The Irish property market collapsed in 2008, and then proceeded to spiral downward for the next six years. About half the value of the average home was wiped out, and some properties were sold through distress auctions at 80 and 90 percent discounts.
Then, finally, this market not only hit bottom early in 2014, but turned around in dramatic fashion. After a half-dozen years of double-digit losses, Irish property values increased by 15 percent. In fact, the Irish property market was the fastest growing in the world last year.
Is this the start of another boom to bust scenario? Key differences between then and now suggest that this current window of appreciation has a more solid footing than the previous run-up, for the following reasons:
Speculation versus buy-to-live. The property bubble that culminated in the crash of 2008 was fueled by local speculation. Property prices had been rising for so long that the Irish became convinced values could only go up. Many people became landlords, buying second homes to rent out and counting on rental income to pay off the mortgage.
With plenty of liquid credit to fuel the drive, developers threw together housing projects in increasingly out-of-the-way locations. Entire developments were bought pre-construction by Irish people who had no intention of living in the houses they had purchased. These generally poor-quality, no-amenity developments became ghost estates when no renters could be found.
By contrast, today’s market is being driven by first-time buyers and owners looking to upsize. Houses are being purchased by people who intend to live in them, not speculators betting on appreciation and counting on rental income.
The lending industry. After coming to the brink of collapse post-2008, Irish banks are far tighter today with their lending practices. At the height of the previous boom, bankers solicited borrowers and were eager to lend to anyone who would fill out an application. Today, to get a mortgage in Ireland, you need to show a solid financial situation.
The central bank. The Irish Central Bank was seemingly asleep at the wheel when the country entered the recent property crash. Today it is making its presence felt. The 100 percent mortgage is a thing of the past. The best a borrower will get today is 80 percent loan to value.
The pent-up demand. Hardly a home was bought in Ireland between 2008 and 2013. People still wanted to own homes of their own, but with prices in freefall, everyone was waiting and watching for a bottom. Now that prices are moving in the other direction, the Irish are buying again and beginning to release five years of pent-up demand.
The supply gap. One of the big casualties of the recession in Ireland was the construction industry. The building trade was a big employer during the boom. When the crash came, many of the country’s biggest construction firms went bust, leaving hundreds of thousands of skilled construction workers out of work. Many Irish people then emigrated in search of jobs at levels not seen since the great famine of the 1840s. This loss of construction companies and workers has left a big hole in the supply of houses. Not enough new houses are coming online to cover the pent-up demand.
Pricing. The average asking price of a home in Ireland is now 193,000 euros (about $215,000 at the current exchange rate). That’s an increase of 12.8 percent over a year ago. At the same time, that’s still a dramatically reduced price tag compared with the average home price at the height of the last boom. In 2007, the average home in this country was selling for 378,000 euros.
Here’s the even better news for Americans. Right now, 1 euro equals $1.11. The dollar has not been this strong against the euro in nearly 12 years. If you have dreamt of retirement in the Auld Sod and an Irish home of your own, this is the best chance in your lifetime to make that dream come true.
Kathleen Peddicord is the founder of the Live and Invest Overseas publishing group .
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How to Take Advantage of the Irish Property Boom originally appeared on usnews.com
