Dr Valerio Potí asks "Is the property market restarting?"

13th July 2009

Author: Dr Valerio Potí, Lecturer in Finance, DCU Business School
Published by: The Irish Times, 5th July 2009
 

There is anecdotal evidence that house sales are picking up. A quick check on the Daft website, which can be queried to find out which properties sale-agreed and when, confirms this.

Dr Valerio Potí, Lecturer in Finance at DCUBS

Interestingly, a number of houses sale-agreed just days after the stock market began to rally back in February and the flow of sales has been quietly but steadily increasing ever since. That does not necessarily mean that prices are increasing, but it does suggest that liquidity is coming back. This is not surprising because there is a considerable amount of wealth upon which investors and households are cautiously sitting.

The economic downturn badly dented but did not dissolve the fortunes accumulated in the last two decades in western economies and especially in Ireland. As demonstrated by the historical low of the ratio between equity investments and investments in cash instruments, this wealth is now parked in bank accounts, short term government bonds and other forms of safe and liquid investment which earn low nominal returns and face the prospect of even lower real returns if, as feared by many, inflation will increase following a pick up in the economy. It does not take a stretch of imagination to think that substantially lower property prices may be enticing the less cautious to take the leap from safe investments to bricks and mortar.  

Elementary considerations about demographics and the engrained love of the Irish for houses suggest that a latent demand for property has probably been there all along, but perhaps it has so far been deterred by prices that were slow to reflect the lower risk appetite of perspective buyers and the less bubbly economic outlook.

If vendors’ and buyers’ expectations come into closer alignment, activity will gradually resume in the property market. Regardless of what happens to house prices, this would be good news for the economy.