Four reasons for a property slump, can anyone think of reasons otherwise?

whizzbang · 11-08-2005 1:35pm #1

I've been thinking about the property market and it looks to me like it is certain to go down for the following reasons, can anyone think why this might not be the case?

1. Demographics: The bulk of people in ireland are 25 - 30, lots of people in this age bracket are renting so lots of appartments are being built for them to rent. In 10 years time when the bulk of people are 35 - 40 they will mostly be wanting to move out to a house in the suburbs to have kids. Appartments build today are not family friendly and are not suitable for anything other than couples with maybe one kid. This means that in 10 years time there will be way more appartments than there will be people looking to rent them, hence rents fall through the floor and investors sell up. Prices go down.

2. Interest rates: Our interest rates are too low for the economic climate as the are set to speed up the sluggish Euro economy rather than chill the over heating Irish economy. This is all well and good for now but should Europe recover and interest rates go up, Ireland could have a debt crisis where people can't pay their mortgages. So while Ireland spirals down and the banks bad debt rises the interest rates will stay high as most Euro economys are doing fine. This will lead to the reverse situation where the interest rates will be too high for the Irish economic climate.

3. Too many investors: 30% of Irish residential property is owned by investors (ish). This means that should rents go down significantly and house price growth level off there will be no reason for these people to continue holding on to this property. This could lead to 30% of properties going on to the market realativly easily (so long as the tennants can be kicked out at the end of the lease). Should house prices start dropping this gives the investors even more reason to sell as they still have a place to live if they sell their investment property. If more houses were owner occupied then there would be more resistence to a price free fall as people still need a place to live even if their property value is going down!.

4. Too much debt: We currently have the fastest growing debt rates in Europe and are approaching the top of the pile in person debt as well. 60% of people in a recient survey (read in Sunday Business Post there a few weeks back) take out loans to maintain their standard of living, 60% of people are living beyond their means in other words. This is very risky in my opinion.

So those are my reasons for doom and glood, does anyone have any reasons why this won't happen? the only thing I can think of is that immigrents will rent the appartments in town and help maintain their prices but they will only come if the economy has jobs for them...

I'd like to see house prices come down a bit but I sure as hell don't want to see the Irish Economy go down the toilet!

any ideas anyone?

Cheers!

J

JackieChan · 11-08-2005 2:17pm

Whizzbang,
If there is one thing the Irish economy has shown over the last 10 years is that it is very difficult to predict its course.
4 years ago reports were being written about the doom that faced due to the impending property bubble crash....never happened.
Now what appears to be happening is the soft landing. Price increases are quickly moderating and the stampy duty changes and 100% mortgages are helping this to happen slowly.
In a sense Ireland has been 'lucky' due to the international climate. While oil prices have gone through to $40s,$50s and now in to the mid $60s a barrel its causing major hits on the GDP of other countries. In particular its hitting European growth rates and this is whats keeping the interest rates down.
Its hard to see the price dropping over the next 6-9 months, so it could early 2007 before rates rise above current levels. Indeed rates are more likely to decreaes than increase in the next 12 months.
The crucial thing is what happens to house prices here between now and the first interest rate rises. If the price increases are low(say 3-5%) then interest rate hikes(assuming banks have been stresstesting for +2% increases) should not cause a major problem to householders.Of course there will be individual hardships and even localised issues(eg a small/medium towns meat processing plant shuts down that employs a lot of people that are renting,some may leave the town to look for alternative employment and the owners may try to sell but find there is little market for their house) but if people dont do the equivalent of dumping shares on the stock market, then the prices will not collapse.
Now if a larger increase in rates occurred or a major employer(an Intel/HP or Dell) was to leave that could have a far wider impact on prices.
Has anyone ever come across what if? scenario for the Irish economy?

whizzbang · 11-08-2005 2:27pm

Hi JackieChan

Thanks for your thoughts! You are right about the difficuly in predicting how the economy is going to go, I accept that a jump in rates is really just a worse case sceanario and I'm sure that banks are going to have checks and balances to ensure they are not taking on too much dodgy debt. I also accept that the longer we have low interest rates (it could be another few years given the current way the Euro area is looking) the softer the landing will be and hance the less vulnerable we will be to panic selling by investors.

That being said I'd still be concerned about the demographics particularly with how they will effect the price of city center apartment properties. I honestly believe that these apartments could lose a lot of value over the medium to long term.

I reckon what we are going to see is not a sudden drop in prices but a increase in what you are getting for your money, Free fitted kitched, first years mortgage paid, free holiday, free luxury furniture, gym membership free car etc.... The industry is going to do everything it can to avoid a decrease the base house prices so they will cut into their margins instead. I think this is already happening in areas. when these freebes stop working and the base prices start going down is when we will really see if it will be a gentle softening of prices or a more serious dip.

J

Culchie · 11-08-2005 2:35pm

You haven't factored in the fact that 145,000 people have arrived here for the new EU accession countries either in the last 10 months .... mostly in their 20's.

They will all need accommodation as well, with any kids that come along.

whizzbang · 11-08-2005 2:40pm

Fair point Culchie

They will help even out the demographics so long as they stay around, does anyone know when the other EU states will start to allow them in? I think it is only Ireland, UK and one other so far?

Also, will they pay as much rent as Irish people are willing to pay or will they pack themselves in 16 to a 4-bed apartment?

good point all the same though.

J

DublinWriter · 11-08-2005 3:22pm

Bascially I don't think any localised factors will come into play in influencing a drop in house prices.

The main factor will be global/EU inflation over the next ten years.

As oil is starting to skyrocket it looks like we maybe in for a bumpy ride re inflation and it could turn all into the 70's again.

Economic patterns on the whole are generally cyclical and we are due for a massive global recession around about now.

Certainly I wouldn't use *any* excuse to hold off buying property right now.

On the whole, you never lose money with bricks and mortar in this country. After the currency crisis in the UK in the early 90's, property prices rebounded and then some.

whizzbang · 11-08-2005 3:43pm

DublinWriter wrote:

Bascially I don't think any localised factors will come into play in influencing a drop in house prices.

The main factor will be global/EU inflation over the next ten years.

As oil is starting to skyrocket it looks like we maybe in for a bumpy ride re inflation and it could turn all into the 70's again.

Economic patterns on the whole are generally cyclical and we are due for a massive global recession around about now.

Certainly I wouldn't use *any* excuse to hold off buying property right now.

On the whole, you never lose money with bricks and mortar in this country. After the currency crisis in the UK in the early 90's, property prices rebounded and then some.

I'm not sure I follow you! we are due a recession, so buy a house? surely a recession will have a negative effect on house prices?

currently my excuse for not buying is "I can't afford to buy anywhere I want to live"

J

MorningStar · 11-08-2005 4:20pm

1) A lot of the people who can't afford right now are renting. They want to own. These people are a big stabalising the market. The new demographics are emerging with the the split up of marriages means the new market needs more one bed places. They won't move to the suburbs

2) Our intrest rate belongs to a big portion of the EU. It makes them more stable and less likely to increase at any speed. DUe to the Euro it is more likely they will remain low for a long long time. New rules and people are applying the old rules

3) What are you basing 30% on? Due to the increse in the transiant population rental property is required to a much greater degree than before. the last figures I am aware of show Ireland as the highest home ownsership in the world at 89%. If it has dropped to 70% that is still one of the hishest so it isn't a problem.

4) Fastest growing doesn't mean the worst. State deficet and welfare state distribution have changed to the individual. It's progress not a bad thing.

Overall I am not worried by any of your concerns.

I belive the outer suburb will move back in over the next 20 years as people won't be able to afford fuel or want the hassle of owning a car and traffic. kids raised in cars will see it as futile.

Zaph0d · 11-08-2005 4:29pm

two more possibile scenarios that could reduce prices
Oversupply:
80,000 new house starts per year can't go on for ever
new zoning rules promoting far denser building patterns (Adamstown)

Slow down in economy (agriculture, building and high-tech)
outsourcing of high-tech jobs to lower cost countries
end of farming subsidies hits agribusiness
building jobs disappear as housing demand is satisfied

Everyone agrees it can't go on for ever.

whizzbang · 11-08-2005 4:38pm

MorningStar wrote:

1) A lot of the people who can't afford right now are renting. They want to own. These people are a big stabalising the market. The new demographics are emerging with the the split up of marriages means the new market needs more one bed places. They won't move to the suburbs

2) Our intrest rate belongs to a big portion of the EU. It makes them more stable and less likely to increase at any speed. DUe to the Euro it is more likely they will remain low for a long long time. New rules and people are applying the old rules

3) What are you basing 30% on? Due to the increse in the transiant population rental property is required to a much greater degree than before. the last figures I am aware of show Ireland as the highest home ownsership in the world at 89%. If it has dropped to 70% that is still one of the hishest so it isn't a problem.

4) Fastest growing doesn't mean the worst. State deficet and welfare state distribution have changed to the individual. It's progress not a bad thing.

Overall I am not worried by any of your concerns.

I belive the outer suburb will move back in over the next 20 years as people won't be able to afford fuel or want the hassle of owning a car and traffic. kids raised in cars will see it as futile.

1) Prices will need to come down before those people can afford to buy. That being said, it will help stablise the market. So long as people are willing to buy houses when they see prices are going down.

2) Fair enough, rates are liekly to stay low for ages.

3) Got the 30% from the Gunne report a while back, it might have been 35% We used to have the highest ownership, but it has gone down a lot. Transient people can help support rents but Dublin rents are still falling even with our 145,000 new Eastern European friends... I believe there are just too many places on the market and too few renters. I rented a place just last month and haggled the price down by €150/month as it had not been rented in 2 months. (found 2 month old Chicken Kiev in Freezer!;) ) It seems 6 weeks is an average down time between lettings these days and I have a number of friends who have haggled their rents down due to the ease of renting!

4) Thats why I said "are approaching the top of the pile ", if our debt growth stablised now we could have a managable amount of debt, the problem is with the ease of credit we are surging ahead into unsustainable debt levels.

I'm not trying to scare anyone, I'm just seeing what answers people have to my worries!

DublinWriter · 11-08-2005 4:44pm

Zaph0d wrote:

Everyone agrees it can't go on for ever.

Yes it can. Name me *one* time in history when houses were more expensive than they are now?

There might be a slump, which would make property less-unaffordable to the average person, but don't expect a dramatic readjustment.

whizzbang · 11-08-2005 4:48pm

Zaph0d wrote:

two more possibile scenarios that could reduce prices
Oversupply:
80,000 new house starts per year can't go on for ever
new zoning rules promoting far denser building patterns (Adamstown)

Slow down in economy (agriculture, building and high-tech)
outsourcing of high-tech jobs to lower cost countries
end of farming subsidies hits agribusiness
building jobs disappear as housing demand is satisfied

Everyone agrees it can't go on for ever.

the oversupply is an interesting one, it was 80,000 last yearm 69,000 the year before etc... it will be interesting to see if teh increases continue or if the builders decide the end is near and start scaling down? or will they mlk it for all it is worth and just accept the losses of a drop off at the end?

Zaph0d · 11-08-2005 4:50pm

A stock market recovery draws money out of property.

Culchie · 11-08-2005 4:50pm

The lending market will adjust their products, you are seeing it now with 100% mortgages, even 120%.

In France they do 99 year mortgages on Parisien property.

Property prices will not go down .... full stop.

Might be a blip for a few months, but heh, guess what, they'll come back up again, just like in London. Only those who sell will realise that loss.
(The same London that all the pessimists keep using as an example of the crash in early 90's)

Boggle · 11-08-2005 4:59pm

What would the effect of a 0.5% interest hike be on a standard mortgage in Dublin at the minute? For arguments sake say its a 90% mortgage on a E250 house over, say, 30 years.

Not sure if these are average figures its just that I was wondering what would happen those families who are just about shading their repayments at the minute if their was a substantial hike... For me, thats possibly the most potent danger for houseprices - if a hike like that could push the payments above what people could afford.

StaggerLee · 11-08-2005 5:02pm

property prices may drop a little in the short term but mortgage payments wont as interest rates rise. So either way you're Banjoed.

whizzbang · 11-08-2005 5:02pm

Culchie wrote:

The lending market will adjust their products, you are seeing it now with 100% mortgages, even 120%.

In France they do 99 year mortgages on Parisien property.

Property prices will not go down .... full stop.

Might be a blip for a few months, but heh, guess what, they'll come back up again, just like in London. Only those who sell will realise that loss.
(The same London that all the pessimists keep using as an example of the crash in early 90's)

In Paris most people rent due to the high prices of property. So perhaps Ireland is moving to a renting rather than owning setup? that being said I think tennants rights are much better in France making lifetime renting less risky.

J

Zaph0d · 11-08-2005 5:09pm

Culchie wrote:

Property prices will not go down .... full stop.

The paradox being that the presence of a large number of investors with this belief is a strong indicator of a future crash in any market.

whizzbang · 11-08-2005 5:10pm

Zaph0d wrote:

The paradox being that the presence of a large number of investors with this belief is a strong indicator of a future crash in any market.

looks like Mt Fuji!

J

whizzbang · 11-08-2005 5:14pm

And the Graph for the UK http://www.firsttimebuyerhelp.co.uk/images/youarehere.gif

ignore the fact that prices dropped 50% after the other two peaks, That was only for erm, several years, property prices do not go down!

Culchie · 11-08-2005 5:24pm

oh nice website !

I especially like the "Why rent is not dead money " article :rolleyes:

Listen Whizzbang, I hope there are plenty who think like you, because in another 3 or 4 years, I'll have a house I bought to let in 1998 paid off.

That isn't meant to be a smart comment, but the reality of the situation. Rent is dead money.

If you can afford to buy a house, go ahead and do it. Why should you be paying off my mortgage, when you can be paying off your own?

P.S Looks like a good time to invest in Japanese Land then

whizzbang · 11-08-2005 6:20pm

Culchie wrote:

oh nice website !

I especially like the "Why rent is not dead money " article :rolleyes:

Listen Whizzbang, I hope there are plenty who think like you, because in another 3 or 4 years, I'll have a house I bought to let in 1998 paid off.

That isn't meant to be a smart comment, but the reality of the situation. Rent is dead money.

If you can afford to buy a house, go ahead and do it. Why should you be paying off my mortgage, when you can be paying off your own?

P.S Looks like a good time to invest in Japanese Land then

I'm happy for you that your house to let will be paid off (10 year mortgage?), I couldn't afford a house in 98 and I can't afford one now.

I'm looking at it like this.

I pay rent of $575 a Month

Option A
Buy Appartment now
Pay €1,796 a month mortgate (€400,000, 30 years, 3.5%)
Let say €1450 per month of that is interest for first 5 years
After 5 years I have paid out €107,760
Of which €87,000 is interest
and €20,000 is paid off the principle

I finish paying the mortgage and pay a total of €646,624.35

Option B
I wait 5 years,
Pay €575 a month on rent = €6,900 a year
Save €350 a month (difference between mortgage and interest)
After 5 years time I have paid out €34,500 in rent
I have saved €20,000

I get a 25 year mortage on €380,000 (400,000 - 20,000)
Total repayments for which total to €570,710.87
Add on the rent I spent in the 5 years waiting €34,500
Add on the €20,000 I saved
Total outlay of €625,210
€20,000 less than if I bought now.

The only reason this makes sense is that I believe that 5 years time house prices will be less than now. So I am effectivly paying €34,500 to put off making the decision so I can see if I'm right.

Seeing as rents are a lot less than paying the interest on a mortgage it is currently worthwhile to continue to pay rent to put off buying a house to see if prices decrease. If rents rise significantly I have to buy as the number no longer work out, if house prises rise significantly I have to buy as number dont' work out. If house prices drop (which I think they will), or stay level I'm in the money

Ireland is not immune to Negative Equity!

for some reason people think we are!

J

Culchie · 11-08-2005 10:20pm

Wow ...and I mean Wow.

I didn't realise the figures were so scary now. My mortgage is less than €380 on my rental property.

Fair play, you seem to be on top of situation.

Aren't you still going to habve to pay interest though when you eventually take out the loan....so is it a saving or a deferral?

hmmm · 11-08-2005 11:17pm

If you're paying less in rent than you would pay in interest on a mortgage, then, assuming house prices are neutral (not going up or down), you're better off financially renting than buying. It's just simple maths. With todays house prices, for most people this is the case.

This "rent is dead money" ****e is one of those Irish sayings that has young people scrambling to sacrifice their quality of life on the alter of house ownership. It's all a big lie, easier to trot out a pithy saying than to actually think about the sums involved.

Now if you're like culchie and believe that markets can only go up (no comment), then you're better off buying of course.

Culchie · 12-08-2005 12:57am

hmmm wrote:

Now if you're like culchie and believe that markets can only go up (no comment), then you're better off buying of course.

In the long term yes, prices will only go up and then up and up some more.

If you are buying today, with the idea of liquidising your asset next week or even next year, then you do your sums, as you will have legal costs etc....

However, if you are buying a home, and therefore a long term investment, are you seriously trying to tell me that property prices will be lower in 10 years time? ...whilst oil, drink, food, and more importantly wages/salries keep going up?

If so, please back it up with some historical evidence.
Pick any year you want, go back ten years, and post the comparisons here.

Do not confuse your argument about quality of life and cashflow with that of the economics of this thread.

I'm not saying that the situation is right....but that's the way it is.

whizzbang · 12-08-2005 9:10am

Culchie wrote:

Wow ...and I mean Wow.

I didn't realise the figures were so scary now. My mortgage is less than €380 on my rental property.

Fair play, you seem to be on top of situation.

Aren't you still going to habve to pay interest though when you eventually take out the loan....so is it a saving or a deferral?

cheers!

If I could get a mortgage that only cost me €380 a month I'd be out there buying a place like a shot!!!! unfortunatly I came to the game too late! damn my youth!

I am deferring the loan in the hope that the loan amount will be less and thus less interest will have to be paid in 5 years time. Also I can be saving the amount I'd have paid off the principle so I'll still own €20,000 (be it in cash or in house) after 5 years is my thinking. Either way I'll have to pay big interest so I'm just trying to set myself up to pay the less interest option.

whizzbang · 12-08-2005 9:13am

Culchie wrote:

In the long term yes, prices will only go up and then up and up some more.

If you are buying today, with the idea of liquidising your asset next week or even next year, then you do your sums, as you will have legal costs etc....

However, if you are buying a home, and therefore a long term investment, are you seriously trying to tell me that property prices will be lower in 10 years time? ...whilst oil, drink, food, and more importantly wages/salries keep going up?

If so, please back it up with some historical evidence.
Pick any year you want, go back ten years, and post the comparisons here.

Do not confuse your argument about quality of life and cashflow with that of the economics of this thread.

I'm not saying that the situation is right....but that's the way it is.

I agree that 10 years from now house prices will be the same or higher than today (unless something drastic happens)

that being said I think in the next 10 years we will see a dip in house prices that should allow me to pick one up for less that they cost today. I'm just hoping I can pick up a bargin in the next 5 years.

J

MorningStar · 12-08-2005 9:26am

whizzbang wrote:

1) Prices will need to come down before those people can afford to buy. That being said, it will help stablise the market. So long as people are willing to buy houses when they see prices are going down.

I was just pointing out things weren't as simple as you said. THe demographic changes are a lot more complex than either of us stated. One thing for sure based on the changes dues to imigration and a larger number of single people there will probably be more rental property required.

whizzbang wrote:

3) Got the 30% from the Gunne report a while back, it might have been 35% We used to have the highest ownership, but it has gone down a lot. Transient people can help support rents but Dublin rents are still falling even with our 145,000 new Eastern European friends... I believe there are just too many places on the market and too few renters. I rented a place just last month and haggled the price down by €150/month as it had not been rented in 2 months. (found 2 month old Chicken Kiev in Freezer!;) ) It seems 6 weeks is an average down time between lettings these days and I have a number of friends who have haggled their rents down due to the ease of renting!

Never trust the estate agents figures or their own. They have a vested interested. You may feel there are too many properties renting bu that is an assumption drawn from anicdotal evidence which isn't defintely wrong or right but I wouldn't trust my future on it. I would say the same information is based on the property viewed, type of tenant wante, type of landlord at that level. Lots of unknown factors that you may be missing.

whizzbang wrote:

4) Thats why I said "are approaching the top of the pile ", if our debt growth stablised now we could have a managable amount of debt, the problem is with the ease of credit we are surging ahead into unsustainable debt levels.

I am no financial expert but the credit competition coming into Ireland is good AFAIK. You also have to look at the demographics of who is getting into debit and who is saving. THe SSIA were mostely taken up by the middle classes yet the lower classes are getting into more debit. That could mean in the future that the poor get poorer and the rich get richer even if it doesn't stay stable it doesn't mean everybody sufers. THe UK is great for such figures as they tend to be 10-15 years ahead. Look after your own finances and try to make sure the stupid don't get to be too stupid but don't expect personal debit to kill the economy. I don't know of a country where it has happened.

whizzbang wrote:

The only reason this makes sense is that I believe that 5 years time house prices will be less than now. So I am effectivly paying €34,500 to put off making the decision so I can see if I'm right.

NIce theory but nobody can say for sure if it is right or wrong. If house prices rise above €20k in that time you may loose. Many think, including myself, that the SSIAs will make house prices rise over the next 2 years. 100% may do the same. Either way €20k over 25 years isn't a huge saving when you bear in mind inflation. I know when some peoples' mortgages were towards the end the mortgage payments were less than a pack of fags.

whizzbang wrote:

I'm not trying to scare anyone, I'm just seeing what answers people have to my worries!

You aren't scarying me but it doesn't sound like you have really researched it all. It's all a big decission and sounds like going back to the basic before reading press and surveys maybe the best approach. Your math is correct but doesn't seem to connect to the reality of time and unknowns. Your biggest leap of faith is prices will not rise in the next 5 years. Not saying the will one way or the other but to run the risk for such a small amount of money in the big scheme of things is a risk.

whizzbang · 12-08-2005 9:35am

MorningStar wrote:

I was just pointing out things weren't as simple as you said. THe demographic changes are a lot more complex than either of us stated. One thing for sure based on the changes dues to imigration and a larger number of single people there will probably be more rental property required.

Never trust the estate agents figures or their own. They have a vested interested. You may feel there are too many properties renting bu that is an assumption drawn from anicdotal evidence which isn't defintely wrong or right but I wouldn't trust my future on it. I would say the same information is based on the property viewed, type of tenant wante, type of landlord at that level. Lots of unknown factors that you may be missing.

I am no financial expert but the credit competition coming into Ireland is good AFAIK. You also have to look at the demographics of who is getting into debit and who is saving. THe SSIA were mostely taken up by the middle classes yet the lower classes are getting into more debit. That could mean in the future that the poor get poorer and the rich get richer even if it doesn't stay stable it doesn't mean everybody sufers. THe UK is great for such figures as they tend to be 10-15 years ahead. Look after your own finances and try to make sure the stupid don't get to be too stupid but don't expect personal debit to kill the economy. I don't know of a country where it has happened.

NIce theory but nobody can say for sure if it is right or wrong. If house prices rise above €20k in that time you may loose. Many think, including myself, that the SSIAs will make house prices rise over the next 2 years. 100% may do the same. Either way €20k over 25 years isn't a huge saving when you bear in mind inflation. I know when some peoples' mortgages were towards the end the mortgage payments were less than a pack of fags.

You aren't scarying me but it doesn't sound like you have really researched it all. It's all a big decission and sounds like going back to the basic before reading press and surveys maybe the best approach. Your math is correct but doesn't seem to connect to the reality of time and unknowns. Your biggest leap of faith is prices will not rise in the next 5 years. Not saying the will one way or the other but to run the risk for such a small amount of money in the big scheme of things is a risk.

Cheers for the reply MonrningStar, you make a lot of good points.
My only real disagreements are as follows:
1. SSIAs, I think people are over stating how much of an effect these will have on the property market. I think the average payout will be about €12K, so even if you have two people together that will not go far towards a €350,000 house! it might cover stamp duty and leval fees and the bus home

2. By my calculation I save €20k if the house prices stay the same, I wouldn't bother waiting if I thought that was all I would save. In reality I think prices will drop so I could end up saving a lot more! I'm really going to make my decision over the next year or so. The prices seem to be leveling off at the moment so it would be a bit silly of me not to wait to see if they manage to stay level or start to decline.

J

DublinWriter · 12-08-2005 9:45am

whizzbang wrote:

The only reason this makes sense is that I believe that 5 years time house prices will be less than now.

...and there's the essential flaw in your plan.

No offense to you dude, but that's a real 'head in the sand' attitude.

The first flaw in your arguement is that the cost of property, in the long economic term, only goes in one direction - up.

If you think the same apartment will cost you the exact same in five years time then you're out of your mind.

I'll bet you anything that the apt that cost you 400,000 today will cost you 600,000 in 2010.

The second flaw in your arguement is that you're assuming that interest rates will stay at their current historic low over the next five years. Oil prices hit an all time high today and the trend looks like it will continue, driving up inflation and interest rates in the long term.

There's only been one good time to buy property and that time is now.

whizzbang · 12-08-2005 9:48am

DublinWriter wrote:

...and there's the essential flaw in your plan.

No offense to you dude, but that's a real 'head in the sand' attitude.

The cost of property, in the long economic term, only goes in one direction - up.

Buy now.

I think we will have to agree to differ! I'm afraid I'm in no hurry to buy a house, who know maybe I'll never buy, who says you have to own a house anyway?!

soma · 12-08-2005 9:58am

Something that I rarely ever see discussed is the following:

People, when talking about Dublin prices, often point abroad and say "we are like paris, london, new york now - sky high city prices that the majority cant afford".

However there is one crucial aspect in which we differ from those cities and it's the nature of employment in those cities compared to our own. Those economies, while obviously sensitive to a degree to external factors and events, are largely based on indigenous home-grown businesses & industries.

Whereas we are the most globalised nation on earth - extremely sensitive and vulnerable to the whims of economies and events thousands of miles away. Yes the whole world is globalised to a certain extent, but london can withstand huge shocks to the system and yet battle on. A great example is IT, Im sure plenty of boards members suffered bigtime during the worldwide IT bust (2003 especially was a wasteland) however during this time london still provided good job propects and many irish developers went over there (considered it myself even tho i was very lucky and was never made redundant here unlike several of my IT mates).

What absolutely kills me is seeing Irish people pumps millions and millions into bricks and mortar (Im not including family home purchase here) instead of building up our indigenous industries.

If we dont have a strong jobs producing economy thru irish-based enterprise then in the long term we are setting ourselves up for a massive fall as those jobs will simply wander away to the next low cost tiger economy.

DublinWriter · 12-08-2005 9:59am

whizzbang wrote:

who says you have to own a house anyway?!;)

For starters, security in old age.

Look at what's happening at the moment with OAP's having to sell significant equity in their houses, or even their house outright, to pay for long term care.

Do you think by the time we get to 65, and with a rapidly ageing population demiograhic, that this situtation will improve?

Remember that the countries were renting remains popular, such as the Nordic/Scanic countries, Germany, France, Belgium, etc, all have excellent public health systems.

I know it's a depressing thought.

whizzbang · 12-08-2005 10:05am

DublinWriter wrote:

For starters, security in old age.

Look at what's happening at the moment with OAP's having to sell significant equity in their houses, or even their house outright, to pay for long term care.

Do you think by the time we get to 65, and with a rapidly ageing population demiograhic, that this situtation will improve?

Remember that the countries were renting remains popular, such as the Nordic/Scanic countries, Germany, France, Belgium, etc, all have excellent public health systems.

I know it's a depressing thought.

Security: I have a PRSA maxed out, I'd rather to not have to sell a house to fund my old age.
Demographic: I think I'll be working until 75 or 80 because of this, I am maxing out my PRSA as I know the government pension will be worthless.
Maybe I'll retire to France and use their health system! Long live free movement within the EU!

You are right though, we will all be screwed in 40 years time if the pensions system isn't sorted!

In reality I will buy a house in the next 10 years, just not now where the market seems to be topping out.

J

soma · 12-08-2005 10:13am

DublinWriter wrote:

The first flaw in your arguement is that the cost of property, in the long economic term, only goes in one direction - up.

eh, sorry to bust your bubble there man, but property is like any asset known to man, it can go in both directions. e.g. Property in dublin commuter belt fell 0.1% in the last few months (miniscule I know, but still negates your 'point'), Japan prices having been falling for years, UK (except NI) prices are falling. Im also amazed when people stick to the mantra "property in ireland can never go down". We are in a brand_new_ballgame here, we've never had a 10 year economic boom before and we've never been unable to control our own interest rates before, quite simply all bets are off.

DublinWriter wrote:

The second flaw in your arguement is that you're assuming that interest rates will stay at their current historic low over the next five years. Oil prices hit an all time high today and the trend looks like it will continue, driving up inflation and interest rates in the long term.

Actually higher oil prices will help keep interest rates lower for longer. But aside from that, a 2% interest rate rise would make an absolute world of difference to the ability of alot of single income mortgage holders to make their monthly payments [e.g. thats close to a 300/mth increase on a 30 yr 250k mortgage], couples are more resilient (altho this can go out the window when children are entered into that equation).

DublinWriter · 12-08-2005 10:15am

soma wrote:

What absolutely kills me is seeing Irish people pumps millions and millions into bricks and mortar (Im not including family home purchase here) instead of building up our indigenous industries.

True, but the operations of the 'big-boys' here are small-time, yet crucial, in terms of their overall global activities. Could you really see Microsoft relocating their Sandyford EMEA distribution hub in Bangalore given the rising costs of transport?

I also heard that Dell brought back a lot of their recently Indian-outsourced operations back to Bray after operational problems there.

I think any major companies that could have outsourced would have done so by now. Intel have invested millions in their recently opened Fab-7 plant as part of another 10 year commitment to manufacturing chips in this country.

However, it is depressing to see the government throwing some €30 million at the failed MediaLab vanity project, when they could have funded 30 indigenous start ups with a million each.

MorningStar · 12-08-2005 10:19am

whizzbang wrote:

Cheers for the reply MonrningStar, you make a lot of good points.
My only real disagreements are as follows:
1. SSIAs, I think people are over stating how much of an effect these will have on the property market. I think the average payout will be about €12K, so even if you have two people together that will not go far towards a €350,000 house! it might cover stamp duty and leval fees and the bus home

A couple has two SSIAs at the limit, with the riskier options that is €50k. Some parents did it for their kids also. I know a couple who have 4 going on through family etc... A lot bigger risk than people think. A lot of people living at home with these things. Even if it just covers stamp duty that means they can borrow more.

whizzbang wrote:

2. By my calculation I save €20k if the house prices stay the same, I wouldn't bother waiting if I thought that was all I would save. In reality I think prices will drop so I could end up saving a lot more! I'm really going to make my decision over the next year or so. The prices seem to be leveling off at the moment so it would be a bit silly of me not to wait to see if they manage to stay level or start to decline.

J

So basically you think prices will drop even though your reasons for this belief are at least questionable. Nobody is sure but why bother asking if you have already made up your mind? Your argument to wait has been used constantly for the last 15 years eventually it will be right but that' won't help you personally. Property is a long term investment and you should look at it that way. Your decission and renting for life is a valid option if you want

DublinWriter · 12-08-2005 10:28am

soma wrote:

eh, sorry to bust your bubble there man, but property is like any asset known to man, it can go in both directions. e.g. Property in dublin commuter belt fell 0.1% in the last few months (miniscule I know, but still negates your 'point')

My 'point' is to look at the long-term picture, 10, 20, 30 years. Since when has the value property ever fallen in those kind of time windows? What happened in the last few months is not indicative of any long term trend.

soma wrote:

Japan prices having been falling for years, UK (except NI) prices are falling. Im also amazed when people stick to the mantra "property in ireland can never go down".

You're confusing property prices with property growth rates. Property prices have *never* gone into reverse in the UK, except briefly during the currency-crises there in the early 90's.

However, property growth rates are falling in the UK, but are price overall is still on the rise. The official rate was a growth of .2% for last month alone.

whizzbang · 12-08-2005 10:36am

MorningStar wrote:

A couple has two SSIAs at the limit, with the riskier options that is €50k. Some parents did it for their kids also. I know a couple who have 4 going on through family etc... A lot bigger risk than people think. A lot of people living at home with these things. Even if it just covers stamp duty that means they can borrow more.

So basically you think prices will drop even though your reasons for this belief are at least questionable. Nobody is sure but why bother asking if you have already made up your mind? Your argument to wait has been used constantly for the last 15 years eventually it will be right but that' won't help you personally. Property is a long term investment and you should look at it that way. Your decission and renting for life is a valid option if you want

I read somewhere that €12k was the average SSIA payout, I doubt there are very many people waiting on €50K payouts. I'd say it would be in the 100's if even that.

I am looking at growth rates in house prices, as you can see over the last 3 or 4 years the rate of increase in house prices has slowed, April 03 -> April 04 was 13% growth, April 04 -> April 05 was 6.5%, it looks like the growthrate for the year 2005 will be 5%. Once the growth rate goes below the inflation rate houses will be a losing value in real terms... they don't need to get to 0% growth.
http://www.finfacts.com/biz10/irelandhouseprices.htm
take a look at the year on year price increases.. if thing keep going the way they are we will be down to zero growth very soon, maybe a year or 18 Month. Do you think prices will stay growing even though the rate of growth is constantly decreaseing?

whizzbang · 12-08-2005 10:40am

DublinWriter wrote:

What happened in the last few months is not indicative of any long term trend.

followed by..

DublinWriter wrote:

However, property growth rates are falling in the UK, but are price overall is still on the rise. The official rate was a growth of .2% for last month alone.

sorry, couldn't resist!

in reality you have to look at year on year figures, month on month is not reliable as summer is usually slower than teh rest of the year etc...

DublinWriter · 12-08-2005 10:43am

whizzbang wrote:

Do you think prices will stay growing even though the rate of growth is constantly decreaseing?

Yes, because we are coming out of a property 'boom', a totally abnormal growth in the price of property. Just because things are beginning to normalise back to normal levels of growth doesn't mean that's an indication that the trend will go into reverse.

The worst case scenario for property price growth is that it will only track inflation.

DublinWriter · 12-08-2005 10:49am

soma wrote:

eh, sorry to bust your bubble there man, but property is like any asset known to man, it can go in both directions. e.g. Property in dublin commuter belt fell 0.1% in the last few months

...because people have been priced out of Dublin and in the meantime property in Meath/Kildare is sky-rocketing.

Just look at the phenominal jump in house prices in the last 12 months alone in places like Ashbourne and Dunshauglin.

soma · 12-08-2005 10:54am

Something to remember is the phrase "Rent is dead money".

This phrase is correct but it needs ammeding.

"Rent is dead money, and so is mortgage repayment interest".

Let's pretend Im gonna buy a property in dublin for 300k (270k mortgage). Now I strongly dislike apartments (most are dreadfully built in ireland, unlike the continent) so bear in mind this 300k just bought me a house in a pretty dodgy suburb, i.e. Im now living somewhere I dont like.

Let's say I get a 30 yr 270k mortgage with my bank, AIB, who actually do the second cheapest variable rate APR, 3.35%.

My monthly repayment is 1190 - mortgage relief = 1150.

If the first year I pay : 8952 in mortgage interest (i.e. dead money)
5319 towards the principal (i.e. real money saved)

If instead I rented a nice 2 bed apartment with a friend, and lets say we had high tastes (we each could easily rent for waaaaaaaaaay cheaper in other parts of the city) and decided to rent in dublin4, so we get the 2-bed apt for 1200 quid, so it costs me 600/mth.

In the that year I pay : 7200 in rent (i.e. dead money)
save 6600 - [by not paying mortgage (1150-600) * 12]

So Ive paid out less dead money, and saved more.

Bear in mind, these calculations dont include any kind of monthly life assurance, house insurance, interest rates rising or money spent on maintenance. And bear in mind Id be paying alot of rent, I could easily rent in the "dodgy dublin suburb"
that I just bought in for about 300-400/mth easy enough.

if I did that, lets say 400/mth

In the that year I pay : 4800 in rent (i.e. dead money)
save 9000 - [by not paying mortgage (1150-400) * 12]

In the future, if interest rates stay the same, then u will be paying less and less interest each year. However, interest rates minus inflation are virtually zero, so you have to expect them to rise in the coming years.

The only situation that makes the above a good deal for the home owner is if house appreciation continues at very high year on year levels. Will this happen? its certain possible for some areas but not for all, are u telling me in two years someone will pay 400k to live in tallaght/finglas/clondalkin..?

When you can rent, for less than the cost of mortgage interest alone - then you really wanna evaluate your situation.

Dont get me wrong, Id really love to own a house - but the maths at the moment are very disconcerting.

MorningStar · 12-08-2005 10:56am

whizzbang wrote:

I read somewhere that €12k was the average SSIA payout, I doubt there are very many people waiting on €50K payouts. I'd say it would be in the 100's if even that.

There are a lot of people who are in for the full amount and couples have two. Practically every property expert agrees that they will effect the market. It's just degrees of. Every financial expert agrees that prices will go up on many goods and specifically cars, hoildays, home improvemnets and houses.

whizzbang wrote:

if thing keep going the way they are we will be down to zero growth very soon, maybe a year or 18 Month. Do you think prices will stay growing even though the rate of growth is constantly decreaseing?

Location, location, location! You can keep on building all you like but there will still be a limited supply in many locations particularly in Dublin. Fuel prices will never go down in the long term so a good property will last and beat the market. Don't try to use complex financial theory on something that esentially is a simple supply and demand curve. It depends on how and where you plan to live.

soma · 12-08-2005 10:59am

DublinWriter wrote:

Could you really see Microsoft relocating their Sandyford EMEA distribution hub in Bangalore given the rising costs of transport?

I also heard that Dell brought back a lot of their recently Indian-outsourced operations back to Bray after operational problems there.

Actually the (Irish) company Im contracting for just outsourced a whole bunch of development and support to their new office in bangalore! :eek:

DublinWriter wrote:

However, it is depressing to see the government throwing some €30 million at the failed MediaLab vanity project, when they could have funded 30 indigenous start ups with a million each.

excellent point.

soma · 12-08-2005 11:03am

DublinWriter wrote:

...because people have been priced out of Dublin and in the meantime property in Meath/Kildare is sky-rocketing.

Meath/Kildare is the Dublin commuter belt - it fell by 0.1%.

soma · 12-08-2005 11:05am

DublinWriter wrote:

The worst case scenario for property price growth is that it will only track inflation.

That is an amazingly optimistic view of a "worst case scenario" !!

Gegerty · 12-08-2005 11:09am

I Haven't read the whole post but just a comment about house prices. It won't be long before we see flat pack houses like they have in the states and also the low cost, dirt cheap material being used to make houses affordable in the UK (you can get a decent size house for £60K) is bound to make its way over here. When this happens you'll see less people wiling to pay the outragous rents we see today, promting some landlords to sell up. I doubt it will be on a major scale though.

Also we already have an affordable housing scheme, it will be interesting now to see if renters will be taking the 100% mortgages along with the affordable housing deal. It's a nice way to get out of the renting trap.

DublinWriter · 12-08-2005 11:11am

soma wrote:

Meath/Kildare is the Dublin commuter belt - it fell by 0.1%.

Really? A friend of mine bought a 4-bed semi outside Asbourne last year for 235K, he had it valued recently at 275K.

I've been watching prices in Dunshauglin closely, what you could have had for 250K last year will now cost you 310K+

....but I'm sure you're right *g*

DublinWriter · 12-08-2005 11:21am

Gegerty wrote:

and also the low cost, dirt cheap material being used to make houses affordable in the UK (you can get a decent size house for £60K)

Er, where in the UK can you get a decent sized house for £60K?

Exactly.

soma · 12-08-2005 11:23am

DublinWriter wrote:

Really? A friend of mine bought a 4-bed semi outside Asbourne last year for 235K, he had it valued recently at 275K.

I've been watching prices in Dunshauglin closely, what you could have had for 250K last year will now cost you 310K+

....but I'm sure you're right *g*

Yes it's "me" who comes up with the stats, it's actually the permanent tsb / ESRI House price index report.

Taken from :
http://www.permanenttsb.ie/news/default.asp?nid=518

Commuter Counties: - Louth, Meath, Kildare & Wicklow

House prices in the commuter counties of Dublin fell slightly by 0.1% in June 2005, down from growth of 1.3% recorded in June 2004. Growth in the first half of this year has been relatively strong in the Commuter counties, up 3.0% to June 2005. The equivalent growth rate to June 2004 was 4.5% for Commuter counties.

House price growth in the commuter counties year on year to June 2005 was 4.5%, down from that recorded in May 2005 (5.9%) and June 2004 (11.4%). The price of a house in the commuter counties in June 2005 was euro279,268 up from euro267,265 in June 2004.

My original posting referred to that statistic & that statistic alone.

Four reasons for a property slump, can anyone think of reasons otherwise?

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