If there was no bubble?

Senna

I was just think of what property prices would be like now if there hadn't been such a property boom?
i was looking at the price of my homeplace (Letterkenny, 6 Bed, 1acre), it was bought in 1984 for IR£50k and at the moment, even with a price drop, i'd say its worth €500k.
If i used the old 'house prices double every 10 years' rule (i know its not correct and has very little relevance), just for arguments sake, so it would be;
1984 = IR£50000
1994 = IR£100000
2004 = €254000
2008 = €295000 (ish)

I think that is a very realistic price and i would guess that if there hadn't of been a boom, that wouldn't be far of it. i know there are so many other factors that can affect house prices and the boom was a result of many factors,
but what do you think?
How would your house far with the 'double ever 10 years' pre-boom era?

edenrose

I know my house would not have double in ten years maybe 50% increase but it depends largely on location

gurramok

We had nearly triple not doubling of prices in 10 years, something like over a 270% increase. (from finfacts)

I'd say find that house price at what it was in maybe '02 and that would give a 'reasonable price'

jesus_thats_gre

My parents house in Dundalk cost them £18,000 in 1984. They sold the house in 1998 for £90,000. Their friends across the road bought the exact same house in 1982 for £12,000 and sold it in 1994 for £46,000.

The house my parents bought in 1998 cost £88,000 and was worth about €350,000 in the middle of last year.. The house they sold in 1998 is worth about €220,000 now.

If there was no boom, house prices would have increased at the same rate of inflation surely?

Victor

jesus_thats_gre wrote: »

If there was no boom, house prices would have increased at the same rate of inflation surely?

Location. Location. Location. In the 1980s if you built new houses in parts of Dublin, on sale you wouldn't recover the construction cost.

While it might roughly follow inflation, it would more follow wages and interst rates.

jesus_thats_gre

Fair enough. Would wages not generally be linked to inflation also though? Not 100% but in general.

patrickolee

Prices are more likely to follow available household income.

Ireland was a vey different place in the 60s, 70s, 80s... with large families and single income households being the norm. With woman not allowed to work, and farming being a predominant main husband occupation, how much disposable income do you think they had to spend on mortgages? Is it logical that the prices were relatively low?

bbbbb

House prices had some catching up to do when the economy took off in the mid/late nineties and we joined the euro (= permanently lower interest rates).
I would say prices reached a "normal" level some time around 2000-2001 (or maybe a year earlier or later). Since then it's been bubble.

Looking here the average price for a house in Dublin in Feb 2002 was €234,689.
Assuming growth of 5% a year (= 35% compounded over 6 years), the average price now should be €315 K
Assuming 8% growth, this would become €372K.
The bubble has a way to go yet.

MG

Interesting thoughts on the long term rise in house prices here

http://www.housepricecrash.co.uk/forum/index.php?act=Print&client=printer&f=22&t=67278

which indicates that the growth in house prices should be inflation + 0.2 to 0.8% depending on what criteria you use.

I'm inclined to agree that the peak of the true prices was around 2002. I bought in in Nov 2002 when the PTSB/ESRI index was at 203,407. Using a simple increase of 4% to take account of the above long term growth rate (considering that the index rose by 11% in the year to Nov 02 this may even be on the high side), then the PTSB/ESRI should be at about 252k. The latest index was at just under 286k implying a potential drop of 12%.

If I took Jan 02 as a starting point and used 5% as a reasonable increase the the House price index should be at about 241k - 18.5% below where it is now.

Personnally, I think it will be more. Certainly house in the estate I bought in are currently asking about 97% above the price I bought for when a reasonable 4% annual rise would only give a price rise of 20%. That's quite a gap.

The population of the area has risen by about 10%, while there is one house for sale for about every 10 inhabitants at the moment. Go figure!

Whatever, the case, i sold up at the height of the boom and rented. I won't be going back into the market until the house price index hits at least 240 and the trend is stabilising.

beeno67

House prices generally rise with increases in take home pay (ie how much people can afford to pay). This has increased hugely in the last 10 years in Ireland. House prices have increased more but the current fall in house prices may not be as much as people think.

rain on

I was just thinking about this the other day.. my mother and her ex-husband bought what is now my parents' house in the late seventies (say '78 for the sake of argument) for £4,000, whcih would be
1978 - £4,000
1988 - £8,000
1998 - £16,000
2008 - £32,000/€40,000ish.

It's in a trendy area of West Cork and they've done a lot of work on it (which skews things a bit, but still) - similar houses in the area are selling for €400,000ish now.

Even allowing for inflation and other factors, the mind, he boggles.

johnnyskeleton

I think a better way of looking at it is how much should various properties cost given today's wage rates:

So in theory a young professional should be able to afford a small one bed apartment. At 34k pa, they could get a mortgage of approx 130k and have savings of 15k. So in an ideal world they could buy such a property for 145k approx. With these apartments going for up to €250k, this price seems somewhat inflated.

An early 30s working couple with an income of 60k pa should be able to afford a small 2/3 bed house. They should be able to get a mortgage of approx 240k, and with savings of say 20k, I suppose they could pay 260k for a small house without exerting themselves. They wouldn't get much for that at the moment.

And so on up the food chain.

MG

beeno67 wrote: »

House prices generally rise with increases in take home pay (ie how much people can afford to pay). This has increased hugely in the last 10 years in Ireland. House prices have increased more but the current fall in house prices may not be as much as people think.

The average weekly industrial wage in rose from 428.82 in 98 to 624.45 in 06 an increase of 46% (CSO - adult male, which is a reasonable indicator of wage growth).

The PTSB/ESRI house price indicator rose from 121,702 in Dec 98 to 310,632 in Dec 06, an increase of 147%.