She says buy, I say wait - who's right?

rediguana

Hello,

My wife and I are in our late twenties and, ordinarily, we would be actively house hunting about now. We're sick of renting (no garden, ugly Dunnes furniture, having to hide our cat).

Anyway, she is desperate to buy. Obviously, houses are cheaper than they were. And apparently if you ask for tens of thousands of euro of you will get it (though I did read that, unsurprisingly, estate agents are just factoring in the "discount" to the price, so it isn't as much of a bargain as you might think).

I'm aghast at the prospect of signing up to a thirty or forty-year mortgage when the market still seems to be tanking, and the bad news continues every day. I'm strongly opposed to buying until I am reading regularly, and from independent sources, that the market is near the bottom.

I feel there is little risk in waiting six or twelve or eighteen months. In the meantime, we can (try to) organise our finance and get everything in place so that we're ready to pounce when things have reached their nadir.

Buy low, isn't that the idea?

Obviously, nobody can be certain about when is the best time to buy. But surely now isn't it?

jobless

go with your gut feeling.... you are right to wait...

would you prefer to be sick of renting or sick that you might be in 30 k negative equity this time next year?

mrgaa1

you could be right - but you could also get a chance to buy your new home in an area where you want to. If you are planning on staying there for quite some time then over the long term your house will be an investment. Rent money is only good if you want to up sticks and move every so often.

davgtrek

No wait another 6-12 months. listening to an economist on radio last week who nailed the recession with his last book had a new book out. he was being interviewed and when asked about house prices he said only a mug would buy now thinking it had bottomed out. He felt it had another long way to fall and that at least next year was the time to buy.
He also reckoned that Ireland was facing 10 years before growth again.

Grim enough stuff so defo wait.
Like was said on another thread wait and wait until you hear that prices have just started to rise by like 1 %. that way you are sure you ar buying at the bottom.

rediguana

Thanks,

When we buy, there is a good chance that we will live in the house forever; it's not to sell on / make a profit off per se. The reason I want to wait is so that we end up getting a mortgage for (e.g.) €50K less for the same place.

She's tempted because mortgage repayments, at current interest rates and house prices, would be easily affordable for us. But why get locked in at (e.g.) €900 per month for thirty-five years when we can sit on our hands for a year and get the same house for €750 per month?

PCPhoto

dont buy.

is_that_so

Nothing to stop you looking anyway. You may also find that dream home, which negates that whole negative equity argument. As others have commented it depends on how much longer you can put up with rented accommodation. Perhaps a short term solution is to try to find nice accommodation to make the wait more tolerable.
Either way it strikes me that no-one really knows when the market will bottom out. There are good well-argued guesses but that's it. For the average punter IMO it comes down to circumstances as to when a property is good value to buy.

jobless

rediguana wrote: »

Thanks,

When we buy, there is a good chance that we will live in the house forever; it's not to sell on / make a profit off per se. The reason I want to wait is so that we end up getting a mortgage for (e.g.) €50K less for the same place.

She's tempted because mortgage repayments, at current interest rates and house prices, would be easily affordable for us. But why get locked in at (e.g.) €900 per month for thirty-five years when we can sit on our hands for a year and get the same house for €750 per month?

mortgage rates wont be this low forever, maybe only for a couple of years... remember the 50 k you might save on the mortgage cost will also nearly save you another 50 k over the life of the mortgage...

google the life cycle of housing busts or the reports from morgan kelly... it'll tell you the average bust is 6-7 years, we're still at the early stages of ours... and personally i think ours may be a lot worse than average!

Mr. Presentable

is_that_so wrote: »

Nothing to stop you looking anyway. You may also find that dream home, which negates that whole negative equity argument. As others have commented it depends on how much longer you can put up with rented accommodation. Perhaps a short term solution is to try to find nice accommodation to make the wait more tolerable.
Either way it strikes me that no-one really knows when the market will bottom out. There are are good well-argued guesses but that's it. For the average punter IMO it comes down to circumstances as to when a property is good value to buy.

This is pretty much it.

When people post here they ask the opinions of strangers. Inexperts. Agendaists. You should not base your decisions on the opinions of posters here - only you know when it is right for you

rediguana

My friend is an actuary in London and he was saying that a "fair" value for a house is 16-17 times the annual rent that a property generates, and that by that reckoning there is still some way to go.

Yeah, we kind of are looking. But for me that's the thin end of the wedge. If we see a nice place there is a risk we'll jump on it.

As an aside, there have been some terribly ugly places built in this country over the past few years. When I see how small some places (especially apartments) are and how poorly-designed and soundproofed many of them are, I lose any sympathy I might have had for the current woes of builders.

Is it really so hard to design attractive apartments like you might see on the continent?

rediguana

Nipplenuts, I'm going for the wisdom of the crowds here

With all due respect to the power of Boards, I won't base any life-changing decisions on one of its threads. It's just kind of a starting point. Anecdotal stuff has its place. Read the papers and much of the info is skewed and biased.

mikewest

Ask her how much extra she is willing spend to buy now. Use one of the mortgage calculators out there and set the rate at a "normal" average rate i.e. 5% or greater not our current historic lows. Then input the price of the house today into the calculator and note the total repayments over the life of the mortgage e.g €300,000 will require €580,000 total repayments while if you wait for 12 months of the current price drops you will probably buy the same house for €250,000 requiring €483,000 in total over 30 years and leaving you richer to the tune of €97,000 for a wait of 12 months. Do your own calculations and figure how much you will save over your lifetime by waiting. Maybe she can be convinced this way.

rediguana

mikewest wrote: »

Ask her how much extra she is willing spend to buy now. Use one of the mortgage calculators out there and set the rate at a "normal" average rate i.e. 5% or greater not our current historic lows. Then input the price of the house today into the calculator and note the total repayments over the life of the mortgage e.g €300,000 will require €580,000 total repayments while if you wait for 12 months of the current price drops you will probably buy the same house for €250,000 requiring €483,000 in total over 30 years and leaving you richer to the tune of €97,000 for a wait of 12 months. Do your own calculations and figure how much you will save over your lifetime by waiting. Maybe she can be convinced this way.

I think this is a great way of looking at it, thanks. I'll definitely be showing her this.

rediguana

Thanks everyone. i'll be offline for a while, but I'll check back later.

colsku

You're dead right... It would be a terrible decision to let your (wife's) emotions cloud your judgment and buy now.

A serious amount of info on www.thepropertypin.com

Murtinho

As someone said, no harm in looking, check out peak prices, loads of info on the pin etc and take 30-40% off that, put in a few low ball bids if you find something you like but remember your the one calling the shots and that there is serious money to be saved.

oceanclub

rediguana wrote: »

We're sick of renting (no garden, ugly Dunnes furniture, having to hide our cat).

So rent a place with a garden and no furniture. That's what we're about to do when our lease if up; for the current rental price of our city 1-bed, it seems easy enough to get a 2-bed house in the 'burbs.

P.

Gurgle

Only thing I would add: Don't expect the current interest rates to last too long, daft & their radio ads would have you believe 'its cheaper to buy than rent'. Sure it is, this month, but you're going to be paying that mortgage for a long time.

Do your calculations for an ECB rate of 5% and see how it works out.

Colin12

now isn't the time 2 buy you would be mad 2. the market will drop even more over the next few years. however if you plan 2 live there forever it can be a different story. way up the pro's and the con's how much will you spend on rent between now and when you do actually buy would it make more sense to actually buy now. however plans are made to be changed very few people stay in the one house forever so if you buy now and in a few years your circumstances change you will most definately make a loss on the sale of the property. happy hunting

ZYX

mikewest wrote: »

Ask her how much extra she is willing spend to buy now. Use one of the mortgage calculators out there and set the rate at a "normal" average rate i.e. 5% or greater not our current historic lows. Then input the price of the house today into the calculator and note the total repayments over the life of the mortgage e.g €300,000 will require €580,000 total repayments while if you wait for 12 months of the current price drops you will probably buy the same house for €250,000 requiring €483,000 in total over 30 years and leaving you richer to the tune of €97,000 for a wait of 12 months. Do your own calculations and figure how much you will save over your lifetime by waiting. Maybe she can be convinced this way.

Every time this comes up I respond in the same way. You are not taking inflation into account. In real terms if inflation rate is the same as the interest rate over the 30 year term you will only save the original €50,000. If average interest rates over next 30 years are lower than inflation, then, in real terms, your saving after 30 years will be less than the original €50,000.

Xiney

Inflation is very rarely higher than interest rates. Even at the height of the boom in Ireland inflation never touched 6%.

mikewest

ZYX wrote: »

Every time this comes up I respond in the same way. You are not taking inflation into account. In real terms if inflation rate is the same as the interest rate over the 30 year term you will only save the original €50,000. If average interest rates over next 30 years are lower than inflation, then, in real terms, your saving after 30 years will be less than the original €50,000.

I'm sorry but what you are saying does not make the least bit of sense. Assuming an average 5 % interest rate for a 30 year lifespan of a mortgage then it will cost you €97,000 more to buy a house at €300,000 than it will cost you to buy a house at €250,000 regardless of the intervening inflation rate. In fact if the inflation rate is higher than average the differential between the two costs will be even greater as interest rates will be hiked up to "control" inflation and mortgage rates always exceed inflation rates when averaged over time or the lender loses money.

ZYX

mikewest wrote: »

I'm sorry but what you are saying does not make the least bit of sense. Assuming an average 5 % interest rate for a 30 year lifespan of a mortgage then it will cost you €97,000 more to buy a house at €300,000 than it will cost you to buy a house at €250,000 regardless of the intervening inflation rate. In fact if the inflation rate is higher than average the differential between the two costs will be even greater as interest rates will be hiked up to "control" inflation and mortgage rates always exceed inflation rates when averaged over time or the lender loses money.

Yes it will save you €97,000 but that is in 2039. I am talking about "real terms" The buying power of the money depends on inflation in the mean time. To put it in context, think what you can buy with €97,000 now and what you could buy with it in 1979 then you will get the idea.

mikewest

ZYX wrote: »

Yes it will save you €97,000 but that is in 2039. I am talking about "real terms" The buying power of the money depends on inflation in the mean time. To put it in context, think what you can buy with €97,000 now and what you could buy with it in 1979 then you will get the idea.

No, you are saving yourself about €270 per month every month for 30 years. Personally I would prefer to have that €270 per month rather than giving it to a developer or specualtor for an overpriced house but thats just me.

ZYX

mikewest wrote: »

No, you are saving yourself about €270 per month every month for 30 years. Personally I would prefer to have that €270 per month rather than giving it to a developer or specualtor for an overpriced house but thats just me.

€210 a month not €270. Listen I am not saying it's not good to save €50,000 if this is what happens, but people have to be realistic. €50,000 is not €97000.

kmick

I agree that now may not be the time to buy as prices are likely to fall further. But everyone says oh I am going to wait until we reach the bottom. Problem with that is who calls the bottom. Also the bottom is not going to be the same for all types of housing. In other words a 3 bed semi in Rochestown in Cork (desirable location, desirable size) is going to reach and bounce off the bottom a lot faster than a 1 bed apartment in Mahon (less desirable area, less desirable size). There was a development in Dublin near the Phoenix Park and a train station (Ashtown I think) which recently sold out of a special offer of a 1 bed apt for 158k (Desirable price, desirable location, undesirable size). So now lets say that the bottom has been reached in that area as properties in that location at that price are selling. http://www.daft.ie/searchnew_development.daft?id=8442&search=1

So now lets assume you have an area (Bishopstown), a size (3 bed semi 1000sq ft) and a price in mind (225,000). What you need to do is look for a fire sale, a sale due to a parent passing away, or less palatably a repossession sale. In this case the current value of say nominally 250,000 becomes very negotiable. So all of a sudden you are building in a buffer against further falls.

Not taking into account the fact that yourt rent is paying someone elses mortgage,you and your cat may not have to sneak around any more and that your wife is likely to nag you mercilously on this (the nesting factor) you should get your finances in order now and start looking around. Get to know the market intimately. What is falling fast, what is falling slowly, where are other first time buyers buying and why would that be, which banks are lending, how much can you borrow, how safe are your jobs etc etc etc. You have no defence if you are not armed with all the facts. You may not buy now or in the next 12 months but information is king. because of the number of variables at play here the one size fits all answer you are looking for here just does not exist.

Caveat emptor

mikewest

ZYX wrote: »

€210 a month not €270. Listen I am not saying it's not good to save €50,000 if this is what happens, but people have to be realistic. €50,000 is not €97000.

Please check your figures. The difference for an "average" 5% rate is approx €1610 pm for €300,000 and approx €1340 pm for €250,000. The €50,000 initial difference becomes €97,000 purely because it is based on a €300,000 mortgage. This is all assuming a low average interest rate for 30 years but we have seen interest rates in the high teens for long periods in this country in the past and this is where anyone overpaying for a house will get royally screwed as economic recovery works it way through the system

El Stuntman

rediguana wrote: »

She's tempted because mortgage repayments, at current interest rates and house prices, would be easily affordable for us. But why get locked in at (e.g.) €900 per month for thirty-five years when we can sit on our hands for a year and get the same house for €750 per month?

if you need to take out a 35 year mortgage, you can't afford it, simple as - it will cost you a fortune in extra interest too.

wait until you can comfortably afford the repayments on a 20/25 year mortgage, prices are only going one direction

Borzoi

kmick wrote: »

I agree that now may not be the time to buy as prices are likely to fall further. But everyone says oh I am going to wait until we reach the bottom. Problem with that is who calls the bottom.

Also, no one will be able to call the bottom until after it happens, and some of the doomsayers around here will then go into talking about dead cat bounces etc etc.

Use your best judgement, buying a home isn't just a financial transaction

Freddie59

To the OP:

As well as www.thepropertypin.com check these also:

www.treesdontgrowtothesky.com

www.irishpropertywatch.com

www.irishhometruths.com

And oh - DON'T BUT FOR A WHILE YET.

We viewed a house in a new development in Waterford City yesterday.

1200 sq ft 3-bed semi-D. Beautiful house. Was on at €335k up to last week. Now reduced to €245k - fully furnished. And there will be more to come. There are some 350,000 unsold units in the country. TWENTY YEARS SUPPLY according to some.

krugerrand

rediguana wrote: »

Nipplenuts, I'm going for the wisdom of the crowds here

With all due respect to the power of Boards, I won't base any life-changing decisions on one of its threads. It's just kind of a starting point. Anecdotal stuff has its place. Read the papers and much of the info is skewed and biased.

Glad that you won't base any of your life-changing decisions based on what you read in a thread on Boards.ie. You'll find a lot of evangelical types here on Boards who will try and convince you that house prices will be falling for years on end. I would strongly advise you to use your common sense to reject much of what these doomsday merchants are peddling on Boards.ie and on some of the more extremist internet forums for irish property. Many of these doomsday merchants have a vested interest; they attempt to scare potential purchasers (mainly first-time-buyers) from buying by "talking down" house prices in the hope that the doomsday merchant himself will be able pick up a house on the cheap. You can spot them a mile away.