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Is a region with a House Price to Income Ration of 10 too much...?

  • 29-10-2006 1:25pm
    #1
    pod
    Closed Accounts Posts: 130 ✭✭


    If a region, in Ireland, has an average house price to income ratio of 10 times, would you think this is probably an over-valued area?

    That is, an area where the average house price is ten times the average income...


Comments

  • #2
    jhegarty
    Registered Users, Registered Users 2 Posts: 6,441 ✭✭✭jhegarty


    pod wrote:
    If a region, in Ireland, has an average house price to income ratio of 10 times, would you think this is probably an over-valued area?

    That is, an area where the average house price is ten times the average income...


    Depends on if its a holiday home area.... there are many places where the locals can't afford to buy...


  • #3
    Pa ElGrande
    Registered Users, Registered Users 2 Posts: 3,677 ✭✭✭Pa ElGrande


    pod wrote:
    If a region, in Ireland, has an average house price to income ratio of 10 times, would you think this is probably an over-valued area?

    That is, an area where the average house price is ten times the average income...

    Depends, if the area in question boomed on the back of speculation, but if its not backed up by local economic output and wages then it is over valued.
    As a simple academic exercise, based on current rents in the area, if you were an investor who wanted an 8% p.a. yield renting the property out, how much would you pay for the house in question?
    Why 8%? A 4% yield takes 25 years to re-pay the value of a house and 12.5 years at an 8%.

    No doubt the professionals use a more complex model that factors in inflation, tax breaks, capital appreciation, expense write off's, voids, stamp duty, administration and maintenance etc.

    The rental yield is likely tied to local economic conditions, so would be the simplest barometer to use to guage a resonable economic value of a house.
    There can be distortions in the market such as those caused by government rent supplements which effectively put a floor on the rental market, or a lack of supply which can lead to the rent being higher than what it would cost to service a mortgage on that property.

    Net Zero means we are paying for the destruction of our economy and society in pursuit of an unachievable and pointless policy.



  • #4
    antoinolachtnai
    Registered Users, Registered Users 2 Posts: 9,815 ✭✭✭antoinolachtnai


    How could a 4 percent yield pay off the value of a house in 25 years? I would like to see that trick? (i.e, you say that with payments of 40,000 a year/3330 a month) I could pay off a 1,000,000 euros mortgage? I doubt it, I think it would be more like a 450k mortgage.

    Anyway, I would say that what you really need to be thinking about is price per square foot (or meter) relative to other nearby areas. There is a lot of mobility in Ireland at the moment, so you can't really value property on the basis of the people who happen to be living there at the moment.

    At the end of the day, it's all down to your view of the economy and the property market. If you think the economy is going to stop growing or to weaken, you are right, it is overvalued. But if it continues growing, this price might be sustainable. There is no 'right' answer to your question.


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