New Home Legals launches the day Ireland takes its first big step towards re-opening the economy after the lockdown of COVID 19. We step forward to get back to where we were three months ago. The opening up of many businesses across the country with hundreds of thousands returning to work will bring a significant lift of confidence. How will this all impact on the new homes market?
The starting point is that there has been little or no sales of new homes for the past three months and many industries closed down. However, not everyone or every sector was negatively impacted by COVID 19. Some segments of the economy have prospered. Those working in some of the retail areas have had their best three months ever. People supplying health and safety equipment have been on overtime. Many of the front line workers who have worked tirelessly and fearlessly putting other people lives ahead of their safety have worked overtime. Public sector workers were paid in full throughout. Most people have reduced their spending in the last three months resulting in being able to save more. Those impacted most in the past three months have been the younger under 25-year-old workers. These are not the most crucial sector in the market for new homes over the coming 18 months. Therefore some of those in the new home market is in fact in a better position financially than they were earlier in the year.
At the other end of the spectrum is the supply of new homes, which will be down approximately one third for the entire year. The presence of increased buying power for the sectors that have done well during COVID 19 and the shortage of supply will likely underpin prices for new homes. The costs of construction will likely increase in the coming months due to COVID 19 safety measures. These increased costs will show later in the year and into 2021. These increased costs will come through as higher sale prices. They may be absorbed if they are going to make new homes unaffordable to a point where the cost of housing rises significantly. These additional costs (which may be temporary if there is a vaccine or no second wave) could be removed from price increases by a temporary reduction of VAT or stamp duty on new homes. Also, the buying power of buyers can be increased by the Central Bank softening the lending criteria which they did in New Zealand. These ameliorating measures (VAT Stamp duty and loosening lending criteria) can be applied if needed.
For these reasons we see the new homes market moving forward as quickly as supply can ramp up with prices well stabilised and likely to move slightly higher over the next 18 months to the end of 2021.
We have not even factored in the fact that interest rates are at historic lows throughout Europe plus macro funding packages are coming to every country within the EU to scrub out the negative impact of COVID 19 on national economies. We will discuss these two factors in our next news feature.
Dermot P Coyne