Property - down, down; how long until dead-cat bounce?

Duggys Housemate

I am looking at coming back to Ireland ( I know, I know) but would have to rent for a while. Can anybody explain rental stickiness in Ireland. On daft.ie Dublin 5 has lots of stuff for €1,200 month. Seriously? I could buy two for that. Whats up - rent supplement?

Doc Ruby

Property prices are directly related to the amount the banks will lend. When the money for something is provided by someone else, that someone decides the price. Its no coincidence that property prices soared when credit was so loose, and collapsed when credit was tightened. Its called "what the market will bear".

A sustainable level is between 12-15 times annual rent for an area, its got nothing to do with average salary. I say this because those are the returns an investment buyer (a real one) will consider being worth their while to invest, and its fairly well accepted as being the tide mark. We're pretty close to that now, some areas are at that level already.

If the banks don't start lending again though it can keep falling for a long, long time, so some opportunities for aspiring landlords out there. Its a pretty easy game to get into if you have the money, although a word of caution - there's a surplus of supply as well, so maybe rents can keep dropping too, feeding back into property prices.

It's drops all the way down, really.

OfflerCrocGod

aquaman wrote: »

There is a thing called supply and demand that people what know about business are always banging on about.
I'm no economist but as long as there are fields of unsold houses sitting there, supply outstrips demand and prices won't be bouncing anywhere.
If NAMA decides to raise 30,000 or so houses to the ground it may be a different story but just hoarding them as it's currently doing changes nothing. ie there are far more houses than prospective buyers.

There can be 30,000 houses in the middle of a bog in the middle of the country but they won't matter a fig if no one wants to live there, that is basically what NAMA have. They aren't hoarding them, no one in their right mind wants the houses, that's the problem.

As Doc Ruby said it's mostly down to rental yield, if you get a gross rental yield of 10% then a lot of people will rent instead of sell. It happened in the UK, 'accidental landlords' as they are called. The auctions are hitting those figures and that would mean Dublin is not too far from that point, probably another 10% fall which is achievable this year if we keep falling fast. If not 2013 (probable first half). Rest of the country is behind by over a year I'd guess.

At a certain point the rental yield is just too much to throw away.

Duggys Housemate

Well the rental yield looks like it is approaching 10%. That was my point - however that market is also distorted. 41% of private rental is state subsidised.

LH Pathe

sure that's the trend now; down. In today's society have seen many actual dead cats physically being bounced. Some still alive

shawnee

No one can predict a dead cat bounce.... if they could then it wouldn't be a dead cat bounce , cos no one would buy on the bounce :D There is very good value in property out there at present if you have the money and it is good value providing you don't want to resell it in the next few years:D

Messi54

Property prices won't hit bottom for at least another 2-3 years. Currently dropping by 15-20% per year. Predict at least 15% drop in 2012, followed by 7-10% in 2013, 5% in 2014. Might break even in 2015. Price crash will accelerate in the summer after house price register is released showing actual prices, not what estate agents tell everyone. Towards end of 2012 price drops might slow down due to people buying before Mortgage Interest Relief expires but in Jan/feb 2013 there will be a huge crash again.
Think it will bottom out with standard 3 bed semi detached outside Dublin worth E80,000 - E100,000. In Dublin a 2 bed apartment in good area on southside will be worth about the same. With property taxes and other charges coming in, cant see value of studios/one room apartments staying above E50,000 - E60,000 even in good areas in Dublin. There is a reason banks will only give 75% mortgages on one bed apartments - they're sure they will drop at least that much more. Any thoughts regarding musings?

Grayson

Messi54 wrote: »

Property prices won't hit bottom for at least another 2-3 years. Currently dropping by 15-20% per year. Predict at least 15% drop in 2012, followed by 7-10% in 2013, 5% in 2014. Might break even in 2015. Price crash will accelerate in the summer after house price register is released showing actual prices, not what estate agents tell everyone. Towards end of 2012 price drops might slow down due to people buying before Mortgage Interest Relief expires but in Jan/feb 2013 there will be a huge crash again.
Think it will bottom out with standard 3 bed semi detached outside Dublin worth E80,000 - E100,000. In Dublin a 2 bed apartment in good area on southside will be worth about the same. With property taxes and other charges coming in, cant see value of studios/one room apartments staying above E50,000 - E60,000 even in good areas in Dublin. There is a reason banks will only give 75% mortgages on one bed apartments - they're sure they will drop at least that much more. Any thoughts regarding musings?

I was thinking along the same lines except I didn't think the price would drop as much. There's still a lot of developers who won't build to sell that cheaply and private sellers won't sell that cheaply because of the amount of negative equity they'll be in (if they bought in the boom and a lot of people did). So, although buyers aren't willing to spend a lot anymore, the people who sell have too much vested interest in keeping the property prices higher. And the way they'll do that is by holding onto property until the feel they get a price the can sell at. That'll just mean less property trickling onto the market.

When it reaches a price that a large number of sellers are willing to sell for (It won't be as much as they want, just as much as they'll settle for) they will start to sell, that'll cause an excess of property on the market will cause the dead cat bounce. Then the increase will start again, just slower.

aquaman

OfflerCrocGod wrote: »

There can be 30,000 houses in the middle of a bog in the middle of the country but they won't matter a fig if no one wants to live there, that is basically what NAMA have. They aren't hoarding them, no one in their right mind wants the houses, that's the problem.
away.

There are a substantial amount of new, unoccupied houses in urban, perfectly liveable location (In particular outside the capital).That, if the price was right, people who are currently renting would choose to buy.
Supply outstrips the demand of those in a position to buy.

Either they are not available to purchase (due to not being offered to the market in the hope of artificially supporting prices by NAMA) or the prices will continue to fall until demand again matches supply.

the groutch

if anything was to instigate a DCB, it'd be the impending end to mortgage interest relief at the end of the year.
a bit like the upsurge in car sales back in december, with everyone getting in ahead of the VAT increase.

gosuckonalemon

Monty Burnz wrote: »

Well, the CSO figures for property prices and the falls continue unabated; the headline figure they are going with is a 62% drop in Dublin apartment prices (ouch), and the nationwide figure for all property is down 49%.

So I've two questions:

1. When will we get the inevitable dead-cat bounce* that will catch out many of those waiting on the sidelines to buy?

2. How big do we expect the bounce to be?

This can be considered an experiment in 'the wisdom of crowds'; this, however, is After Hours, so perhaps 'wisdom' is something of an exaggeration...

*not the band

Admit it OP, you just found out the origin of the phrase "dead cat bounce" and you just had to start a thread about it, complete with wiki link.

cgarrad

If you can produce a 8% yield on the property it's time to buy.

Jack_Russell

average_runner wrote: »

Have people not learnt their lesson yet? Property is not an solid investment. You should only buy property when you need it(ie to live and not to resell) and not for an investment.

Sorry to disagree but i bought a few apartments in the mid 90s and off-loaded them in 2006.
i am now mortgage free, and at the age of 45 can afford to retire.
i am off to Italy in 2 weeks time for 2 months.:D

Monty Burnz

gosuckonalemon wrote: »

Admit it OP, you just found out the origin of the phrase "dead cat bounce" and you just had to start a thread about it, complete with wiki link.

Yeah, that must be it. I've been following the property bubble and equity investments for over a decade, and just yesterday heard the term 'dead cat bounce'...

Are you sure you aren't mixing me up with yourself?

gurramok

Grayson wrote: »

I was thinking along the same lines except I didn't think the price would drop as much. There's still a lot of developers who won't build to sell that cheaply and private sellers won't sell that cheaply because of the amount of negative equity they'll be in (if they bought in the boom and a lot of people did). So, although buyers aren't willing to spend a lot anymore, the people who sell have too much vested interest in keeping the property prices higher. And the way they'll do that is by holding onto property until the feel they get a price the can sell at. That'll just mean less property trickling onto the market.

When it reaches a price that a large number of sellers are willing to sell for (It won't be as much as they want, just as much as they'll settle for) they will start to sell, that'll cause an excess of property on the market will cause the dead cat bounce. Then the increase will start again, just slower.

The sellers will be waiting many many years to achieve their 'dream' price. As said already, executor sales will undermine them. Also Mortgage Interest Relief ending is a gimmick, the buyer will save more in the drop in prices than a few quid a month in savings though it may suck in the naive who listen to govt propaganda.

Rabidlamb

If this dead cat does show a flicker of life NAMA will flood the market & reverse the trend inside a few months.
I'm still waiting for the slow fluffy soft landing, 80% from peak.
How far did Japan drop, 90% ????.

Nothingbetter2d

i hope it keeps falling. the more the better... if they drop low enough many of us might actually be able to buy one.

Doc Ruby

gurramok wrote: »

The sellers will be waiting many many years to achieve their 'dream' price.

Yep, sort of like that saying, the market can remain irrational longer than you can remain solvent. Prices would only rise sharply if the banks started lending like lunatics again, and that's not going to happen in this generation at minimum. Even if it did, its quite likely that enough people were burned that they just wouldn't buy if prices rose that high again.

Messi54

gurramok wrote: »

The sellers will be waiting many many years to achieve their 'dream' price. As said already, executor sales will undermine them. Also Mortgage Interest Relief ending is a gimmick, the buyer will save more in the drop in prices than a few quid a month in savings though it may suck in the naive who listen to govt propaganda.

Completely agree, take example of someone buying house at current national average price of approx E165,000,(E164,000 by time I finish writing this!), 1st time buyer in 2012.
Mortgage of 150K after approx 10% deposit @ 4% interest over 30 years.
Following Tax relief applicable: -
2012 - E1,460
2013 - E1,433
2014 - E1,264
2015 - E1,237
2016 - E1,209
2017 - E1,049.
Total of E 7,652 over 6 years.
That's only if bought in Jan 2012, the first figure of E1,460 can be divided by 12 and multiplied by number of months mortgage paid in 2012. ie Is mortgage only starting in November and 2 payments in 2012, tax relief of E243 for that year.
Result: E6,000 -E7,652 which is approx 4-5% of initial price. consider now that prices dropping by over 15% per annum.

Jack_Russell

i think now is a very good time to buy.
i don't think prices will fall much further, and there's great value to be had atm.
once this economy starts to lift you'll be surprised just fast things will turn around.

people/the economy tend to react like sheep.

people right now are being unduly pessimistic imo, and property prices are reflecting this, therefore it becomes a self-fulfilling prophecy.
just like unrealistic exhuberance sparked the property bubble.

Baaaa!

Dead cats don't bounce out here in the bogs, they just leave a cat shaped impression!

bnt

Some economics researchers have had a go at calculating the "fundamental" house prices in various countries, the prices houses would have been if not for irrational factors. It's not an exact science, and they aren't claiming that it is, but it does explain a lot, I think. The results are reported here.

The chart for Ireland is scary, and, if accurate, shows that prices have some way to go: down. Folks saying "prices are about to rise" don't appear to "get" just how bad the "property bubble" was in Ireland, and the way it sucked the life out of the rest of the economy.

One of the principals of house building is that the houses are built at a cost that is realistic for buyers to be able to afford to live in them.

That principal was thrown out the window in the late 1990's and people were allowed to borrow more than was they really should have, this meant that much of the housing was way overspeced relative to the incomes of the mortgage holders. Or for the unfortunate, the land a cheaply built house was built on was way overpriced!

Many of these houses will be worth significantly less than their original build costs, simply because todays buyers will have no chance to raise such a large mortgage.

Any dead-cat bounce will be from cash buyers snapping up "bargains".

Personally, I believe that a significant percentage of rural "mcmansions" are effectively worthless because of their remote location, the rising cost of fuel will continue to make living in remote places more and more expensive for commuters.

PS Oil prices have more than quadrupled since 2000 and could easily double again in the next five years!

OfflerCrocGod

bnt wrote: »

Some economics researchers have had a go at calculating the "fundamental" house prices in various countries, the prices houses would have been if not for irrational factors. It's not an exact science, and they aren't claiming that it is, but it does explain a lot, I think. The results are reported here.

The chart for Ireland is scary, and, if accurate, shows that prices have some way to go: down. Folks saying "prices are about to rise" don't appear to "get" just how bad the "property bubble" was in Ireland, and the way it sucked the life out of the rest of the economy.

This is a working link by the way. The chart implies another 16% drop from when the data ends, it's not clear when it ends but I would guess it's up to 2011 Q3, we have had a ~8% drop since then. So another 10% drop would bring it down to 'level', at least according to the chart.

There are of course multiple ways the two lines can meet, one is falling house prices the other is of course higher rental yields. From what I can tell rent is currently quite stable (or some very small increases) in Dublin so I would expect most of the movement from price falls.

The total fall implied would jive with the prices paid at the Allsop auctions, usually people pay in cash and people who afford to pay in cash don't tend to have that much money lying around because they are fools.

OfflerCrocGod

Messi54 wrote: »

Property prices won't hit bottom for at least another 2-3 years. Currently dropping by 15-20% per year. Predict at least 15% drop in 2012, followed by 7-10% in 2013, 5% in 2014. Might break even in 2015. Price crash will accelerate in the summer after house price register is released showing actual prices, not what estate agents tell everyone. Towards end of 2012 price drops might slow down due to people buying before Mortgage Interest Relief expires but in Jan/feb 2013 there will be a huge crash again.
Think it will bottom out with standard 3 bed semi detached outside Dublin worth E80,000 - E100,000. In Dublin a 2 bed apartment in good area on southside will be worth about the same. With property taxes and other charges coming in, cant see value of studios/one room apartments staying above E50,000 - E60,000 even in good areas in Dublin. There is a reason banks will only give 75% mortgages on one bed apartments - they're sure they will drop at least that much more. Any thoughts regarding musings?

I think those figures are below replacement cost so I could not see those prices lasting long, if in fact they would ever materialize. I am all for low house prices because I think property wealth is dead wealth but I can't fathom those low prices from a logical standpoint. Median household income of about €42,000 would imply a 3 bed semi-de to be only 2 times median household income. That's amazing affordability and would make Ireland one of the most affordable housing markets in the world. Don't get me wrong I think that would be a huge benefit for Ireland, especially it's youth. I just can't see that level being hit.

At around 3 times you may have more support so about €120,000 or thereabouts would be more reasonable.

Apartments for €50,000 is a multiple slightly above 1, you're basically giving housing away to the median household. You can achieve those prices at distressed auctions but they are not sustainable and I would class them as a steal.

OfflerCrocGod

Rabidlamb wrote: »

If this dead cat does show a flicker of life NAMA will flood the market & reverse the trend inside a few months.
I'm still waiting for the slow fluffy soft landing, 80% from peak.
How far did Japan drop, 90% ????.

Japan. Ireland is no Japan we would have to seriously set out to kill our housing market to achieve what Japan did.

CSO wrote:

Ireland’s population has continued to grow strongly since 2006, increasing by 348,404 to 4,588,252, and that the total number of non-Irish nationals has increased by 124,624 persons or 29.7 per cent from 419,733 to 544,357.

Ireland is not even close to being a Japan. We can produce population growth that most other developed countries would give their right arm for while undergoing one of the deepest, most severe recessions of any economy in the last few decades.

Don't look in the rear view mirror for an indication of the future of our housing market look at the future.
The future is full of more Irish people...and also far fewer new homes then we may expect.

This is simply not sustainable.

Homebond said just 45 new homes were registered across the country last month, down from 72 in January last year.

No new homes at all were registered in Dublin.

You overshoot on the way up and you overshoot on the way down...

OfflerCrocGod

OfflerCrocGod wrote: »

I think those figures are below replacement cost so I could not see those prices lasting long, if in fact they would ever materialize. I am all for low house prices because I think property wealth is dead wealth but I can't fathom those low prices from a logical standpoint. Median household income of about €42,000 would imply a 3 bed semi-de to be only 2 times median household income. That's amazing affordability and would make Ireland one of the most affordable housing markets in the world. Don't get me wrong I think that would be a huge benefit for Ireland, especially it's youth. I just can't see that level being hit.

At around 3 times you may have more support so about €120,000 or thereabouts would be more reasonable.

Apartments for €50,000 is a multiple slightly above 1, you're basically giving housing away to the median household. You can achieve those prices at distressed auctions but they are not sustainable and I would class them as a steal.

I don't think that it's a good idea to focus on the median income anymore, mainly because of the recent increases in taxation. Disposable income has declined quite dramatically over recent years as the cost of everyday goods and services have risen relative to gross incomes plus of course all the extra taxation & charges.

While the average punter's income remains depressed so will the average house price, the potential owners have to have the income before they can buy the house, house prices will fall until people can afford to buy.

OfflerCrocGod

OfflerCrocGod wrote: »

Japan. Ireland is no Japan we would have to seriously set out to kill our housing market to achieve what Japan did.



Ireland is not even close to being a Japan. We can produce population growth that most other developed countries would give their right arm for while undergoing one of the deepest, most severe recessions of any economy in the last few decades.

Don't look in the rear view mirror for an indication of the future of our housing market look at the future.
The future is full of more Irish people...and also far fewer new homes then we may expect.

This is simply not sustainable.



You overshoot on the way up and you overshoot on the way down...

Don't forget that the main problem is the fact that we have far too many houses built in the wrong places and a relatively immobile population due to many people being in houses in the wrong places.

These people are "trapped" because their current houses are unsellable due to their location and are nearly all in negative equity, until the banks bow to the inevitable and allow partial defaults and write off the negative portion of the mortgages these people will remain stuck.

Cities like Dublin really need new decent urban housing so commuters can live in the same place they work, commuting is such a large (and growing) drain on their income. Too many flats and not enough family homes were built.

Looking at the stats from the census (robbed from another forum) there's still a lot of slack in Dublin, meaning that more falls in prices are likely.

Dublin ( all councils)
A Occupied by usual resident(s) of the household (Number) 466,461
B Occupied by visitors only (Number) 2,982
C Unoccupied - residents temporarily absent (Number) 14,515
D Unoccupied - vacant house (Number) 17,597
E Unoccupied - vacant flat (Number) 25,333
F Unoccupied - vacant holiday home (Number) 777
G Total housing stock ( A+B+C+D+E+F ) (Number) 527,665
Vacancy rate (D+E+F) / G (%) 8.3

Dublin City
A Occupied by usual resident(s) of the household (Number) 207,847
B Occupied by visitors only (Number) 2,073
C Unoccupied - residents temporarily absent (Number) 7,120
D Unoccupied - vacant house (Number) 7,995
E Unoccupied - vacant flat (Number) 16,321
F Unoccupied - vacant holiday home (Number) 322
G Total housing stock ( A+B+C+D+E+F ) (Number) 241,678
Vacancy rate (D+E+F) / G (%) 10.2

ToddyDoody

I'm sure there's lots of interesting posts in this thread. Today i stopped in front of an estate agents and was genuinely suprised at how cheap some of the properties in galway were (considering how ridiculously expensive they used to be) in saying that, they're only cheap if you have or can get the money. (no small matter these days) which leads me to ask, niavely i'm sure, is there no stabilizing mechanism for property prices? Having prices swing so wildly is no way to run a market of any description. To me the property market is, and has been, simply out of control for a long time. Less a market, more a property casino.

ToddyDoody

ToddyDoody wrote: »

I'm sure there's lots of interesting posts in this thread. Today i stopped in front of an estate agents and was genuinely suprised at how cheap some of the properties in galway were (considering how ridiculously expensive they used to be) in saying that, they're only cheap if you have or can get the money. (no small matter these days) which leads me to ask, niavely i'm sure, is there no stabilizing mechanism for property prices? Having prices swing so wildly is no way to run a market of any description. To me the property market is, and has been, simply out of control for a long time. Less a market, more a property casino.

Yes, by regulating the banks to limit the amount of money available to lend!

A financial system that is utterly dependent on growth to function has been creating asset price bubbles in the (failing) hope that it lead to further growth for the infinite future.

Problem is, we live in a world with real hard limits and those limits have been reached! Just imagine a tree trying to grow in a flower pot!