Housing Bubble Bursting

gurramok

bobbbb wrote: »

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.

I'm not so sure about this interest rate calculation stuff. It appears its a 3.56% interest rate using AIB calculator at 1278 per month before TRS for the first example. That rate is historically low and temporary. They offer it for 5 years which is good, a damn pity they do not offer longer fixed mortgage rates.

So if you do jump in, can you handle a 2% jump in rates after year 5 along with deflation which increases the debt burden? (deflation may be temporary, we do not know, a rate hike it will add a few hundred per month)

bobbbb

gurramok wrote: »

I'm not so sure about this interest rate calculation stuff. It appears its a 3.56% interest rate using AIB calculator at 1278 per month before TRS for the first example. That rate is historically low and temporary. They offer it for 5 years which is good, a damn pity they do not offer longer fixed mortgage rates.

So if you do jump in, can you handle a 2% jump in rates after year 5 along with deflation which increases the debt burden? (deflation may be temporary, we do not know, a rate hike it will add a few hundred per month)

Id be hoping to have it at least half paid off in 5 years time.
I havent been saving like a lunatic the last few years for nothing.
At the moment we dont spend my salary at all. It goes straight to savings and has been for the last 5 years. The Mrs will be back full time in September too so we should be ok.

We're only taking the 25 year option just in case. It will be paid long, long before that though.

I think a 5 year fixed rate at 3.56% is a damned good deal.
If they allow overpayments on that ill take it.
If not it will be the variable rate.
We'll be saving buying rather than renting for definite.

5 years is a long time down the road too. I dont think the economic landscape will be the same at all that far down the line. Could be worse, but i doubt it. I dont have a crystal ball though.

asdasd

I dont think the economic landscape will be the same at all that far down the line. Could be worse, but i doubt it. I dont have a crystal ball though.

you just wont be told :-)

bobbbb

asdasd wrote: »

you just wont be told :-)

Why dont you tell us what it will be like in 5 years then if you know.

I could do with some sure fire predictions for that far ahead. We can all make a few quid in the markets once we know.

asdasd

I could do with some sure fire predictions for that far ahead. We can all make a few quid in the markets once we know.

OK. Stocks worldwide will be higher but Irish property will be lower, in both real and nominal terms but most of the falls will be in the next two years.

bobbbb

asdasd wrote: »

OK. Stocks worldwide will be higher but Irish property will be lower, in both real and nominal terms but most of the falls will be in the next two years.

Bookmark that post.

topper75

A hypthetical 2% rise in interest is mentioned.

Surely a jump of 2% can only come on foot of a significant recovery in Eurozone fortunes.

If such an upswing occurs, employment will increase once again and rents and prosperity with it.

I think the logic used in the examples above about buying versus renting makes sense.

The real goal is possession of a significant asset in 30 years, whereas the serial renter leaves with nothing. There are days when I feel my house is a millstone but I'm keeping my eyes on the prize all the same.

asdasd

Bookmark that post.

This is a never ending thread. Throughout this thread people turned up, said "Is this time to buy". In general people responded with a resounding NO, and were ignored.

That was during the boom: I would've thought it should be easier to convince people that in a year when Ireland at best ends with an unemployment rate of 20%, and at worst goes bankrupt that it would be a good idea to hold off on the major decision of their lives.

The desire to own property is part of the madness that spawned the boom. It was "we have to get on the ladder, or else everything would be too expensive ( ignoring who was going to buy when things get to expensive for everybody)"

now it's

"we have to get on the ladder because the banks may not lend that kind of money in two years ( ignoring who is going to buy the house if banks dont lend)". I mean. Come on.

Personally I think house prices are nowhere near bottom. I was looking at daft.ie for Raheny and prices for bland ordinary semi-detached houses were about 400K which is still ten times income.

that 30-40K you now have to put into yout house as a deposit. Kiss it goodbye.

Or wait. A year. Or two. Sometime in this bust the time will come to buy.

gurramok

You're missing something. (Topper75 post that is!)

An upsurge in Eurozone does not necessarily translate to an equal upsurge here. We had a quarter of our economy based on construction related activity in 2006(others bar Spain had less than half that) and have the highest costs in the Eurozone.

It will help a small bit but will not drag us out, prosperity will depend on govt policy.

Yes a serial renter might buy. The wise ones could buy at the bottom of the market without a lifetime of crippling repayments or just invest those savings they have into something else that makes it grow. Remember, some of the rich rent.

If AIB had a 15-20yr fixed rate continental style at 3.56% and we were at the bottom of the market regarding prices, i as a bear would encourage buying in an area where people want to live long term based on long term needs but we are way off reaching there yet.

JJJJNR

Why not we live in an industrialised country, do people actually think that Ireland will be knocked into the 1800's or something. Things are far worse in places like the UK.

Ireland is safe due to its small and highly educated population, when the tide turns on this Ireland will be back to being one of the most successful country's in Europe, generally house prices will increase with this.

Also we are not seeing the huge repossessions seen in the uk, which will bring there prices down again.

oceanclub

JJJJNR wrote: »

Why not we live in an industrialised country, do people actually think that Ireland will be knocked into the 1800's or something. Things are far worse in places like the UK.

Ireland is safe due to its small and highly educated population, when the tide turns on this Ireland will be back to being one of the most successful country's in Europe, generally house prices will increase with this.

Ireland was perceived as successful _because_ the housing bubble artificially increased employment and tax revenue.

Do you honest think that we'll see any time soon the same level of building that we did in the early 00s?

P.

HashSlinging

Theres going to be another dot com boom... followed by a building boom.

jmayo

JJJJNR wrote: »

Why not we live in an industrialised country, do people actually think that Ireland will be knocked into the 1800's or something. Things are far worse in places like the UK.

Ireland is safe due to its small and highly educated population, when the tide turns on this Ireland will be back to being one of the most successful country's in Europe, generally house prices will increase with this.

Also we are not seeing the huge repossessions seen in the uk, which will bring there prices down again.

Yeah they are far worse off in the UK, what with their massive unemployment jumps, the collpase of their one trick pony economy, their much bigger internal market and their huge stockpile of unwanted housing.

Oh and as bad as their banks have been, they haven't quiet earned the reputation ours have, which has a huge bearing on investment potentical in the future :mad:

Don't count on the Dells and Intels of the future setting up in Ireland either, since our eastern european EU members now can offer the same deals in tax terms and lower worker wage costs.
Besides US may lock down companies investing in cheaper tax economies ot protect US jobs.

Jeeze with all the talk of our highly educated population I must be missing the setting up of our homegrown MIT.
IMHO our highly educated workforce is a myth, sold to us by our government who years ago (back in late 80s - ealry 90s) decided to get everyone into some type of third level course to hide unemployment levels.
Look at our graduate number breakdown these days, the numbers taking sciene and engineering course are way down and that is where we have best chance of creating proper sustainable jobs.

Compare us to India who are turning out 100,000 of graduates who will work for a far cheaper daily rate.
Yeah we are really competitive and will be back on top in no time :rolleyes:

robd

I agree with jmayo that the Knowledge Economy is a myth. I work in it. Big problem I see is that most indigenous spinoffs of multinationals don't have the ability to spin off companies themselves. Huge employment of Eastern European's in this industry in Ireland at the moment due to lower cost for same of better quality. Number of Science and Engineering graduates plunged to to perception of better earnings in finance sector. Ericsson pulled out some real high end R&D jobs only the other weeks citing cost. Our ministers only recently announced call center support jobs as high end technology. I don't think so.

The gravity of our situation is that it will take Ireland far longer than the rest of Europe and the rest of the world to recover. We're borrowing €15 billion per year or 1/5 of our spending needs. The government show no signs of realistically getting this under control. Private debt has the highest GDP ratio of any country in the world. The cost of servicing these in a deflating economy is ever increasing and crippling.

It has become very obvious to the rest of the world that we were built on a bubble of leveraged borrowings. We're now bust.

I hate to be negative and I really would like to see some positives in this. The reality is that at a personal level my plan is to hold onto job for as long as possible while shoeing as much extra cash as possible into savings accounts (spread across multiple banks of course). There's zero change I would buy a house at the moment (I sold up 5 years ago) as it would be giving up my get out of jail free card (i.e. emigration). I'd rather spend my money on an Aston Martin, at least I'd get to enjoy the hyper deflation in price of it. You see I have a stock of reserves built up, and am building up more, and there is no way in hell I am going to pay for the gombeen Zanu FF culture in politics and banking that went on here over the last decade. Judging by the protests over the weekend I'm not alone in that view.

I'm not going anywhere in the short term as the global economy is fecked too but it will pick up long before Ireland's does and I intend to profit from it. Last man out turn out the lights.

Yes I'm a selfish fecker.

oceanclub

Sure, we were highly educated. Sure, we spoke English. More importantly we were cheap.

We are no longer cheap.

P.

bobbbb

Stop or this thread will close.
This thread is for extreme pessimists only.
Realism or worse still, Optimism will not be tolerated.

gurramok

bobbbb wrote: »

Stop or this thread will close.
This thread is for extreme pessimists only.
Realism or worse still, Optimism will not be tolerated.

Why, does the truth hurt?

I think alot of people are seeing how a sham of an economy was built up since 2002 but there some who are still in denial about the situation.

Better to face the truth now and sort the economy or do nothing. Doing nothing will prolong the pain.

bobbbb

gurramok wrote: »

Why, does the truth hurt?

I think my last post was the truth

shenanigans1982

bobbbb wrote: »

I think my last post was the truth

Estate Agent, Builder or Home Owner?

bobbbb

shenanigans1982 wrote: »

Estate Agent, Builder or Home Owner?

Such an intelligent comment that one.

Home owner in September - i hope, assuming the numbers work out then. if you must know.

Gurgle

shenanigans1982 wrote: »

Estate Agent, Builder or Home Owner?

or just some lunatic who doesn't agree with what "everybody knows" ?

gurramok

Care to comment Gurgle? http://www.boards.ie/vbulletin/showpost.php?p=54969839&postcount=4157

My guess is that the overshoot is done and prices are likely to level off now at somewhere around 10% below the peak.

Some overshoot here downwards, 50% down. 3beds slashed from 350k to 175k, it's Navan.
Some buyers came to prices they could afford to buy at, get the drift?
http://www.meathchronicle.ie/articles/1/36193/

blast05

I agree with jmayo that the Knowledge Economy is a myth. I work in it. Big problem I see is that most indigenous spinoffs of multinationals don't have the ability to spin off companies themselves. Huge employment of Eastern European's in this industry in Ireland at the moment due to lower cost for same of better quality. Number of Science and Engineering graduates plunged to to perception of better earnings in finance sector. Ericsson pulled out some real high end R&D jobs only the other weeks citing cost. Our ministers only recently announced call center support jobs as high end technology. I don't think so.

In my experience in the industry, the Eastern Europeans and Indians are often paid more than their Irish counterparts cos they are the cream of the crop from those countries.
Re Ericsson jobs that went .... these were pulled cos that R&D unit never strategically placed itself to be in a position to be at the heart of global R&D operations. They reported directly back to Sweden as they were only partly responsible for a given product with ultimate responsiblity based in Sweden. They needed to become fully responsible for the product and to ensure that they would also have responsiblities for the next generation of the product they were working on. They failed to do either and found themselves focusing more and more on customer maintainence which is considered as "cost of sales" rather than true R&D.

Gurgle

gurramok wrote: »

Care to comment Gurgle? http://www.boards.ie/vbulletin/showpost.php?p=54969839&postcount=4157

Some overshoot here downwards, 50% down. 3beds slashed from 350k to 175k, it's Navan.
Some buyers came to prices they could afford to buy at, get the drift?
http://www.meathchronicle.ie/articles/1/36193/

No, I'll save my comments for when there is actual information available.
But don't let that minor shortage slow you down.

asdasd

Gurgle, stuck in denial stage while everybody else moves towards panic.

There's always one.

oceanclub

asdasd wrote: »

Gurgle, stuck in denial stage while everybody else moves towards panic.

There's always one.

I don't mind what people like Gurgle believe, just as long as a year or two down the line, they aren't whining that no-one told them property was overpriced and they they should be bailed out.

P.

Calina

oceanclub wrote: »

I don't mind what people like Gurgle believe, just as long as a year or two down the line, they aren't whining that no-one told them property was overpriced and they they should be bailed out.

P.

And what about the boards of the banks who should have known? That we are bailing out?

ntlbell

Calina wrote: »

And what about the boards of the banks who should have known? That we are bailing out?

There's not many alternatives.

people should be going to prison tho.

oceanclub

Calina wrote: »

And what about the boards of the banks who should have known? That we are bailing out?

With a mortgage, banks are the sellers, and mortgage holders are the buyers. In every transaction, it's up to the buyer to decide whether the item they are buying is overpriced or not.

I've absolutely no time for the boards of banks, but people were getting mortgages that they _knew_ were many multiples (10x? 12x?) of their salary. They _knew_ (in the case of rental properties) that the monthly rent did not cover the mortgage. They _knew_ that house prices were way out of whack with most historical trends and rises in salaries here. Yet, they still kept buying because, as Warren Buffett put it:

"“People should always know better. … I mean people — people don’t get — they don’t get smarter about things that get as basic as greed and you can’t stand to see your neighbor getting rich. You know you’re smarter than he is, and he’s doing these things, you know, and he’s getting rich, and your spouse is getting unhappy with you because you aren’t doing — pretty soon you start doing it. And so you get what I call the natural progression, the three I’s: the innovators, the imitators, and the idiots. And that’s what happens. Everybody just kind of goes along. And you look kind of silly if you disagree."

P.

K-9

gurramok wrote: »

Care to comment Gurgle? http://www.boards.ie/vbulletin/showpost.php?p=54969839&postcount=4157


Some overshoot here downwards, 50% down. 3beds slashed from 350k to 175k, it's Navan.
Some buyers came to prices they could afford to buy at, get the drift?
http://www.meathchronicle.ie/articles/1/36193/

Yep, pressure will be on builders now to sell, even at below cost and reduce bank borrowings. How they pay of debts still remaining with no new building going on will be the next thing.