Why Irish houses are still massively overpriced

realitykeeper

It has occurred to me that house prices in Ireland would be a lot cheaper if those who are defaulting were evicted and the houses they are living in were put back on the market. The fact that this is not happening means that house prices are being kept artificially high.

Irish property prices also depend on how well the economy in general is doing. So, if the world economy goes into a depression - the Irish economy will be devastated and by proxy so will Irish house prices. There are so many factors that could trigger a sudden slowdown in the global economy that it seems absurd to think an international recession will not happen. For example, the US and Europe are reaching the limits of lowering interest rates. If they go further, there will be a run on the banks with knock on effects for the rest of the world. If this happens, the policy of stimulus will have failed.

Consequently, even at the NAMA auctions there is no value to be had in the Irish property market. My fear is that those who are buying property today will find themselves deep in negative equity very soon. All that said, I may be wrong. As a potential house buyer of the future, I welcome the opinion of anyone with a view on the future direction of house prices.

igorbiscan

And where will all the evictees go and how much will that cost the state and the banks?

gowley

your completely wrong. apart from south county dublin there are great bargains around. as for nama properties being overpriced i would suggest you visit allsop. if you havent noticed the irish economy is f&*%ed hence the low property prices in most areas. if you think people buying now will suffer negative equity spare a thought for the people who bought in 2007,08,09

Cody Pomeray

realitykeeper wrote: »

It has occurred to me that house prices in Ireland would be a lot cheaper if those who are defaulting were evicted and the houses they are living in were put back on the market. The fact that this is not happening means that house prices are being kept artificially high.

The reasoning here seems a little teleological, why should we be pushing for lower house prices if it is to be achieved by way of mass evicitions?

Surely we need some moral or economic argument to work with.

If you're arguing that this is wasteful because the crash is coming anyway, then I'm even more confused. Are we meant to rush new home-owners in so we can create a second round of negative equity?

For example, the US and Europe are reaching the limits of lowering interest rates. If they go further, there will be a run on the banks

How will lower interest rates cause a bank run?

halkar

OP, I think you meant to post this at 2007 or 2008

washman3

The OP is 100% spot on. Irish houses are still massively overpriced. And,the biggest single impediment to prices is NAMA. but we must always remember that this totally farceiful,secretive,unaccountable,Ballymagash style agency was set up to do just this. They agency was designed to protect Government cnonies, ie big builders,developers and speculators and nothing else. While the ordinary seller will feel protected against huge price drops, it is for them only a sticking-plaster remedy for whats coming down the track,as the OP correctly pointed out. The 'kicking the can down the road' option can only be maintained for so long.
NAMA has also succeeded in keeping rents artifically high,again to suit mainly the cronies that attended the 'Galway Tent' and others that donated cash to the parties.
Take the McWilliams calculation of property valuation, monthly rent x 12 x 14 years. Now take an example of a 3-bed semi with a monthly rent of €600, this calculates that the house is actually worth €101,000
Of course €600/month is totally outragous, and a more affordable figure of €400/month should be the norm in the present (and future) climates when we take into account wage decreases,tax increases,property and water charges along with whatever stealth taxes the present coalition see fit to introduce in the next few years.
So €400/month x 12 months x 14 years = €67,000
How many 3-bed semis have we seen advertised for this price?
The true value in my opinion is somewhere in between €67k and €101k but we should remember that prices can and will overshoot on the way down just as they overshot during the 'boom'.
The OPs opinion on interest rates is also correct, if and when rates reach zero % there will be massive flight of capital on a scale previously unimaginable. Watch this space.;)

washman3

augustus_gloop wrote: »

houses in Ireland are cheap right now , even in Dublin

Take a look at the first 3-bed semi-detached house that appears on Daft.ie today.!! Its in Tallaght and carries an asking price of €240k
So if you think houses in Ireland are cheap based on figures like this, then you definately have a vested interest of some sort.

yosser hughes

igorbiscan wrote: »

And where will all the evictees go and how much will that cost the state and the banks?

They can rent.

Ideo

washman3 wrote: »

Now take an example of a 3-bed semi with a monthly rent of €600, this calculates that the house is actually worth €101,000

Where are you getting these three bed semis for 600? As for the rest of your thread, thankfully it is just your opinion. You haven't a breeze - think all rents should be 400? Do you under the basics of supply and demand?

Cody Pomeray

washman3 wrote: »

Take the McWilliams calculation of property valuation, monthly rent x 12 x 14 years. Now take an example of a 3-bed semi with a monthly rent of €600, this calculates that the house is actually worth €101,000
Of course €600/month is totally outragous, and a more affordable figure of €400/month should be the norm in the present (and future) climates when we take into account wage decreases,tax increases,property and water charges along with whatever stealth taxes the present coalition see fit to introduce in the next few years.
So €400/month x 12 months x 14 years = €67,000
How many 3-bed semis have we seen advertised for this price?

Sorry, but that's just nonsense.

what's the point of even going through the rigmarole of a calculation if you're just going to arbitrarily decide to manipulate it?

You can't just randomly apply that rents should be at €400/month and resort to some sort of magical multiplication process... doesn't make any sense.

washman3

Cody Pomeray wrote: »

Sorry, but that's just nonsense.

what's the point of even going through the rigmarole of a calculation if you're just going to arbitrarily decide to manipulate it?

You can't just randomly apply that rents should be at €400/month and resort to some sort of magical multiplication process... doesn't make any sense.

Sorry if the truth hurts, but unfortunately (or fortunately) depending on ones situation, thats where we are heading. Like i said, watch this space.

washman3

Ideo wrote: »

Where are you getting these three bed semis for 600? As for the rest of your thread, thankfully it is just your opinion. You haven't a breeze - think all rents should be 400? Do you under the basics of supply and demand?

Again, go to the first house advertised on Daft.ie today in Limerick city for example. a 3 bed semi,lovely house,fully furnished,walking distance to Cresent Shopping centre,Limerick regional hospital,pubs and bus stop. Rent is €650 a month.
FYI the basics of supply and demand are determined by the vested interests, usually in cohoots with the Government of the day.!!

TimeToShine

washman3 wrote: »

Take the McWilliams calculation of property valuation, monthly rent x 12 x 14 years. Now take an example of a 3-bed semi with a monthly rent of €600, this calculates that the house is actually worth €101,000
Of course €600/month is totally outragous, and a more affordable figure of €400/month should be the norm in the present (and future) climates when we take into account wage decreases,tax increases,property and water charges along with whatever stealth taxes the present coalition see fit to introduce in the next few years.
So €400/month x 12 months x 14 years = €67,000
How many 3-bed semis have we seen advertised for this price?
The true value in my opinion is somewhere in between €67k and €101k but we should remember that prices can and will overshoot on the way down just as they overshot during the 'boom'.
The OPs opinion on interest rates is also correct, if and when rates reach zero % there will be massive flight of capital on a scale previously unimaginable. Watch this space.;)

House prices for a three bedroom semi in any capital city are nowhere near 400 euro, if you're looking in small towns where there are no graduate jobs then your opinion is valid, but the main people looking to buy should be graduates or qualified workers, and these jobs are generally located in the capital cities of the country. Going onto Daft the average 3 bed semi around town and the south of Dublin is over a thousand euro, with some hitting 1500 a month.

Cody Pomeray

washman3 wrote: »

Sorry if the truth hurts, but unfortunately (or fortunately) depending on ones situation, thats where we are heading. Like i said, watch this space.

Actually I've done some calculations of my own and it turns out that if the average rent for a three bed semi in West Kerry is €500 per calendar month, we multiply this by 12 to get the annual, we get €6000, multiply that by 15 to get €90,000 and then multiply that by the Unicorn house price index multiplier, where U=2, we get 90000 x 2 = € 180,000 then... can it be... that's already the median house price for a 3 bed semi in west kerry oh my god it works we have reached the bottom!!!!!!

Ideo

washman3 wrote: »

Again, go to the first house advertised on Daft.ie today in Limerick city for example. a 3 bed semi,lovely house,fully furnished,walking distance to Cresent Shopping centre,Limerick regional hospital,pubs and bus stop. Rent is €650 a month.
FYI the basics of supply and demand are determined by the vested interests, usually in cohoots with the Government of the day.!!

Limerick? As your example? :rolleyes:

washman3

TimeToShine wrote: »

House prices for a three bedroom semi in any capital city are nowhere near 400 euro, if you're looking in small towns where there are no graduate jobs then your opinion is valid, but the main people looking to buy should be graduates or qualified workers, and these jobs are generally located in the capital cities of the country. Going onto Daft the average 3 bed semi around town and the south of Dublin is over a thousand euro, with some hitting 1500 a month.

i take it you mean rent prices in any capital city are nowhere near €400 a month? well i never said that they are.! read my posts. what i did say is €400/month is what it should be (and would be if not for the interference of NAMA)
The economic situation of this country will not improve by having grossly inflated rents. Taking 2/3's to 3/4's of a persons monthly income to pay for his/her rent alone is of no benefit to the country, but guess what,it keeps the vested interests happy and therefore the local TD in a seat.
That's they way our rotten system works.

washman3

Cody Pomeray wrote: »

Actually I've done some calculations of my own and it turns out that if the average rent for a three bed semi in West Kerry is €500 per calendar month, we multiply this by 12 to get the annual, we get €6000, multiply that by 15 to get €90,000 and then multiply that by the Unicorn house price index multiplier, where U=2, we get 90000 x 2 = € 180,000 then... can it be... that's already the median house price for a 3 bed semi in west kerry oh my god it works we have reached the bottom!!!!!!

Did'nt realise Jim Power of Friends First posts on Boards.ie..:D
Talking holiday home rental in west Kerry is a poor indication of monthly rental prices countrywide.
You seem to have lost the OP's original point, ie 'that Irish houses are still massively overpriced' and mine, that rents are far too high and are therefore of no benefit to the economy as a whole.
As for yor calculation, take a look at the ESRI price index. Going by your 'calculation' that makes this house in west Kerry now worth €180k, 5 or 6 years ago this house was worth €450k. I rest my case.

Rabbo

washman3 wrote: »

The OP is 100% spot on. Irish houses are still massively overpriced. And,the biggest single impediment to prices is NAMA. but we must always remember that this totally farceiful,secretive,unaccountable,Ballymagash style agency was set up to do just this. They agency was designed to protect Government cnonies, ie big builders,developers and speculators and nothing else. While the ordinary seller will feel protected against huge price drops, it is for them only a sticking-plaster remedy for whats coming down the track,as the OP correctly pointed out. The 'kicking the can down the road' option can only be maintained for so long.
NAMA has also succeeded in keeping rents artifically high,again to suit mainly the cronies that attended the 'Galway Tent' and others that donated cash to the parties.
Take the McWilliams calculation of property valuation, monthly rent x 12 x 14 years. Now take an example of a 3-bed semi with a monthly rent of €600, this calculates that the house is actually worth €101,000
Of course €600/month is totally outragous, and a more affordable figure of €400/month should be the norm in the present (and future) climates when we take into account wage decreases,tax increases,property and water charges along with whatever stealth taxes the present coalition see fit to introduce in the next few years.
So €400/month x 12 months x 14 years = €67,000
How many 3-bed semis have we seen advertised for this price?
The true value in my opinion is somewhere in between €67k and €101k but we should remember that prices can and will overshoot on the way down just as they overshot during the 'boom'.
The OPs opinion on interest rates is also correct, if and when rates reach zero % there will be massive flight of capital on a scale previously unimaginable. Watch this space.;)

Surely, at the most fundamental level, property values should be linked to construction costs and rental rates linked in turn to property prices and not the other way around.

washman3

Rabbo wrote: »

Surely, at the most fundamental level, property values should be linked to construction costs and rental rates linked in turn to property prices and not the other way around.

Probably should be but what happened in Ireland was values were linked too solidly to land/site prices which were mainly controlled by vested interests. construction costs were also way out of kilter during the 'boom' with very average plasterers and blocklayers taking home anything from €1000 to €2000 a week for building ghost estates that now generate no money and being paid for by the same taxpayer that was robbed blind during that crazy period.

johnr1

I would like to think that house prices have reached or are close to reaching the bottom, - I want to buy a fixer upper next year in dublin, but a conversation I had recently with a visiting realtor from the US frightened the crap outta me.

He looked at prices in dublin, and what was on offer, and figured he could get about the same property for the same money in Manhattan. This has to be crazy given that salaries there are higher and that NewYork is a top tier capital city, which Dublin despite being a great place to live and work certainly is not. His opinion was that houses are at about 30-40% above their actual value here right now.

He may of course be talking through his hole though, but given that the mortgages available to people making relatively good money today won't buy them a decent family home in the city they work in, I suspect that he may right.

Scortho

washman3 wrote: »

i take it you mean rent prices in any capital city are nowhere near €400 a month? well i never said that they are.! read my posts. what i did say is €400/month is what it should be (and would be if not for the interference of NAMA)
The economic situation of this country will not improve by having grossly inflated rents. Taking 2/3's to 3/4's of a persons monthly income to pay for his/her rent alone is of no benefit to the country, but guess what,it keeps the vested interests happy and therefore the local TD in a seat.
That's they way our rotten system works.

A rent of 400 euro in the Dublin city centre is possible. I've friends who rented for 285 a month in rathmones this year.
When you mention rent of 400 are you talking about a 1 bedroom apt. Or a 5 bedroom house? What location is it. There is a massive difference between irishtown and sandymount when it comes to property prices and rents, even though they're right beside each other.

While you are right that the lack of repossessions is putting a floor on property prices, I don't agree with your statement on Nama.
From my observations Most of the apartments in Nama in dublin city centre are rented.
Even with them rented, demand is so high at the moment for rental properties that even with all the Nama apt. Let (there isn't that many unoccupied in the city centre) rents wont fall substantially.
Likewise repossessions will have little to no effect on rent prices.
If someone is spending 3/4s of their salary on rent, they really should consider moving to a cheaper area.

Good loser

washman3 wrote: »

i take it you mean rent prices in any capital city are nowhere near €400 a month? well i never said that they are.! read my posts. what i did say is €400/month is what it should be (and would be if not for the interference of NAMA)
The economic situation of this country will not improve by having grossly inflated rents. Taking 2/3's to 3/4's of a persons monthly income to pay for his/her rent alone is of no benefit to the country, but guess what,it keeps the vested interests happy and therefore the local TD in a seat.
That's they way our rotten system works.

Supply and demand determines rent (and house price) levels. In Dublin currently demand marginally exceeds supply so rents and house prices are increasing slowly. 'Vested interests' and 'rotten systems' have FA to do with it.

Rent also has a floor under it through social welfare rent allowances.

Lenihan himself said the purpose of NAMA was to put a floor under house prices:
https://www.youtube.com/watch?v=pWlz1IKWfw4

^^ He says it in the link

The taxpayer, through NAMA bought up almost all the vacant housing - 289,451 empty houses
http://www.independent.ie/business/irish/itll-take-us-43-years-to-fill-all-empty-houses-26863864.html
NAMA is mostly holding onto these - i.e putting a floor under the market.

House prices + rents are being propped up artificially from many angles at huge cost to the tax payer and our competitiveness.
Furthermore what you get for the money is among the worst in the developed world:

http://news.bbc.co.uk/2/hi/8201900.stm
Illustrated here:
http://newsimg.bbc.co.uk/media/images/46216000/gif/_46216562_houses_466_4.gif

hfallada

johnr1 wrote: »

I would like to think that house prices have reached or are close to reaching the bottom, - I want to buy a fixer upper next year in dublin, but a conversation I had recently with a visiting realtor from the US frightened the crap outta me.

He looked at prices in dublin, and what was on offer, and figured he could get about the same property for the same money in Manhattan. This has to be crazy given that salaries there are higher and that NewYork is a top tier capital city, which Dublin despite being a great place to live and work certainly is not. His opinion was that houses are at about 30-40% above their actual value here right now.

He may of course be talking through his hole though, but given that the mortgages available to people making relatively good money today won't buy them a decent family home in the city they work in, I suspect that he may right.

Yeah you might be able to find a family home in the ghetto part of Harlem for under 3 million usd. But it won't be very safe. A basic studio apartment in manhattan which is basically one room with a bathroom is about $500,000. A family can't afford a home in NYC. Plus most coop building won't let anyone have a mortgage. You have to pay in cash. €10 million will buy an unbelieveable house on 2 acres in black rock from the Guinness family. You'll struggle to find a 4 bed apartment in manhattan for that.

An apartment near wall street which is one of the cheapest parts of manhattan since its far from the main part of the city is $1000 a square foot. You can buy a brand new apartment in the ifsc for about $350 a square foot at most

Good loser

hfallada wrote: »

Yeah you might be able to find a family home in the ghetto part of Harlem for under 3 million usd. But it won't be very safe. A basic studio apartment in manhattan which is basically one room with a bathroom is about $500,000. A family can't afford a home in NYC. Plus most coop building won't let anyone have a mortgage. You have to pay in cash. €10 million will buy an unbelieveable house on 2 acres in black rock from the Guinness family. You'll struggle to find a 4 bed apartment in manhattan for that.

An apartment near wall street which is one of the cheapest parts of manhattan since its far from the main part of the city is $1000 a square foot. You can buy a brand new apartment in the ifsc for about $350 a square foot at most

Well johnr1 whaddya think of that?

maryishere

If decentralisation had happened as the government promised in 2003 / 2004, the housing market in Ireland would be more even. People forget one of the reasons some counties got so overdeveloped was because people expected large government departments to leave the traffic and overpriced congestion of Dublin and relocate to the new areas. The government and planning authorities have a lot to answer for. As regards the OP question, they are not overpriced compared to wages and the cost of construction. Many new houses are for sale at less that it cost / would cost to build them. If you think houses are overpriced then you must accept that wages are too high too.

hfallada

hfallada wrote: »

Yeah you might be able to find a family home in the ghetto part of Harlem for under 3 million usd. But it won't be very safe. A basic studio apartment in manhattan which is basically one room with a bathroom is about $500,000. A family can't afford a home in NYC. Plus most coop building won't let anyone have a mortgage. You have to pay in cash. €10 million will buy an unbelieveable house on 2 acres in black rock from the Guinness family. You'll struggle to find a 4 bed apartment in manhattan for that.

An apartment near wall street which is one of the cheapest parts of manhattan since its far from the main part of the city is $1000 a square foot. You can buy a brand new apartment in the ifsc for about $350 a square foot at most

Population Density Manhattan : 69,771/sq mi (26,939/km2)
Population Density Ireland : 73.4 /km2 (190.1 /sq mi)

Manhattan is the most densely populated place in the world. Why would you choose to compare Ireland with Manhattan? If you want to compare Ireland with the US lets do it on a wider scale.

http://www.realestateabc.com/outlook/overall.htm

House prices in the US by region:

North East $237,000 or 182,000 Euro - the densely populated cities of the north east including Manhattan

Midwest $141,800 or 108,000 Euro - over 47 million people live here, over 6,700 per square mile which is more than half the density of Dublin city center except across many states.
http://www.ncrs.fs.fed.us/4153/deltawest/humandemo/pop002.asp

The South - $161,700 or 124,000 Euro - A mix of densely populated cities and sparsely populated desert
The West - $258,100 or 198,000 Euro - Including Los Angeles (one of the biggest cities in the world), the rest of California etc

http://en.wikipedia.org/wiki/List_of_U.S._states_by_population_density

Now the average house price in Ireland in 2013:
Nationally, 200,000 USD/€154,232

In Dublin, 244,000 USD/€188,429

Outside Dublin, 177,000 USD/€137,531

http://namawinelake.wordpress.com/2013/04/25/irish-residential-property-prices-continue-to-decline-march-2013-cso-indices-published/


What does your money get in each place?
In the US average new home floor sizes are 214 sq m or 2,300 sq feet.
In Ireland the average new home floor size is 76 sq m or 818 sq feet.

http://newsimg.bbc.co.uk/media/images/46216000/gif/_46216562_houses_466_4.gif

[Jackass]

Rabbo wrote: »

Surely, at the most fundamental level, property values should be linked to construction costs and rental rates linked in turn to property prices and not the other way around.

Well, this is the whole problem also. The disparity.

Look at any sound investment, you should be looking at the annual yield from this investment to be approximately 7%, based on OP's figures, which I think is fair enough, but many investors would look to get around a 10% yield on an investment, that is to say that in 10 years, the investment will have paid for it's self. This is how investment (such as capital investment, as in a house or apartment) should work.

That's the first problem, the value of the asset far exceeds the potential yield, so in theory, investors shouldn't touch it, but then, people are and were willing to buy with a negative yield, i.e. buy an apartment, rent it out and subsidize the shortfall with your private earnings...this is madness! But it's all based on a hypothetical scenario that for the first time in the history of measuring economics, "this time is different" and there wont be a collapse of value. But the hangover from this still exists, people still don't approach capital investments in this country with a rational perception of what should be expected, and thus are still getting ripped off.

The OP is absolutely right by the way, that there are artificial stabilizers in the market, which are looking to maintain property value, which again, is being picked up by the tax payer. Most people have no idea how much they're getting fu*ked and from how many angles. The billions upon billions poured down the banking blackhole is just the tip of the iceberg, and our generation is now a slave generation that maybe our kids might enjoy a stable economy, but for our lifetime, it's over, forget about it, for the rest of our lives we will suffer the consequences of this, and will lose out on all of the benefits such a boom should have brought, such was the mismanagement of the Irish economy during the boom years and the mess left behind. And there's nothing a subsequent Government can do, yes we can all say "break up NAMA and fix it", but the irony is, the current Government and the Governments that will follow will inherit a problem that isn't fixable.

Disband NAMA, put the houses on the market will equate to dumping, value would plummet so much that every renter could afford to buy a house for next to nothing, then every investment, such as apartments, houses, apartment blocks etc. that are just about making their mortgage payments will collapse, and all of that debt will then be picked up by the Government, as it's too late to let the banks fail. That would be Irish money being lost and not international bonds. (which interestingly Iceland did, and is a success story, but ever since we propped up and absorbed the banks debts, we signed our own death warrant).

The benefit of fixing the problem is completely overshadowed by what will happen if you do fix it. That sort of supply on the market would make every single investment mortgage in the country collapse over night and would put a further few billion bad debt on the books.

I have been fortunate enough to study economics at one of the most interesting moments imaginable in history, but the more you learn, the better you understand how economies function, the more you talk to academics and lecturers, the more you learn that we know what we should have done, we know where it all went wrong, but nobody knows how to fix this, because quite simply, we must entertain the notion that it can't be fixed.

We just need to go through an adjustment of drip feeding. Keep cutting expenditure, keep raising taxes, drip feed property back onto the market and slowly and carefully put it back together brick by brick over a long long period of time, as it is and always will be incredibly unstable for the forseeable future and because of the global scale of this crisis, but particularly in Europe, we have been engaging in austerity even though clearly anyone with an iota of economic knowledge knows that austerity is a retractionary measure and alone can never EVER grow an economy, but that is because we are still propping things up, and we still have a good bit to fall before we readjust.

We need fiscal stimulus, but there is no money left. And spending our way out of this wont work as economies like Ireland are so fundamentally crocked, that it would just be money down a blackhole, as we have seen.

I don't know how else to put it, sorry for the depressing message, but either leave, or spend your life facing unfair cutbacks, taxes, tiny pension (if a fund still exists) and returning Ireland to an impoverished nation by GDP per capita standards over the long term. We already are in real terms and impoverished nation, but we have such massive borrowings to prop up mostly extortionate public wage bill compared to the actual GDP of the country, that this Governments legacy may be not negotiating a proper pay agreement to have sustainable public services, which may completely collapse as a result in the future. We just can't afford them and they don't want to take a pay cut even remotely in line with the changes in circumstances since they were benchmarked against insanely inflated wages during one of the largest artificial booms in history.

Wilberto

I think your vast depressing post has just killed this thread!

washman3

Good loser wrote: »

Supply and demand determines rent (and house price) levels. In Dublin currently demand marginally exceeds supply so rents and house prices are increasing slowly. 'Vested interests' and 'rotten systems' have FA to do with it.

It was the vested interests and rotten system during the 'boom' that has led to todays problem where demand exceeds supply, ie mismanagement of the economy, insane planning procedures coupled with a totally inadequate infrastructure.
But there are those that will believe the spin,how lucky we are to be better off than Albania,Somalia and Syria.

worded

Repro / surrendered properties - shortage of supply

http://www.thepropertypin.com/viewtopic.php?f=10&t=59546&p=710387&hilit=Repossession+BTL+market#p710387