Housing Bubble Bursting

Supercell · 28-03-2007 8:47pm

Calina wrote:

In any case, regardless of the property sale market, I would say that it is desirable that tenancy legislation is improved still further so that buying does not become an imperative.

That's a very good point Calina imho.
In markets where there is strong rental legislation like Germany, they do not get the mad bubble/burst that we seem to be heading into now.
There are Germans in my work place and I put this exact point to them - are you not worried about renting while you are retired? - They looked at me like I had two heads. Apparently the done thing there is simply to save for their retirement of which a certain proportion goes to rental, there are special accounts for this apparently.
They have no fear of being turfed out on the streets by people trying to cash in on a boom (which won't happen in the regulated rental sector anyhow),to the average German, owning a house outright is a waste of money! They get their apartments normally unfurnished and are expected to paint and decorate it as they seem fit- just because you rent you don't have to live with magnolia paint on the walls!
In a stable well regulated rental market the Irish obsession with owning makes no sense at all unless you want to become a landlord yourself or are rich enough to buy a place because money is not a limiting factor on where you want to live.

Another thing I wonder about this so called "my property is my pension" idea - in 30'ish years there will be far less 20 somethings out there to buy all these properties - look at the "superpub" fad that's pretty much died out now that there isn't the young binge drinkers to fill them any more.

Irish people have lost sight of the fact that homes are just that - homes with a utility value first and "investment" value second, but many many will come to realise this soon, and again in 30 years after they have paid for the house three times over on their super long mortgages, only to find it hasnt appreciated anywhere near it seemed like it would in the early 00's

babytooth · 28-03-2007 8:51pm

Maccattack wrote:

... and what 'experience' of this have you had? Buying a suit today or waiting for a sale is a poor analogy.

People need houses more than suits.

Property investment is a global thing these days. Yes prices may drop a bit but shrewd investors will jump in and pick up the bargains and wait for the inevitable rises.

If i was a first time buyer with the finance and saw a house i liked i would buy it and not 'wait and see'.

You could spend thousands renting while you wait or you could be sitting in your own house and getting on with life.

" Property investment is a global thing these days. Yes prices may drop a bit but shrewd investors will jump in and pick up the bargains and wait for the inevitable rises."

name one shrewd investor who's in property in Ireland......name one who isn't a one trick pony??

Name one bank that owns its own headquarters...
name on institutional international investor that has been in existence for more than 20 years that holds large %'s in property.

I can give you reams and reams of stats and figures to illustrate that you are talkng through your ar$e, but its probably too complicated for ya...

Property internationally has produced return less than inflation over the last 100 years, both in the US and Europe...think i'm wrong,,,go google Yale investment analysis..

what experience do i have, well i have bought in several countries, and have sold most of them, not as an investment but because i will buy them back cheaper within a decade...

renting is great for me...i can walk out the door in the morning and change, no worries....i'm globalised!!!!....do u have that freedom.... i think not....are you tied down to a 3 bed semi stuck in a job that your not mad about, with not a lot of security or choice, ....sounds abit like the start of trainspotting...spending saturday mornings in woodies or deckland...

yeah, i've no life....

babytooth · 28-03-2007 8:57pm

ronbyrne2005 wrote:

I guarantee that waiting to buy from this point on will be well worth it. No point overpaying and crippling your lifestyle for decades by overpaying. Even paying 1200 a month for rent you will still be better off waiting. Im sure there is things you can do to a rented place to make it feel more like your own place,you need to be imaginative in that regard. As someone else said buying miles from work just to own something doesnt make much sense, commuting costs(in time and monetary terms) are a big factor and if you want to sell in ten years to buy a house or aprtment closer to city/work you may find you have very little equity in the property if prices drop substantially(remember even if prices stay at current levels it is in real terms falling in value due to inflation). When thinking of buying somewhere compare what an interest only mortgage on the property would cost compared to what the rent is on an identical property in the same location, don't comare balbriggan to dublin city as its apples and oranges.
P.S Get an older landlord who is less likely to sell up so you can stay in a rented place longer.
http://www.moneyweek.com/file/27510/the-european-property-bubble-begins-to-hiss.html

like my earlier analyogy, why buy a lvoely suit thats on sale at half price if it doesn't fit....

miju · 28-03-2007 8:57pm

not to take this off topic but i really dont think anyones attacking posters here smccarrick. they may be slightly made light off if their point is disagreeable same as any others forum

how and ever ur the boss

28-03-2007 9:26pm

Calina wrote:

Let me see if I get this right: you are suggesting that anyone on a private pension cashes in and buys a house because the house is their pension...right?

I'm not ordering them to do it,I'm suggesting it as an option (one other option) to look at. Whats wrong with it? What use is the value of the house to the 60 year old apart from say being a legacy to will to a sibbling.
Obviously if you want to do that, you don't go for that option.
You don't go for it either if you are of the view that at 60 your properties value won't be at least an equivalent to 10 times the average wage then as it might be now.
To flesh out the way I look at something like this a bit more.
Say you equity released €300k today and put it on simple deposit at 5%,you'll have an extra income of €12,000pa (after dirt) plus a contributary state pension of at least 20k and no repayments.
32k with the principal safe and no worries about security of tenure.
(All that changes in 20 or 30 years are the numbers are bigger)
Now whats wrong with that?

Okay...so are you suggesting equity release for a sixty six year old to uhem, get at the assets locked up in the bricks and mortar? Because if you are, I'm telling you you'd be better of going taking a hike. Or perhaps, cashing in and downsizing which, given much of today's property, might not be an option. Even the big houses that they are building are fairly small.

My own view is I'd let the sibblings sink or swim on their own bat,I wouldn't let myself or my partner wallow about penny pinching in a big house aged 60 or more scraping by if I have the option to liquidate all or part of the house.
I'm not suggesting going mad and drinking and gambling the lot at that age,I'd suggest that road only with a plan, the aim of which would be comfort.

Most sensible people would suggest that both a house and a pension is desirable. In the position where I have to choose one, I'd go for a pension in the short term because the longer you have built it up, the more it's worth to you in the long run.

What if you can't afford both ? Is your pension likely to be worth more than a house at retirement? If it is, you've been putting a lot into the pension which wouldn't be the norm on say an average wage and lifestyle.

The point is this: property values are falling. Anyone with any sense would normally wait it out a bit and see just where they are going. But then, if this country had people with sense in it in general, we wouldn't have an asset bubble.

I started out by saying I've heard it all before albeit differently ie don't buy yet - 10 years ago, a decision many ended up regretting.
But then I'm not convinced we have an asset bubble at all.We just have a predictable reaction to stamp duty speculation combined with certain numbers dropping out of the market due to failing a mortgage stress test.
Thats hardly a bursting bubble and neither is it an argument against what I said about releasing the worth in your autumnal years of all the hard work you invested in the home that can do a lot more for you than just be manna to your sibblings.
Thats not to suggest that you don't help out your sibblings if and when you can and if you want to along the way aswell.
It's just another option in the mix to consider.

A Random Walk · 28-03-2007 10:55pm

Tristrame wrote:

Say you equity released €300k today and put it on simple deposit at 5%,you'll have an extra income of €12,000pa (after dirt) plus a contributary state pension of at least 20k and no repayments.

As someone here once said, "equity release" isn't like releasing some sort of caged animal it's about increasing your mortgage. It's borrowing to the uninitiated.

There are some products on the market where older people can "release" money from the value of their houses and where the provider of the loan gets the money back when the house is sold. Often these are terrible deals at absurd rates, the older couple would have been much better renting all their life and putting their money into a pension.

Your primary residence makes an awful pension. I think it's morally wrong for a financial institution to spin this line, and to trap a generation of Irish into a life of debt and what will be close to poverty when they retire. You can't eat a concrete block, and you can't sell your chimney to go on vacation and enjoy yourself after you retire.

28-03-2007 11:04pm

A Random Walk wrote:

I think it's morally wrong for a financial institution to spin this line, and to trap a generation of Irish into a life of debt and what will be close to poverty when they retire. You can't eat a concrete block, and you can't sell your chimney to go on vacation and enjoy yourself after you retire.

Thats one view I suppose mine is different.I don't view an equity release as a debt.You are going into it in two positions (1) that you won't have to pay it back and (2) that you are living a much more comfortable life because of it both during the time that you are paying your original mortgage as you won't have to fund a pension and after you take the hard earned value of your house back via the equity release when you retire.

Your house is no use to you in the grave and you don't do this if leaving the house to sibblings other than your partner is of more priority to you.

Pa ElGrande · 28-03-2007 11:07pm

Tristrame wrote:

I started out by saying I've heard it all before albeit differently ie don't buy yet - 10 years ago, a decision many ended up regretting.

Ten years ago there people were buying houses under much stricter credit controls, there was a supply shortage and the economy was growing on the back of a savings and multinational investment led boom, with favourable labour and tax conditions. These are not the same conditions that exist in 2007.

Property, no matter where, only declines where three conditions are met out of the four below:

1. A recession, forcing lower wages (or increases in wages) AND large increases in unemployment, causing very poor consumer confidence.
2. Property bought with very high proportion of mortgage debt. (95% - 100%+)
3. In tandem with the above rapidly rising interest rates to very high levels.
4. Massive oversupply of property.

Tristrame wrote:

But then I'm not convinced we have an asset bubble at all.

Question for you, what do you understand an asset bubble to be? What evidence should I be looking for in the Irish property market to indicate the presence of an asset bubble?

Tristrame wrote:

We just have a predictable reaction to stamp duty speculation combined with certain numbers dropping out of the market due to failing a mortgage stress test.

Who predicted the reaction to stamp duty speculation and when did they do so? Why are certain numbers now failing a mortgage stress test that they would have passed over a year ago?

28-03-2007 11:32pm

Pa ElGrande wrote:

Ten years ago there people were buying houses under much stricter credit controls, there was a supply shortage and the economy was growing on the back of a savings and multinational investment led boom, with favourable labour and tax conditions. These are not the same conditions that exist in 2007.

I'm not arguing that theres going to be an exponential growth in house prices either like that period.In fact all I've assumed is over the longer term that they will match inflation or slightly better.I think thats a more reasonable long term assumption than the bottom falling out of their value in a strong economy.It could of course drop and rise many times over a 30 year period but that probably wouldnt affect my assumption on house values making or a little better than inflation in the same period.It's probably conservative.

Question for you, what do you understand an asset bubble to be? What evidence should I be looking for in the Irish property market to indicate the presence of an asset bubble?

Well I know what the concept of a bubble is,in the sense that it is something that bursts and a burst is a big deflation.
I see no evidence of a big deflation in house prices or potential big deflation,Do you?

Who predicted the reaction to stamp duty speculation and when did they do so?

To be fair thats as straight foward as asking me who predicted Grafton st would become a sea of umberella's when the sky goes grey.I found it totally predictable that some people would delay purchase decisions to take account of possible stamp duty savings when I first heard of them.I put it to you most people would have considered it.

Why are certain numbers now failing a mortgage stress test that they would have passed over a year ago?

Why are you asking me that ? It is obvious that demand has slowed and that has affected growth.
But it's no where near cataclysmic or even worrying to the average home owner or house buyer.It's not a burst,it's more of a current leveling off which has little or no impact on the long term assumptions around what I've been talking about on using the value of your house in your autumn years.

babytooth · 28-03-2007 11:46pm

equity releases or "life loans" as they are sold to retirees are such unbelievably bad value and are madness in the extreme...knowing quite abit about these, i would get down on my hands and knees and beg ppl not to take them....the cost is out of this world, registered money lenders...i kid you not...

Prices and rents will come back in line, the same as any other country. For this to happen, rents will increase and prices will drop...by how much, well they have to move relative to each other by aprox 50% of current levels.
So either rents increase by 50% and prices stay still, or vice versa or a combo of each.

Now if rents increase by 50%, wages and inflation will soar...so house prices will be decresae by inflation.

Or think, 5% inflation and 5% price drops as reported by Daft, is a ten% drop

Over five years, that well over 50% a drop...

call it what you will, but the figures just aren't adding up, and thats why the real investors have left the market long ago, and the sunday indo readers, who think owning a lease back is the zeinth of financial abilty are in for a big suprise.

And if you want to look at property as an investment, or even the property part of it...

As Buffet said, if your at a poker table and you don't know who the patsy is, it's you.

So whos the patsy in the irish property market according to you.

Gurgle · 29-03-2007 8:25am

babytooth wrote:

Prices and rents will come back in line

What do you consider to be in line?

We had a situation here a decade ago where you could buy a house and rent it out for enough to pay the mortgage.

All you had to do was produce the deposit and wait 25 years or so, and you would own a house free and clear. Even if house prices stagnated for the entire 25 years, thats a fantastic return on investment.

babytooth wrote:

the same as any other country.

What country?

29-03-2007 8:32am

babytooth wrote:

equity releases or "life loans" as they are sold to retirees are such unbelievably bad value and are madness in the extreme...knowing quite abit about these, i would get down on my hands and knees and beg ppl not to take them....the cost is out of this world, registered money lenders...i kid you not...

Well I wouldn't refer to them as money lenders in the sense of a loan shark.They do take a premium of course as they are giving you money on condition that it is paid off when you die.That could be a 20 (or even 30 years!)year loan with no repayment and just an asset on their books.
I've seen rates currently of 7 or 8% which is far from usary.
Yes it would eat into the value of the house depending on how long you live-but thats no use to you in the grave!
As I say this wouldnt be for you if you want to leave the house to your sibblings.
Incidently as touched on earlier,I'd agree that probably the best way to do this(rather than borrow money) would be to actually sell your house and either downsize or move to another town (who wants a 3 or 4 bed when retired?) and use the profit to live on plus your savings and state pension.
Or you could do both sell your house at 60 downsize and equity release on your new house or appartment.

Prices and rents will come back in line, the same as any other country. For this to happen, rents will increase and prices will drop...by how much, well they have to move relative to each other by aprox 50% of current levels.
So either rents increase by 50% and prices stay still, or vice versa or a combo of each.

Now if rents increase by 50%, wages and inflation will soar...so house prices will be decresae by inflation.

Or think, 5% inflation and 5% price drops as reported by Daft, is a ten% drop

Over five years, that well over 50% a drop...

call it what you will, but the figures just aren't adding up, and thats why the real investors have left the market long ago, and the sunday indo readers, who think owning a lease back is the zeinth of financial abilty are in for a big suprise.

And if you want to look at property as an investment, or even the property part of it...

As Buffet said, if your at a poker table and you don't know who the patsy is, it's you.

So whos the patsy in the irish property market according to you.

Thats another variation of the what if this , what if that etc etc that I've heard doing the rounds as an excuse for people not to get on the property ladder over the last 10 years or more and it's a decision many regret.
Unless you are expecting a definitive burst ie a crash-then that analysis isn't usefull if theres only a leveling off or a reactive correction to rising interest rates and stamp duty speculation.
It's of no use to a renter if they put off buying a house for 2 years and spend 30k on rent in the meantime or if they spend a fraction of that relative to the shared fraction of what they will pay in mortgage if they are renting rooms in it to help pay for it.
Holding out may be the same cost to them rent wise as obviously they won't be renting a house they don't buy.

conor_mc · 29-03-2007 9:41am

Tristrame wrote:

It's of no use to a renter if they put off buying a house for 2 years and spend 30k on rent in the meantime or if they spend a fraction of that relative to the shared fraction of what they will pay in mortgage if they are renting rooms in it to help pay for it.

What if they would've paid €30k in mortgage interest on a non-appreciating asset instead?

Say for arguments sake, they could have paid 30k in interest and 10k in equity in their house, versus 30k in rent and 10k in savings. Would that not be the exact same?

And over-60's equity release schemes - jesus man, do you honestly believe these things will be around when I retire in 30 years? Where were they when my grand-dad retired? Like the much-maligned endowment mortgages of the 80's, these things will disappear once the cheap credit dries up.

While I'm at it, lets assume I've thrown all my eggs in the property basket, as you suggest, and a massive bubble bursts just a couple of years before I retire. Okay, so my property is probably worth a helluva lot more than I bought it for, but who is gonna buy it to finance my retirement dream? Do I work for another 5 years until the market recovers? At least with a pension, I could have gradually reduced my risk profile over the preceding years.

What you're suggesting is madness, plain and simple. Whatever about an investment property being your pension, but your PPR? I've never heard such utter nonsense!!!!

29-03-2007 11:43am

conor_mc wrote:

What if they would've paid €30k in mortgage interest on a non-appreciating asset instead?

Say for arguments sake, they could have paid 30k in interest and 10k in equity in their house, versus 30k in rent and 10k in savings. Would that not be the exact same?

similar enough if you are comparing deciding to sell a house after 18 months that hasn't appreciated in value-but who in their right mind if they arent in financial difficulties or need to move elsewhere for a valid reason would be doing that ?

And over-60's equity release schemes - jesus man, do you honestly believe these things will be around when I retire in 30 years? Where were they when my grand-dad retired? Like the much-maligned endowment mortgages of the 80's, these things will disappear once the cheap credit dries up.

I honestly find it funny that my description of how an equity release or better still a change to a smaller house or better still again that and an equity release on the new smaller house (all after your lifetime original mortgage is paid off)-I honestly find it funny that my description of how using those assets to fund a comfortable autumn life is not disagreed with and the fact that it's heracy mar dhea to even think of such a thing is what some people have the problem with.

I'm just thinking laterally about the thing.

While I'm at it, lets assume I've thrown all my eggs in the property basket, as you suggest, and a massive bubble bursts just a couple of years before I retire.

It happens more often with equities-at least with a house you have bricks and mortar.

Okay, so my property is probably worth a helluva lot more than I bought it for, but who is gonna buy it to finance my retirement dream?

Ah come on-do you really think such a scenario is likely ie that there could be such a housing collapse at some point that there will be no market for your house.I'll put it to you that if things are that bad,your pension saver would be up shit creek aswell probably.

Do I work for another 5 years until the market recovers? At least with a pension, I could have gradually reduced my risk profile over the preceding years.

Thats no different to asking me what do I do if the stock market crashes in the days before I was going to convert my pension to less risky assets.
Both are risks that you take with assets.

What you're suggesting is madness, plain and simple. Whatever about an investment property being your pension, but your PPR? I've never heard such utter nonsense!!!!

Again I find it funny that you say it's nonsense but your only reason for this is an outside chance that what might happen to your pension might also happen to your house.
I would suggest to you that the real reason for the disdain of what I'm suggesting is that you think it's some kind of heracy.
Theres no argument against using the asset if you don't want to gift it to your sibblings.
Again I'd have to say it's an awfull waste of an asset not to consider using it in your retirement years-bearing in mind that it's of no use to you when you die.
There are no pockets in the shroud.

conor_mc · 29-03-2007 2:08pm

Tristrame wrote:

similar enough if you are comparing deciding to sell a house after 18 months that hasn't appreciated in value-but who in their right mind if they arent in financial difficulties or need to move elsewhere for a valid reason would be doing that ?

I think the argument you put forward was that waiting to buy could cost 20k in rent. I'm not talking about selling a house at all - I'm comparing buying a static asset and paying interest, versus renting and saving the difference.

Tristrame wrote:

I honestly find it funny that my description of how an equity release or better still a change to a smaller house or better still again that and an equity release on the new smaller house (all after your lifetime original mortgage is paid off)-I honestly find it funny that my description of how using those assets to fund a comfortable autumn life is not disagreed with and the fact that it's heracy mar dhea to even think of such a thing is what some people have the problem with.

Hold on a sec, are you advocating supplementing your retirement with your PPR now?

Cos a few posts back, your property was your pension.

I have no qualms about using your home to supplement retirement if you like - not in the form of equity release though. If you really want to, and you have a sufficient cash-flow to afford it, sell your house and rent monthly, but on the understanding that at some point the proceeds of your house may run out and you will need to survive on other resources. No, wait - you don't have any because you didn't want to start a pension way back in 2007 when everyone was doo-lally about property. :rolleyes:

Tristrame wrote:

I'm just thinking laterally about the thing.
It happens more often with equities-at least with a house you have bricks and mortar. Ah come on-do you really think such a scenario is likely ie that there could be such a housing collapse at some point that there will be no market for your house.I'll put it to you that if things are that bad,your pension saver would be up shit creek aswell probably. Thats no different to asking me what do I do if the stock market crashes in the days before I was going to convert my pension to less risky assets.
Both are risks that you take with assets.
Again I find it funny that you say it's nonsense but your only reason for this is an outside chance that what might happen to your pension might also happen to your house.

Are you seriously trying to suggest they're the same thing?

With the house, you sell it in one go - all or nothing. With a pension, you can gradually reduce your risk profile. The idea being that you sell a few years before retirement so that even if the market does tank the day before you intend to sell, you still have a few years to recover. So where are we with a house, sell up at 55 instead of 60 and rent for an extra 5 years???

If you don't think that a housing market can collapse such that houses just don't sell, maye you should look across the water at the UK in the early 90's or Japan throughout the 90's. It wasn't so much a case that your house was over-priced, it was that you just couldn't find a buyer fullstop.

Seriously, decide what it is you're actually advocating and get back to me. If its that you could subsidise a better standard of retirement by selling your house, then yeah, I'm all for that.

But you've stated that your PPR could be your pension - in other words, no need for any other pension provision. I don't think that's some form of heresy, I just think it's plain daft! You should talk to a few families with elderly and infirm parents, they're selling the family house as a last resort to pay for a care-home. What would happen to you if you'd already blown that cash on a round-the-world cruise for your 65th birthday??!?!?

29-03-2007 3:57pm

conor_mc wrote:

I think the argument you put forward was that waiting to buy could cost 20k in rent. I'm not talking about selling a house at all - I'm comparing buying a static asset and paying interest, versus renting and saving the difference.

Over the term of a 30 year mortgage I gave the view that it is reasonable that a house should at least match or better inflation.
I'm talking about what you do with it then.
You can do nothing with a house you've been renting for 30 years.

Hold on a sec, are you advocating supplementing your retirement with your PPR now?

Cos a few posts back, your property was your pension.

That on it's own if it suits or a combination of anything else you like if you can afford it.

I have no qualms about using your home to supplement retirement if you like - not in the form of equity release though. If you really want to, and you have a sufficient cash-flow to afford it, sell your house and rent monthly, but on the understanding that at some point the proceeds of your house may run out and you will need to survive on other resources. No, wait - you don't have any because you didn't want to start a pension way back in 2007 when everyone was doo-lally about property. :rolleyes:

Can't a pension run out too ? If it does and you decide never to buy but pay the difference between what you rent and what you save from not buying a house into a pension-arent you describing the exact same situation.
Why your preference for one over the other? Both are an option as equal to each other.
A combination of options would be nice if you can afford it.
My point simply was you don't have to scramble for both-one or the other can be suffecient depending on circumstances.
Leaving property behind you after spending so much on it seems plain silly to me.I've already gave ideas on why I think that.
As I said if you don't want to gift it to your sibblings, there are no pockets on the shroud.

And by the way, as I said already,I wouldnt go into this without a plan ie a budget for say 20 years depending on how healthy you are at 60 and how many active years you think you are likely to have.

Are you seriously trying to suggest they're the same thing?

With the house, you sell it in one go - all or nothing. With a pension, you can gradually reduce your risk profile. The idea being that you sell a few years before retirement so that even if the market does tank the day before you intend to sell, you still have a few years to recover. So where are we with a house, sell up at 55 instead of 60 and rent for an extra 5 years???

Well for a start we're 20% better off as we're paying no tax on the proceeds,it being the family home.
Secondly and related we have the entire proceeds if we wish available now tax free to do with as we wish..
Lets take my earlier example again and combine the options.
You are 65,your mortgage is paid off,you sell for 450,000. you buy smaller for 350,000.
You have a contributory state pension of €200 + a week plus all the other state benefits (gas allowances,ESB phone etc) and €100,000 tax free to dip into and lets say that lasts 10 years.
Then at age 75 if you are still hail and hearty you take another €50k out of the value of your house with the loan settled to your estate when you die.
You're sibblings/distant relatives might end up with something but you will have ended up with a comfortable life.
Now what tell me is wrong or crazy about that other than you think it's crazy or that you think the property might crash?

As regards the two funds,in an average income scenario, they couldn't possibly be the same value(given the limited amount you can put from an AIW into a pension ,live and pay rent) unless there was a major property crash.
Property crashes aren't as regular as pension fund crashes-at least I've seen more of the latter than the former in the last 20 years.Neither are particularally worrysome if you are in a long term investment-though obviously in both cases,you'd be unlucky if caught out in a bad cycle at a time when you need to divest.

If you don't think that a housing market can collapse such that houses just don't sell, maye you should look across the water at the UK in the early 90's or Japan throughout the 90's. It wasn't so much a case that your house was over-priced, it was that you just couldn't find a buyer fullstop.

Oh in Thatchers Britain ? I suppose it does happen ,it's rare in modern times though and it is cyclical.Do you remember what happened to pension funds on black wenesday? it happens there too but it wouldnt put me off doing one if I could afford it.Neither would the small risk of a cylical bust scare me away from doing exactly what I like with a property mortgage paid up in full.

Seriously, decide what it is you're actually advocating and get back to me. If its that you could subsidise a better standard of retirement by selling your house, then yeah, I'm all for that.

heh But I am not advocating anything,I'm just putting foward an option among many.
This isn't a dictatorship I don't have to advocate anything ,I just need to explain what you can do and why I think you can do it.If one of the options I mention disgusts you well then put up real reasons to debunk it -rather than cyclical chance that affects all investments to one degree or another.

Let me reiterate,I'm just pointing out an option and why the option is realistic to me.I'm not debunking pensions-far from it,I'd say go for them aswell if you can afford them but you don't absolutely have to there are other options.I think we've established your dislike of equity release products and we've agreed that you can sell your house to fund your autumn years eg down size etc.
Where we disagree is in equity release.
Again I'm not advocating that as a must do.It's a do if it suits what you want to do eg if you want to continue to unlock your house value.I wouldnt object to 7 or 8% charged as usary either given that its a no regular repayments product thats being charged for.

But you've stated that your PPR could be your pension - in other words, no need for any other pension provision. I don't think that's some form of heresy, I just think it's plain daft!

Why? You've explained it's daft because you think it leaves you open to a property bust but I'm proferring to you that such a scenario is as likely as your share portfolio unluckily diving, the week before you want to go risk averse with it.

You should talk to a few families with elderly and infirm parents, they're selling the family house as a last resort to pay for a care-home. What would happen to you if you'd already blown that cash on a round-the-world cruise for your 65th birthday??!?!?

The state would have to put me up.They're already setting a ceiling of 15% on the value of a home as an old persons contribution to that.If you have no house left they still have to put you up and at least you will have had your comfort when you were still able.

If you think a lifetimes pension savings from an average industrial wage without owning a house will pay the extortionate cost of nursing home care for you after you've been living off the pension already for 10 or 15 years, you'd want a massive massive pension and theres no way the ordinary industrial wage will have funded that for you.
Fair enough if you have had the income to support a mortgage and a substantial pension and you have funded a fun lifestyle.Good for anybody that does-they are certainly the better off ones.

But they are not the demographic that might have to unlock some or all of the value of their house at some point,notwithstanding what the dept of health might take off your house value as a contribution to your nusrsing home care after you die if you've had to avail of that.

gurramok · 29-03-2007 4:34pm

From official CS0 stats, 15% (266,000) of homes vacant, 9.7% in Dublin area http://www.cso.ie/census/Census2006_Principal_Demographic_Results.htm

From page 91 of 108 in 'Final Principle demographics results 2006' pdf file

Whilst taking out residents temporarily absent, about 185,000 of these across the state are NOT holiday homes
36,000 vacant dwellings in dublin area alone are NOT holiday homes, many of them apartments.
These are worse stats than previously thought.

ronbyrne2005 · 29-03-2007 5:16pm

just about those equity release things. My uncle recently released 100k euro from a home valued at time at 450k. At 7% per annum he will owe 6.6times the 100k amount in 30 years if he or his wife are alive(they are both aroun 60-65 and healthy). Theres no guarantee that in 30 yrs time prices will be any higher in nominal terms and I beleive his house will be nominally worth no more than 450k in 30 yrs time. This means that the loan will exceed value of his home. He has four adult children and thinks there will still be money left from house after his and his wife's death for his kids. Most Irisih people with kids want to leave them a property so it wont be a pension for vast majority and people in 50's 60's and 70's dont want to move house and lose their neighbours etc. Property is not a pension unless you own an investment property outright producing positive cash flow and good yield(its impossible to buy a good investment now and prices will be no higher in 20/30yrs time after recovering from large falls over next decade).

conor_mc · 29-03-2007 5:46pm

Look, fair enough - I think it's foolish to rely on it, but I don't discount it as an option.

I'll just deal with these two points though....

Tristrame wrote:

Can't a pension run out too ?

Not if you buy an annuity - then you get paid til you croke. Thats the safety of it. Now I suppose you could sell your house and buy an annuity - but at todays prices a decent annuity is circa €1m while an average house is only 300k.

Tristrame wrote:

Well for a start we're 20% better off as we're paying no tax on the proceeds,it being the family home.

You're also paying your mortgage from after-tax income, as opposed to paying into a pension before tax at the higher rate.

29-03-2007 8:28pm

conor_mc wrote:

Look, fair enough - I think it's foolish to rely on it, but I don't discount it as an option.

Look fair enough too, I don't but then I wasn't replying on this thread to do down pensions as you will appreciate.

Not if you buy an annuity - then you get paid til you croke. Thats the safety of it.

Ah I know that and as I said I'm not here to do down pensions if you can afford them I just made the point that it's as valid to say that your fund to buy your guaranteed income could just as easily have unfortunately hit an unlucky patch at the ideal time otherwise for conversion.It wasn't that I was saying this apple was better than that apple.I was suggesting one of the apples might suit more than the other if a combination cannot be afforded and of course I completely disagreed with you on equity release for the reasons stated.

I've a favourite saying when two minds clash on an issue-to each their own ie we'll agree to disagree on that one

You're also paying your mortgage from after-tax income, as opposed to paying into a pension before tax at the higher rate.

You will pay tax on your drawn pension earnings if they are over and above your exemptions and you will pay tax on anything you take out above your lump sum.You pay none at all on the proceeds of your home or on any equity release as loan income is tax exempt afaik.
By the way you could if you are a sole trader have a commercial mortgage and claim full relief on the interest.That can be on a house if the business is run from the house.

ronbyrne2005 wrote:

Theres no guarantee that in 30 yrs time prices will be any higher in nominal terms and I beleive his house will be nominally worth no more than 450k in 30 yrs time.

Two comments on that:
1. The mortgage co are agreeing the loan based on the available security untill you die.They've no comeback except on the house after you die and you won't care less as you will be dead.
It's the risk that they are taking.
They win some they lose some.
If your Uncle wanted to leave something to his sibblings , then this was not the option for him.

2.I believe that my assumption is the safer one, ie that over a 30 year period a house's value should average out at least to keeping up with inflation and possibly a few percentages more.
Certainly in my opinion a house in Ireland thats already worth 450K today isn't the type of property I'd tag as going to average out as not doing at least that.

But c'est la vie we disagree and thats all we can do when we are talking about speculation on the future as opposed to dealing with here and now facts.
Actuaries or similar professionals don't get paid ransomes of salaries for nothing.It's them really that are deciding whether or not it's worth their while doing equity release business.

hmmm · 29-03-2007 8:43pm

Offtopic I know sorry, but just to point out that there have been several studies on safe pension withdrawal rates, i.e. how much can you withdraw without the risk of your pension running out. For those in the US, 3% is backtested as 100% "safe" (even if the biggest crash of the past 100 years repeated itself, your pension would survive). 4% is 98% "safe" and will be unless the great depression repeats itself. That's why as a good rule of thumb when retiring is to aim for 25x the income you require in your pension (subtract any social welfare pension).

Pa ElGrande · 29-03-2007 9:30pm

It may be regarded strange to bring the topic up here, but the real explanation for the massive house price inflation and debt can be found here. It's 47 minutes long and in my view is well worth bookmarking and watching if you get the time over the week.

Where Does Money Come From?
http://video.google.com/videoplay?docid=-9050474362583451279&hl=en-CA (broadband required)

DublinDilbert · 30-03-2007 9:25am

Did anyone here the results from the latest ESRI report on the news this morning, 40% off all houses purchased since 2002 are lying idle? we knew the figure was high, but no where near that high....

gurramok · 30-03-2007 9:30am

The cats out of the bag in the public eye now on what we've known for many months.
Despite the generous headline of 15% overvaluation, which in my view is too small(more like 40%-50% imho), the rest of the article explains alot and may ring alarm bells to the uninformed including the part about tax revenue decline and rise in unemployment due to the impending crash.
It must be the first time that an offical mass media outlet has admitted that many of the units built in the boom were for 'speculative' purposes, those specuvestors we were all talking about.

http://www.rte.ie/news/2007/0330/economy.html?rss

A large reduction in the scale of house building is forecast by the Economic and Social Research Institute in its latest Quarterly Economic Commentary.

The ESRI warns that the Exchequer stands to lose a large amount of tax revenue as a result.

It says that houses are currently overvalued by 15% and warns that investors may pull out of the market now that house price growth has slowed.
Advertisement

The house building industry, which currently employs almost one in four men in Ireland, may be in for a larger than expected setback as house prices slow according to the analysis.

The ESRI estimates that house prices are overvalued by 15% and that a quarter of all new homes built here over the past five years were for second dwellings and holiday homes.

It says that many of these second dwellings may have been speculative investments encouraged by the prospect of rising house prices.

Now that house price growth is slowing the ESRI expects investors, as well as others buying second dwellings, to scale back their activity resulting in a large reduction in the scale of house building.

It also says that the Irish economy has been loosing competitiveness and that it is now imperative to halt this trend.

However, despite the expected slowdown in housing investment the Institute still expects the economy to grow by 5.4% this year.

warrenaldo · 30-03-2007 10:03am

yes seen it today. makes interesting reading.
i wonder whats gonna happen. house prices ARE coming down. every time the ECB rise the rates the have to come down slightly more.
I just dont know if they will come down that much.

The market has hit its peak - so speculators now wont invest and buying a 2nd home will become less common.

So this will mean that house prices dont rise as much. but a spectacular drop - just cant see it. (hoping though)

Wonder where we will be at the end of the year.

whizzbang · 30-03-2007 10:10am

warrenaldo wrote:

Wonder where we will be at the end of the year.

Delta index spread betters on the Irish property market seem to think its all downhill to December.... I'm trying to figure it all out, when I do I'll let you know what prices they are predicting.

gurramok · 30-03-2007 10:16am

Another headline from the Sindo which is actually accurate this time quoted from CSO.

'Risk of slump as 120,000 houses lie idle'
http://home.eircom.net/content/unison/national/10127852?view=Eircomnet

*snips*
THE building boom has created an empty nest syndrome with 120,000 houses built in the last four years now lying empty.
According to the 2006 Census report, four-in-10 of the 300,000 dwellings built since the last Census may be lying empty.

Yesterday the Economic and Social Research Institute (ESRI) warned that such a huge vacancy rate increased the danger of a damaging slump in the building industry, as well as a fall in prices.

The Census figures show that only 50,000 of the 266,400 vacant dwellings are holiday homes.

seamus · 30-03-2007 10:16am

gurramok wrote:

Despite the generous headline of 15% overvaluation, which in my view is too small(more like 40%-50% imho),

Depends on the area. Houses close (read: within 6 miles) to major urban centres, or houses with a decent transport infrastructure will hold their value or even continue to increase (albeit much more normally). Places in established suburban or rural areas, that don't have a proper infrastructure (I'm thinking of Lucan, Balbriggan, etc), will see drops of 15%-odd, and probably a rather large stalling in sales before that even occurs.
Other places that sprung up in the sprawl, that lack any proper infrastructure, and too far away from major urban centres will suffer major drops, perhaps approaching 50%, even though I feel that's a worst-case scenario. 30% max is more likely. These are places like Newcastle, Tyrellstown, etc.

gurramok · 30-03-2007 10:24am

seamus wrote:

Depends on the area. Houses close (read: within 6 miles) to major urban centres, or houses with a decent transport infrastructure will hold their value or even continue to increase (albeit much more normally). Places in established suburban or rural areas, that don't have a proper infrastructure (I'm thinking of Lucan, Balbriggan, etc), will see drops of 15%-odd, and probably a rather large stalling in sales before that even occurs.
Other places that sprung up in the sprawl, that lack any proper infrastructure, and too far away from major urban centres will suffer major drops, perhaps approaching 50%, even though I feel that's a worst-case scenario. 30% max is more likely. These are places like Newcastle, Tyrellstown, etc.

Have to disagree with part of this but agree with jist of it

Prices everywhere whether in the best location or in backend of nowhere are massively overvalued.
For example. see price drops from irishpropertywatch.com, drops are happening next to dart stations as well as to the housing estate next to bogland.

Its a question of which areas will see the biggest and smallest drops according to best access to amenities, this is part i agree with you

, the one next to the dart station would obviously see the smallest drop, they will not rise in value from the peak imho.

A Random Walk · 30-03-2007 10:44am

seamus wrote:

Depends on the area. Houses close (read: within 6 miles) to major urban centres, or houses with a decent transport infrastructure will hold their value or even continue to increase (albeit much more normally). Places in established suburban or rural areas, that don't have a proper infrastructure (I'm thinking of Lucan, Balbriggan, etc), will see drops of 15%-odd, and probably a rather large stalling in sales before that even occurs.

Do you have any basis for this statement? Any evidence from other countries? In the UK, prices fell everywhere during their last housing recession. The US is experiencing house price falls everywhere currently (except for some very limited exceptions of course). Asking prices, which is the only real evidence we have in Ireland which isn't VI generated, are dropping everywhere also. So do you have any evidence to support your assertion that house prices in cities will not fall?

Housing Bubble Bursting

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