David McWilliams predicts further 50% fall in house prices

Male30something

From today's Sunday Business Post

"...in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying."

road_high

And he hasn't really been wrong so far has he? A bitter pill to swallow but everything he is aying does make sense, unfortunately..

Jimbo

If they fall 50%, won't they generally be below the basic cost of construction?
If so, would this not only be temporary until the over-supply of housing is used up?

oceanclub

Jimbo wrote: »

If they fall 50%, won't they generally be below the basic cost of construction?
If so, would this not only be temporary until the over-supply of housing is used up?

*cries, beats head against wall*

P.

Jimbo

oceanclub wrote: »

*cries, beats head against wall*

P.

Very informative post.

Care to explain?

SoupyNorman

For the people who've purchased property in the last 6years or more I hope David is being slightly sensationalist, for people like me who is waiting for the bottom to be reached before I buy I hope he is being reserved in his forecasts.

You cant help but admit that the article exudes sense and is calling a spade a spade, none of the self-absorbed property journalism is present where the writer says things like 'I believe we've reached the bottom' (with no concrete reasons to back up the statements).

The calculation of Annual rent*12-14 is amazingly simplistic but it is such a fair way to decipher what the value of a property is worth.


Viva le property crash!

homme d'affaire

Jimbo wrote: »

If they fall 50%, won't they generally be below the basic cost of construction?

No, the cost of construction has to and will probably fall too. Electricians/builders/carpenters/etc should not be earning salaries of 50k+.

Jimbo

homme d'affaire wrote: »

No, the cost of construction has to and will probably fall too. Electricians/builders/carpenters/etc should not be earning salaries of 50k+.

Maybe they were earning that in boom, but the cost of construction has plumetted in the last 12 months.

Of course labour, materials and land costs can and will fall more, but if house prices do fall another 50%, they will have to be below the cost of construction. I'm pretty sure trademen won't work for below minimum wage.

oceanclub

Jimbo wrote: »

Very informative post.

Care to explain?

No, because I and many have addressed those two questions over and over again in this forum alone.

P.

TaxiManMartin

Why is he buying up properties then?
My sister is a friend of McWilliams Mrs.
She told me the McWilliams was bidding on several properties over the last few months. I must find out if they actually bought any yet.

Jimbo

oceanclub wrote: »

No, because I and many have addressed those two questions over and over again in this forum alone.

P.

Thank you for your valued input so.

I must have forgotten to check your previous posts before asking valid questions on this thread.

SoupyNorman

TaxiManMartin wrote: »

Why is he buying up properties then?
My sister is a friend of McWilliams Mrs.
She told me the McWilliams was bidding on several properties over the last few months. I must find out if they actually bought any yet.

Where does it say he is buying up property?


To be fair,

You're a Taximan whose sister has a friend whos friends with the authors wife..


Purple-monkey dishwasher, tbh.

I hope he's right. The more they fall the better

SoupyNorman

rarnes1 wrote: »

I hope he right. The more they fall the better

Not exactly, if property prices went to ridiculously low prices you may end up with empty/derelict houses/estates like say images we see in places like Detroit.

What should happen, what David is predicting and all I want is to buy somewhere for it's actual worth (or just below it).

ronbyrne2005

Cost of building is irrellevant when theres such an oversupply. Manufacturers of goods often charge below cost of production when there is an oversupply of their products. So prices have already halved and halve again means 75% fall peak to trough, which seems about right considering the economic collapse we've had, sure Japan dropped 75% back in 1990s and their economy was much stronger then than ours is now.

viztopia

i read another article in the business post today were the writer fo the article stated that property prices had already fallen 40% from their height. so is the sunday busniess posts and Mc Williams believe that property prices are going to fall to 10% of their former value????

mikemac

50% from here, that's 30% of what their max price was, not 10%

oceanclub

His maths is based on the current "good value" price of the house.

So 50% off the current price, yes.

As pointed out before, Irish house prices were about 325% off the "real" price (compared to 175% in the United States).

P.

oceanclub

TaxiManMartin wrote: »

Why is he buying up properties then?
My sister is a friend of McWilliams Mrs.
She told me the McWilliams was bidding on several properties over the last few months. I must find out if they actually bought any yet.

And there's a guy down the chipshop swears he's Elvis.

P.

BendiBus

My only issue with D.McW's calculation is that it's based on rental incomes. They can be just as skewed as sales values. If rents are arseways then so are the property values calculated from them.

Garbage in, Garbage out.

Are rents currently 'correct'? If not, are they too high or too low?

Photojoe

BendiBus wrote: »

My only issue with D.McW's calculation is that it's based on rental incomes. They can be just as skewed as sales values. If rents are arseways then so are the property values calculated from them.

Garbage in, Garbage out.

Are rents currently 'correct'? If not, are they too high or too low?

Rents are too high and will drop considerably.

High unemployment and taxes are here to stay for a good few years in Ireland. In 3-5 years time when interet rates are higher, banks will only be lending 3-4 times salary to securely employed. 50% is a very realistic figure.

SoupyNorman

BendiBus wrote: »

My only issue with D.McW's calculation is that it's based on rental incomes. They can be just as skewed as sales values. If rents are arseways then so are the property values calculated from them.

Garbage in, Garbage out.

Are rents currently 'correct'? If not, are they too high or too low?

Fair enough that rents are probably 'skewed' currently too but following the annual rent*12-14 model no property would even equal what the rental value multiplied by 12-14 is on that property.

It's an elementary way to calculate a property value but at least it has a foundation and a solid reason behind the calculation, not something along the lines of...'we charge what we charge for apartments because they are just off M50 slip road no.3 so access to IKEA is unparalleled'

Senna

Looking at asking prices in my area, I would say there is more than 50% to come off. It may be 50% off what houses are selling for at the moment, i.e 15-25% less than asking, but the majority of properties I see will be worth 60-70% less than asking in a few years.

I'd say we've seen some of the biggest prices drops already (in a short time) and it will be a long drawn out process to get to the bottom, its a pity really, if sellers and developers were more realistic we could have a functioning market much quicker.

spockety

Aye, still a way to go I reckon.

The bulls will tell you that houses have 'never been more affordable', and so on. However I fear they are still using 35/40 year mortgages as the basis for their calculations, and not allowing for inevitable interest rate rises over the period of that mortgage. They'll tell you that salary multiples are an archaic calculation and are no longer relevant given the way interest rates have gone.

Maybe they have a point on that, in the short term. But they probably also thought they had a point on Mortgage Interest Relief making things affordable, and that's on the way out.

But even if you take them at that, and use say a 30% of take home income as a mortgage repayment limit, and given the average house according to the flawed PTSB/ESRI index is 253k, then;

Even on a 25 year mortage at 3.5% (looks like the average current variable), that costs 1,266 a month to service. If that's 30% of your take home you would be pulling hom 4,220 a month, or 50,640 a year. Net. Now I could be wrong, but that to me suggests a gross salary of 80k or thereabouts??

So even as things stand, in order to buy an average house in Ireland, you need to be earning more than double the average wage.

Long way to go folks. Long. Way. To. Go.

p.s. As well as earning more than double an average wage, you also need to have about 25k savings for a deposit lying around.
p.p.s. It also assumes you have no other debt to service (car loan etc.)! And after the blowout of the last 10 years I'll leave it to you to think about how many debt free people there are with 25k+ in their back pockets earning 80k+ waiting to jump on the opportunity to buy an average house.

jmayo

homme d'affaire wrote: »

No, the cost of construction has to and will probably fall too. Electricians/builders/carpenters/etc should not be earning salaries of 50k+.

More than a few still have to cop on tho this fact. :rolleyes:

Jimbo wrote: »

Maybe they were earning that in boom, but the cost of construction has plumetted in the last 12 months.

Of course labour, materials and land costs can and will fall more, but if house prices do fall another 50%, they will have to be below the cost of construction. I'm pretty sure trademen won't work for below minimum wage.

Well then they won't work, will they.
BTW our minimum wage will have to fall as well.
Material prices will have to drop or imports will take over.
It's about time some people woke up to fact that the glory days of demanding certain amounts for often substandard service is well and truly over.

SoupyNorman wrote: »

Not exactly, if property prices went to ridiculously low prices you may end up with empty/derelict houses/estates like say images we see in places like Detroit.

What should happen, what David is predicting and all I want is to buy somewhere for it's actual worth (or just below it).

Ehhh we already have empty estates, half finished estates and derlict half finished houses or haven't you noticed ?

gar_29

spockety wrote: »

But even if you take them at that, and use say a 30% of take home income as a mortgage repayment limit, and given the average house according to the flawed PTSB/ESRI index is 253k, then;

Even on a 25 year mortage at 3.5% (looks like the average current variable), that costs 1,266 a month to service. If that's 30% of your take home you would be pulling hom 4,220 a month, or 50,640 a year. Net. Now I could be wrong, but that to me suggests a gross salary of 80k or thereabouts??

generally agree with what you say, but 50k nett is close to 65 gross, or at least it was before the recent budget. probably 70k now.

and i guess most young people would be happy with 35ish % of take home, which still leaves a nett take home of 3600, 43k nett a year. i guess about 58k gross? still a high salary for an average house.

The_Conductor

Jimbo wrote: »

Maybe they were earning that in boom, but the cost of construction has plumetted in the last 12 months.

Of course labour, materials and land costs can and will fall more, but if house prices do fall another 50%, they will have to be below the cost of construction. I'm pretty sure trademen won't work for below minimum wage.

Our minimum wage is the second highest in the whole world. There is precisely zero justification for it to be set at this artificially high level. It too will have to be severely chopped to reflect our changed economic circumstances.

kmick

I for one am looking forward to the day where houses in Rathgar where I live fall from 1m at the peak to 250k (i.e. the 75% drop predicted on here).

spockety

gar_29 wrote: »

generally agree with what you say, but 50k nett is close to 65 gross, or at least it was before the recent budget. probably 70k now.

and i guess most young people would be happy with 35ish % of take home, which still leaves a nett take home of 3600, 43k nett a year. i guess about 58k gross? still a high salary for an average house.

Ok I punched the numbers in here:

http://www.deloitte.ie/tc/Default.aspx

You need to go to 80k to pull home 50k a year.

67k to pull home the 43k you mention.

Given that houses in the depths of Ballymun (no offence to anyone, just an example) are still asking 300k, which is 50k more than the ESRI average, things are still.... well... very wrong.

D3PO

Male30something wrote: »

From today's Sunday Business Post

"...in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying."

the same David McWilliams that is championing Ireland to remove itself from the Euro.

I used to have high time for McWilliams as a respected Economist. Over the last 6 months or so It seems hes more interested in selling papers and sensationalism than actually looking at the economic facts

partyguinness

Man am I glad I didnt buy 2 years ago.

I put down a deposit on a brand new house for €290k. I got a 100% mortgage and was already to sign papers.

Went skiing and changed my mind...wanted to have more fun before getting a 40 yr mortgage.

The houses are now on the market for €190k only half of them got built. Thats 100k less and not to mention that in mortgage repayments over 40 yrs.

Lucky escape.:eek:

SoupyNorman

jmayo wrote: »

Ehhh we already have empty estates, half finished estates and derlict half finished houses or haven't you noticed ?

Ehhh (right back at you), these estates are in Roscommon and Leitrim and the rest of the BMW region. Planning permission was granted on sites in the arse of nowhere, all part of the building craze. Who in their right mind would or could live there?

Are saying there are 'new build' derelict houses, as I have not seen any.

Half finished houses better stay half finished for the sake of the economy but in the grand scheme of things its's a flippant number that wont have a real impact.

ntlbell

D3PO wrote: »

the same David McWilliams that is championing Ireland to remove itself from the Euro.

I used to have high time for McWilliams as a respected Economist. Over the last 6 months or so It seems hes more interested in selling papers and sensationalism than actually looking at the economic facts

can you tell us some specifics where you think he is wrong and why you think that is?

or are you just making general statements about him with no thought process behind it?

niceirishfella

oceanclub wrote: »

And there's a guy down the chipshop swears he's Elvis.

P.

LOL - but the Taxidriver must be right.....shure they always are.:D

uRbaN

I'm in the boat of hope that my property will only fall by 33% of its original value. That I may be able to come to terms with. Should it fall to 50% of its value I am shackled to it for the rest of my life unless

1. It goes on fire
2. A fire breathing dragon does me a favour

Either way, I'm hearing fire right now

The_Conductor

SoupyNorman wrote: »

Ehhh (right back at you), these estates are in Roscommon and Leitrim and the rest of the BMW region. Planning permission was granted on sites in the arse of nowhere, all part of the building craze. Who in their right mind would or could live there?

In many cases not only was bizarre planning permission granted- but the units were also wholly or substantially tax deductable. I.e. over a 12 year period- they could be written off against *all* tax. The tax allowances on these properties is acknowledged to have accounted for in excess of 80% of their financial value. Totally aside from just how appropriate it is to build in many of these locations- the reason many of them sold at ridiculous prices- is precisely because of the level of bribery built into the purchase. You could get people to live in igloos on an iceberg moored off Donegal- if you gave them sufficient financial incentive to do so.......

SoupyNorman wrote: »

Are saying there are 'new build' derelict houses, as I have not seen any.

There are entire estates in Monasterevin, Portlaoise and further down the Cork road that are defacto ghost towns. If you go up side roads towards Kildangan (the famous equine stud) you will luxury estates on the market with between 1/3 and 1/2 the properties vacant. I'm not even going to comment on the N4 west of Maynooth.......

SoupyNorman wrote: »

Half finished houses better stay half finished for the sake of the economy but in the grand scheme of things its's a flippant number that wont have a real impact.

Why? Surely half build houses will provide reasonable employment at better than social welfare levels for competent construction workers in dark economic days? How do you reckon its a flippant number in any case? Most developers have critical cashflow problems- and are either on lifesupport, or very close to it. Borrowings are the lifeblood of developers- and no-one is interested in lending to them. How many units are wholly or partially built and vacant. Depending on how you phrase the question- the CIF will give you answers between 25,000 and 140,000 units. Admittedly both upper and lower figures are probably cynical exagerations to prove whatever point it is they are making- suffice to say- there is most probably 4 or 5 years supply were market normalisation to occur.

oceanclub

smccarrick wrote: »

There are entire estates in Monasterevin, Portlaoise and further down the Cork road that are defacto ghost towns. If you go up side roads towards Kildangan (the famous equine stud) you will luxury estates on the market with between 1/3 and 1/2 the properties vacant. I'm not even going to comment on the N4 west of Maynooth.......

In the US, they've already started to demolish new estates. I have absolutely no doubt this will also happen here in the next 5 years:

http://www.usnews.com/blogs/fresh-greens/2009/05/05/what-a-waste-new-homes-demolished-by-bank.html

P.

The_Conductor

uRbaN wrote: »

I'm in the boat of hope that my property will only fall by 33% of its original value. That I may be able to come to terms with. Should it fall to 50% of its value I am shackled to it for the rest of my life unless

1. It goes on fire
2. A fire breathing dragon does me a favour

Either way, I'm hearing fire right now

The rate of fall is dependent on two factors-

1- Location
2- Type of property

Anything in a fairly central location will always have an inherent value associated with it- whatever that might be.

Apartments are going to be millstones- both because of the management charges associated with them- but also because of the limitations they place on owners.

Its very difficult to establish open market selling prices in the current climate. Banks are depreciating independent valuations by up to 30% to work out a 'mortgage valuation' for properties. Bank of Ireland seem to be leading the charge on this one.

If you accept that a mortgage value on a property is 25-30% below the independent valuation (which is already the case for apartments in the Dublin suburbs- such as Lucan) then for certain house classes we are already back at 1999-2000 valuations (and they are continuing to fall). Note: this is not the case (yet) for freehold residential property (of any nature).

Ps- if it accidentally burns down- regardless of what you have it insured for- the maximum you will be allowed to claim is the cost of reconstruction of the unit (providing you are not underinsured).

D3PO

ntlbell wrote: »

can you tell us some specifics where you think he is wrong and why you think that is?

or are you just making general statements about him with no thought process behind it?

I have plenty of thought behind it.

In terms of house prices I think even the most negative amongst us cannot see a further 50% drop in house prices.

Of course there is going to be further correction in the market but 50% is excessive. I dont believe McWilliams has put thought into this at all and is sensaitionalising.

now if he had his way and removed ireland from the Euro then yes we would see more than a 50% drop in house prices because the Irish Pound would devalue at a significant rate.

this would be worse fro the economy as interest rates would ikely rise and more people would struggle to pay thier bills including mortgages putting us into a deeper hole.

on the flip side our export business would become stronger but i dont think that even begins to cover the negatives that would occur in terms of FDI, loss of ECB support, and so on and so forth.

again I think hes sensationalising its almost the norm for McWilliams of late.

niceirishfella

oceanclub wrote: »

In the US, they've already started to demolish new estates. I have absolutely no doubt this will also happen here in the next 5 years:

http://www.usnews.com/blogs/fresh-greens/2009/05/05/what-a-waste-new-homes-demolished-by-bank.html

P.

wow...........amazing.:o

SoupyNorman

smccarrick wrote: »

In many cases not only was bizarre planning permission granted- but the units were also wholly or substantially tax deductable. I.e. over a 12 year period- they could be written off against *all* tax. The tax allowances on these properties is acknowledged to have accounted for in excess of 80% of their financial value. Totally aside from just how appropriate it is to build in many of these locations- the reason many of them sold at ridiculous prices- is precisely because of the level of bribery built into the purchase. You could get people to live in igloos on an iceberg moored off Donegal- if you gave them sufficient financial incentive to do so.......

Well I agree here.

smccarrick wrote: »

There are entire estates in Monasterevin, Portlaoise and further down the Cork road that are defacto ghost towns. If you go up side roads towards Kildangan (the famous equine stud) you will luxury estates on the market with between 1/3 and 1/2 the properties vacant. I'm not even going to comment on the N4 west of Maynooth.......

They are unoccupied, not derelict.

smccarrick wrote: »

Why? Surely half build houses will provide reasonable employment at better than social welfare levels for competent construction workers in dark economic days? How do you reckon its a flippant number in any case? Most developers have critical cashflow problems- and are either on lifesupport, or very close to it. Borrowings are the lifeblood of developers- and no-one is interested in lending to them. How many units are wholly or partially built and vacant. Depending on how you phrase the question- the CIF will give you answers between 25,000 and 140,000 units. Admittedly both upper and lower figures are probably cynical exagerations to prove whatever point it is they are making- suffice to say- there is most probably 4 or 5 years supply were market normalisation to occur.

I believe it is a flippant number in terms of current supply, I dont see any point in finishing the properties which will just add to the rising waters.
It's a grand idea to get construction workers off social welfare and working to finish these properties but the reality is that the properties are scattered across the country, half a house here...2/3rds of an apartment complex there, developers and builders have no funds for the completions anyway. (the land the property is on is more valuable in many instances)

HashSlinging

Originally Posted by oceanclub View Post
In the US, they've already started to demolish new estates. I have absolutely no doubt this will also happen here in the next 5 years:

Wow thats shocking stuff, very good find..

not sure I could see that happening in Ireland. We dont have the massive repossessions they have, so its a bit far fetched to say in 5 years this will be happening here. Dont loose the run of yourself.

partyguinness

Big difference with the US is

You can go bankrupt several times during your lifetime in the US and still borrow etc.

In Ireland it carries with you forever. That makes things alot easier in US plus Ireland is so small everyone hears everything.

CiaranC

D3PO wrote: »

I have plenty of thought behind it.

In terms of house prices I think even the most negative amongst us cannot see a further 50% drop in house prices.

Speak for yourself.

The_Conductor

HashSlinging wrote: »

Originally Posted by oceanclub View Post
In the US, they've already started to demolish new estates. I have absolutely no doubt this will also happen here in the next 5 years:

Wow thats shocking stuff, very good find..

not sure I could see that happening in Ireland. We dont have the massive repossessions they have, so its a bit far fetched to say in 5 years this will be happening here. Dont loose the run of yourself.

Mortgage interest relief is abolished after 7 years, and reduced for everyone else- at a time when we have the lowest interest rates, ever, and repossessions are soaring. The agreement to a 2 year moratorium on repossessing delinquent mortgages is the only thing stopping a bloodbath at the moment.

Look at it this way-

Unemployment is currently at 11.8% and continuing to climb
Interest rates are traditionally (in an EU, not an Irish context) 4 times the level they are currently at
Market supports- such as mortgage interest relief is being withdrawn
Income distortion such as non-means tested children's benefit is being reduced
Taxes are significantly higher (the increases on the 1st of May have reduced my net monthly income by EUR90), and there are further increases imminent in December

So- fewer people working, earning less money, getting less government assistance towards purchasing- a depreciating asset- that is going to cost them more as interest rates start to increase again.

We have the potential to be a whole lot worse than the US in the medium term.......

partyguinness

CiaranC wrote: »

Speak for yourself.

Another 50% drop means that the banks need to write off another 50% of bad debts...effectively doubling the bail out from the Gov.

So Irish banks really are dead and just hallow vessels?

Wages will have to take a proportionate hit also I would imagine.

CiaranC

50% fall from current selling prices is not 50% of 2006 selling prices. They have already dropped 40-60%, depending on who you believe.

suprasonic

Im 25 with a full time job,im looking to buy on my own at the end of the year im supposing this is good new for me as the most i can get is 125,000 on my own?

The_Conductor

suprasonic wrote: »

Im 25 with a full time job,im looking to buy on my own at the end of the year im supposing this is good new for me as the most i can get is 125,000 on my own?

Why is it good news? It really doesn't make financial sense buying in the current market- irrespective of the price and location. If there are factors totally independent of finances at play- its a different story. The Irish really have to get over their hangup on 'having' to own property (at any cost......)

ntlbell

D3PO wrote: »

I have plenty of thought behind it.

In terms of house prices I think even the most negative amongst us cannot see a further 50% drop in house prices.

Of course there is going to be further correction in the market but 50% is excessive. I dont believe McWilliams has put thought into this at all and is sensaitionalising.

ok, but why can you not see another 50% drop what's going to prevent that?

can you explain why you cannot see it?

partyguinness

Ireland has one of the highest rates of home ownership in the world if not the highest.

We the Irish are obsessed with it...then again any change in this attitude will have to come with stronger rights and security for tenants.