Both the US (in 2011) and the UK recently saw false recoveries in house prices, followed by a second drop, before more sustained price increases took hold.
Home Prices: Why the Case-Shiller housing index is showing a double-dip | TIME.com
House prices: Double dip | The Economist
Could this happen here? There are plenty of reasons to think so.
Dublin, and only Dublin, is experiencing price rises at present. This is having two effects. One is what seems to me as panic buying. Plenty of people are rushing into the market in the fear that they will miss the bottom. Nearly 50% of buyers are paying cash. The second effect is sellers pulling houses off the market in the hopes of getting a better price in 6 months. An estate agent told me today that one North Dublin seller's 400k asking price on a 3-bed had been met, but he was going to hold off anyway.
Here are a number of reasons why I think this is a false dawn for the Irish property market, and why rationality will return after Christmas.
* The supply of cash buyers will soon run out. There is a very limited number of people out there who both have cash, and want to spend it on housing.
* Rents cannot increase fast enough to justify property price rises. Rents are way below where they should be to justify these house prices, probably 30-40% below. And rents are not really increasing much. This fact effects cash buyers particularly - the smart ones will realize the return is abysmal. For mortgage buyers, it is still cheaper to rent than to repay a mortgage on the same property.
* The real economic recovery isn't here yet. It just feels like a recovery because things have stopped getting worse. There could easily be a quarter of zero or negative growth next year, especially if some hiccup hits a trading partner. Wages are not increasing (yet)
* Supply is very limited at the moment because of the lack of repossessions, tracker mortgages, NAMA, etc. There is a significant volume of houses that could come onto the market when things look like they are picking up. Increased supply on its own would end the panic buying and set prices back
* What is on the market is in a dismal state. 40%+ of houses on the dublin market are probate sales - dead granny houses. I've looked at a bunch of them in recent weeks. Many have been vacant for 10 year or more while the owner was in a nursing home. They need significant renovation, and most buyers cant afford that as banks only lend mortgages to cover purchase prices, nor renovation costs.
* Finally, it does seem to be just Dublin, and perhaps just parts of Dublin, that are seeing increases. Anything outside the m50 seems flat. That hints the buyers are a very select group - those with money who have been eyeing city property and waiting to pounce when the market turns.
My money is on prices flattening or falling early next year, with another upturn in late 2014 or 2015.