Housing Bubble Bursting

delboy159

Gurgle wrote:

I've searched the last 20 pages for the word 'rent' and found no such thing.
Can you supply a quote or link?

Every mention of rent is where people are pointing to low rental yields as one of the reasons the bubble is going to burst. Surely the fact that rents are going up is valid rebuttal to this arguement?



Rent increases are expected in a bubble burst scaenario and in a safe house price growth scaenario

Firstly - when house prices grow rationally (unlike Ireland over the past 5 year) then rents will have similar increases and thus the market is balanced.

Secondly - when house prices inflated dramatically and the ensuing bubble starts to burst, rents also increase. This is due to an increased supply of renters in the market - as these people are not buying. Also, the markets are out of equilibrium. People realise (or are forced to realise, through financial hardship) that it is in fact better to pay 1k in rent for the apartment than 2k in a mortgage (on an asset that may drop in value). The markets will rectify through rent increases and house price falls to a position where the market is now balanced - could be 7% gross rental yield - thats a real point of debate.

While some people quote house price drops of 50% etc., it is more likely the market will reach equilibrium through 25% rent increase over a few years, 25% house price drops over a few years and wage inflation thrown onto the mix!

daveirl

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conor_mc

daveirl wrote:

This post has been deleted.

While your interest payments have doubled since November 2005!!!

conor_mc

delboy159 wrote:

While some people quote house price drops of 50% etc., it is more likely the market will reach equilibrium through 25% rent increase over a few years, 25% house price drops over a few years and wage inflation thrown onto the mix!

How much more wage inflation can we afford though - not alot if we don't want to lose jobs left, right and centre.

Plus you're only looking at one measure of fundamental value - rental yield. What about the average house now costing 10 time average industral wage? We've a long way to go for that to reach a reasonable x5, and that's not even a low multiple by historical standards.

Aesop

On rent increases. Investor buys a house 3 years ago. Takes a 20 year mortgage of 200K.

Interest rate then ~3%, repayment is 1109 Euro
Interest rate now ~5%, repayment is 1319 Euro

Difference is 210 roughly 18% increase in mortgage repayment.

2 or 3 years ago this increase is somewhat obscured by very large capital appreciation. Now though capital appreciation has stalled so someone has to bear the cost.

Daftwatch would suggest supply hasn't seen a major decline. Even if investors are selling most will leave renters in place while trying to sell because in the current market could take longer than expected. If FTB's are staying away from the market in such numbers to affect rental prices then the drop in house prices should be even greater than it currently is. Migration is the the biggest unknown as I can't find exact figures for how many enter this country on a monthly basis.

Given however that this rental increase is seen throughout Ireland rather than in concentrated ares of high rental demand I would believe that interest rate rises are fueling rental increases.

The_Conductor

daveirl wrote:

This post has been deleted.

14% since 2001?
Thats well below the rate of inflation (currently running around 5% per annum- and averaging about 3.2% p.a. since 2000). That would be about 19% since 2001......

Gurgle

delboy159 wrote:

Rent increases are expected in a bubble burst scaenario and in a safe house price growth scaenario

Firstly - when house prices grow rationally (unlike Ireland over the past 5 year) then rents will have similar increases and thus the market is balanced.

Secondly - when house prices inflated dramatically and the ensuing bubble starts to burst, rents also increase.

^^ See miju?

D'Peoples Voice

Aesop wrote:

2 or 3 years ago this increase is somewhat obscured by very large capital appreciation. Now though capital appreciation has stalled so someone has to bear the cost.
Given however that this rental increase is seen throughout Ireland rather than in concentrated ares of high rental demand I would believe that interest rate rises are fueling rental increases.

It's worth noting that the two main forms of cash flows from property are

rent which is taxable are the investor's MARGINAL rate, 41%

Capital appreciation which it taxable at the standard rate, 20%

so with little or no capital appreciation, investors have to depend on rent. Section 23 properties aside, the tax take from rent removes the gloss over any increase in rent levels.

Afuera

Aesop wrote:

Migration is the the biggest unknown as I can't find exact figures for how many enter this country on a monthly basis.

It's hard to get accurate figures on this for Ireland. I've seen numbers bandied about showing the amount of PPSN's issued but this is very misleading as it counts many transient elements such as students or people working for the summer etc.

Probably the best way to work it out would be to look at the birth rate, death rate and extract it from the overall population increase. These are back of the fag box calculations, but it would look something like this:

Birth rate = 62k per annum
Death rate = 33k per annum
Therefore the natural increase every year is about 29k people.

From looking at the last census figures we can see that there was an increase in the population by 322k during the four year period between 2002-2006. This equates to an average of about 81k extra people in the country every year.

Taking away the natural increase from the actual increase leaves us with about 52k people. So that would mean that roughly about 1,000 people are migrating into the country every week (or 2 full Boeing 747's).

Aesop

Interesting calculations Afuera. They are definitely fag box calculations but it does give us some indications of the demand being created by immigration. I guess the next question how many people on average would live in a housing unit? If I took 3 (complete finger in the air) that would mean an extra 17,000K units required per year.

On the supply side (source - CSO )

• There were 145K private rented units as of 2006.
• Excluding these 145K units there were 216K empty units (this does not include holiday homes). A significant proportion of these would have been unrented accommodation. The proportion is unknown.
• There were 93K units built in 2006. Anyone know what proportion of these were bought by investors?

I don't see that demand increasing rents by up to 20%. Likewise I don't think FTB avoiding house purchases would create that kind of demand. If they did house prices would be plummeting). They aren't right?

I am still thinking interest rates are the biggest factor.

miju

Gurgle wrote:

^^ See miju?

i dont see anything that differs there from my first reply

Western_sean

Aesop

Sherry Fitzputs the amount of investor demand in 2006 at 40% of total sales in this report (see page 5 half way down on the left) issued earlier this year

Seán

whizzbang

Western_sean wrote:

Aesop

Sherry Fitzputs the amount of investor demand in 2006 at 40% of total sales in this report (see page 5 half way down on the left) issued earlier this year

Seán

The number of investors seems to be down severely this year, the recent bankers federation report showed a serious decline in investor mortgages.

If I were involved in property and was concerned about the investors bailing out, what would I do?
Oh, I know! I'd issue a report telling investors its a great time to buy!
Like this one! http://www.daft.ie/report/index.daft

Kipperhell

whizzbang wrote:

The number of investors seems to be down severely this year, the recent bankers federation report showed a serious decline in investor mortgages.

If I were involved in property and was concerned about the investors bailing out, what would I do?
Oh, I know! I'd issue a report telling investors its a great time to buy!
Like this one! http://www.daft.ie/report/index.daft

Less investors JOINING the market!
As property is generally a long term investment I don't see how this actually indicates anything massively surprising. The market has slowed rent yield has been bad for new entrants.
It is quite funny to hear people go on about conspiracy theories of bussinesses. Yes individuals could lie but it could be they have a different more knowledge based opinion.
From years of working with large companies I have learnt that many people have no understanding of why and how things are so much more complicated to put into practice that it first seems. That experience is worth money which people pay for and often ignore to later regret.
An experienced individual in property does know what they are talking about and it is wise to look at that from the point of view that they may be skewed. To say it is all a complete made up story with a child like thinking in order to sway the market is truely laughable.

whizzbang

Kipperhell wrote:

Less investors JOINING the market!
As property is generally a long term investment I don't see how this actually indicates anything massively surprising. The market has slowed rent yield has been bad for new entrants.
It is quite funny to hear people go on about conspiracy theories of bussinesses. Yes individuals could lie but it could be they have a different more knowledge based opinion.
From years of working with large companies I have learnt that many people have no understanding of why and how things are so much more complicated to put into practice that it first seems. That experience is worth money which people pay for and often ignore to later regret.
An experienced individual in property does know what they are talking about and it is wise to look at that from the point of view that they may be skewed. To say it is all a complete made up story with a child like thinking in order to sway the market is truely laughable.

Fair point that it shows less joining, but it is the latest info we have, and the report only shows mortgage growth, not sales by investors. It does indicate less investor confidence.

I agree that experience is valuable, and I believe that this man has a huge amount of experience. I also believe that his job is to promote house sales and as such it is his responsibility to do that any way he can. I believe that this time he is following the long and well known tradition of selective sampling of data. This gives the impression that there is a lack of rental property available when there clearly is almost 50% more available now then there was in March.

Can you explain why he would use the March figure rather than the May figure like he did for all the other data?

Kipperhell

whizzbang wrote:

Fair point that it shows less joining, but it is the latest info we have, and the report only shows mortgage growth, not sales by investors. It does indicate less investor confidence.

It only shows less joining which can ONLY be said to mean less new investors are entering the market. All else is speculation

whizzbang wrote:

I agree that experience is valuable, and I believe that this man has a huge amount of experience. I also believe that his job is to promote house sales and as such it is his responsibility to do that any way he can. I believe that this time he is following the long and well known tradition of selective sampling of data. This gives the impression that there is a lack of rental property available when there clearly is almost 50% more available now then there was in March.

As do you. If there is more rental property about that suggest more investors in the market and the higher rents suggest a lack of supply. Sounds like it might be worth investing.

whizzbang wrote:

Can you explain why he would use the March figure rather than the May figure like he did for all the other data?

The same reason your selective chosing means you think you are right.

26 hours to rent a house after vetting people with €200 more a months is my experience of renting and those who rent are complaining about rising rent and limited choice.
Your entitled to your own view but very simplist beliefs in intent shows how unbalanced your views are. Speculation is gambling and not buying to hope prices go down is speculation this is no brighter than saying how a football team will do. Lots and lots of unknowns.
I am better off owning than renting where I would be paying more for less. Rents would have to drop 50% and house price drop 60% before I would be saving any money renting.As i have earned 90% more than last year so far not anything to worry about.
:cool:
I reckon most renting still want to buy and the minority don't want to. Only all the speculation about crashes is really confusing their decision making. Price is a big factor but I do beleive less people will own than historic figures in Ireland. You got to remember Ireland has had a high ownship rate for quite a short while maybe one to two generations.

Calina

Currently the total rent on the house which I live in is roughly 50% less than an equivalent mortgage would be. As a result, for me to have a financial interest in buying in the short term, property prices would have to fall to such an extent that there is less then a 10% difference in favour of renting. That's a fairly hefty drop.

I'd venture to say, incidentally, that having shifted a room in the house fairly easily yesterday, I'm of the opinion that rental supply is still tighter than it was 12months ago. On the other hand, it cannot be denied that sales supply is double what it was 6 months ago and has been stable at that level for the past 6 months.

I think there are two key causes of raised rents at the moment: new rentals coming on the market are directly caused by higher interest rates, thus cost to the investor, and this is exacerbated by tightened supply caused by many more houses being moved from the rental to the sales supply.

If the glut continues on the sales market, and FTBs are still sitting on the fencing going "I dunno, reckon a year should see us in a house instead of a crappy apartment, let's not waste the stamp duty exemption on a poxy little place with no pub near by", it's going to be interesting to see what happens: 1) stuff back on rental or 2) stuff reducing in price.

My guess is a combination of the two. This will drive two changes 1) more rental and 2) fewer renters as some of them buy. Over the medium term, I don't believe the rental trajectory is invariably upwards.

On the subject of investors exiting the market/no new investors. Based on the figures given, it is clear that investment in the property market has slowed immensely. You cannot directly attribute it to no new investors because much investment in the property market is not necessarily from virgin investors. The ones who were already there are not necessarily buying that much either. In other words, you cannot assume that investment growth only comes from new investors, old hands would normally be continuing to buy and sell as they go. If investment mortgages are down, it would suggest that they aren't so bothered about the idea at the moment either.

As for waiting to buy something when prices come down being speculation, it is fair to say that buying in case prices go up is also speculation. As the rental market is largely more rational even allowing for recent rises, it's fair to say that someone who is in a position to choose to rent or to buy is not going to be homeless or destitute if they rent initially rather than buy. I know people who are already in negative equity in apartments.

I'd prefer to wait than deal with that. At least with rental you can move as and when you wish within the confines of your lease. Trying to move with negative equity is extremely difficult.

In short, it is fair to say that people have all sort of different considerations when it comes to deciding whether to buy or rent. It would be naive to assume that people who choose to rent rather than buy have done so purely on the grounds of expecting a price drop.

SimpleSam06

Kipperhell wrote:

An experienced individual in property does know what they are talking about and it is wise to look at that from the point of view that they may be skewed. To say it is all a complete made up story with a child like thinking in order to sway the market is truely laughable
...
...
26 hours to rent a house after vetting people with €200 more a months is my experience of renting and those who rent are complaining about rising rent and limited choice.
Your entitled to your own view but very simplist beliefs in intent shows how unbalanced your views are.

Listen I find it very difficult to understand your English, you are basically incoherent. Slow down, please.

whizzbang

I dont' usually reply to messages once they have been subdivided like this but anyway..

Kipperhell wrote:

It only shows less joining which can ONLY be said to mean less new investors are entering the market. All else is speculation

If you want to read it that way fine.
On a side note the latest Sherry Fitzfgerald report show that for Q1 07 14% of purchasers were investors, but 34% of sellers were investors. Just thought you might be interested.

Kipperhell wrote:

As do you. If there is more rental property about that suggest more investors in the market and the higher rents suggest a lack of supply. Sounds like it might be worth investing.

I would be reluctant to invest in an product that has been its supply increase by 50% in 2 and a half months. Especially when I could get nearly twice the yield in a bank for no risk. If you think it is a good idea, be my guest.

Kipperhell wrote:

The same reason your selective chosing means you think you are right.

I'm sorry but I dont' see where I'm being selective in the choosing of data. I'm trying to use all the information I can get my hands on.

Kipperhell wrote:

26 hours to rent a house after vetting people with €200 more a months is my experience of renting and those who rent are complaining about rising rent and limited choice.

Yep, that does indicate a strong market, how recently have you seen this? I do think that the recent increase in rental availability will take a while to translate into lower rent prices as there is always a lag.

Kipperhell wrote:

Your entitled to your own view but very simplist beliefs in intent shows how unbalanced your views are. Speculation is gambling and not buying to hope prices go down is speculation this is no brighter than saying how a football team will do. Lots and lots of unknowns.

Yep, I'm probably being paranoid, but what if they are out to get us? Were all the people who purchased investments over the last few years based on capital appreciation speculating?

Kipperhell wrote:

I am better off owning than renting where I would be paying more for less. Rents would have to drop 50% and house price drop 60% before I would be saving any money renting.As i have earned 90% more than last year so far not anything to worry about.
:cool:

Good for you, my rent is half what the mortgage would be, and I have zero negative equity risk. For now I prefer renting property to renting money from a bank.

Kipperhell wrote:

I reckon most renting still want to buy and the minority don't want to. Only all the speculation about crashes is really confusing their decision making. Price is a big factor but I do beleive less people will own than historic figures in Ireland. You got to remember Ireland has had a high ownship rate for quite a short while maybe one to two generations.

Yep, lots of people want to own, but I think a lot will hold off once they see prices are declining. There will always be people who can't wait, but so long as there are enough waiting for prices to drop, prices will drop. Given our high oversupply of houses I think we are in for a long slow decline in prices.

SimpleSam06

Kipperhell wrote:

You got to remember Ireland has had a high ownship rate for quite a short while maybe one to two generations.

Aha! Finally a sentence I understand, and its wrong.

As far as I remember, Ireland is actually lagging behind many European countries in ownership, certainly in terms of land usage. Unless you have some evidence to the contrary?

whizzbang

Calina wrote:

If the glut continues on the sales market, and FTBs are still sitting on the fencing going "I dunno, reckon a year should see us in a house instead of a crappy apartment, let's not waste the stamp duty exemption on a poxy little place with no pub near by", it's going to be interesting to see what happens: 1) stuff back on rental or 2) stuff reducing in price.

This is a very interesting point, I had not thought of the FTB stamp duty deal as a reason for people to hold off before playing their "FTB Card"

Could end up backfiring on the government.

Glenbhoy

Just a quick point - where some of you are saying that rent is less than mortgages, should you not be comparing rent with mortgage interest less trs relief?
To say your rent is less than the mortgage on a similar place is largely meaningless as you don't specify the mortgage length either.

whizzbang

Glenbhoy wrote:

Just a quick point - where some of you are saying that rent is less than mortgages, should you not be comparing rent with mortgage interest less trs relief?
To say your rent is less than the mortgage on a similar place is largely meaningless as you don't specify the mortgage length either.

True, I'm not sure of the exact figures for rent relief / mortgage interest relief but my rent is 1200 a month and the place would cost 550,000 to buy.
also if I bought I'd have to add the 1500 a year management fees.

anyone care to do the sums?

The daft repayment calculator puts that at 2438.73 a month on a 3.75% tracker mortgage which is already .25% behind the current ECB rate which went active yesterday. I'd imagine that most of this payment is interest for the first few decades.

If there is an easy way of figuring it out it would be good to see what the comparison will be when ECB rates hit 4.75% to 5%.

Calina

Glenbhoy wrote:

Just a quick point - where some of you are saying that rent is less than mortgages, should you not be comparing rent with mortgage interest less trs relief?
To say your rent is less than the mortgage on a similar place is largely meaningless as you don't specify the mortgage length either.

Well, the exact figures I do not have handy but currently the rent I pay is significantly less than the interest portion on a loan to the tune of about 40% and the latter is on an upward trajectory.

mind you the price of the property is on a downward trajectory...so it's open to debate how long that will last.

Aesop

whizzbang wrote:

anyone care to do the sums?

About 3,000 a month (25 yr, 4.85% tracker, 5% deposit). TRS would be 266 Euro a month if you are married 133 if you are not.

I don't think you are being realistic though. Currently most of us could rent a better place than we could buy. What would be more interesting would be to see what you could get from a bank, look at the kind of property that would get you and compare this against your current rented property. If the drop in quality of life is too much then you have your answer.

patrickolee

I'm paying 1530 a month on the mortgage, less 130 tax relief, equals 1400. Rent for a similar sized/located house is around 1200-1300. So I'm paying a little more on the mortgage, but not that much. I doubt I'm that unusual... would have bought near the peak I'd say. Just gotta get me a wife now, for that extra tax relief!

whizzbang

patrickolee wrote:

I'm paying 1530 a month on the mortgage, less 130 tax relief, equals 1400. Rent for a similar sized house is around 1200-1300. So I'm paying a little more on the mortgage, but not that much. I doubt I'm that unusual... would have bought near the peak I'd say. Just gotta get me a wife now, for that extra tax relief!

Fair play! It seems like there is a huge spread in what you can get for the 1200 - 1300 rental range, from houses that will costs you 1400 a month in mortgage to places that would costs you 4000 a month in mortgage!

Aesop

patrickolee wrote:

I'm paying 1530 a month on the mortgage, less 130 tax relief, equals 1400. Rent for a similar sized house is around 1200-1300. So I'm paying a little more on the mortgage, but not that much. I doubt I'm that unusual... would have bought near the peak I'd say. Just gotta get me a wife now, for that extra tax relief!

Mortgage term? % deposit? tracker or fixed?

patrickolee

I'd say there must be quite a spread alright. But then that probably stands to reason. There's only so much anyone would be willing to pay in rent, excluding corporate rentals.

30year (only 29 to go!), 8% deposit, tracker.

Iristxo

My house would cost to buy (until very recently) 595K. Rents in the area are around 1600 a month for a similar type of property. I bought in 2003. Every so often it crosses my mind the amount of things one could do with the capital appreciation that I would get if i sold it now. A quarter of a million is a lot of money...

Of course it has not risen by that much but that is some of our own money as well that we put into the deposit, capital paid by the mortgage repayments, etc. Even if I sold at 550K (reckon that's the tops it would sell for right now) I would still have 250K in my hand, nearly 200K of those would be profit.

It sounds so tempting...