under Management will see big cuts in their income. Landlords will realise that the risks are higher than they thought and look for higher yields. Some small businesses that have closed will not reopen.

Whatever else, property prices are not going to increase over the next few months.

Personally, if I had the option to buy a house now at last month's price, I wouldn't be exercising it. If it was a '1 of a kind' dream home for life, ok, I'd tell the sellers I'm still interested, but I want to reassess in a few weeks before signing contracts. Otherwise, if I'd an option to walk away I'd be taking it.

It's going to take time before we understand the impact on either the overall economy or house prices.
 
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Hi Brendan,

The key point that I am making is that, like investments, it is all about the time-horizon.

My sister is actually in the process of buying a house with her husband. They both have secure jobs, notwithstanding current events. They’re buying a ‘home for life’ so their time-horizon is many decades. They have found their dream home. They could pull away from the deal. My advice to them is to proceed. Yes, house prices may weaken somewhat, but what is a €50k or even a €100k fall amortised over one’s lifetime? Especially when it’s most likely a temporary one.

Conversely, I would be very wary of overstretching to buy somewhere today if I worked in a vulnerable sector or if the property I’m buying is merely an interim home. I was caught in negative equity when I bought a ‘starter home’.

I would also be wary of buying an investment property; I was looking around for something but that’s on hold.

I hope that the above makes sense.

Gordon
 
Thanks Gordon

The future is very uncertain. Share prices have priced this in. They may have priced this in too much. Or they may not have priced it in enough. But today's share prices reflect a balance of knowledge and fear and greed and stupidity.

But the future is very uncertain for house prices as well. But the housing market is not a market subject to the same analysis as the stock market. And one house is not the same as another whereas one Ryanair share is exactly the same as another.

If someone is thinking of buying a house today, I would say go right ahead
  • If you have at least a 30% deposit
  • You will be in this home for at least 10 years
  • Your jobs are very secure i.e. public servants
  • You can comfortably handle the repayments
If you do not meet all of these criteria, I would say wait until you see how things develop.

I can't predict how house prices will move over the next two years.

But I would be fairly sure that they have fallen by 20% or maybe more in the past month. We won't know for some time.

If I had gone sale agreed on a house a month ago at €100k, I would expect that a similar house could now be bought for €80k.

If houses rarely come up for sale on that street and that is the only street in Ireland I want to live on, then maybe I would pay the €20k premium to live on it.

Brendan
 
what is a €50k or even a €100k fall amortised over one’s lifetime?
The cost of credit on a €100k mortgage, at a fixed rate of 3% amortised over 30 years, is €51,777.45.

There is also an opportunity cost - that's money that could otherwise be invested.

Frankly, I think your sister would be mad to proceed on the basis of a price agreed before the current crisis.
 
The economic environment we are in now is vastly different from a month ago. The job losses are going to be significant , granted there will be a few hundred thousand out of work during the closures but we can expect that a lot of businesses are going to have to close for good . The whole hospitality sector is going to take a battering , the airlines may need to be privatized . Property is not a safe haven immune from this economic shock . At a macro level talking to someone who is due to buy a new car they aren't now fearful of job prospects.
I expect we will see a major slowdown in buying because of the uncertainty .

We are going to have to pay for this in extra taxes in the future as well , so your income is uncertain.

As I have said before IRES REIT has nearly halved in price , this is an indicator for me of the sentiment towards where property prices . I'm not saying property values have halved but if I was buying now I would be looking for at least a 20-30% discount. There just seems to be no upside in buying now.

I also agree that 100k extra mortgage is absolutely huge when you are paying it back with interest over time. I don't see any reason someone would want to take that chance for the sake of waiting a few months .
 
I think an issue is that a lot of sellers will also be holding off until post covid-19, therefore the market will essentially be non functioning over the next few months imo. I think the reluctance of sellers to take lower prices due to the temporary shock may persist until confidence of buyers/demand rises somewhat when things start to recover, so whilst we may see a drop, in reality the choice of property will probably be significantly reduced and the number of transactions that are actually completed will be a lot lower.
 
...I also agree that 100k extra mortgage is absolutely huge when you are paying it back with interest over time. I don't see any reason someone would want to take that chance for the sake of waiting a few months .

You might have the money and mortgage approval now. You might not in 3 months.
This will kill off any new builds. So if you think supply was poor before its going to get worse.
The ideal location comes up. At an affordable price.
 
Some very crude maths on my part has an additional 400k people losing their jobs pushing the the unemployment rate above 20%. To put this into context the rate peaked in 2011Q3 at 15.9%.

That almost certainly overstates the impact on unemployment. Some of those 400k might emigrate. However, to avoid a record unemployment rate some 35% of new unemployed would have to leave.

On the other hand, given the global nature of the pandemic and potential similar shocks to other economies it's hard to see emigration acting as such a stabiliser.

That's where we're are. Unfortunately that's not the end of it.

A depressed domestic and international economy will probably lead to a second round of job losses as firms assess the realities of the new trading environment. Wage growth could slow or turn negative.

The State will be faced with financing the increase health expenditure as well as increased social welfare. Slow economic growth and increased public debt and a likely growing budget deficit might translate into investor concern about sustainability. As a result the State borrowing cost could increase.

The above coupled with lower employment base means those that are working will have to pay more tax. Public sector pay will also come back into focus.

None of these are good for house prices. The above doesn't discriminate based on ownership status. Uncertainty surrounding wages will be high for most.

The reality is most sellers are buyers as well. No point selling unless you can trade up to something better and have some certainty you can sell your existing house. but there are a lot variables there.. Finding something better, getting financing, getting a buyer. The only exception to this (based on last crises) will be properties in probate.

All this doesn't take into account a likely retrenchment by banks. Lending standards will likely tighten. This will amplify the above effects.

Unfortunately the last crises is a very good blueprint for how a covid-19 shock might play out.
 
Whilst the rapid rise in unemployment is terrible, I think it’s fair to say that it’s mainly people in the hospitality industry who might not be in the market to buy a home anyway. And those jobs should return very quickly. What could have a greater effect on the market, particularly in Dublin, is a halt to bonuses in industries like aircraft leasing or the decline in the value of people’s share options in all relevant sectors. At a minimum, the ‘renovation industry’ will suffer a major shock on the basis tha it’s an area where a lot of people (sometimes under duress!) spend some or all of their variable pay.
 
Just to reiterate, these are my personal musings. I'm not currently in the market to either buy or sell.

I think we'll see different impacts in different markets; price bands and geographical.

Why should they pull away? Because some people on AAM think they should?
Absolutely not. And if they do check out internet forums, tell them to watch out for a guy called Gordon... :p

I bought our first house when everyone said we were mad to. Late 2011, in the depths of the Euro debt crisis. The euro was on the brink of collapse, and Ireland possibly facing the worse recession ever.
However, we needed somewhere to live. I found a house we liked, negotiated a price with the sellers (I know - I broke all the rules, bidding against myself!), got mortgage approval, and bought it. (I've done ok with it.)

Conversely, I would be very wary of overstretching to buy somewhere today if I worked in a vulnerable sector or if the property I’m buying is merely an interim home.
We're fully in agreement here.

Yes, house prices may weaken somewhat, but what is a €50k or even a €100k fall amortised over one’s lifetime?
In a 'normal' market, I completely see logic in your argument. I often see people who say their 'absolute max' is 800k. And yes, what's an extra 50k in those circumstances, for the right house? If you can't afford an extra 10% repayment, you're already too stretched.

And I think it’s a big leap to be predicting house price collapses
This is where our opinions differ. Or maybe it's the potential of a 10% drop Vs 'collapse'.

I don't think we're going to see anything like the crash after '08, but we'll definitely see a slowdown in the market, particularly in the lower end, and the impact will depend on how long it takes to get people back working.

I'm talking about 'average' houses here. If you're looking at the 1m+ market, I'd crack on. We've discussed previously that there is relatively better value in that price range than the sub-800k. It's already very illiquid with low supply, and few buyers able to meet lending criteria.

I'm fully agreed with your discussion about equities over the long term, and bouncing back. I haven't touched my equity investments, and hopefully I'll see them recover over the next 20 years...

However, the Irish housing market is a lot smaller, and less liquid than global equities.

Let's say, happy path, this all blows over and everyone is back to full work after 2 months. 400k people will have been on social welfare for 2 months. An unquantified number will have had their hours and pay cut (and these, typically, will have been on higher salaries than those completely let go). Let's say overall it equates to 600k people being on half pay for 2 months (including those temporarily out of work). Now let's say 0.5% of them were in the market to buy a house in the next 2 years. So 3,000 potential buyers will have dipped into their deposit to buy essential items, or pay their rent. They'll have 8% less income this year, which translates into lower limits under existing CBI LTI rules. People who were already stretching themselves are going to rethink so we'll see some heat taken out of the demand side.

At the same time, we'll see some extra supply, with landlords who were already thinking of getting out if the market doing so when they have a month or 2 without rent being paid.

Yes, medium to long term it'll recover. But the effects of this will be felt for the next 2 years at least. And that's if we get back to normal in the next 2 months.
 
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Hello,

I read this post with great interest as we have recently gone sale agreed. We have also gone sale agreed on our own. Watching Covid19 unfold is so scary in so many respects.

The decision is whether to proceed. We are both in public sector jobs, have our deposit and can repay the new mortgage. We certainly wont be moving again but having bought our current house at the height of the boom we have only just really recovered financially from it. We dont want to make a mistake again.

This thread is helpful. I know the decision is ultimately ours alone. It's the unknown...
 
I read this post with great interest as we have recently gone sale agreed. We have also gone sale agreed on our own
If you can get your own sale through this will not have a major impact as you are selling and buying at the same time. I wouldn't sign the contract on the new house till the buyers have signed on your sale but I'm guessing your solicitor is advising you.
 
Also wanted to say this thread has been very useful, so thank you.

Went sale agreed earlier in the month and currently working through things. We meet all the criteria mentioned by Brendan below, and feel it's fairly close to being a one of a kind/dream home, but still somewhat wracked by uncertainty. Going to proceed for now, and will keep an eye on this thread!

Thanks Gordon

The future is very uncertain. Share prices have priced this in. They may have priced this in too much. Or they may not have priced it in enough. But today's share prices reflect a balance of knowledge and fear and greed and stupidity.

But the future is very uncertain for house prices as well. But the housing market is not a market subject to the same analysis as the stock market. And one house is not the same as another whereas one Ryanair share is exactly the same as another.

If someone is thinking of buying a house today, I would say go right ahead
  • If you have at least a 30% deposit
  • You will be in this home for at least 10 years
  • Your jobs are very secure i.e. public servants
  • You can comfortably handle the repayments
If you do not meet all of these criteria, I would say wait until you see how things develop.

I can't predict how house prices will move over the next two years.

But I would be fairly sure that they have fallen by 20% or maybe more in the past month. We won't know for some time.

If I had gone sale agreed on a house a month ago at €100k, I would expect that a similar house could now be bought for €80k.

If houses rarely come up for sale on that street and that is the only street in Ireland I want to live on, then maybe I would pay the €20k premium to live on it.

Brendan
 
Listening to Morning Ireland and an interview this morning about the impact of Coronavirus. House sales have come to a virtual standstill apart from some firesales, etc, was the verdict given. That says it all really.
 
I am struggling with statements "I would be fairly sure that house prices have fallen by 20% in the last month".

I am in the process of selling a house, it was valued in January 2020 and viewings started at the beginning of March post completion of renovations. I have not received any offers yet, one person said they loved it but couldn't buy it because their work had just shut due to coronavirus.

My estate agent is not an economist, so he bases his valuation on what similar houses have sold for. What I am experiencing is that a portion of the market that would purchase my house have now (temporarily) been removed. However, if my property is now worth 20% less there is still nobody that can purchase it.

If (I hope) that job losses are temporary, and we have a V-Shape recovery that house prices will remain static as there is just a temporary (hopefully) removal of demand? I have no first hand experience of the property crisis in Ireland, and particular what caused a property one day to be worth 50% less than the previous?

Where I am confused is that if you remain in a position to purchase a house despite of Covid, then surely the value is the same as 3 months ago? Or is this some form of self fulfilling prophecy? Buyer demands 10% less, seller demands 10% less from the house they are buying due to Covid and as such the market is down. Is it a case of buyers now having leverage to pay less rather than the actual value changing?
 
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I have just gone sale agreed on a house sale. Covid 19 has not impacted the buyers decision and her offer is same as what we have been discussing over past 3 weeks. I dont know her rationale for proceeding in light of Covid 19, that her business. If I was to guess it could be due to a number of factors including the below:

1. She has mortgage approval and wants to act on it before it expires. She might be subject to more stringent criteria in a few months.
2. She is currently renting and is desperate to exit rental market and get her 1st property.
3. She doesn't envisage a property crash and therefore she see's value in the purchase.
4. She sees a good investment return.
5. She loves the gaf.
 
Where I am confused is that if you remain in a position to purchase a house despite of Covid, then surely the value is the same as 3 months ago?

Not at all.

If I could afford to buy a house for €300k in January and I can still afford to pay €300k for the house today, it might appear that nothing has changed.

However, a lot of people who were competing with me for that house have now dropped out of the market. They have lost their jobs. They are less sure of themselves. Their own sale has fallen through.

So I will bid €250k for that house now and it may well be the highest bid.

Brendan
 
I have just gone sale agreed on a house sale.

Then I would suggest that you light a fire under your solicitor.
Get contracts out to her asap.
Even in normal times, a lot of sale agreeds fall through. It will be much higher in this market.

All it needs is one of your neighbours putting a nicer house on the market for 20% less and your sale is probably lost.

Brendan
 
Not at all.

If I could afford to buy a house for €300k in January and I can still afford to pay €300k for the house today, it might appear that nothing has changed.

However, a lot of people who were competing with me for that house have now dropped out of the market. They have lost their jobs. They are less sure of themselves. Their own sale has fallen through.

So I will bid €250k for that house now and it may well be the highest bid.

Brendan

This is in line with my comment, the buyer is being opportunistic, the house value hasn't changed. The bid may be the highest but it doesn't guarantee it will be accepted. That is why I think the market will just stop except for a small number of sales already in process or investors.

In my case, I had an investment property which is now empty. The valuation represented a ~20% increase in my investment. I am now having to pay the mortgage on the property (covered for 3 months), so I will listen to opportunistic bidders but I would not accept an offer 20% under asking at this point in time.
 
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