Have price's bottomed out?

Jesh1

Righty Folks,

I am seriously considering buying now. I have found a property in a location which i could never afford at the height of the boom?

My plan is to rent it out and live with the folks until i am ready to move out. I can see myself living in this area for some time. The renting aspect is to have cash to enjoy the remaining late 20's of my life.

Am I making a bad decision?

Danbo!

In my opinion, yes.

The part of your post that really stands out to me is "The renting aspect is to have cash to enjoy the remaining late 20's of my life." If you want to enjoy the rest of your twenties, do it now with your current income and without a property looming over you.

While you don't give any indication of prices, it seems this property has just become affordable to you. The rent you may take might cover mortgage costs now, but interests rates will rise, and you could (read: probably will) end up having to pay extra on top of rent received to cover the mortgage.

Being a landlord is not an easy task, there is no longer queues of tenants ready to hand you cash. You cant assume you'll get €x a month and multiply it by 12, and take that as a yearly income. Bear in mind service costs, repairs, time between tenancies, tax etc.

Piriz

hi,
i suggest you have a look at this thread for some valid facts and opinions...
http://boards.ie/vbulletin/showthread.php?t=2055847048

Perhaps, if you tell us the region or area in which you are considering, you will get a less general response..

Amhran Nua

Jesh1 wrote: »

Righty Folks,

I am seriously considering buying now. I have found a property in a location which i could never afford at the height of the boom?

My plan is to rent it out and live with the folks until i am ready to move out. I can see myself living in this area for some time. The renting aspect is to have cash to enjoy the remaining late 20's of my life.

Am I making a bad decision?

You lose significant tax advantages if you rent the house out I believe, as long as its your first property purchase and your PPR relief will cut down on mortgage payments quite a bit. Also I have no idea of your personal circumstances but if you were going to go to a bank and suggest they give you a mortgage on the strength of renting it out to make the repayments, they won't give you a mortgage.

As long as there is 3-5 years natural demand sitting unsold throughout the country, property wont really have bottomed. It might be a good idea to save up the same amount as the mortgage repayments for a few years as well and see how it works financially for you. The worst that can happen is you'll have a bigger deposit at the end of the day, hence lower interest payments.

Jesh1

Piriz wrote: »

hi,
i suggest you have a look at this thread for some valid facts and opinions...
http://boards.ie/vbulletin/showthread.php?t=2055847048

Perhaps, if you tell us the region or area in which you are considering, you will get a less general response..

Interesting reading...thx
I'm looking at a mature development in Lucan.
The property is been sold by a LL. He was about to take it off the market to rent it out again until I offered a slightly higher bid. (The estate agent is a good friend so I have no reason to doubt her)
I'm not looking to make a profit out of renting it as I can see a future home for myself so I don’t mind if I need to pay some extra cash to cover the mortgage when interest rates rise.
I just don’t want to see house prices drop 100K if I sign the dotted line.

Jesh1

@ Amhran Nua....

You make some valid points.
I can afford the mortgage payments if i cannot find tenants
I'm kinda blue in the face saving and possibly becoming impatient.

Still have the jitters tho

Amhran Nua

I find it hard to envision any sort of scenario where property prices will rise much before the end of the decade to be honest, and they will most likely drop a bit further yet. Every extra euro you put into the deposit will save you 2-3 euros in the long run, and it also means you have a nice safety net if something unforeseen comes along and you wanted to for example go abroad for work.

Then again if its a place you can see yourself living long term, raising a family in, perhaps its not a bad idea - I would strongly urge that you seek professional advice on the tax and relief implications of renting the place out before you make any decisions however.

Jesh1

Stee wrote: »

In my opinion, yes.


tax etc.

Cheers Stee........


TAX, TAX , TAX.....I really hate that word
I'm a FTB......are the Gov. still going to come knocking on my door asking me to cough up? :mad:

Jesh1

Amhran Nua wrote: »

- I would strongly urge that you seek professional advice on the tax and relief implications of renting the place out before you make any decisions however.

Duly noted......its something I haven’t looked into yet. Hopefully my EA friend can enlighten me! Thanks again

Diairist

how can I put this politely? YES

moving out before 2 years are up can be fatal:

http://www.citizensinformation.ie/categories/housing/owning-a-home/buying-a-home/stamp_duty

Clawback of stamp duty relief

A stamp duty clawback arises where rent, other than under the 'Rent a Room scheme' is obtained within the 5 year period (or up to the date of a sale during this period) from the date of the purchase deed. The amount of the clawback is the difference between (a) the stamp duty payable at the higher rates which would have applied at the date of the purchase deed and (b) the lower duty (if any) paid as a result of getting the benefit of the reduced stamp-duty rates.
Reduction of claw-back period: for purchase deeds dated on or after 5 December 2007 the clawback period is reduced to 2 years. Where a property was purchased before 5 December 2007 but was rented on or after that date, there will be no claw back of stamp duty relief if it is rented in the 3rd, 4th or 5th year of ownership.

Jesh1

So basically because I do not pay stamp duty big brother wants a percentage of my rental income.
Dammed if ya do and dammed if ya don’t.

Ok, so far the majority of people say hold off. (incl. the link posted by Piriz)
But can prices really drop that much In Dublin?
I know nothing is immune. I can’t see more than 20-30% decrease in the places like Lucan/Swords etc
However commuter towns like Navan are a whole different ball game, they are much more likely to see a greater % decrease.

gurramok

You will pay tax on that rental income as well remember.

Jesh1 wrote:

I can’t see more than 20-30% decrease in the places like Lucan/Swords etc

Take the reverse of . In 2003, if someone said "I can't see prices rising 20-30%", they were wrong. They doubled between 2003 and late '05.

So, there is no reason why your target areas won't go any lower, nothing is stopping their prices from falling.

There may be demand anywhere in Dublin, the question is can that demand afford the prices? At the moment, no.

North_West_Art

Jesh1 wrote: »

Interesting reading...thx
I'm looking at a mature development in Lucan.
The property is been sold by a LL. He was about to take it off the market to rent it out again until I offered a slightly higher bid. (The estate agent is a good friend so I have no reason to doubt her)
I'm not looking to make a profit out of renting it as I can see a future home for myself so I don’t mind if I need to pay some extra cash to cover the mortgage when interest rates rise.
I just don’t want to see house prices drop 100K if I sign the dotted line.

2 year old 3-bed semi, 1500 sq ft, on new development, newly fitted kitchen etc. over the road from me, sold at auction 2 months ago for 100k, Im in Donegal (I'll post a photo if anyone wants)

Amhran Nua

Jesh1 wrote: »

Hopefully my EA friend can enlighten me!

I'd take a wander down to the revenue office to be honest, get the information straight from the source. You can rent out rooms in a house you are physically living in under the rent a room scheme which offers some advantages I believe.

robd

Jesh1 wrote: »

So basically because I do not pay stamp duty big brother wants a percentage of my rental income.
Dammed if ya do and dammed if ya don’t.

Ok, so far the majority of people say hold off. (incl. the link posted by Piriz)
But can prices really drop that much In Dublin?
I know nothing is immune. I can’t see more than 20-30% decrease in the places like Lucan/Swords etc
However commuter towns like Navan are a whole different ball game, they are much more likely to see a greater % decrease.

If you are buying a house with the clear intention of renting it out then you do not qualify for first time buyer relief so you must pay stamp duty.

As an landlord, you have to pay tax on rental income less a deduction of 75% of mortgage interest regardless of ftb status.

If you buy as an investor for your first house then you can never avail of the first time buyer stamp duty relief.

You must borrow from bank as investor not as a residential customer. Rates are higher. I don't believe any of the banks are currently approving investor mortgages at the moment though.

Most properties in Dublin are currently still only generating circa 3.5% rental yield whereas the long term norm is about 7%. It's been like this for the last 10 years. This would suggest either rents need to double or house prices need to half. Realistically given deflation, job losses and availability of rental properties, there is little or no chance of rents increasing over the next 10 years. So house prices have 50% drop still to go.

Doesn't sound like you've really crunched the numbers or checked your tax and financial liabilities on this one.

danbohan

North_West_Art wrote: »

2 year old 3-bed semi, 1500 sq ft, on new development, newly fitted kitchen etc. over the road from me, sold at auction 2 months ago for 100k, Im in Donegal (I'll post a photo if anyone wants)

yea i see lots them here in leitrim now for 110k , 115 k , prob 40- 60 k below cost building them , but that was then this is now , they are still seriously overpriced , places like leitrim , donegal etc have probably 10 years supply houses empty or partially built , the population of both places will drop in next 10 years , dublin and east coast will recover to some extent but unless you plan on living in house for very long time id hold off for another year or 2

spockety

Jesh1 wrote: »

Righty Folks,

I am seriously considering buying now. I have found a property in a location which i could never afford at the height of the boom?

There was no boom. There was a bubble.

Investigate what an asset bubble is.
Investigate it in the context of Irish house prices over the last 12 years.
Put a lot of effort into these investigations, as you are looking at the possibility of spending hundreds of thousands of euro.

Once you have investigated, you should be able to answer for yourself in a more educated way whether or not Irish property prices have 'bottomed out', or whether they will fall further from here.

OMD

Jesh1 wrote: »

I know nothing is immune. I can’t see more than 20-30% decrease in the places like Lucan/Swords etc
.

I don't know much about Swords but I know Lucan reasonably well. The big problem in Lucan is Adamstowm which is a huge area of current and future housing. Supply is going to outstrip demand in this area for a long time to come.

Plus, I know this will cause complaints but how many people actually want to live in Lucan.

jmayo

Jesh1 wrote: »

Righty Folks,

I am seriously considering buying now. I have found a property in a location which i could never afford at the height of the boom?

My plan is to rent it out and live with the folks until i am ready to move out. I can see myself living in this area for some time. The renting aspect is to have cash to enjoy the remaining late 20's of my life.

Am I making a bad decision?

YES.

Jesh1 wrote: »

So basically because I do not pay stamp duty big brother wants a percentage of my rental income.
Dammed if ya do and dammed if ya don’t.

Excuse me why shouldn't big brother, as you call the revenue, want a percentage of your rental income.
Remember you plan to have it initially as an investment and not your home.
When it becomes your home then you are not getting an income out of it and thus shoudl not be paying tax.
BTW why should we, the other taxpayers, be subsidising your little nest egg, your future possible home ?

This mindset of using property as a path to riches and a means to finance your lifestyle is dangerous.
It fuelled the bubble and if you keep believing it, without doing your research, you will get into serious trouble.

Jesh1 wrote: »

Ok, so far the majority of people say hold off. (incl. the link posted by Piriz)
But can prices really drop that much In Dublin?
I know nothing is immune. I can’t see more than 20-30% decrease in the places like Lucan/Swords etc
However commuter towns like Navan are a whole different ball game, they are much more likely to see a greater % decrease.

For once the majority are right.
Yes prices can drop further in Dublin, or have you as spockety points out, any idea of what a bubble is ?
BTW take spockety's advise and research how a bubble really works.
We have not come out the far end of the fallout as of yet, thanks in no small part to the way the government are artifically going to tie up prices and supply through NAMA.
To a degree sellers are in denial, banks aren't really foreclosing, developers/builders aren't being forced to offload and the only thing really moving is the smarter ones jumping ship or executor sales.

Don't believe this fallacy that certain areas or certain types of property are immune.
Everything will be dragged down, it is only a question of degree.

Put some of you money in long term investments, not property.
Then keep an eye on the market and when things have settled down to something resembling normality then move.

connundrum

A theory I have for another upcoming dip in property prices:

Come May/June 90% of students will be going home from rented accomodation. In years previous, students used to pay for accomodation right through the summer in order to secure the house/apartment for the following academic year.

I'd suggest that this situation will not be repeating itself to any great extent this year, which should leave a whole lot more housing stock empty over the summer.

Now, if you were a LL under pressure during the year, you'd probably want to wait until your current tenants (students) left until you'd consider selling i.e. why let go of an income stream until it lets go of you. More LL's will be under pressure this summer than last year, with expected and current hikes in interest rates along with a possibility of having no rent through the summer.

Does anyone else see a bit more stock coming online in the May/June/July period?

Gurgle

Jesh1 wrote: »

My plan is to rent it out and live with the folks until i am ready to move out. I can see myself living in this area for some time. The renting aspect is to have cash to enjoy the remaining late 20's of my life.

Am I making a bad decision?

What decision?
If you're considering a buy-to-let, with a notion of selling it on at a profit in a few years then yes thats crazy.

If you're buying a home you plan to live then its not a financial decision, its a lifestyle decision so nobody can comment objectively.

fontanalis

Jesh1 wrote: »

Righty Folks,

I am seriously considering buying now. I have found a property in a location which i could never afford at the height of the boom?

My plan is to rent it out and live with the folks until i am ready to move out. I can see myself living in this area for some time. The renting aspect is to have cash to enjoy the remaining late 20's of my life.

Am I making a bad decision?

Join the real world, houses aren't some commodity that guarantees you a certain lifestyle. You're not even thinking of investing but speculating, I think Frontline had a lot of people on last night who got burned doing just that.

jmayo

connundrum wrote: »

A theory I have for another upcoming dip in property prices:

Come May/June 90% of students will be going home from rented accomodation. In years previous, students used to pay for accomodation right through the summer in order to secure the house/apartment for the following academic year.

I'd suggest that this situation will not be repeating itself to any great extent this year, which should leave a whole lot more housing stock empty over the summer.

Now, if you were a LL under pressure during the year, you'd probably want to wait until your current tenants (students) left until you'd consider selling i.e. why let go of an income stream until it lets go of you. More LL's will be under pressure this summer than last year, with expected and current hikes in interest rates along with a possibility of having no rent through the summer.

Does anyone else see a bit more stock coming online in the May/June/July period?

No the big dips when the desperation enters the market.
Part of this could kick in when the moratorium on repossessions ends and we finally see institutions moving to foireclose.
Of course in ireland that is a long process but you might see more examples of jingle mail from younger unattached buyers.

Also the big one that will cuase major market movement is interest rates, which in all likely hood will rise before end of year.
Add in another budget probably this year to compensate for falling returns and you have recipe for investors to start dumping.

Banks are having lots of meetings with people who are trying to renegotitate their mortgages and there is feeling in the business that once rates go up even those just surving on trackers will be in major trouble.

D3PO

jmayo wrote: »

even those just surving on trackers will be in major trouble.

I wouldnt think there are too many people in that position. If you have a tracker you will have your mortgage a few years by association and will have therfore been paying rates of probably upwards of 2% more than the current rate at some stage and being able to afford it.

I wouldnt imagine that even with increased taxes and paycuts most people on a tracker would be ok for some rate increases before being put to the pin of their collar (assuming there still in employment which renders what kind of mortgage they have irrelevent in the context of affordability)

AARRRRGH

When you actually see sustained price rises - thats when they will have bottomed out. Not before. You'll have missed the bottom at that point but that probably makes no difference.

ricman

Look at the economy, firms closing down, unemployment rising,emigration up , i think we will see another 3 years of declining prices.MOST areas have an over supply, when nama takes over it may start rent out thousands of empty apartments.and ITS hard to get a mortgage now, decreasing the supply of ftbs.
IF you wanna buy a house in a quiet area and say i,m gonna live here 4 ,30 years ,well if the value goes down by 30per cent then its not a economic disaster 4 you.
They government is bringing in new taxes, water charges etc which will slow down a recovery.
LOOK at japan it never recovered from the property bubble.
The next year will see interest rates rising.

spockety

D3PO wrote: »

I wouldnt think there are too many people in that position. If you have a tracker you will have your mortgage a few years by association and will have therfore been paying rates of probably upwards of 2% more than the current rate at some stage and being able to afford it.

I wouldnt imagine that even with increased taxes and paycuts most people on a tracker would be ok for some rate increases before being put to the pin of their collar (assuming there still in employment which renders what kind of mortgage they have irrelevent in the context of affordability)

It doesn't need "most people" to be in trouble to have an effect. A small enough percentage represents thousands of properties.

seamus

gurramok wrote: »

Take the reverse of . In 2003, if someone said "I can't see prices rising 20-30%", they were wrong. They doubled between 2003 and late '05.

Your comment is apt, though the figures aren't directly transferable.
A 20% drop involves more money than a 20% rise. That is, when you say that prices doubled between '03 and '05, in order for them to return to '03 prices again, that's a 50% drop. So therefore a 50% drop in prices is twice the amount of money involved in a 50% rise.

If you get what I'm getting at. What I mean is that a 30% drop from '05 prices would have been 60% of the value that it increased by from '03 which is tending towards a complete reversal. The 30% figure makes it appear as though the correction isn't as severe as you're expecting.

To make an actual point here:

According to here

The average house price in Ireland in 2000 was €253,200.
The average house price at the peak of Jan 2007 was €381,200

That represents a 50.5% increase in prices over those 7 years. Nice money if you got it.

Recent figures suggest that the average house price has dropped 31.5% since Jan 2007, which would put the average house price at €261,096.

This figure is only 3.1% above the year 2000 house prices, not 20% (as the percentages would suggest). So in "real terms", the prices are almost back to 2000 levels.

If we go back to the 1997 levels (which prices increased 120% from!), then it would require prices to drop another 35% (on the current - 23% on the peak). Not impossible certainly, but it's close to the "most pessimistic" end of the scale. Even at that, if you expect prices to drop back that far, we're already most of the way there as opposed to only being at the beginning.

Percentages are so horrible messy and can be so misleading.

The actual facts are that if prices continue to drop for the next three years @ 13% per year, we will be back to 1997 levels. Markets crash much quicker than they boom. I don't personally think that kind of drop is likely over 3 years unless the indications of the end of the recession turn out to be premature.

gurramok

Seamus, i wasn't comparing figures literally as i do know the maths

What I was comparing was the wisdom that what was thought of in 2003 was impossible when it was possible(doubling of prices 2-3yrs later).
Transfer that today with the 'reverse' with drops instead or rises, and that 50% drop from now may or may not be possible, just don't rule it out

mathie

seamus wrote: »

Your comment is apt, though the figures aren't directly transferable.
A 20% drop involves more money than a 20% rise. That is, when you say that prices doubled between '03 and '05, in order for them to return to '03 prices again, that's a 50% drop. So therefore a 50% drop in prices is twice the amount of money involved in a 50% rise.

If you get what I'm getting at. What I mean is that a 30% drop from '05 prices would have been 60% of the value that it increased by from '03 which is tending towards a complete reversal. The 30% figure makes it appear as though the correction isn't as severe as you're expecting.

To make an actual point here:

According to here

The average house price in Ireland in 2000 was €253,200.
The average house price at the peak of Jan 2007 was €381,200

That represents a 50.5% increase in prices over those 7 years. Nice money if you got it.

Recent figures suggest that the average house price has dropped 31.5% since Jan 2007, which would put the average house price at €261,096.

This figure is only 3.1% above the year 2000 house prices, not 20% (as the percentages would suggest). So in "real terms", the prices are almost back to 2000 levels.

If we go back to the 1997 levels (which prices increased 120% from!), then it would require prices to drop another 35% (on the current - 23% on the peak). Not impossible certainly, but it's close to the "most pessimistic" end of the scale. Even at that, if you expect prices to drop back that far, we're already most of the way there as opposed to only being at the beginning.

Percentages are so horrible messy and can be so misleading.

The actual facts are that if prices continue to drop for the next three years @ 13% per year, we will be back to 1997 levels. Markets crash much quicker than they boom. I don't personally think that kind of drop is likely over 3 years unless the indications of the end of the recession turn out to be premature.

Has it not been shown that all bubbles give up all the gains that were made over the course of the bubble?

And if 1997(ish) is seen as the start then is that not where we're headed?

spockety

Ireland is different.

seamus

gurramok wrote: »

Seamus, i wasn't comparing figures literally as i do know the maths

I know, sorry I wasn't implying that you had it wrong, just illustrating that the scales are different.

mathie wrote: »

Has it not been shown that all bubbles give up all the gains that were made over the course of the bubble?

Has it?

No, Ireland is not different, but there is one particular factor which needs to be taken into account, and that's actual economic growth. The jump in average wages and quality of life in this country soared between 1997 and 2007, and hasn't contracted by anything close to the same degree that house prices have. And it's not going to - we're not going to go back to 1997 wage levels. Remember that we started from a very low economic base - the entire economy wasn't based on a bubble like Japan's was.

So if you consider that had the bubble not occured, the average house price would still have increased in line with inflation, to reflect the increased buying power of the average person. To keep it simple, let's ignore the small impact that construction workers wages had on the average.

The average wage increased by 53% in the period 1998 - 2006. Roughly 6.5% per year. If you take a leaner figure for a healthy economy and estimate 4% inflation per year over that period, then the average price of a house in 2010 *should be* around €210,000 - €220,000.

Which indicates to me that houses at present are still 12.5% - 15% overvalued - assuming that credit is available relatively freely and wages stay static.

Of course those last two assumptions probably won't hold. But credit will free up again and wages won't collapse to 1997 levels.

ricman

THE INDEPENDENT today has a report from a bond rating company that says home prices will go down by at least 20per cent more, in ireland..SEE independent.ie , property

AARRRRGH

seamus wrote: »

I know, sorry I wasn't implying that you had it wrong, just illustrating that the scales are different.

Has it?

No, Ireland is not different, but there is one particular factor which needs to be taken into account, and that's actual economic growth. The jump in average wages and quality of life in this country soared between 1997 and 2007, and hasn't contracted by anything close to the same degree that house prices have. And it's not going to - we're not going to go back to 1997 wage levels. Remember that we started from a very low economic base - the entire economy wasn't based on a bubble like Japan's was.

So if you consider that had the bubble not occured, the average house price would still have increased in line with inflation, to reflect the increased buying power of the average person. To keep it simple, let's ignore the small impact that construction workers wages had on the average.

The average wage increased by 53% in the period 1998 - 2006. Roughly 6.5% per year. If you take a leaner figure for a healthy economy and estimate 4% inflation per year over that period, then the average price of a house in 2010 *should be* around €210,000 - €220,000.

Which indicates to me that houses at present are still 12.5% - 15% overvalued - assuming that credit is available relatively freely and wages stay static.

Of course those last two assumptions probably won't hold. But credit will free up again and wages won't collapse to 1997 levels.

Quite right. I remember starting a job on £19,000 in 1996 and i thought it was a great wage then. Far from it now though.