Where next for house prices?

hamster

I did some hunting on house prices for the last 30 years and came up with the following graph. Where do you think price will go next??? Nobody really knows obviously... but looking at the chart, how long can that curve keep that up? Wow.... and that was only up to 2000 :eek:

If unemployment, emigration and inflation/interest rates are kept low, surely this will keep on happening for another 20K-30K assuming that the economy is on the up? But that's scary graph nevertheless. A fanasting leap in such few years... compared to the despair of the '80's... amazing what a bit of money in the economy can do. :ninja:

hamster

Oops here the graph for the above points. Look at the growth on that curve from 1996 onwards... wowa look at the curves on that!

dahamsta

I honestly thought it would start flattening six months or a year ago, I find it amazing that they're still going up. If they do keep going up, I think the standard economist line that they'll flatten rather than going down just can't happen. It's unsustainable, it has to crash at some stage.

adam

hamster

Just to point out that graph only goes as far as 2000... so I guess 2001 was less steep... 2002 was steeper like 2000 (24.6% grow on 2001). But I guess the good news (for existing buyers) is that even with a crash (less likely at this moment in time).. house prices will not return to 1996 or even 1999 levels. However having said that... anyone buying today may could see their house prices dip back to 1 or 2 years back or stay static for 5-10 years..... either that or we all get paid an extra 10% per year in our wages... and we really need to slow down wages unless we make a LOT more or the world picks up a LOT faster to keep up with our marginal different in inflation (which is noticeable in a 5 year period - say against Europe or the US (another name for competitiveness...)

Our man in Havana

Does anyone here think that there will be a huge crash as son as interest rates increase? Even a small rise could cause major problems.

Was reading in The Daily Express that in UK a bank was encourging customers to lie about their income go get bigger loans to buy houses. I wonder if that goes on here. In the UK they are forecasting serious problems if interest rates increase.

nahdoic

Absolutely. I'm no economist but if interest rates rose or there were huge job losses it would have to crash.

But interest rates rising, or huge job losses are both unlikely.

dahamsta

It was one bank Bond-James Bond. Nahdoic, interest rates are just about to turn in the UK, and it's likely they'll keep going up for a while once they turn. At least one bank has already raised fixed rates -- grep Google News UK for details. Course we're not the UK, but the odds of us not following them are slim and none.

adam

Our man in Havana

Originally posted by nahdoic
Absolutely. I'm no economist but if interest rates rose or there were huge job losses it would have to crash.

But interest rates rising, or huge job losses are both unlikely.

Why do you think that interest rates will not rise?
I see, you are George Soros and I claim my €5

hamster

Why do you think that interest rates will not rise?

The ECB will not and can not raise interest rates in the EU until there is clear evidence of growth in France and Germany. Germany especially, as we all know, is struggling at present. It may change if the US indeed sustains it growth (whatever about it debt problems). If the US sustains growth then Germany may pull out of it hole somewhat and interest will go up to throttle the growth rate. But it very very unlikely to go much beyond 4-5% Eventually a 1-2% rate rise (in 25 base pts increments) over a few years (in the case things go well) will hurt those with big morgages. However if a slump comes back then low rates may continue. Ireland is has done well to maintain jobs (ie it's low unemployment rate) but a lot are masked by part time jobs and many are not in the same league to borrow money for morgages. Borrowing as it is... is quite high. More wage increases or high productivity will only allow for more growth in house prices (unlikely in the short term).

nahdoic

This was the reason I started this thread to see if people thought interest rates would rise.

http://www.boards.ie/vbulletin/showthread.php?s=&threadid=120559

Nobody seemed to worried about interest rates rising for some reason.

hamster

An interest rate rise can be healthly if it is used to keep things in check. It's always a bad idea to borrow as much as you can when rates are low. If you meet your limit at 3% imagine the pain at 4% (33% difference) or even higher?

Besides, the house prices went up as far as they could using the fact that interest rates were low (obvious) but since rates are not permanent, then house prices at later stage could seem cheap/expensive. Since rates are at historical lows... upwards would seem obvious... and we all want to see the economies do well don't we? So rates will have to go up somewhat if we want the <controlled> growth too.... well to answer your question... I think rates will go up slightly (+.5%-1.0%) if we get a years worth of strong/moderate recovery. Speculation of course..

De Rebel

Originally posted by nahdoic
Nobody seemed to worried about interest rates rising for some reason.

Probably because people don't understand the impact that they will have when they increase. There are a couple of assumptions that are generally accepted (a) Our interest determined by the rates in the Euro zone, which are in turn linked to the US rates - so dramatic shifts are less likely than before (b) we are unlikely to see mortgage rates of 12/13% in the forseeable future. So far so good.

So we generally think that well rates may go up from 3.5% to 4.5% or even 5%. Doesn't sound too bad, does it........

Unfortunatly the real pain will be suffered by those who can least afford it, and who have stretched themselves most. Look at these examples, taking an increase from 3.5% to 6%, early in the mortgage...

200,000 for 10 years @ 3.5% = 1977 repayment per month
200,000 for 10 years @ 6.0% = 2220 repayment per month
Increase = 243 per month

200,000 for 20 years @ 3.5% = 1160 repayment per month
200,000 for 20 years @ 6.0% = 1433 repayment per month
Increase = 273 per month

200,000 for 30 years @ 3.5% = 898 repayment per month
200,000 for 30 years @ 6.0% = 1200 repayment per month
Increase = 302 per month

Above is a bit extreme but it makes the point. The "wealthy speculator" who goes in with surpluse cash on a 10 year mortgage sees his repayments increase by 243 per month.

The "average industrial wage" couple who are probably already at the pin of thei collar to repay the €900 per month see their repayments increase by 302 per month. And this is making no assumptions about 1/2 point penalty on their rate if they were over 90% in the first place. And makes to allowances for all the other cost increases that they will face as an indirect result of such an increase.

The central Bank/IFSRA on Friday went public on its concerns. There is a real issue here, for people who are pushing themselves to the absolute limit to repay at current rates. Whats needed is stress testing.

And don't leave it to others. Be realistic. Ask your Bank/Building Society for examples showing the what ifs, and satisfy yourself that you can deal with them.

The other tip is to go for the shortest mortgage period possible, and overpay your repayments at any and every opportunity you can.

hamster

Nicely put. Like everything else you are always quoted a % which looks small. You never get a cash figure. eg That will be 2% sir! (never as: That will be an extra 400 euro sir!).

Richieh

Originally posted by De Rebel
[
Whats needed is stress testing.


I'm a mortgage broker and deal with several lenders on a daily basis. Most lenders stress test by 2% and where a case is borderline, it's likely that the lender will err on the side of caution whereby not so long ago, the attitude would be "it'll be fine". I'm not blowing my own trumpet for doing so but I always make the point to my clients that in the event of a 2% rate increase, the monthly repayments would increase by €xx. The reason I do this is because I know the s**t I'd be in if my own mortgage was to increase by €200/€300 per month. I'm seriously considering fixing for a couple of years. There's some good value to be had in fixed rates at the minute and for anyone interested!!

Our man in Havana

Would only go for a fixed rate where there was a high probabity of a rate rise in the next 6 months or so. Unless you are Wim Duisenberg of course lol

De Rebel

Originally posted by Bond-James Bond
Would only go for a fixed rate where there was a high probabity of a rate rise in the next 6 months or so. Unless you are Wim Duisenberg of course lol

There are different reasons for fixing. Your comment indicates that you would fix in order to try to save money by second guessing the central banks' moves on interest rates. You have a 50% chance of getting that right. And a 50%.......

Reading between the lines, I think that Richieh is on more solid ground. His reason for fixing is to achieve certainty. If he is comfortable with his current monthly repayment amount, and wants these repayments to remain constant for a set period into the future without ever having to extend the term, then fixing makes a lot of sense.

I restructured my mortgage this year by reducing the remaining term from 15 to 10 years and fixed it for two years. My reason for fixing was to eliminsta uncertainty, having just substantially increased my repayments. I didn't want them creeping up any further.


Richieh, regarding your attitude to stress testing I couldn't agree more. You're obviously one of the more professional brokers, and one who actually provides a useful service to your clients, protecting them from themselves. I recently came across a couple who have a 230k mortgage over 30 years, which is just over a year old. Their combined income is just over 60k. They are running two cars as public transport does not service either of their workplaces. They are 30ish and seriously want to start a family. Neither has any deep well of resources to draw on. In fact they got all the help their families could provide to get the deposit, furniture, etc paid. Do the math on that one.......