[whizzbang]

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]

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]

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]

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]

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]

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]

Originally Posted by DublinWriter

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]

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]

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]

Originally Posted by MorningStar

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]

Originally Posted by Zaph0d

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]

Originally Posted by Zaph0d

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]

A stock market recovery draws money out of property.

[Culchie]

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]

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.