Best/Worst Case Scenarios in Terms of House Prices... Your Predictions?

johnnyskeleton

blobert wrote: »

Propertypin's members certainly seems to be the most doom and gloom when it comes to such predictions, boards somewhat in the middle, while askaboutmoney has banned negative discussions I believe. I'm also aware that the users of forums such as this may have a vested interest in seeing property prices fall (as the majority do not own properties) or rise (those that own homes).

Everyone has a vested interest in seeing property prices fall to be honest, because if they don't accomodation costs will remain prohibitively expensive and increase wage demands leading to Ireland being uncompetitive, ultimately leading to a loss of jobs and that that stage people can't afford houses anyway.

It's interesting that people welcome news of drops in food, fuel, clothes, flights, healthcare etc, but are horrified at the drops in accomodation costs. This is primarily because they believed property would increase in price indefinately, but such was unsustainable.

Also, speculation in the property market is more dangerous than speculation in other markets, because while the dot com mess was reasonably easy to tidy up, the property market is much messier.

So while I freely admit that it suits me for property prices to fall as I have not purchased an over-valued property, it is not just my personal interest (vested interest) in seeing drops, but I also recognise that it is important for the economy.

blobert wrote: »

As things stand prices have fallen about 20-30% from their peak thus far as far as I am aware. I'm interested in what people believe will happen next. Will prices continue to fall? To what % of their highest price? 50%? 70%? How long will they keep falling for?

It really is impossible to say what sort of drops there will be, because selling prices are not published. I would also caution you against looking at drops because they can be misleading. If I was trying to sell a 2 bed apartment for €1m last year and drop the price to €500k, even though there has been a 50% drop it's still grossly overvalued as the asking price last year was beyond all levels of sanity. As other posters have pointed out, you should calculate the correct property price in relation to market conditions. Generally, 3-5 times someone's gross income, or a mortgage repayment that is approx 30% of net income, is considered affordable. For this money, a person should be able to afford a property that suits their lifestyle (e.g. small house in the outer suburbs for a young family, large redbrick house for consultant neurosurgeon etc). Another way of looking at the price of a house is in relation to the rental market. Generally, if the purchase price of a property is between 12 and 20 times the annual rent the house is correctly valued. Anything more than 20x will not generate sufficient profit for a rational landlord, anything less than 12x will encourage people to become landlords.

To put these tests in perspective, the average home is about 10x the average wage, and between 30x and 40x the annual rent. As things stand, these point to price drops of approx 50%. With incomes and rents dropping, price drops could be more than 50%. Traditionally in Ireland house prices were buoyed up by the scarcity of available property. Now, there is massive over supply. Whether property prices will ever reach these lows or not is a different story, but certainly in theory (i.e. in a rational economy) prices would drop by at least half.

One other factor to be considered is that property is not selling in any substantial volume at the moment because people are holding out for higher prices. What they don't realise is that while they might value their house at €400k or whatever, if it won't sell the economy values that house at €0.

blobert wrote: »

Secondly I'm interested to see if people think that if after falling, prices are likely to level out and increase again over time? Or are we unlikely to ever see the prices of late 2006/07 again (or not for a very long time). If the way banking is done fundamentally changes and credit is not available at the same levels as before then I suppose this becomes more likely.

As I say, I'd be very interested to here what people think is going to happen in the short (next 1-3 years), medium (3-10 years) and long term (10 years +).

I don't expect many houses will sell until next summer, when a few bad decisions and forced sales will start to emerge. From end 2009-2011 I expect prices to keep dropping and sales to slowly pick up. From 2011 onwards is hard to predict; it all depends on how people react to the new prices. I would like to see prices dropping to a rational level and then keeping broadly in line with inflation, but this is unlikely in reality. More likely is that they will slowly stagnate until the next boom comes along and we have an even bigger headache.

This is all assuming that the world (of banking) doesn't end in the meantime.

bakerbhoy

One other factor to be considered is that property is not selling in any substantial volume at the moment because people are holding out for higher prices. What they don't realise is that while they might value their house at €400k or whatever, if it won't sell the economy values that house at €0.

I believe that its rather a case of no one buying ;
Waiting for the bottom :cool:
cannot secure funding :mad:
Scared/confused

The rest of your post i would agree with

The_Conductor

Was talking to a few estate agents in the past couple of days (post budget). They are reporting an upswing in viewings- but very few sales, particularly in the second hand market. In the new market First Time Buyers are active again- but primarily at price points below 200k. Agents are getting fed up with over priced second hand property on their books that isn't shifting and trying to get sellers to reduce prices, to try to get viewings underway again, but sellers are proving reluctant to do so.

On a related note- looks like rents are going to plummet- it appears that nationwide the supply of rental property is increasing 10% month-on-month, as sellers who are unable to achieve their desired asking prices, are simply putting their properties on the rental market instead.

S.

SimpleSam06

johnnyskeleton wrote: »

Generally, 3-5 times someone's gross income, or a mortgage repayment that is approx 30% of net income, is considered affordable. For this money, a person should be able to afford a property that suits their lifestyle (e.g. small house in the outer suburbs for a young family, large redbrick house for consultant neurosurgeon etc).

Just a quick addendum to your excellent post johnnyskeleton, to be honest I don't really think that percentage of wages paid will have much to do with it. As some have pointed out over the last few months, even the very high prices being charged in 2006 were affordable. They were really terrible value, but they were affordable to a lot of people, as is evidenced by the fact that they sold.

From that perspective, what matters is how much the banks will let you leverage your income. If the banks stop allowing people to get these huge loans (which they have), house prices will drop more in line with supply and demand (multiples of rental rates).

Theboinkmaster

johnnyskeleton wrote: »

Everyone has a vested interest in seeing property prices fall to be honest, because if they don't accomodation costs will remain prohibitively expensive and increase wage demands leading to Ireland being uncompetitive, ultimately leading to a loss of jobs and that that stage people can't afford houses anyway.

It's interesting that people welcome news of drops in food, fuel, clothes, flights, healthcare etc, but are horrified at the drops in accomodation costs. This is primarily because they believed property would increase in price indefinately, but such was unsustainable.

Also, speculation in the property market is more dangerous than speculation in other markets, because while the dot com mess was reasonably easy to tidy up, the property market is much messier.

So while I freely admit that it suits me for property prices to fall as I have not purchased an over-valued property, it is not just my personal interest (vested interest) in seeing drops, but I also recognise that it is important for the economy.



It really is impossible to say what sort of drops there will be, because selling prices are not published. I would also caution you against looking at drops because they can be misleading. If I was trying to sell a 2 bed apartment for €1m last year and drop the price to €500k, even though there has been a 50% drop it's still grossly overvalued as the asking price last year was beyond all levels of sanity. As other posters have pointed out, you should calculate the correct property price in relation to market conditions. Generally, 3-5 times someone's gross income, or a mortgage repayment that is approx 30% of net income, is considered affordable. For this money, a person should be able to afford a property that suits their lifestyle (e.g. small house in the outer suburbs for a young family, large redbrick house for consultant neurosurgeon etc). Another way of looking at the price of a house is in relation to the rental market. Generally, if the purchase price of a property is between 12 and 20 times the annual rent the house is correctly valued. Anything more than 20x will not generate sufficient profit for a rational landlord, anything less than 12x will encourage people to become landlords.

To put these tests in perspective, the average home is about 10x the average wage, and between 30x and 40x the annual rent. As things stand, these point to price drops of approx 50%. With incomes and rents dropping, price drops could be more than 50%. Traditionally in Ireland house prices were buoyed up by the scarcity of available property. Now, there is massive over supply. Whether property prices will ever reach these lows or not is a different story, but certainly in theory (i.e. in a rational economy) prices would drop by at least half.

One other factor to be considered is that property is not selling in any substantial volume at the moment because people are holding out for higher prices. What they don't realise is that while they might value their house at €400k or whatever, if it won't sell the economy values that house at €0.



I don't expect many houses will sell until next summer, when a few bad decisions and forced sales will start to emerge. From end 2009-2011 I expect prices to keep dropping and sales to slowly pick up. From 2011 onwards is hard to predict; it all depends on how people react to the new prices. I would like to see prices dropping to a rational level and then keeping broadly in line with inflation, but this is unlikely in reality. More likely is that they will slowly stagnate until the next boom comes along and we have an even bigger headache.

This is all assuming that the world (of banking) doesn't end in the meantime.

Agree with everything you said johnnyskeleton - excellent post

johnnyskeleton

SimpleSam06 wrote: »

Just a quick addendum to your excellent post johnnyskeleton, to be honest I don't really think that percentage of wages paid will have much to do with it. As some have pointed out over the last few months, even the very high prices being charged in 2006 were affordable. They were really terrible value, but they were affordable to a lot of people, as is evidenced by the fact that they sold.

From that perspective, what matters is how much the banks will let you leverage your income. If the banks stop allowing people to get these huge loans (which they have), house prices will drop more in line with supply and demand (multiples of rental rates).

That's a fair point but (as a footnote to your addendum) what I think is important is the sea change in people's attitudes. It is no longer a case of how much will the bank give me (i.e. mortgage lending based on other people's standards) but how much I want the bank to give me (i.e. people looking at their own standards). Hopefully, people will start to live by the following criteria (or similar):

1) I will not get a mortgage for more than 20/25 years
2) I will only buy a property that I am happy to live in the medium-long term
3) I will not borrow more than 5x my income
4) I will not spend more than 30% of my income on mortgage repayments
5) I will make provision for interest rate increases, temporary loss of employment and any other scenario that might threaten my ability to repay.

If everyone lives by such standards, we will start to see realism in the market. However, I accept that if we have another boom in 10 years time, these standards will once again fall by the wayside.

punchestown

johnnyskeleton wrote: »

That's a fair point but (as a footnote to your addendum) what I think is important is the sea change in people's attitudes. It is no longer a case of how much will the bank give me (i.e. mortgage lending based on other people's standards) but how much I want the bank to give me (i.e. people looking at their own standards). Hopefully, people will start to live by the following criteria (or similar):

1) I will not get a mortgage for more than 20/25 years
2) I will only buy a property that I am happy to live in the medium-long term
3) I will not borrow more than 5x my income
4) I will not spend more than 30% of my income on mortgage repayments
5) I will make provision for interest rate increases, temporary loss of employment and any other scenario that might threaten my ability to repay.

If everyone lives by such standards, we will start to see realism in the market. However, I accept that if we have another boom in 10 years time, these standards will once again fall by the wayside.

Jesus Johnny, you do talk an awful lot of sense. Any chance you could take up a position as advisor to the government?

johnnyskeleton

punchestown wrote: »

Jesus Johnny, you do talk an awful lot of bollox. Any chance you could take up a position as advisor to the government?

Fixed it for you. I'd much rather be a nogoodnick (more opportunity for divilment).

dennistuam

i see on gumtree a lovely looking bungalow reduced by nearly 50 % in ten months in co roscommon,i know its back of beyonds but for 130k it is great value

Hobky

How are you measuring value there Dennistuam?

Dirk Gently

dennistuam wrote: »

i see on gumtree a lovely looking bungalow reduced by nearly 50 % in ten months in co roscommon,i know its back of beyonds but for 130k it is great value

yours?

I was checking out bungalows in the past few weeks. was expecting to see massive drops since I last checked over a year ago but to be honest most of them are in a bad state of repair and miles from anywhere considered close to somewhere. Bit of a drive just to find even a national road on the way to somewhere.

There are houses at the moment in Dublin not that far off in price to a lot of the bungalows I'd consider to be liveable, at least in leinster. Some nice properties in the west / south west / north west alright but I was expecting much bigger falls tbh. When I start seeing nice bungalows with a decent garden / sheds for around 100k in the counties surrounding Dublin then I'll be interested. Give me a bungalow outside of the city rather than a town house or apartment any day.

SimpleSam06

johnnyskeleton wrote: »

but how much I want the bank to give me (i.e. people looking at their own standards)

I doubt it. Even the train wreck thats ploughing its way down the economic motorway towards us at the moment isn't likely to make a dent on the mindset. If people are offered a loan of a million, thats what they'll take. They will probably even be nostalgic for the "good old days", the boom years of the early 21st century, as they pay off the last of their grandparents loans in the early 22nd century.

IanCurtis

SimpleSam06 wrote: »

I doubt it. Even the train wreck thats ploughing its way down the economic motorway towards us at the moment isn't likely to make a dent on the mindset. If people are offered a loan of a million, thats what they'll take. They will probably even be nostalgic for the "good old days", the boom years of the early 21st century, as they pay off the last of their grandparents loans in the early 22nd century.

So true.

The same clowns who'd argue with MBNA to lower their credit limit on their credit cards took the maximum loans offered by their mortgage providers, ignoring their ability to make the loan repayments.

I've little or no sympathy for them. They look at their mortgages as badges of honour.

Guy I work with still talks about his "two properties" rather than his two enormous 30 year loans.

The_Conductor

dennistuam wrote: »

i see on gumtree a lovely looking bungalow reduced by nearly 50 % in ten months in co roscommon,i know its back of beyonds but for 130k it is great value

Not if they jack up the tax on second homes........
You're hardly going to live there in order to commute elsewhere- unless you're a local with a specific need to be housed in the area, its totally immaterial.

Freddie59

gazzer wrote: »

I was lucky enough to sell my house in Dublin a few months back but I have no intention of buying again at the moment. I am now living/renting a house in Cavan where a 4 bed detached house can be got for 700 a month. I am still putting the same amount of money into my account as I was when I had a mortgage (1500 a month) so at the moment I am saving approx 800 a month that will go towards a deposit for a house(along with the money I got from the house sale) when I think the time is right to buy.

I honestly cant see me buying a house for at least 18 months. Even then it will be only after reading extensively on propertypin, boards, politics.ie and from getting all the necessary information as to wheter it is the right time to buy.

That's an interesting one. We've just sold our home (well not quite - signing in next day or two) and we're looking around. Good prices to be had. One auctioneer said that some first-time buyers were underbidding by as much as 40 to 50%. Now some are being told to eff off. But others aren't. I heard of an apartment which was on for €200k recently. Were offered €125k and accepted.

I think I'll follow your lead and rent for a while my friend.:)

JuliusCaesar

Freddie59 wrote: »

I heard of an apartment which was on for €00k recently. Were offered €25k and accepted.

I think that qualifies as OVER bidding!

Freddie59

JuliusCaesar wrote: »

I think that qualifies as OVER bidding!

Indeed! Rectified now.:o:D

jaycen

smccarrick wrote: »

Would you revise this in light of the concensus that the economy itself is forecast to contract for the next 27-30 months (by the Department of Finance)?

ZYX wrote: »

Based on yesterdays budget the average wage is nearer €40,000. (The levy will raise 1.2 billion, 2.1 million in employment) so that means you think average price should be 280,000 which is slightly below where we are now!

Sorry for the late reply guys, was away from the boards

I'd really hope it wouldn't continue to fall for that long, a depression (not recession( would be the end result for the Irish economy, I don't think (hope) we are in that much trouble.

40k maybe an average wage to someone but not to me or any average joe (I'd gladly take it though), wage inflation must stop fast or we'll all be suffering, just my op.

punchestown

jaycen wrote: »

wage inflation must stop fast or we'll all be suffering, just my op.

Looking at -100% judging be the increasing numbers signing on.:eek:

Fozzie Bear

The house beside my girlfriends home place has been for sale for the last 8 months. It's one of 4 houses in their own private, quiet, leafy cul de sac. The house is a 15 minute walk from Eyre Square in Galway city and 4 people have looked at it in those 8 months.

The auctioneer (from one of Galway cities main auctioneering firms) was telling Joe (who owns the house) that her firm has not sold ONE SINGLE house since the end of June and they have hundreds of houses on their books.

Sign of the times lads and lassies. I plan on buying a house in the next year/18 months and the prices should have dropped even further by then. I've been waiting for the worm to turn for years. While all my friends went out and bought I waited thank God and unfortunately most of my mates are already in negative equity.

Whispered

Should we have had any benefit from the ecb drop yet? Fecking banks would send out a letter with a week of it going up. Nothing from them yet about it going down.

shenanigans1982

helena.ryan wrote: »

Should we have had any benefit from the ecb drop yet? Fecking banks would send out a letter with a week of it going up. Nothing from them yet about it going down.

As far as I know they do not have to pass it on, only one I had heard saying they were going to do it was A.I.B. Although considering that the government is willing to use the taxpayers money to bail them out I think they should be made pass it on.

md23040

Lets look at where other speculative instruments are today compared to Irish property which grew the most spectacularly and the most speculative too IMHO.

Gold from peak -30%

Oil from peak -60%

Nikkel from peak -48%

Wheat from peak -53%

Irish Banking Shares from peak -80%

Equity General from peak -47%

Irish Property from peak -20%

Now based on the above all tanking, where do you think it's heading. Based on the mean average -48%.

SimpleSam06

md23040 wrote: »

Now based on the above all tanking, where do you think it's heading. Based on the mean average -48%.

You can't just look at the numbers and make a decision based on that, its means of performance that landed a lot of quants in the mess they are in right now. Gold and oil, similar to most of your list, went through speculative short term bubbles recently as investors fled the securities and property markets and sought to place their money somewhere they perceived as safe. Naturally that wasn't going to last very long, and the realisation that nowhere is safe is beginning to sink in.

Basically I don't honestly think that price fluctuations in other markets are going to have an immense bearing on Irish property prices, comparitively speaking. You need to look at each individually for any given time.

jimmycrackcorm

md23040 wrote: »

Lets look at where other speculative instruments are today compared to Irish property which grew the most spectacularly and the most speculative too IMHO.

Gold from peak -30%

Oil from peak -60%

Nikkel from peak -48%

Wheat from peak -53%

Irish Banking Shares from peak -80%

Equity General from peak -47%

Irish Property from peak -20%

Now based on the above all tanking, where do you think it's heading. Based on the mean average -48%.

Calculating a mean value only applies on a like for like basis otherwise all you are doing is taking a random set of values and then assuming that the smallest figure will follow. I cold equally pick out a number of worse house price falls from places like Baghdad and indicate Irelaand would be the same based on a mean percentage drop.

gally74

some of the experts on Bloomberg are predicting that ECB interest rates could get to 1.5% by mid next year.

i think this will put a floor on property, as for anyone holding on to property its easier to pay the mortgage and for anyone looking to buy it starts to get tempting,

i think property prices will be flat for 5-10 years after this, not a bad thing really, as people can pay back loans and spend money on other things rather than the house they own,

property prices will go donw some more, but its not a constant.

expect apartments, duplex, in poor locations to be worst hit,

SimpleSam06

gally74 wrote: »

i think this will put a floor on property, as for anyone holding on to property its easier to pay the mortgage and for anyone looking to buy it starts to get tempting,

However it might affect people who currently have a mortgage, the Euribor and Libor rates will have more of an affect on whether or not someone can get a mortgage over the coming few years, as well as the general lending environment.

Ironically, for all the weeping and gnashing of teeth being done over the ECB rate rises, when they finally start to cut them, it looks like it no longer matters.

gally74 wrote: »

i think property prices will be flat for 5-10 years after this

Not a chance, for the above reasons.

BobbyD10

gally74 wrote: »

some of the experts on Bloomberg are predicting that ECB interest rates could get to 1.5% by mid next year.

i think this will put a floor on property, as for anyone holding on to property its easier to pay the mortgage and for anyone looking to buy it starts to get tempting,

i think property prices will be flat for 5-10 years after this, not a bad thing really, as people can pay back loans and spend money on other things rather than the house they own,

property prices will go donw some more, but its not a constant.

expect apartments, duplex, in poor locations to be worst hit,

As most banks, if not all, have disposed of tracker products the lowering of the ECB does not directly affect the new buyers to the market, as they will be offered the banks rate and not the ECB rate plus margin.

md23040

SimpleSam06 wrote: »

You can't just look at the numbers and make a decision based on that, its means of performance that landed a lot of quants in the mess they are in right now. Gold and oil, similar to most of your list, went through...

The list is only for illustrative purposes. But with all the money sloshing around credit markets 12 months ago my random list of speculative investments were all frenetically priced. Take away the the speculative element and credit, bingo the floor disappears.

Property is a speculative instrument probably the most so, and most reliant on credit derivatives. All other assets classes are crashing and burning yet property remains only -20% down so far. Why's that, simply because people are still in denial and believe an upturn might be round the corner. Same as a friend of mine who thought Irish bank shares would bounce back above €10

gally74 wrote: »

some of the experts on Bloomberg are predicting that ECB interest rates could get to 1.5% by mid next year.

Base rates are disconnected now from Libor and anyway the nation is maxed out on credit. Availability of cheap credit some mistook to mean a quick road to wealth, this plan falls apart in the present economic scenario.

Interest rates IMO can go all the way to 0% it will not stop the momentum. American rates have been drastically lower than Europe for some time and this hasn't stopped the Shiller index which measures house price growth in the States, going down the toilet.

gally74 wrote: »

i think this will put a floor on property, as for anyone holding on to property its easier to pay the mortgage and for anyone looking to buy it starts to get tempting,

To me this is naive. The real effects to the real economy have yet to be felt. You think the impingement of wages through 1% levy is the end of it - it's just the beginning IMO. All problems stem from America which is only halfway through its natural credit unwind. The real affect will hit the Irish retail miracle next with the highest level of retail space per capita in Europe - the negative multiplier effect will be unreal.

The miracle of congress two weeks ago followed by Gordon Browns planned bailout hailed as a miracle will only last so long. Half the CEE, Far East emerging economies are like Iceland and knocking at the doors of the IMF for assistance. In the States the debt market might be cleared but the local government Muni markets are in a state of collapse. Local government can not raise money through these sources to pay the firemen and police etc. This needs a bailout quickly. Governor Schwarzenegger has issued help pleas to Washington as the largest State in America is unable to pay its bill.

These problems that are systemic and don't bode well for the future. If you don't think these American issues are related to other parts of the world, then remember what happened the localised housing problem in Florida and the fallout from it.

More information on Muni’s - http://en.wikipedia.org/wiki/Municipal_bonds

gally74 wrote: »

i think property prices will be flat for 5-10 years after this, not a bad thing really, as people can pay back loans and spend money on other things rather than the house they own, property prices will go down some more, but its not a constant. expect apartments, duplex, in poor locations to be worst hit,

Not before crashing another 30% [minimum] first - IMHO.

SimpleSam06 wrote: »

However it might affect people who currently have a mortgage, the Euribor and Libor rates will have more of an affect on whether or not someone can get a mortgage over the coming few years, as well as the general lending environment.

Correct this will take years to fix.

md23040

Also the reason why the housing market is not crash and burning yet is because various agencies including government [guaranteeing the banks], banks [still tinkering with the balance sheet] and EA doing nothing along with builders are all in a Mexican stand off and hope the consumer will bite first. But the consumer isn't for biting so the stand off will continue until the first group capitulates fully.

At the moment banks are still moving worthless asset to Structured Investment Vehicles that are off balance sheet and not marking to market the true value of any collateral. The Irish Times had a prime example of this last week of the turmoil facing banks and the various options available. Quote as follows as well as links http://www.irishtimes.com/newspaper/finance/2008/1022/1224454452729.html

In the Republic, where a sale of Taggart's assets seems probable, PriceWaterhouseCoopers is the receiver of four sites. One in Trim includes a finished housing development, and the units there are selling.

Analysts do point out that the banks could argue that the values would mark an "artificial low", but they agree that prices paid would be concrete, and the first indication we've had for a while of real values, as there is little or no market for development land anywhere in Ireland at the moment.

The institutions which sought the appointment of a receiver and administrator to Taggart were Bank of Ireland and Ulster Bank, with which the group did a lot of business. They may not be the only ones affected.In some cases, particularly in the Republic, the banks could have the option of putting the properties in a separate company set up specifically to hold these assets - known as a specific purpose vehicle or SPV. This would allow them to take the properties off their balance sheets, and hold off on a sale until conditions improve.

In this weeks FT - Brussels relaxed accounting rules to allow banks to do this more easily!! This is to prop up what caused the problem in the first place. Intervention will cause the problem to be much longer with more pain. Markets should find their level without manipulation. The 1929 crash was exasperated due to intervention. At present the housing market everywhere is trying to be manipulated rather than having fire sales but it’s a house of cards.