Housing Bubble Bursting

Money Shot

http://www.breakingnews.ie/ireland/mhsnsncwqlql/

Why the hell would the government be intent on stimulating the property market again? Have they not learned anything.

whizzbang

Money Shot wrote: »

http://www.breakingnews.ie/ireland/mhsnsncwqlql/

Why the hell would the government be intent on stimulating the property market again? Have they not learned anything.

A property bubble got us into this mess, so a property bubble will get us out of it!

gurramok

Wait until those ultra cheap rates reset in time to normal rates, whether its 2 yrs or 5yrs, they will cause hardship for many.

mathie

Money Shot wrote: »

http://www.breakingnews.ie/ireland/mhsnsncwqlql/

Why the hell would the government be intent on stimulating the property market again? Have they not learned anything.

Link crashes my browser.
Can you post the story?
Thanks
M

Caoimhín

Money Shot wrote: »

http://www.breakingnews.ie/ireland/mhsnsncwqlql/

Why the hell would the government be intent on stimulating the property market again? Have they not learned anything.

A lot of TD's and their developer buddies have houses that they would like to sell to first time buyers. FTB's are essentially the bottom rung of the pyramid scam that is housing in this fine country. RTE are getting more like a vehicle for the Dr Goebbels like propaganda.
The sooner the vested interests like auctioneers, bankers, property "investors" and politicians get the masses buying and selling houses to each other then the sooner they can feel less guilty about the opulent lifestyles they have.

gurramok

The prices are still too high to entice FTB's in, this fund is wishful thinking in this climate.

Bank of Ireland maintains that based on the average first-time buyer mortgage of €230,000, its new package will help fund 4,000 home purchases.

Not many places going for that amount, one would be looking at the low end of the market for apts at that price.(cities)

And we know that apts are going to crash harder than houses hence a FTB should stay away from this unless they are long-term committed occupiers where the pitfalls do not matter.

asdasd

The prices are still too high to entice FTB's in, this fund is wishful thinking in this climate.

What ever happened to the affordable housing scheme which applied to people on modest incomes of 58K or less? Has that been abandoned?

bill_ashmount

gurramok wrote: »

The prices are still too high to entice FTB's in, this fund is wishful thinking in this climate.



Not many places going for that amount, one would be looking at the low end of the market for apts at that price.(cities)

Daft returned 206 houses (some apartments, I ain't going through the list) in Cork City for less than 250,000. Some in nice areas. Not saying it's great value or anything, but they are out there.

gurramok

bill_ashmount wrote: »

Daft returned 206 houses (some apartments, I ain't going through the list) in Cork City for less than 250,000. Some in nice areas. Not saying it's great value or anything, but they are out there.

Not largely familiar with Cork, i do know Dublin and Galway areas and everyone knows Limerick
Guess the question is, do FTB's desire apts or houses OR take whatever suits their finance(price)/area OR are they looking to trade up in a few years(very hard to do in present circumstances.)

Seems very unfair to only have mostly apts available to them in decent areas or houses in dodgy areas in the present climate of immediate negative equity.

Then add, how many of them have a 8% deposit(20k) being debt free with a bullet proof job on application?

gurramok

asdasd wrote: »

What ever happened to the affordable housing scheme which applied to people on modest incomes of 58K or less? Has that been abandoned?

They introduced Homechoice and some Equity scheme. Not sure if AH has been abandoned altogether though.

waffleman

gurramok wrote: »

They introduced Homechoice and some Equity scheme. Not sure if AH has been abandoned altogether though.

I would be very surprised if affordable housing is still on the table. Builders where I live were selling off 10% of a development at a loss for affordable housing schemes at the height of the boom since they could still turn a profit. Can't see developers (or the councils) going for this now with the "bust" we are currently in.

astrofool

I remember someone arguing on the pin that a house and an apartment were interchangeable, and as such, the number of 2/3 bed apartments out there, would cater the demand for houses. This definitely doesn't seem to be the case.

Do people see the price of houses starting to rise as supply gets constricted, even as apartments go into free fall? There were a far larger amount of apartments built then houses, esp. in cities/suburbs.

gurramok

On the AH front, just remembered they have to clear the backlog of empties first. A few thousand lying idle in Dublin, all apts.

Good point astro about houses. they would naturally fall to a higher price level than an apt, its how far they will go is the question in relativity.

It also depends on the size of the apts. a minority in my view are fairly sized to get demand, the rest are history

Then, the economic front and falling demographics, too many factors. I just can't see house prices rising crazily yr on yr once the bottom is reached, maybe a small rise per year until such a point the economy is seriously on the up again like another celtic tiger(Finland took best part of a decade to recover) but thats just fantasy i think now will we are all on walking sticks in the nursing home

Caoimhín

astrofool wrote: »

Do people see the price of houses starting to rise as supply gets constricted, even as apartments go into free fall? There were a far larger amount of apartments built then houses, esp. in cities/suburbs.

Maybe, but the housing supply has a long way to go before it gets constricted. Not only is there a large amount of empties out there but there will be a lot of properties coming onto the market which were rented out to all the Poles et al who are going home now.

Maybe the current "shake-out" in the housing market is finally getting people to really think "why" when it comes to home ownership.

By that I mean, why buy if you don't intend to settle in an area or stay in that type of dwelling, for many, a commonsense approach would be to rent while single and/or mobile and only buy when you have found an area that you intend to stay for a long time and raise a family.

These factors will, of course, mean for a much slower home ownership market in the future, but for a stonger rental market.

bobbiw

The irish do like to own property. I used to find it funny that people had the impression that it was a legal right to be able to afford a house.

Its a bit off a mess now to be fair. With the goverment making anouncements that prices of houses will not be back up till 2020 its going to slow a lot of people down. Even if they can find the financing.

Prices in Ireland were silly. I think they will most likely drop by around 50% maybe a little more. But there will be a lot less building going on now. which of course will have a knock on affect.

It was silly that you could get a 2 bed condo in Malibu for the same price as a two bed in swords.

bobbbb

Well ive just checked some things out after reading this thread and discovered to my surprise that to buy our house now it would be a hell of a lot cheaper than renting it.

So much for waiting it out. Now im sickened. Dont know if we'll buy or wait now. It means a lot to us to be able to call the shots where you live rather than your landlord.
Time to start considering options.
I certainly wouldnt have thought it would work out this way.

MG

bobbbb wrote: »

Well ive just checked some things out after reading this thread and discovered to my surprise that to buy our house now it would be a hell of a lot cheaper than renting it.

So much for waiting it out. Now im sickened. Dont know if we'll buy or wait now. It means a lot to us to be able to call the shots where you live rather than your landlord.
Time to start considering options.
I certainly wouldnt have thought it would work out this way.

have you factored in depreciating assets values?

bobbbb

MG wrote: »

have you factored in depreciating assets values?

Explain to me how this is a factor over the full life of a mortgage?

Im still working it out but it looks like saving the difference between rent and a mortgage over the last several years (as any sensible people should have been doing) is not as attractive as it was before.
It might be time to use that money now because its not getting the interest it used to. And after all that saving it might be time to put it to work for our future.

Here are my workings.

---

House/Apartment €275,000
Deposit €30,000

Loan for €245,000

25 Years = €1245 before Mortgage Intrest Relief.

After Mortgage Interest Relief = €1000 PM approx to buy.

---

House €300,000
Deposit €40,000

Loan for €260,000

25 Years = €1320

After Mortgage Interest Relief = €1100 PM approx to buy.

---

So any property for €275,000 that we would rent for over €1000 is losing us money.
any property for €300,000 that we would rent for over €1100 is losing us money.

There are other costs of ownership too but they are not that high and it depends what price you are willing to put on owning your home instead of renting. With a child going to school in September we want a settled situation.

We can absorb a significant increase in interest rates easily, which doesnt look like its going to happen any time soon, just like we can absorb an increase in rent, which also isnt going to happen any time soon.

This is based on AIBs Variable >80% LTV loan.
Or we could even fix it with AIBs 5 year fixed rate for about the same monthly payments.

ronbyrne2005

One thing people should remember when considering buying is that if your job moves or goes you may have to move to find work here or abroad. A mortgage can be a millstone round your these days. Wait till prices stop falling, and instead of getting a 300k mortgage for 30+ years now get a 200k mortgage for 25 years in a couple of years time. No brainer really, people would be mad to buy now when the bargains are only starting to surface.

bobbbb

ronbyrne2005 wrote: »

One thing people should remember when considering buying is that if your job moves or goes you may have to move to find work here or abroad. A mortgage can be a millstone round your these days. Wait till prices stop falling, and instead of getting a 300k mortgage for 30+ years now get a 200k mortgage for 25 years in a couple of years time. No brainer really, people would be mad to buy now when the bargains are only starting to surface.

My old man has being saying that very same thing for the last 30 years.
A time just comes in your life where you have to decide to settle down and just deal with any difficulties that may arise out of that as they arise, and not base your life around events that may never happen or may be easily dealt with.

In my case i think they advantages right now outweigh any future problems which may or may not present themselves.

And in my case it will be 300k for 25 years. or 275k for 25 years, with big monthly overpayments to shorten the term as much as possible too.

I cant be sure that in 2 years property will be cheaper. Or i cant be sure that if it is cheaper that i will get a loan to take advantage of my situation. Banks might tighten up even more. It all stacks up now though, so im seriously thinking about buying so the young one is near her school and has some stability in where she lives.

ntlbell

bobbbb wrote: »

Explain to me how this is a factor over the full life of a mortgage?

if we take the current house asking for 300k you wish to buy

your renting for 1100 continues to drop in value lets take 10% which is very conservative considering we have seen falls of 20-30%

rent for the next two years = 26,400

this isn't even taking in the huge current drops in rent you could reneg this twice in the time

drop in value = 57,000

new price 243,000

10% deposit now 24k

new loan 219

very simplistic example but it looks to me like sitting it out is still the right thing to do.

bobbbb

ntlbell wrote: »

if we take the current house asking for 300k you wish to buy

your renting for 1100 continues to drop in value lets take 10% which is very conservative considering we have seen falls of 20-30%

rent for the next two years = 26,400

this isn't even taking in the huge current drops in rent you could reneg this twice in the time

drop in value = 57,000

new price 243,000

10% deposit now 24k

new loan 219

very simplistic example but it looks to me like sitting it out is still the right thing to do.

Disregarding, as you did, the fact that my question was "Explain to me how this is a factor over the full life of a mortgage?" lets examine your answer.

My rent is actually a good bit more than €1100 per month and i got as much of a reduction as i could get only a week ago.

Id be looking at paying 300,000 for a house on the market right now at 330,000.


Can you guarantee me that our rent will drop over the the next 2 years?

Can you guarantee me that i will get a loan for the amount required in 2 years?

Can you guarantee me that the same property will fall by 10% a year for the next 2 years?

If you can answer these questions just give me the lottery numbers will you


The research ive done is actual amounts that are verifiably achievable right now. I prefer to deal in actual amounts rather than amounts ive made up.
I dont know what it will be like in 2 years and i dont see how anyone else can.

What you are talking about doing is speculating on a downward market. This is just as bad as what people were doing speculating on an upward market. Speculation, in either direction is not for me. It shouldnt be for anyone with half a brain. Im trying to improve our family life and future, not to gamble on it.

Feel free though to answer my original question though, because short term thinking (speculation) is no way to be thinking about big purchases.

Explain to me how this is a factor over the full life of a mortgage?

MG

bobbbb wrote: »

Explain to me how this is a factor over the full life of a mortgage?

Firstly, well done on taking the time to think it through. A lot of the problems we currently have are caused by people not taking time over the most important purchase of their lives.

Ok first you need to assess how much the property will fall by and when it will bottom out. This is near impossible but read some of Morgan Kellys stuff ("Gliding into the Abyss" for instance) or a study on house price falls (http://finfacts.ie/irishfinancenews/article_1012464.shtml - Excel file). History would say that prices will fall 30-70% from the peak. That's a large range unfortunately! Ireland's crash is pretty bad, it may turn out to beone of the worst in history. Check out house prices in other countries too as our perspective on house prices is not great.

Anyway for the purposes of this, let's assume that you believe the 300k house will bottom out at 240 in two years time.

The formula I would use to approximate the rent v buy decision would be:

Interest on Value fall (over full loan term, say 25yrs) discounted to net present value
+ Value fall
- Rent paid (over two years).

So for a 60k fall, using 5% over 25 years and rent of 1000 pm, the result would be (thanks to http://www.drcalculator.com/mortgage/)

60k at 5% over 25 years gives interest of €45,227 (I'm not going to discount it but let's call it 30k)
Value Fall 60k
Rent paid 24k

So that's (30 + 60-24)= 66k

So over the course of the loan you would be better off by 66k

I think the above gives a good indication anyway, but I'm open to correction.

In any case, a simpler way of looking at it is that the PTSB/ESRI house price index is falling by about 2000 per month so if your rent is only 1000 then you are quids in. No-one should buy until there is some levelling out in economic trends anyway.

ntlbell

bobbbb wrote: »

Can you guarantee me that our rent will drop over the the next 2 years?

Can you guarantee me that i will get a loan for the amount required in 2 years?

Can you guarantee me that the same property will fall by 10% a year for the next 2 years?

If you can answer these questions just give me the lottery numbers will you

I've left out the over the period of the mortgage bit in this response as MG has covered it.

No I can't give you guarantee's but what we can do is look at the evidence we have today.

based on that evidence it's a lot more likely that prices will fall instead of rise over the next at least 12 to 18 months no one can guarantee it but you have to go on what it is before you today and all those indications point to further drops

if you have any evidence that rent wont continue to drop are that prises will start to rise i'd love to hear it

bobbbb

You see my big problem with these examples is that they are not based in fact. They are based on best guesses, which is no harm but at the end of the day they are guesses. And they take into account depreciation, but there is no mention of appreciation (assuming there is some) at all in there over the 25 year course of the loan.

You cant work with only one side of an equation.

For me its simple.
The maths show me than i can comfortably trade renting for buying right now. I dont know whether it will be better or worse 2, 5, 10, 20 years down the line, but it works for me now. The biggest factor is that it gives us some stability in our lives at a crucial time which renting does not.
To us the value of owning our own home far outweighs the cost of not owning it at the moment.

And we'll lay into the mortgage with extra payments like there is no tomorrow too. My brother did that in 2003 with a 30 year mortgage and he is mortgage free now and they earn much less than us. I didnt notice him suffer for it at all.

Anyway, wont be touching anything til september so there is 7 months of renting rather than buying for a start . Meeting in the middle.

MG

bobbbb wrote: »

You see my big problem with these examples is that they are not based in fact. They are based on best guesses, which is no harm but at the end of the day they are guesses. And they take into account depreciation, but there is no mention of appreciation (assuming there is some) at all in there over the 25 year course of the loan.

It would be pretty much the same formula tweaked a bit.

Compare NPV of
1. Interest element of mortgage less capital appreciation at end of timescale

v

2. Rental costs

Good luck in figuring those variables out.

This article might be interesting - see the timing is everything section at the bottom.

http://news.bbc.co.uk/2/hi/business/7726389.stm

In order to ensure that a house purchase is a chearper than renting, it's important to buy at the low side of the market and sell at the high end.

bobbbb

MG wrote: »

It would be pretty much the same formula tweaked a bit.

Compare NPV of
1. Interest element of mortgage less capital appreciation at end of timescale

v

2. Rental costs

Good luck in figuring those variables out.

This article might be interesting - see the timing is everything section at the bottom.

http://news.bbc.co.uk/2/hi/business/7726389.stm

In order to ensure that a house purchase is a chearper than renting, it's important to buy at the low side of the market and sell at the high end.

The variables are too hard to figure out with any accuracy. Thats my point. Trying to time the top or bottom of a market is hopeless too. Ask anyone who ever invested anywhere. There is just no point.

By the time the peak or trough is identifiable, others have already dived in - thats what turns it. A 330,000 house that youre only bidding 300,000 on might actually fetch 330,000 when the bottom comes when when the market does start on an upward trend you'll have to pay above 330,000 to secure it.

BendiBus

bobbbb wrote: »

House €300,000
Deposit €40,000

Loan for €260,000

25 Years = €1320

After Mortgage Interest Relief = €1100 PM approx to buy.

---

any property for €300,000 that we would rent for over €1100 is losing us money.

One other thing to note that I haven't seen mentioned.

If you have a 40K deposit then this should be on deposit earning a good interest rate.

€40K at 5% will earn you €128 per month after DIRT. As we're in a period of negative inflation that's pure profit.

You need to factor this loss of earnings into any calculation.

ntlbell

it doesn't really matter what you do as i have said you have to go on the information before you TODAY and all the evidence we have TODAY points to further falls

1500 jobs been lost a day
banks in financial ruin etc

so TODAY the indicators are more drops it's not a random guess you're looking at the current state of play and everything points to more drops and not only further drops but indicators are showing that the drops are getting much BIGGER.

if you were watching the evidence in 05/06 you could also see that prices were becoming so high that it was obvious to see that it wouldn't be long before a FTB would have no way to take the first step etc

saying prices will continue to drop with looking at the state of play today is hardly a "shot in the dark"