"Houses are now more affordable than they have been in a generation"

mgadget

Independent.ie
First-time buyers are still not tempted by cheaper houses
By Charlie Weston
Tuesday May 25 2010

HOUSES are now more affordable than they have been in a generation -- but few first-time buyers are tempted to buy, new figures show.

House prices have fallen so sharply that it takes just more than 12pc of an average first-time-buyer couple's income to repay a mortgage, the EBS/DMK housing-affordability index shows.

But despite the continuing drop in affordability, the number of new buyers jumping on the property ladder is a fraction of the level it was during the housing boom.

National average house prices are still falling and are predicted to drop below €140,000 over the next year.

A major reason for the lack of demand in the housing market is the continuing falls in rents.

Another set of figures released by Daft.ie yesterday showed that rents fell again in the past few months, as there is a glut of rental properties.

The latest housing-affordability index found that the average first-time house-buyer couple are paying 12.6pc of their joint income in mortgage repayments, compared with 26pc three years ago.

The index shows that the average new-buyer couple were paying €644 a month in mortgage repayments in April.

This is down from €1,323 a month that the same couple would have paid at the height of the boom in December 2006.

Economist Annette Hughes of DKM Consultants said affordability was at its highest level in a generation.

She said average house prices had fallen from a peak of €360,000 in December 2006 to just under €200,000.

However, she predicted that the average price nationally would come down to less than €140,000 over the next year.

Repayments

The affordability index measures the proportion of after-tax income required to meet first-year mortgage repayments for an 'average' working couple -- each on average earnings and with a 90pc mortgage.

It takes into account mortgage rates, changes in the level of mortgage-interest relief and is based on average earnings and average first-time-buyer new house prices.

Recent figures from the Irish Banking Federation showed that just 2,300 first-time buyers took out mortgages in the first three months of this year.

This compared with almost 10,000 first-time buyers taking out a mortgage in the autumn of 2006, when the housing market was ballooning.

Mortgage brokers said yesterday that new buyers were finding it almost impossible to get approval for a mortgage.

Chief executive of the Irish Brokers Association, Ciaran Phelan, said it "has never been more difficult to get a mortgage in the Irish market."

He said new buyers were being deterred from buying by lenders demanding that they have a large deposit.

Meanwhile, figures from property website Daft.ie yesterday indicated that residential rents fell by 0.5pc in the first three months of this year, with the average nationwide rent now standing at €760 per month.

Rents in Dublin have fallen by 14pc in the past year, by 12pc in Cork and by 13pc in Limerick. Ronan Lyons, an economist with Daft, said there were signs that the rental market was stabilising.

_____________________________________________________________

MarvinMartian

Their article doesn't really make sense. They start by saying first time buyers aren't tempted by the low prices and then go on to say that first time buyers are finding it impossible to get mortgages... Now I'm no housing expert but surely these two things are related.

syklops

They are also forgetting that nowadays when they talk about a couple buying a house, both are in some form of employment. Which is a relatively new thing in Ireland. When I was growing up(Not a hundred years ago either) it was more usual for the Man to go to work, and the woman to stay at home.

From the article:

House prices have fallen so sharply that it takes just more than 12pc of an average first-time-buyer couple's income to repay a mortgage, the EBS/DMK housing-affordability index shows.

So an average couple is what? Two 30-year olds both on the standard industrial wage of 35k a year? What happens when she starts having sprogs? They lose half their income, so their outgoing for the house have now been raised to 24%.

In the 70s and 80s when a couple were buying a house them getting a mortgage was generally based on the deposit, and the assumption than the male would be employed for the duration of the mortgage. If things got tight she could get a small job to help with the payments. Things were tight but it was manageable.

Nowadays, the mortgage is based on deposit and both people being in employment for the duration of the mortgage, so if things get tight for one of them and they dont have as much coming in, there is no way out, no extra help that can go their way. No wonder first time buyers are being careful.

Zamboni

As a potential FTB who can merely sit back and watch the market, I have two key issues that I do have control over.

a) Increasing deposit/savings
b) Mobility

Obviously (a) is easy whilst the market is in decline.
(b) just makes sense to me as a private sector worker.
If I signed up to a mortgage now and lost my job in 2 years, I'd be screwed like the rest of them.
The longer I rent, the bigger deposit I have and if at least if lose my job I am not tied to a location and can hunt wherever needs be for another income.

Zamboni

Why on earth was the OP accompanied a thumbs down?

mgadget

Zamboni wrote: »

Why on earth was the OP accompanied a thumbs down?

Because I am a cynic. I suppose the phrase "There are lies, damn lies and then there are statistics." comes to mind when I read the statement in the article.

As noted by syklops, implied by the research of EBS/DKM is what constitutes 'affordability', it is a double income household with a gross household salary of around €80k making a monthly mortgage of €644 for the next 35 or 40 years. Their research suggests this is what FTB's are actually doing?

If houses are the most affordable they have been in a generation!!, what defined affordability in the generation gone by? I have yet to purchase a home and like yourself, I continue to build a deposit/relocation fund.

While the article is a mixed bag, I guess to provide balance, the affordability statement is what stood out to me.

Rabidlamb

The main reason for cold feet is the realisation that we still haven't reached the bottom.
Recent liquidation sales have given glimpses of the true value of property.
Things wont take off again until Morgan Kelly or David McWilliams call the bottom.

gurramok

"The affordability index measures the proportion of after-tax income required to meet first-year mortgage repayments for an 'average' working couple -- each on average earnings and with a 90pc mortgage"

Because 1% ECB rates. They conveniently forget to say what happens from year 2 to year 35 when rates will rise.

alb

mgadget wrote: »

But despite the continuing drop in affordability....

It was difficult to read beyond this line, what terrible journalism. Not content to base the article on the meaninglessly subjective term 'affordability', the article about the increases in affordability manages within a few lines manages to confuse things by erroneously speaking of continuing drops in affordability.

astrofool

syklops wrote: »

They are also forgetting that nowadays when they talk about a couple buying a house, both are in some form of employment. Which is a relatively new thing in Ireland. When I was growing up(Not a hundred years ago either) it was more usual for the Man to go to work, and the woman to stay at home.

From the article:


So an average couple is what? Two 30-year olds both on the standard industrial wage of 35k a year? What happens when she starts having sprogs? They lose half their income, so their outgoing for the house have now been raised to 24%.

In the 70s and 80s when a couple were buying a house them getting a mortgage was generally based on the deposit, and the assumption than the male would be employed for the duration of the mortgage. If things got tight she could get a small job to help with the payments. Things were tight but it was manageable.

Nowadays, the mortgage is based on deposit and both people being in employment for the duration of the mortgage, so if things get tight for one of them and they dont have as much coming in, there is no way out, no extra help that can go their way. No wonder first time buyers are being careful.

More and more women are working these days, and the numbers will only keep on rising. The next thing to happen will be a revolution in childcare, which has been long overdue (allowing companies to hire an outside company to run the on site childcare would be a help). I don't see employment numbers of women ever going back to the 70's/80's levels (in % terms), which makes it very hard for the average male to have a wife at home minding the kids.

An actuarian will probably correct me, but a debt would probably be less risky with two incomes paying it off, than with one income.

ei.sdraob

astrofool wrote: »

An actuarian will probably correct me, but a debt would probably be less risky with two incomes paying it off, than with one income.

no the amount of debt will just rise inline

as has already happened

astrofool

ei.sdraob wrote: »

no the amount of debt will just rise inline

as has already happened

Assuming the amount of debt was the same (i.e. market forces will be what pushes it higher, and make the single income couple riskier).

syklops

More and more women are working these days, and the numbers will only keep on rising. The next thing to happen will be a revolution in childcare, which has been long overdue (allowing companies to hire an outside company to run the on site childcare would be a help). I don't see employment numbers of women ever going back to the 70's/80's levels (in % terms), which makes it very hard for the average male to have a wife at home minding the kids.

I appreciate that there are more women in the workplace and its a good thing, but the result is it has driven up house prices for everybody, and made it more difficult for some to get a house.

gurramok

syklops wrote: »

I appreciate that there are more women in the workplace and its a good thing, but the result is it has driven up house prices for everybody, and made it more difficult for some to get a house.

Exactly. All the affordability surveys for the past several years are based on a couple. Its as if singletons were leppers.

They should never base a mortgage soley on a couple as we all know if one income is lost due to illness/kids/loss of job, it creates a serious debt scenario.

dan_d

syklops wrote: »

I appreciate that there are more women in the workplace and its a good thing, but the result is it has driven up house prices for everybody, and made it more difficult for some to get a house.

I see your point but it sounds like you're blaming women for the property boom!!!!!!
I grew up in the 80s as the child of 2 working parents and one of 4 siblings, and while it was different at the time, I couldn't ever see myself choosing to stay at home voluntarily. I personally feel that I'm entitled to my life too...I don't want to just be " a mother" at some point in the future.

Anyway, I know you didn't mean it as it kind of sounds, and your point is right to an extent. But house prices are also tied to wages. People can only afford to spend a certain percentage of their wage packet every month on a mortgage. Therefore as wages drop, house prices should be affected also. Obviously there are other external factors too. But if wages are rising and mortgages are being based on 2 people's incomes AND banks are prepared to give out 100% mortgages with long terms on them....the result is the free for all that's happened. If they had been giving 100% mortgages with 20 year terms.....house prices wouldn't have shot up so much. If wages hadn't risen....house prices wouldn't have shot up so much.Etc, etc.

It was a combination of all the factors above that allowed the market to rise, and it was then driven by the this idea peddled by the media of "getting your foot on the ladder"....stupid phrase! The big question now is how to fix the mess...to me the biggest problem this country has right now is the number of people tied into huge mortgages and how they can affrod to repay them.

astrofool

gurramok wrote: »

Exactly. All the affordability surveys for the past several years are based on a couple. Its as if singletons were leppers.

They should never base a mortgage soley on a couple as we all know if one income is lost due to illness/kids/loss of job, it creates a serious debt scenario.

As opposed to one income being lost in a sole provider family? What's the debt scenario then?

Women are getting higher grades at leaving cert, more are going on to third level education, and more are graduating, and getting higher level degrees than men across the board.

Either this gets reversed by law, or we will continue to see dual income families as the norm. The brain drain of sending all women to the house when babies arrive would be enormous, as well as p*ssing away all the tax payers money spent on education.

This of course relegates singletons and single income families to smaller properties, and less desirable areas. This isn't "fair" but I don't see how you would stop it. Also, if affordable is getting better for couples, then it's also getting better for singles/sole earner families.

Calina

astrofool wrote: »

Women are getting higher grades at leaving cert, more are going on to third level education, and more are graduating, and getting higher level degrees than men across the board.

They are not necessarily getting paid more - in fact most research suggests that they are still economically less powerful than men.

With respect to the whole stay at home mothers - the issue here is that society does not adequately reward such women economically for their contribution to society. Having children is a huge contribution to society - ask anyone trying to work out the pensions time bomb issue - but for it, women do not actually get very much more than a pat on the back, economically speaking; they wind up with lower pensions, work interruptions, career break ups, lower paid jobs, less opportunity to exploit those higher academic achievements.

In this respect, society is basically broken.

In any case, with regard to the pensions issue, I haven't seen anyone mention the fact that in 2000, the average salary multiple that a bank would hand out was around 3 times primary salary plus one and a half times secondary salary. Five and six times joint salary is not unheard of in the last few years either.

In this respect the whole system is broken.

astrofool

Calina wrote: »

They are not necessarily getting paid more - in fact most research suggests that they are still economically less powerful than men.

With respect to the whole stay at home mothers - the issue here is that society does not adequately reward such women economically for their contribution to society. Having children is a huge contribution to society - ask anyone trying to work out the pensions time bomb issue - but for it, women do not actually get very much more than a pat on the back, economically speaking; they wind up with lower pensions, work interruptions, career break ups, lower paid jobs, less opportunity to exploit those higher academic achievements.

In this respect, society is basically broken.

In any case, with regard to the pensions issue, I haven't seen anyone mention the fact that in 2000, the average salary multiple that a bank would hand out was around 3 times primary salary plus one and a half times secondary salary. Five and six times joint salary is not unheard of in the last few years either.

In this respect the whole system is broken.

You're right, and this is why the next step is going to be a revolution in childcare. There is no way that taking a trained professional out of the workforce will pay for itself economically. This may eventually lead to pay parity, but may also lead to women having to share certain rights with men (e.g. 6 month (p)maternity leave could be taken by the father or the mother, or shared, with a smaller defined length of time being given to the mother after childbirth).

gurramok

astrofool wrote: »

As opposed to one income being lost in a sole provider family? What's the debt scenario then?

Women are getting higher grades at leaving cert, more are going on to third level education, and more are graduating, and getting higher level degrees than men across the board.

Either this gets reversed by law, or we will continue to see dual income families as the norm. The brain drain of sending all women to the house when babies arrive would be enormous, as well as p*ssing away all the tax payers money spent on education.

This of course relegates singletons and single income families to smaller properties, and less desirable areas. This isn't "fair" but I don't see how you would stop it. Also, if affordable is getting better for couples, then it's also getting better for singles/sole earner families.

If that one earner took out a small mortgage with that sizeable deposit, its more manageable when they lose a job and its a different kettle of fish than that one earner taking out a massive mortgage. (likewise for couples)

Welfare would assist here as both people would be entitled to welfare assistance but if one was working servicing a huge mortgage while the other was on the dole, they'd get hardly any assistance.

On debt, it depends on the level of debt offered them. Most banks just simply doubled the size of the mortgage available when that 2nd income was added. That is wrong. My view is that it should be halfway between what a singleton would be offered and what the dual income couple would maximumly get to account of scenarios when the 2nd income is lost.

Secondly, not everyone who buys or wants to buy is part of a couple and the market did not reflect that in the prices during the bubble years.

gurramok

astrofool wrote: »

You're right, and this is why the next step is going to be a revolution in childcare. There is no way that taking a trained professional out of the workforce will pay for itself economically. This may eventually lead to pay parity, but may also lead to women having to share certain rights with men (e.g. 6 month (p)maternity leave could be taken by the father or the mother, or shared, with a smaller defined length of time being given to the mother after childbirth).

On childcare, have women really advanced? They earn money to advance themselves but they(like men) are locked to a job to service a mortgage. Worst if that mortgage is a jumbo one and in negative equity. Once that child comes, that child loses daily parental care as that child has to be thrown into a creche which is paid for by their parents who work damn hard for it!.

Calina

This is slightly off topic, but the revolution that is required is not in childcare but in worklife balance. To benefit both parents and not just the female.

We are lightyears away from it though.

astrofool

gurramok wrote: »

If that one earner took out a small mortgage with that sizeable deposit, its more manageable when they lose a job and its a different kettle of fish than that one earner taking out a massive mortgage. (likewise for couples)

Welfare would assist here as both people would be entitled to welfare assistance but if one was working servicing a huge mortgage while the other was on the dole, they'd get hardly any assistance.

On debt, it depends on the level of debt offered them. Most banks just simply doubled the size of the mortgage available when that 2nd income was added. That is wrong. My view is that it should be halfway between what a singleton would be offered and what the dual income couple would maximumly get to account of scenarios when the 2nd income is lost.

Secondly, not everyone who buys or wants to buy is part of a couple and the market did not reflect that in the prices during the bubble years.

People generally take out mortgages to the maximum the bank will give them, rightly or wrongly, they always have, even pre-bubble days.

You need to back up your view with actuarial analysis (which hopefully the banks would have done, and not got themselves into the mess they are in now).

Prices in the bubble years reflected that singletons were in competition with couples for property. This meant they went in with friends, or settled for 1 bed shoeboxes.

I don't see how this can be enforced, unless you stop certain properties being bought by dual earning couples?

Couples are also seen as more stable, esp. if married with a kid, less likely to up and leave the country, and determined to keep a roof over their head, than a singleton without responsibilities.

astrofool

Calina wrote: »

This is slightly off topic, but the revolution that is required is not in childcare but in worklife balance. To benefit both parents and not just the female.

We are lightyears away from it though.

Both myself and wife are on flexitime and can work from home, it's very hard to see what else could be done, without going down the shared jobs route (and the income loss that entails).

Socialist policies are great, until someone has to pay for them.

No, I think childcare will be the first thing that gets tackled.

Calina

astrofool wrote: »

Both myself and wife are on flexitime and can work from home, it's very hard to see what else could be done, without going down the shared jobs route (and the income loss that entails).

Socialist policies are great, until someone has to pay for them.

No, I think childcare will be the first thing that gets tackled.

If you have that, you are in a fortunate position. A lot of people don't get flexitime, part time or working from home; the majority I would say.

This is not a socialist policy. Capitalism needs children as well. It is not getting them.

The commuting load on people is also impacted by the work life balance thing.

astrofool

Calina wrote: »

If you have that, you are in a fortunate position. A lot of people don't get flexitime, part time or working from home; the majority I would say.

This is not a socialist policy. Capitalism needs children as well. It is not getting them.

The commuting load on people is also impacted by the work life balance thing.

What I'm saying is that to go beyond that (flexitime/work from home) requires a more socialist policy, and when you see France having to back down on their retirement age, and weekly hours, there can't be much confidence that working mothers and fathers will get anything. Childcare, however, can be tackled, and made to pay for itself, and encourage people to have children.

ei.sdraob

Calina wrote: »

Capitalism needs children as well.

why? to maintain a pensions pyramid scheme??

:rolleyes:

Calina

ei.sdraob wrote: »

why? to maintain a pensions pyramid scheme??

:rolleyes:

Well yes. And to provide a market.

ei.sdraob

Calina wrote: »

Well yes. And to provide a market.

and that requires an ever growing population? markets dont care if there are 6 billion people with a dollar each or 6 million people with a thousand dollars each, a business that relies on population growth is flawed from the start

you think you should be payed for having children (and already are), while people in many parts of the world dont even think in such a perverse manner

Zamboni

ei.sdraob wrote: »

and that requires an ever growing population? markets dont care if there are 6 billion people with a dollar each or 6 million people with a thousand dollars each, a business that relies on population growth is flawed from the start

Correct.
Why we would as a nation be encouraging reproduction is beyond me.
The services are not there. The resources are not there. The employment capacity is not there. The houses...(ok )

Back on topic, the calculations in the original article to evaluate 'affordability' are simply flawed. Future interest rates are ignored, actual cost of reproduction is ignored, excessive loan term is used. Pointless.

Treehouse72

Some people seem to be talking about 2-income households as though it's a lifestyle choice like picking out a new sofa or iPod. Or perhaps a philosophical matter of the degree of the sociological emancipation of women...."Oh yes, let's both go out and get jobs. How wonderful!" Like couples simply decide how many incomes they'll have and go out and make it happen.

Come on. There are 500,000 people unemployed and about 1.4m households...do the math and see whether it adds up that couples are still choosing their work arrangements. I daresay a very, very large number have no option in the matter.

The rise in duel income households was largely a by-product of the bubble. So, you'd have him working on the building site, and her working in the estate agent. Or, her working as an architect and him working as an engineer. Or, her working as a teacher and him working as a surveyor. The issues of women's emancipation or changes in work-life balance are just noise. The economic outlook mattered immeasurably more than societal opinions on women working or any of that qualitative stuff.

astrofool

The rise in the percentage of women working goes well before the property bubble.

UK: http://news.bbc.co.uk/2/hi/business/294542.stm

US: http://www.dol.gov/wb/stats/main.htm

Ireland: http://ec.europa.eu/ireland/ireland_in_the_eu/impact_of_eu_on_irish_women/index_en.htm#1

Estate agents and architects doesn't even seem to register in the top 10 careers, not everyone working over the last 10 years was in a bubble job (the majority weren't in fact).

Since the down turn, more men have been made redundant than women, who would you give a mortgage to?

Treehouse72

astrofool wrote: »

The rise in the percentage of women working goes well before the property bubble.

UK: http://news.bbc.co.uk/2/hi/business/294542.stm

US: http://www.dol.gov/wb/stats/main.htm

Ireland: http://ec.europa.eu/ireland/ireland_in_the_eu/impact_of_eu_on_irish_women/index_en.htm#1

Estate agents and architects doesn't even seem to register in the top 10 careers, not everyone working over the last 10 years was in a bubble job (the majority weren't in fact).

Since the down turn, more men have been made redundant than women, who would you give a mortgage to?

Wow, thanks for this. I hadn't realised that women were increasingly entering the workforce since the end of World War II. Thanks for letting me know about this staggering development. Now all you need to do is post a link showing we don't have 500,000 unemployed and your work will be done.

As for bubble jobs like architects, you might ask yourself who made the sandwich she ate for lunch, who cleaned the office she worked in, who sold her the paper she read on the Luas home, who minds her kids while she's at work....

astrofool

Your sarcasm and anger does your posting no good.

Point was:
Number of women employed going up = greater number of dual income families in the future, irregardless of the numbers out of work today (mostly men).

Calina

No one is claiming that dual incomes are brand new. However, 20 years ago the salaries were not treated equally by banks in the way they appear to be treated now. Put simply, the second income, the lower one usually, and it's not always the woman, was weighted less so that the mortgage was based on 2.5 times the primary salary and 1-1.5 times the second salary.

This catered for the possible interruption to one salary for whatever reason, be it unemployment, be it childrearing.

However, latterly, because prudent lending based on salary multiples was all but abandoned and people can still get 6-7 times a primary salary plus some consideration for the second one, the mortgage principles ballooned. These loans are difficult to service - I think you wouldn't argue with this seens it's accepted that mortgage arrears are increasing and so too is unemployment. Even if the second salary remains a consideration, the salary multiples will not particularly with rising interest rates.

As such, capital prices will fall because the ability to service the loans, even with two salaries, will be affected.

Dual salaries are not new in the Irish property market. They've been there for 30 years and more - since womean weren't forced to quit their jobs on marriage basically. However, the astronomical principles do not depend on dual incomes per se, they depended on lunatic overlending by banks to both individuals and couples.

astrofool

The multiples allowed for salaries got far too high, as was including a second salary as the same as a first. I don't see it ever going back to the 1 to 1.5x level for a second salary however, as more women (those who hold the second salary) continue in their career, rather than give it up for child rearing, it's relevance will go up compared to the first salary.

Colonel Sanders

I love the term "affordability"

Just because something becomes more affordable doesn't mean it represents good value.

I currently have €40 in my wallet. If the price of a pint of Guinness was €50 I couldn't afford to buy one. If the price subsequently fell to €20 I could now afford to buy 2 pints. Would I but the 2 in this scenario? Like hell I would

And also add in what has already been covered on how Charlie's 'stats' on how 'this generation' are better off are skewed

1. 2 incomes rather than one
2. record low interest rates
3. only looks at the first year (teaser rate anyone)
4. mortgage term probably 30 or 35 years

and it's very easy to see that this journalist piece is about as credible as most tripe the Indo prints

Having said that, the second I saw Charlie Weston's name attached I knew I was in for a session of banging my head against the wall