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Underlying demand still strong but effective demand slowing
Homebuying journey now seen taking notably longer (38% expect a delay of more than one year) …
…as purchasers plan to stay in the homes they buy much longer (66% intending to live there for more than ten years).
Almost half (44%) think prices aren’t rising for the type of property they are buying
Changes in personal circumstances rather than economic conditions dominate the decision to buy a home
The KBC Bank homebuyer survey for Autumn 2019 suggests changes in homebuyer behaviour may be contributing to a softer trend in property sales and house price inflation of late. The Survey highlights the distinction between underlying demand and effective demand that may be becoming increasingly important in terms of a lengthening path to property purchase. Underlying demand encompasses all those who are interested in buying a home whereas effective demand includes only those now ready, able and willing to buy a home at current prices.
Underlying homebuyer demand remains strong with 1 in 3 Irish adults considering purchasing a property within the next two years. Within this group, roughly half are just beginning to think about buying but one in nine (which translates to about 3.5% of Irish adults) have the financial wherewithal to purchase immediately.
The continuing strength of underlying homebuyer demand reflects a growing population, the shortfall in property transactions through the past ten years that has left large numbers in accommodation that no longer suits their needs and a continuing albeit modest interest in property as an investment.
The Autumn 2019 KBC homebuyer survey found that some 53% of those now considering purchasing a property are first-time buyers, 33% are ‘movers’ and 15% are considering investing in residential property.
Effective demand appears to be slowing. One indication of a widening gap between underlying demand and effective demand is that homebuyers think it will take them significantly longer to complete their property purchase. As the graph below illustrates 79% of homebuyers think they will not purchase when they originally planned with 38% of them envisaging a delay of more than a year.
Affordability and uncertainty are two influences that might contribute to a widening gap between underlying and effective demand at present. The details of the homebuyer survey also hint that changing purchasers preferences could also be an important factor affecting home sales at present- though these changing priorities of homebuyers may be partly driven by issues such as affordability and uncertainty that make them less inclined to make repeated property moves. In that sense, homebuyers may be responding to increased ‘macro’ uncertainty by trying to increase certainty around their future living arrangements even if this adds significant delays to their property purchase.
As the diagram below illustrates, two thirds of homebuyers plan to stay in the properties they purchase for more than 10 years. As they attempt to ‘future proof’ their homes for potential future changes in their personal circumstances, the property search is almost inevitably taking longer.
Significantly, in this regard, property demand is likely to be informed by lessons of the last decade when large numbers found it very difficult to move from accommodation that became entirely unsuited to their needs. As a result prospective purchasers likely attach a significant premium to properties that they see as being sufficiently flexible to adapt to future changes in their circumstances.
It is very likely to be the case that affordability and uncertainty issues increase the inclination to look for a permanent ‘home of your dreams’ rather than make frequent steps onto various rungs of the property ladder. In that respect, some ‘bugs’ in the current functioning of the Irish property market threaten to morph into permanent design features of the Irish property market.
While entirely rational from the perspective of the individual seeking avoid any future gap between room and resources, the desire to future -proof homebuying results in a less liquid property market and a sub-optimal use of Ireland’s housing stock. In this way, the both the painful experience of boom and bust and the problems of matching accommodation needs with suitable supply during the more recent ‘recovery’ period threaten to be self-reinforcing.
It could be the case that signs that property price inflation is easing is also leading homebuyers not to rush into purchases. As the diagram below illustrates, some 56% of respondents to the Autumn homebuyer survey say that prices are currently rising for the type of property they are interested in purchasing whereas in the Spring 2019 survey 66% felt prices were rising. So, nearly half of homebuyers don’t see affordability deteriorating because of runaway house prices at present.
In the same vein, 28% of homebuyers in the autumn 2019 survey suggested that there fewer properties on the market than a year ago whereas a year earlier the comparable figure was 39%. So, concerns about a lasting shortage of affordable properties also appears to be easing. This too may be leading property buyers to be more specific in their requirements and, accordingly, more deliberate and slower in their purchases.
While changes in the property market and in the broader Irish economy are important, most purchasing decisions are driven by changing personal circumstances rather than prevailing economic conditions.
As the diagram below illustrates, the most common reason given for homebuying is that people feel they have reached a stage in their lives where they wanted to purchase a home. This was most pronounced among First Time buyers but was also a significant (if notably smaller priority) for some of those moving or purchasing an investment property. Even as census data show homeownership rates are edging lower in Ireland, these results suggest that an innate attachment to property remains central to the Irish psyche.
Changes in family size and relocation needs dominated purchasing considerations for ‘movers’ while the outlook for property prices and changed financial circumstances were the main drivers for those contemplating investment in property. So, the survey suggests a wide range of ‘micro’ reasons rather than ‘macro’ conditions are the key influences on homebuying decisions.