Posted by: Paraic | August 8, 2008

Catching a Falling Knife

I just got word today that our house sale in Syracuse has closed!  Yay! [Hope too that the dollar keeps strenghtening to help my conversion to Euros!]

In the meantime, we’ve turned our attention to house-hunting here in Ireland.  Given the state of the market here, I’ve been describing our decision process related to buying a house here as like ‘catching a falling knife’.  In the end though, I think the important thing is that I don’t view our home as an ‘investment’ as such but as a home – a place for our family, for some of our happiest times (and long term!).  It’s also the case that we’re looking in the ‘countryside’ to the north/north-west of Dublin, rather than in the city itself – I guess the rent versus buy decision would be different if we were considering living in Dublin.

In moving back to Ireland, the cost of housing was always a concern.  The Permanent-TSB/ESRI National House Price Index, a widely quoted source of information on Irish house prices, shows that house prices in the ‘Border region’ rose 226% from 1996 through end of 2007 (In Dublin, price growth was 370% in that period).  Our house in Syracuse appreciated exactly 56% between 1998 and 2008 based on our actual purchase price and selling price (and yes, I know Syracuse is ‘different’ from much of the US in terms of property prices).

So I was quite happy then to see house prices starting to fall back down here sine I moved back in February.  According to the Permanent-TSB/ESRI Index, prices nationally fell by 7.3% in 2007 and have fallen another 4.4% in the first five months of 2008.  Of course with real estate everything is local, so the situation on the ground varies greatly in different areas and for different kinds of houses.  But how much further will prices fall?  And when will they stabilize?

Professor Morgan Kelly at UCD has been referred to in the Irish Times as “the economist who predicted the property slump’ based on his paper back in 2006 on Irish House Prices: Gliding into the Abyss?.  In that paper, he set out the possibility of “large and prolonged falls in real house prices of the order of 40-50 percent, and a collapse of house building activity”. We haven’t gone that far yet…

…but wouldn’t you be crazy to think about buying in the middle of this freefall?  I don’t know… we’re thinking (hard) about it!

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