Goodbodys predict 4% decrease in house prices in 2007

kluivert

Goodbodys have annouced that they predict a 4% decrease in house prices for 2007.

I am a first time buyer looking at buying a house in the very near future. I have been following this for a long time and Germany and England are spring to mind at the moment even though I was a toddler when house prices crashed over there.

I am looking at buying a house for a max of three years, selling it, buy a site and build a house with the other half.

If we buy a house for 300k now it will be worth 288k next year, and thus we hit negative equity.

Any suggestions from anyone.

Option two is to stay at home for another year save like mad and buy a site next year and big a fine house for half the price of what they are selling at.

El Stuntman

I vote Option 2

patrickolee

What if next year, Goodbodys (or someone else) predict that prices will fall another 4%. Will you be happy to stay with Mammy for another year, or another 4 or 5 years? If you are, you should definitely stay... a lot to be said for Mammys cooking.

warrenaldo

Its a tough call - I would not buy now though. I would wait it out. It will drop by 4% this year - although i suspect more. And it will continue to drop next year. I am in the same boat as you. We are dying to move out - dont want to rent as we can still live at home and save - which appeals to us more than renting. We decided staying and waiting would be best.
Only you can really answer that though

eirmail

I think you should rent a place for a year. The interest on a 300K place would be 15k over a year.

You should be able to rent a similar place for maybe 12-15K a year.

If the place comes down in value you would have lost nothing.

Rent just isn't dead money .

This is a good little calculator plug in the values and see what it has to say.

http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html?ex=1186286400&en=bbacd12ff11e3b29&ei=5070

kluivert

patrickolee wrote:

What if next year, Goodbodys (or someone else) predict that prices will fall another 4%. Will you be happy to stay with Mammy for another year, or another 4 or 5 years? If you are, you should definitely stay... a lot to be said for Mammys cooking.

Good point

I dont fancy staying at home for much longer to be honest.

That calculator indicates that renting would save money in the first three years compared to buying with no appreciation. I rented for three years, its a waste of money. The pros dont outway the cons

delboy159

The house price rises over the past few years have been predominantly based on the increased value of land.

If you buy a house for 300k (170k land value, 160k build cost) and it goes up by 10% to 330k (195k land value, 165k build cost) in the next year, then a 100k site will probably go up by 15% (or more) to 115k in that time.. Your exit costs (selling house, legal fees etc) will further erode your 30k profit, all in, you'd be doing well to come out with 24k. Take the 15k the site has gone up by and you are only up by 9k!!!! Thats in a rising market.... as I said before, the % rises will be more on the land than the house...

Equally so if prices drop the % decrease ""should"" be more significant on land, as that was where the original increases came from! I'd say you have very little to loose sitting on the fence. If prices
a) stay steady - you will win (no entrey exit costs from buying and selling and you will having savings from not paying a big mortgage)
b) prices fall - you will win even more than a)
c) prices increase - you would need increases of probably 5%+ per annum over 3 years to break even after you factor in all costs

I'm not factoring in payments from mortages as so little is taken off the capital in the first few years...

bugler

I really don't think purchasing now when you're setting yourself a stay of a max of 3 years is a good idea.

What the other posters have said is true - there comes a time where you may need to stop looking at it from the point of view of "prices may keep going down, I'll wait and wait and wait", but if you are going to buy it should be in somewhere you'd be happy to stay for the medium term at least, IMO.

kluivert

warrenaldo wrote:

Its a tough call - I would not buy now though. I would wait it out. It will drop by 4% this year - although i suspect more. And it will continue to drop next year. I am in the same boat as you. We are dying to move out - dont want to rent as we can still live at home and save - which appeals to us more than renting. We decided staying and waiting would be best.
Only you can really answer that though

At least there is someone else out there in the same boat.

Thanks for everyone's opinions it has given me something to think about.

digitalage

Stay at home save like mad, it will give you time to get the cash together for the site and your new home, or maybe try and buy the site now and get the savings in order so you can start your build next year.

Keano

My gf and I are hoping to buy a house very soon. Today we got a mortgage approval from one bank although we wont be accepting their offer! Unlike kluivert though we plan on living in the house for a long time.

What the other posters have said is true - there comes a time where you may need to stop looking at it from the point of view of "prices may keep going down, I'll wait and wait and wait"

We have been thinking like this for a while now. You could still be "waiting" 2 years from now! No one knows for definite what is in store for house prices.

Borzoi

kluivert wrote:

Goodbodys have annouced that they predict a 4% decrease in house prices for 2007.
.

And if prices hold, what do you do?

In fairness though, that's such a generalisation. Some locations and types of housing are doing better/worse than others.

Oh to be an economist. No resposibilities, no comebacks.

SimpleSam06

Borzoi wrote:

And if prices hold, what do you do?

Even if prices hold, you are still down 5% to 6% in real terms due to inflation. A 4% drop is more like a 10% drop. Also, the market is at a turning point - investors won't buy on the way down, there goes 40% of your market, and FTBs wont' buy because they can't afford anything better than a dirty little "starter home", which won't appreciate so they can't trade up for the next 25 years, so there goes most of the rest of your market. The housing market collapse has only just started to get into full swing, give it 3 to 5 years and you will get a house for half what you can today, in my opinion.

The poster who pointed out that rental is lower than interest rate repayments alone is entirely correct, it really is less "dead money". The smart option is to sit it out at home and save as much as you can.

patrickolee

Whose money is losing due to inflation? Most people take out mortgages to buy houses!

The_Conductor

The other factor- totally aside from the negative equity aspect of your short term purchase- is you would exhaust your FTB status when purchasing the original property- and thus along with the possibility of negative equity, you would also be worse off when it came to building your own property.

S.

BlackIguana

Option 2. Sit it out. Save money for the next year.

IMO it's the only option given the current situation. Buying now could be a decision you regret for the next 10 years (again, in my opinion)...

Prices are going down. In real terms (including inflation) prices are heading south very significantly. So opt out. Wait and see. Let others sweat it out. Why buy a depreciating asset?

Best of luck with it.

Akrasia

I'd say sit it out too. The last thing you want is to be stuck in an unsuitable house in an unsuitable location because you can't sell it.

The 4% drop in house prices is the conservative estimate. You will see the banks and building societies continually 'revising' their forecasts over the next few years. They always try to err on the side that does least damage to market sentiment (in other words, predicting market growth on the high side, while predicting declines on the low side)

Their prediction for a 30% drop in new home completions is optimistic in my opinion. I think it will be closer to 40% with a number of developments and phases of developments being shelved because of difficulties shifting existing housing stock.

SimpleSam06

patrickolee wrote:

Most people take out mortgages to buy houses!

You might be confusing "house" with one of these. If you feel like paying off one of those for the next 25 years to keep some specuvestor out of hock, go right ahead.

Do-more

There's no way I would buy a house with a 3 year timeframe for re-sale in the current climate. Even before all the negativity in the popular press many houses have been taking a long time to sell. There's a house close to me that's been for sale for close to a year now, it's in a good location and in excellent condition, but not a budge. The owner's have a site with full planning permission and are raring to go, so they are fully motivated to sell and get building their new home.
My own opinion is that if you were to buy now that you could find yourself in a similar position 3 years down the line. We are still only at the start of the slowdown in the property market. As it gathers pace market activity is likely to decline considerably from it's current poor level.
Despite the vested interest's claims that there will only be one more interest rate rise, no one knows for sure.
If I were in your shoes I would rent or live at home with a view to buying an old house to demolish and re-build in a few years time. (As prices decline people who don't have to sell will probably not put sites on the market and it's probably going to be easier to get planning permission to re-place an existing dwelling.)

At the end of the day it's your decision alone....

Zambia

Do-more wrote:

There's no way I would buy a house with a 3 year timeframe for re-sale in the current climate.

IMO 4% is conservative estimate hence a three year investment plan is unwise on property at present.

Boggle

Stay at home in the short term and save as much money as you can. When your finally ion a position to buy your land and get planning permission ensure you include a garage/appartment.

Build the garage (aka appartment) out of the ?CIF? block (euromac.ie is by far the best one I've seen of this type) as it can be ready very quickly and is reasonably good. At least then you have somewhere to live while you build you proper house - and I'd use concrete, not timber frame or any other fad as it'll hold its value better.
(I say this as even those building timber frame homes as a career confess that they would never use it for their own home and the CIF blocks don't appeal to me for larger buildings for a number of reasons.)

D'Peoples Voice

Keano A Legend wrote:

We have been thinking like this for a while now. You could still be "waiting" 2 years from now!

I'd say wait until the number of properties for sale hits 121,500 on this website and then I'd be getting ready to pounce when panic sets in
http://daftwatch.atspace.com/
It's risen from just over 7,000 properties for sale at one point in time in 2005 to over 49,000 properties for sale today.

maniac101

Regardless of current economic conditions, I definitely would not buy a house with view to selling it within three years, - not in this climate, or not in any climate. People have bought and sold properties in that timeframe in Ireland and managed to turn a profit. However, this is a highly speculative approach and not for the faint-hearted, and certainly not for someone who can't afford to lose a lot of money in the process.

If you decide to wait until prices drop by 50% as you said, then you could be a long time waiting imo. That said, I'd hold tough and enjoy mammy's cooking for a couple of years to see how the market pans out.

Akrasia wrote:

Their prediction for a 30% drop in new home completions is optimistic in my opinion. I think it will be closer to 40% with a number of developments and phases of developments being shelved because of difficulties shifting existing housing stock.

Yes, but remember that the drop in new house completions and the consequent drop in properties on the market will actually serve to prop up house prices, not to deflate them. A drop in new house completions won't prevent the kinds of price drops currently being measured, but it will ultimately prevent a free fall.

Afuera

maniac101 wrote:

Yes, but remember that the drop in new house completions and the consequent drop in properties on the market will actually serve to prop up house prices, not to deflate them.

Just because there may be a drop in new house completions, doesn't mean that there will be a corresponding drop in the number of properties on the market. Vacant properties and investment properties can be easily added to the glut that are already there.

maniac101 wrote:

A drop in new house completions won't prevent the kinds of price drops currently being measured, but it will ultimately prevent a free fall.

I fail to see why it will prevent a freefall. Historically it does not work out like you are suggesting.

Less new houses being built usually equates to less employment. Less employment reduces both the amount of money in the economy as well as the amount of people (in a market where there is free movement). These are both downward pressures on a local property market.

maniac101

Afuera wrote:

Less new houses being built usually equates to less employment.

Yes probably. However the relationship between new house completions and employment is a little more complex than you suggest. It's likely that many large infrastructural projects that are currently planned as part of the NDP will account for much of the freed up labour. This year the construction industry as a whole will record a 5% reduction in construction volume despite a 30% drop in house completions.

I would consider a drop of 28,000 new homes to be a significant damper on the supply side, especially given that last week myhome.ie listed on their books a total of 22,000 properties for sale in Ireland. I'm not contesting that the number of second-hand houses on the market is continuing to increase, nor am I suggesting that house prices won't continue to drop!

Afuera

maniac101 wrote:

Yes probably. However the relationship between new house completions and employment is a little more complex than you suggest. It's likely that many large infrastructural projects that are currently planned as part of the NDP will account for much of the freed up labour. This year the construction industry as a whole will record a 5% reduction in construction volume despite a 30% drop in house completions.

The relationship between new house completions and employment is certainly complex and only time will tell how reliant we are/were in Ireland on this sector. A lot more than construction jobs will be affected by a downturn in this specific sector though that will not be so easily replaced by work on the NDP. The real damage to the economy could be done by hitting all the spin offs that come from creating residential housing (banks, mortgage brokers, estate agents, solicitors, garden centres, white goods sellers, DIY stores, delivery companies, etc).

maniac101 wrote:

I would consider a drop of 28,000 new homes to be a significant damper on the supply side, especially given that last week myhome.ie listed on their books a total of 22,000 properties for sale in Ireland.

It's a marked drop in new supply but not that much in potential supply; i.e. when looked at in the context of how many vacant properties are out there. There are still no accurate records of how many properties are currently for sale in Ireland (daft has nearly 50,000 ads, but some of these may be duplicates, or some of them may even refer to full housing estates running into hundreds of properties).