House Prices To Drop Everywhere? - Opinion

SimpleSam06

seamus wrote: »

Sometime in 2004 then there appeared a bit of dissent - some people broke off and started claiming that we were hitting the ceiling, and a crash was imminent in the next six months. As time wore on, the number of people with this outlook increased. Then the market crashed in 2006.

There was always dissent, even as far back as 2001. Some of it came from the Irish Central Bank which released a report saying that property prices were overvalued all the way back then. The correlation between value and price diverged more and more steeply as time went on, until things peaked. It was a very unusual combination of circumstances that led to the boom.

seamus wrote: »

And sentiment has largely stayed like that for the last six months. In the past few weeks though, there seems to be that growing "dissent" again - there are more and more pundits who now seem to be claiming that we've hit the bottom and a return to normality is imminent within six months.

No. What you have now is the same people who were always cheering on property trying to rally a bull run on a foundation of quicksand, probably with their own interests front and centre. The dissent has been entirely without practical reasoning, unlike the earlier dissent which was based on very realistic thinking.

The cyclical nature of economics is oft repeated but rarely understood. Some commodities or sections of the economy go up and stay up for extended periods, some go up and down, then stay down for likewise extended periods. In my opinion, the Irish property market is the latter. Its not like it will swing up to its former heights then back down and up again.

Between oversupply and the hiding the banks are in the process of taking, it will be a long, long time before there is anything like the property boom in Ireland again, if ever.

To be honest, I see prices going down for another few years and levelling out for at least a couple of decades. There might be the odd bounce and dip along the way, but the era of double digit appreciation is gone for good.

SkepticOne

Chris, remember that the interest portion of a mortage is also dead money. No matter what you do you will be paying dead money and often the amount of dead money renting is less than that of paying interest on a mortgage. The only reason you end up with an asset at the end of the 40 years or whatever the term is, is because you pay additional capital repayments on top of your interest.

This calculator by Carl Jeacle allows you to work out how much dead money you will be paying in a mortgage.

http://www.jeacle.ie/mortgage/

As Whizbang points out, dead money is misleading. In both cases you are paying for a service. In one case you are renting a property directly in the other you are renting money which you then use to buy the house.

Sometimes it is cheaper to rent than to buy even taking into consideration the fact that you end up with an asset at the end of the mortgage term.

I'm not saying don't buy. I'm saying if you compare a mortgage with renting it is not as simple as rent=dead money, mortgage=a house since there is dead money in both. Plus a load of other expenses involved in buying, selling and owning a house.

The other thing is that there's been a huge increase in the number of rentals available in Donegal according to Daft.

http://daftwatch.atspace.com/daftcounty_24.html

The number of places to rent in Donegal looks to have trebled in the the past year although some of this could be explained by increased use of Daft by landlords in that county. You should consider taking advantage of the much greater power renters have in the current market. See what you can negotiate for a property that does not have the drawbacks of your current place.

Note that none of the above has anything to do with movement in prices. House prices could remain flat from now on, but still not be good value.

chris_ie

Like I said. I know rent is not all dead money. But what I am saying is that I could rent for 40 years and have nothing or buy a house and own the house after 40 years. We wont be paying interest for 40 years. Yeah the first number of years will mostly if not all be interest payments. But it will eventually start paying off the house.

It was my mistake saying dead money. I didnt mean that it was a complete waste.

But also as I said above. Landlords can kick you out when they want. And if your renting for a long time chances are that his/her mortgage will be paid off at some stage and you'll be kicked out.

Again, I do understand your points but I'm looking at both sides and I still believe that buying has more advantages.

SkepticOne wrote: »

Remember that the interest portion of a mortage is also dead money. No matter what you do you will be paying dead money and often the amount of dead money renting is less than that of paying interest on a mortgage. The only reason you end up with an asset at the end of the 40 years or whatever the term is, is because you pay additional capital repayments on top of your interest.

This calculator by Carl Jeacle allows you to work out how much dead money you will be paying in a mortgage.

http://www.jeacle.ie/mortgage/

As Whizbang points out, dead money is misleading. In both cases you are paying for a service. In one case you are renting a property directly in the other you are renting money which you then use to buy the house.

Sometimes it is cheaper to rent than to buy even taking into consideration the fact that you end up with an asset at the end of the mortgage term.

I'm not saying don't buy. I'm saying if you compare a mortgage with renting it is not as simple as rent=dead money, mortgage=a house since there is dead money in both. Plus a load of other expenses involved in buying, selling and owning a house.

The other thing is that there's been a huge increase in the number of rentals available in Donegal according to Daft.

http://daftwatch.atspace.com/daftcounty_24.html

The number of places to rent in Donegal looks to have trebled in the the past year although some of this could be explained by increased use of Daft by landlords in that county. You should consider taking advantage of the much greater power renters have in the current market. See what you can negotiate for a property that does not have the drawbacks of your current place.

Note that none of the above has anything to do with movement in prices. House prices could remain flat from now on, but still not be good value.

whizzbang

chris_ie wrote: »

I do get your point though but I still think that the advantages of owning your own house outweigh the advantages of renting.

I want to own a house some day as well, but I'm just trying to suggest that you don't have to buy *right now* as there are other options.

Renting until a good place you can afford becomes available seems like the best idea to me. Rather than buying a bad place (with bad sound insulation ) that will cripple you with excessive repayments.

If you can buy a good quality place that you are happy to live in for 10 years without killing yourself with a mortgage then go for it.

Buying a crappy "Starter home" where you can hear a mouse next door fart just to "get on the ladder" is not a good idea in my book.

chris_ie

whizzbang wrote: »

Buying a crappy "Starter home" where you can hear a mouse next door fart just to "get on the ladder" is not a good idea in my book.

haha

Yeah, the house we are looking at is not a crappy 'Starter Home', it really is a nice house and is detached, concrete floors (cant hear people upstairs when downstairs), underfloor heating, detached garage, nice area (small estate with 5 other houses) etc.. Its the first house of many that we both liked, and had a kitchen that my girlfriend liked . The mortgage repayments would be affordable too.

SkepticOne

chris_ie wrote: »

Like I said. I know rent is not all dead money. But what I am saying is that I could rent for 40 years and have nothing or buy a house and own the house after 40 years. We wont be paying interest for 40 years. Yeah the first number of years will mostly if not all be interest payments. But it will eventually start paying off the house

Yes, over the lifetime of the mortgage the interest payments become less and less. Obviously just renting and pissing the rest of the money saved up the wall will leave you with nothing at the end of 40 years. But this is not a valid comparison. The assumption is that you will invest the difference. The comparison is rent+invest vs repay a mortgage.

It was my mistake saying dead money. I didnt mean that it was a complete waste.

There's no problem calling rent "dead money", imo, so long there's consistancy and we call interest dead money too. With a mortgage you get to pay the dead money towards the beginning of the term but this gradually gives way to capital repayments. With renting (+investing) the dead money is spread out over the 40 years. But the fact that you pay less dead money early on means you have more to invest early on and this will work in your favour at the end of the term.

But also as I said above. Landlords can kick you out when they want. And if your renting for a long time chances are that his/her mortgage will be paid off at some stage and you'll be kicked out.

However at the moment, with the amount of supply out there due to the building that has gone on, landlords are likely to try and hold on to the tenants they currently have.

Again, I do understand your points but I'm looking at both sides and I still believe that buying has more advantages.

Financially the equation is whether the dead money buying outweighs the dead money renting.

I don't want to stop you buying and there are certainly non-financial reasons to buy.

whizzbang

chris_ie wrote: »

haha

Yeah, the house we are looking at is not a crappy 'Starter Home', it really is a nice house and is detached, concrete floors (cant hear people upstairs when downstairs), underfloor heating, detached garage, nice area (small estate with 5 other houses) etc.. Its the first house of many that we both liked, and had a kitchen that my girlfriend liked . The mortgage repayments would be affordable too.

Sounds reasonable. A few other things you may like to consider:

Does it make you overly dependent on the car?
Are there schools and such nearby?
Would you mind sitting in negative equity for a while?
How would you fair if one of you was out of a job for a few months?

If these are all ok and you have the money then definitely consider it. But it may also be worth considering holding off for a while to see if you can get someone nicer for less.

chris_ie

Get you now about the investing part etc. The way I was originally taking it was that you meant that renting was the better option. My own fault for not thinking about the rest.

The location of the house we are looking at is only about another 2-3mins up the road from where we are renting so no more or less dependent on the car. There is a school close by and both our work places are close by. If one of us was out of work, obviously it wouldn't be as comfortable but we could still afford the repayments.

We were thinking on putting in a lowish bid on the house (around 70k less or so). It would probably be laughed at but it would show our interest and if they rejected we would just leave it. If they ever came round they can contact us. I completely agree that it would be horrible to buy now then realise next year that the house price would be alot cheaper. I've also said to my girlfriend that if that house price did drop alot and we didnt manage to get it there would be other houses that were out of our price range initially that would then have fallen into our price range. I am leaning more so to waiting but just gettin frustrated at all the different stories going around about the whole process. But I suppose that happens! Anyways, I've upped my savings today so that the amount of money I'd be paying on a mortgage for that house is now going into savings each month.

SkepticOne

chris_ie wrote: »

I am leaning more so to waiting but just gettin frustrated at all the different stories going around about the whole process. But I suppose that happens!

This is why I suggest you ignore for the moment people's opinion of where the market is going and do the actual calculations.

Also, imo, you should not allow the fact that you are renting to hold you back in other areas of life. It is true that legislation protecting renters is lacking in Ireland (this is to the great detriment of landlords too, imo) but it is also a renters market as well as a buyers market and finding places is nowhere near the problem it once was.

If you want to live in a detached house, it is likely to be the case that there's a landlord out there desparate to rent one out and with whom you can negotiate a good deal.

DJDC

We could rent for the next 40 years and still have nothing to show for it, sure we've had a house to live in for 40 years but after those 40 years we're still going to be paying rent. Whereas if we bought a house, then after 40 years it could be ours and we could have no more rent to pay.

I don't know where this attitude comes from but it seems to be ingrained in the irish pysche, especially in those less well travelled.

There's only word for buying a home in this market...stupid. Markets are in turmoil, no one is quite sure how bad things are going to get. Talk about trying to catch a falling piano.

karen3212

DJDC wrote: »

I don't know where this attitude comes from but it seems to be ingrained in the irish pysche, especially in those less well travelled.
.

I think myself it has something to do with the cost of investing in other areas eg shares for older Irish people in the past, therefore general knowledge about the costs and returns of investing your money elsewhere is missing in our society in general.

Firetrap

I suspect it may go way back to when our ancestors didn't own their own houses/land and were at the mercy of the landlords who could turf them out at any time. Owning your own house meant that you had a patch to call your own, a bit of security and it was an asset.

Historically, house prices did rise but obviously not in the way they've done for a decade. That of course is a whole different story..

chris_ie

Dont hold back DJDC...

So buying a house is stupid? Obviously at the present time maybe yeah. But the idea of buying a house is not stupid.

Tom123

Just having a look at some of the stats on Irish Property Watch and Donegal does not look great.

The county currently has the 3rd largest stock of unsold properties just behind Dublin and Cork.

Link

stepbar

DJDC wrote: »

I don't know where this attitude comes from but it seems to be ingrained in the irish pysche, especially in those less well travelled.

There's only word for buying a home in this market...stupid. Markets are in turmoil, no one is quite sure how bad things are going to get. Talk about trying to catch a falling piano.

Bully for you if you want to rent for the rest of your life. I'd like to think that when I get to retirement age that I will have somewhere to call my own and not be worrying about the alterative motives of my landlord.

To the people who (for some reason) seem to believe that houses in the counties Leitrim and Longford are not salable don't obviously have much knowledge about the areas involved.

The_Conductor

stepbar wrote: »

To the people who (for some reason) seem to believe that houses in the counties Leitrim and Longford are not salable don't obviously have much knowledge about the areas involved.

Apartments in Leitrim/Longford are going to be incredibly difficult to shift. But- as Publilius Syrus put it almost 2000 years ago- everything is worth what its purchaser is willing to pay for it. If property is priced accordingly to what the market is capable of bearing- regardless of where the property is, it will sell. What is a reasonable price for property though- and how do you manage to shift people's expectations to a point of equilibrium where seller and purchaser are both on the same sheet? Thats the big problem- and its not confined to counties Longford and Leitrim.