At the end of December 2020, having seen the year end on a high in property terms, it was difficult to predict what would happen next. We were heading back into a countrywide Level 5 lockdown, schools and businesses were shut once again, and strict restrictions were enforced around travel. It transpired that, unlike the first time around, people were more ready to continue their daily lives adhering to restrictions. Futures and plans were still to happen, and we stopped putting things on hold. Now as we look back on Quarter 1, this sentiment has led to a remarkable and scarcely predictable outcome for the residential property market to date.
Quarter 1 2021
Daft.ie suggests that on average, the price of a house rose by 7.6% for the first quarter of 2021 and this marked the second quarter in a row where prices were almost 8% higher than 12 months previously. Our sales at Quillsen provides evidence that 7 % / 8% significantly underestimates house price inflation for attractive well-located homes in Dublin.
The lockdown restrictions clearly did not affect buyers. Both agents and buyers were accustomed to virtual viewings and meetings, so business continued seamlessly. Virtual viewings have proven to be a great success for all parties. There has been no negative impact on the sales process with over 85% follow through from sale agreed to signing contracts. This is compared to an average of 75% across the industry in 2019.
This growth in prices is largely driven by the huge shortage of supply. There are fewer properties for sale in the country than at any point over the past 15 years. Estimates from the ESRI and the Central Bank of Ireland had previously indicated that around 30,000 new homes were needed to keep pace with requirements. Previous estimates from both the ESRI and the Central Bank of Ireland predicted around 30,000 new homes were needed each year to keep pace with requirements. Despite the restrictions on construction for much of 2020, a late surge in the final quarter brought the completion level up but not to the level required. And once again, this activity was halted for all of the first quarter of this year compounding an already built-up demand. Whilst supply is bound to increase as we move away from C-19, it is difficult to see supply and demand coming into balance in the short / medium term.
Highlights & Concerns
One of the significant developments that we are witnessing is that there is a bottleneck forming in the market where people who would like to trade up or trade down simply can’t find a suitable alternative property to buy. People are going to the market as they need to sell before they can buy. Their properties are selling swiftly, however, because these sellers cannot find an alternative property to purchase, they feel they have no choice but to delay or not proceed with the sale at all. This is a frustrating situation for all parties and is becoming an issue.
We see a solution to this through financing. There is a gap in the mortgage market for bridging finance and we feel this would increase the supply of properties and start to alleviate this bottleneck.
Looking closely at the Dublin market, there was a well-documented anticipation of a shift from urban to more rural living. There are two sides to this. Any shift is simply not feeding into the supply of property in Dublin. This is most likely due to the size and scale of Dublin combined with what was already a shortage of supply. However, on the other side of the coin, it is having an impact in rural Ireland where property prices are increasing as a result of this additional demand.
What lies ahead?
As Quarter 2 unfolds and restrictions start lifting, the same old adjectives apply. Location, location, location! This is closely followed by condition and presentation. We are seeing premium prices for all walk-in properties, especially from first time buyers.
On the other hand, there is also stiff competition for blank canvas properties that need full updating. This demand is from purchasers trading up and who are willing to live with the reality of having to carry out substantial work in the knowledge that they can create a property unique to them.
Construction has been reopened but it will be some time before we see what ground can be made up. The closure in 2021 has been far more extended than in 2020 and there was already a shortfall carryover from last year.
The success of virtual viewings leads us to believe that these will remain with us in some shape or form. They offer a huge timesaving to buyers and sellers alike who no longer wish to have to give up their free time on a Saturday. We will be gauging the appetite for the return to open house viewings later in the year, but we expect that a hybrid model will be the way forward.
We are certainly facing into an interesting few month ahead.
The above commentary is based on information available at the time of publication. Any opinions or assumptions are those of Quillsen and for example only. It is the responsibility of an individual to verify them.