Will the bubble burst?

canavanbn@hotma

Just heard on the radio that inflation has fallen, and this combined with SSIA maturing and news of 100% mortgages..what will this mean for first time buyers?
I'm a young person with a modest income, with around 25,000 saved, just wondering what is likely to happen to prices in the next 12-18 months?
I want to buy a place but I can't do so for personal reasons for the next 12 months, however i'm thinking if prices rise again my current deposit will be half what is needed again..
anyhow what i'm hoping you guys can tell me what is likely to happen over the next twelve months?
..And also the banks will be giving shag all interest now on the deposit saved...so what would you guys advise?
Thanks!

canavanbn@hotma

any takers?

Lord Nikon

I recon that if loads of FTB's can afford houses, house prices will go up.
AS for your 25k saved up, put it into RaboDirect saving account, their giving 3% interest a year.

Bluehair

You may want to buy but do you have to buy?

You've demonstrated considerable finanical acumen by saving 25k and I commend that. Don't cripple yourself with debt just to 'get on the ladder'.

Imho property will decline significantly over the next few years(and for some time after that). I'm convinced of it and have just sold my own property as a result. I'm happily renting for the next few years before buying again or possibly leaving Ireland altogether.

At the very worst you've missed the boom years so bear in mind if you buy now you're going to be there for some time.

You're young, enjoy it. Travel the world, do new things, develop or find your ideal career. Property will always be around it's just that the Irish have become obsessed with it over the last few years.

TheLedge

Bluehair wrote:

You may want to buy but do you have to buy?

You've demonstrated considerable finanical acumen by saving 25k and I commend that. Don't cripple yourself with debt just to 'get on the ladder'.

Imho property will decline significantly over the next few years(and for some time after that). I'm convinced of it and have just sold my own property as a result. I'm happily renting for the next few years before buying again or possibly leaving Ireland altogether.

At the very worst you've missed the boom years so bear in mind if you buy now you're going to be there for some time.

You're young, enjoy it. Travel the world, do new things, develop or find your ideal career. Property will always be around it's just that the Irish have become obsessed with it over the last few years.

This is good advice. I'm doing exactly this. I could buy in Ireland now if I wanted, but it's ridiculously overvalued. Most sane people realise this and are either in the midst of selling their investment properties or planning on doing so in the next year. Keep calm, unless you actually NEED to buy a home, in which case, I'd go for it.

MorningStar

I think the fact many FTB have saved SSIAs as have their parents (who plan to give it to their children). Means the house prices are going to go up next year for sure. Some will jump the gun by getting the 100% mortgage and buying now before the percieved future house price jump. I think that means house prices will rise steadily for the remainder of this year and all of next year and the year after as all the SSIA mature at different times.
I know that there are a pile of tradesmen from england planning to come over here for two years because they believe their will be so much work.

It's all speculation either way but I think with the amount of money coming into the market and the irish obsession with home ownership you can be sure that there will be an effect.

is your €25k from SSIA?

Hornet

In my opinion it is irrelevant how the house prices behave in the next 12 months or even in the next, let's say, 4 years for that matter IF you have a property. If you don't every day/week/month counts.

My prediction is that the house prices will continue to rise. Not necessarily by the same percentage as in previous years, but it will go up. Should there be a "crash", "bursting bubble" or normalisation of prices, it will only be a temporary drop/flat-lining.

I know from areas in other European countries where British and Irish investors did not leave their stamp that the property prices stayed stagnant or even dropped a bit for the last 10 years. However, they are locations where the demand can be more than satisfied and where the attitude towards investing, but as well towards changing your house every few years is completely different than in Ireland.

Personally I would still buy IF I could make sure that even a significant increase in mortgage interest rate wouldn't force me to sell in the next 10 years.

Again personally, I think TheLedge and Bluehair have done the wrong thing. BUT, it is important to note that any investment is a personal decision and only YOU can decide if you are happy/willing/prepared to take a certain risk, so both have done the right thing as far as they are concerned.

The advise regarding RaboBank is a good one, by the way, if you don't plan to use the money in the short term.

--Hornet

MorningStar

Hornet you should check out the thread about 100% mortgages. It is basically about a bubble burst too.
I think you have made some valid points and have been more calm tempered than me on the subject.

SkepticOne

I think there will be high growth next year due to SSIAs maturing and 100% mortgages. A lot more people will be chasing after desirable housing.

A lot doesn't make total sense to me though. Why with mortgage lending expanding at 25% a year has there been comparitively low growth in the last 5 months (1.8%)? Could this be because non-mortgaged holders of property have been getting out? Or is it because supply is increasing at a great rate?

I would be interested in the views of experienced property people on this?

Gateway

Bluehair wrote:

You may want to buy but do you have to buy?

You've demonstrated considerable finanical acumen by saving 25k and I commend that. Don't cripple yourself with debt just to 'get on the ladder'.

Imho property will decline significantly over the next few years(and for some time after that). I'm convinced of it and have just sold my own property as a result. I'm happily renting for the next few years before buying again or possibly leaving Ireland altogether.

At the very worst you've missed the boom years so bear in mind if you buy now you're going to be there for some time.

You're young, enjoy it. Travel the world, do new things, develop or find your ideal career. Property will always be around it's just that the Irish have become obsessed with it over the last few years.

LOL!

FillSpectre

Gateway wrote:

LOL!

Maybe we should PM Blue hair and ask how they did in the property maket when the sold up. Strangely recent threads started by him suggest he owns a house but their profile says they are a student also. Could they be lying? I have never heard of such behaviour on an internet forum.:D

I would wonder what motive somebody would have to try and talk people out of buying by saying they sold their own house? Very strange behaviour Iguess they could have changed their mind

aniascor

No one here is going to be able to give you firm assurances that the bubble won't burst the minute you buy a place. Likewise no one can guarantee that if you wait it out the prices will ever come down to a level that you consider affordable. After all, if you wait a few years and if prices start dropping and the price of a house drops to a level you can afford again, are you actually going to buy in a market where if you wait another little while, the price might have dropped even more? Or will you end up trying to play the market by waiting until prices start increasing again?

You need to assess your own needs and decide whether buying a house is the right thing for you to do. If you are currently renting and you would like to own your own place, and are planning on living there for a decent amount of time (several years at least), then buying is probably a good thing to do. Even if prices do drop, well over the course of five years, you might have paid up to 25,000 in rent anyway (or more depending on where you live).

If you want to buy a house because you are looking to make money quickly, but you can't afford to keep the house if the price drops, or you will be forced to sell if interest rates go up, then it probably isn't a good idea.

In the end, the only one who can say for certain whether buying a house is the right approach for you to take is yourself.

If you decide the wait (you said you can't buy for the next 12-18 months), then go talk to your bank manager and see what type of investment products they offer. Or go the RaboDirect route and earn 3% interest on your savings (just don't forget you have to pay DIRT tax on the interest earned).

Bluehair

:rolleyes: Sheesh some people have little to be doing eh?

For what it's worth i went sale agreed on my home last year roughly around September. Cleared about €200k in profit and am now in college full time and debt free without a care in the world.

Inflation on the up, interest rates are continuing steadily upwards, consumer debt in Ireland grows by leaps and bounds. The economy is predominantly reliant on a construction industry that even the most bearish of punits admit is due for a 'soft landing'. The dollar is weakening with the implications that has for US multinationals here, the yuan has dropped below 8 to the dollar for the first time ever.

Frankly i sleep easy knowing i made the right decision.

"I'm happily renting for the next few years before buying again or possibly leaving Ireland altogether." Thats what i said and i stand by it. For a huge number of other reasons the likelyhood is we'll be heading off abroad in a few years since this country is slowly going down the toliet altogeter.

Imho property will decline significantly over the next few years(and for some time after that). It's early days yet given i specifically said a few years. None-the-less i stand by that statement too. Anyone who understands a little history and the most basic economics knows that the Irish 'situation' is no different than any other and the fundementals simply do not support property prices at current levels. Doesn't stop people buying though and never did before in any other bubble.

aniascor

Bluehair wrote:

For what it's worth i went sale agreed on my home last year roughly around September. Cleared about €200k in profit and am now in college full time and debt free without a care in the world.

Well done!
Lots of people talk about how much money there is/was to be made in property but they forget that you actually have to sell the property in order to make money from it - otherwise it's all just figures on paper.

I think a lot of people underestimate the freedom being debt-free gives you. So many people get in the habit of always borrowing for what they want, they forget that you can actually save for something.

No wonder you are carefree - enjoy college!

Lex Luthor

aniascor wrote:

Well done!
Lots of people talk about how much money there is/was to be made in property but they forget that you actually have to sell the property in order to make money from it - otherwise it's all just figures on paper.

I think a lot of people underestimate the freedom being debt-free gives you. So many people get in the habit of always borrowing for what they want, they forget that you can actually save for something.

No wonder you are carefree - enjoy college!

ya, but by the time he wants to get back into the market again...property will have increased and he'll probably wished he never sold. Plus there is that added cost of stamp duty.

Bubble bursting my ar$e in the next year or 2. No chance. As long as there is a demand for housing, prices will continue to rise. Interest rate hikes will only slow down that rise, but they will still rise.

You just have to look at the lines around the block for new housing developments to know there is still a huge demand for property and it still is not being fulfilled.

Bluehair

aniascor wrote:

No wonder you are carefree - enjoy college!

I am, it's great!

I've got to admit it's sheer joy not to have to worry about money. All around me my peers and friends are remortgaging to clear off debts and then running the credit cards/overdrafts/hp up to the hilt again. Crazy...

No offence Lex but it's that kind of emotional response that's part of what's keeping the bubble going. The simple facts are that the fundementals do not support current house prices never mind continuing rises.

Even in the last couple of months there's cracks appearing in the predominantly bullish Irish media as articles are gradually admiting that getting into buy-to-let today just isn't a good investment.

I've no intention getting into 35-year mortgages when rates are rising in order to, fingers crossed, cash in on a hopefully rising property market and trade up to something i really want in a few years.

Nothing wrong with renting, we seem to have forgotton that. Plenty of time to buy and settle down years from now.

Beta2

Bluehair wrote:

For what it's worth i went sale agreed on my home last year roughly around September. Cleared about €200k in profit and am now in college full time and debt free without a care in the world.

Congratulations.

I've been saying this to family members recently, many have buy-to-let "investments" but are starting to see longer vacancy times, lower or static rental prices, with interest rates up .5% in approx the last six months and going up another .5% soon, it won't be long until rent doesn't cover mortgage.

House prices are growing faster than they have in years, people are panic buying, afraid if they don't buy now they'll never be able to afford to buy.

Its time to cash-in and take your profits.

Bluehair enjoy your cash, it'll be King in a year or two.

faceman

Some interesting arguments in these threads but as a "wise financial guru" and also someone with a vested interest due to my homeowner/investor status here's my tupence (bare in mind im a dub speaking about property in dublin only):

Bluehair, nice money you made happy days. However I would say you made a premaure mistake even if you are considering moving abroad. Why did you sell last year and not wait until even this year when SSIA's were being paid out when it was very obvious to the market that prices would continue to rise? (see growth rate for first Q of this year.) What prompted you to sell specifically last year? Did you buy your property in dublin? Why didnt you chose to even lease your property out for a year or sumthin?

No one can predict the future but take these factors into consideration:
- So far the interest rate increases have had NO effect on demand - check the statistics freely available on the web. Altho rates may increase we will NEVER see the days of high interest rates again due to stricter economic policies of the EU. Note im not saying it will never effect demand but considering that number of increases so far have had zero effect, there is still a cushion there.

- Ireland is a small country were the MAIN CBD (central business district) is Dublin. Land in dublin and suburbs is scare and ppl generally will want to live as close as possible to were they work. Drogheda and even dundalk are starting to become satelite towns of dublin.

- SSIA's - as someone pointed will continue to be paid out for next 2 years which will fuel demand. Fact.

- Competitive Mortage Products. All lenders want in on the action. Defaulting on mortgages is low and after all it is a secured loan against your property. We are seeing 100% mortgages and more recently interest only mortgages.

- Growth rates: in the event growrth slows i expect short to medium term it will only slow the growth rate. Its highly unlikely within the next 4-5 years we will see a point where prices decrease.

- Immigration: We are now starting to see our early immigrants of past few years in a position to apply for a mortgage as they have built up a credit history in ireland. The census results will be interesting in show how many non nationals we have living in ireland now. Remember immigration is not in decline and far exceeds emmigration

Anyway thats my piece. Im only giving my opinion not giving sound financial advise so dont sue me if things go belly up for you!

Oh yeah someone mentioned saving with rabobank? i understand AIB now have a savings account with a 5% return.

Lex Luthor

Beta2 wrote:

I've been saying this to family members recently, many have buy-to-let "investments" but are starting to see longer vacancy times, lower or static rental prices, with interest rates up .5% in approx the last six months and going up another .5% soon, it won't be long until rent doesn't cover mortgage.

Even if rents don't cover the mortgage, its still a good investment to a point.
I'm not going to say any more on this though as I got hammered in another thread for even suggesting it.

Beta2

Lex Luthor wrote:

Even if rents don't cover the mortgage, its still a good investment to a point.
I'm not going to say any more on this though as I got hammered in another thread for even suggesting it.

If a house is a home and a person is happy to live there, then its a good investment.

House prices rise and fall in value, take London in the late 80's. My parents bought a house for 83K and watched it grow in value to 120K (a lot of sterling back then) in little over 2 years, then prices collapsed and 6 months later it was worth 69K. Today that house is worth 500+K so no matter where you got in on the cycle it would still have been a good long term investment.

faceman

Beta2 wrote:

If a house is a home and a person is happy to live there, then its a good investment.

House prices rise and fall in value, take London in the late 80's. My parents bought a house for 83K and watched it grow in value to 120K (a lot of sterling back then) in little over 2 years, then prices collapsed and 6 months later it was worth 69K. Today that house is worth 500+K so no matter where you got in on the cycle it would still have been a good long term investment.

Very good point re house is a home.

Regarding the slump in the 80's that was due to dear maggie in the uk not managing economy correctly... God bless her!

dochasach

I'm with Bluehair, Beta2 and TheLedge. I'm a former homeowner, happy renter with zero debt and cash earning a sure and steady interest rate while I relax with freedom and 2.5 times the house of the mortgage borrower. While interest rates have been increasing monthly payments for "owners", renters have enjoyed steady (Dublin) or falling rents as a result of an oversupply of "investment property." Search google trends for "investment property" and you will find that Dublin is more obsessed with investment property than any other city in the world and Ireland is more obsessed with investment property than any other country in the world.

My advice, Don't panic! Don't assume that you must buy now or forever miss "the ladder." The past few years are an exception, mortgage debt is not always a one way ticket to free wealth. One study in Amsterdam (a city with limited land, an economic focal point...) showed that in the 350 years since tulip boom, property only beat inflation by 0.2%.
http://www.bloomberg.com/apps/news?pid=10000085&sid=asawSY.nwq5Y&refer=europe

faceman wrote:

...
No one can predict the future but take these factors into consideration:
- So far the interest rate increases have had NO effect on demand - check the statistics freely available on the web.

I'd like to see these stats, if they are valid and not baked by those with a vested interest in continued property hyperinflation, they should become interesting over the next few months as rates continue to rise. Are late payment and foreclosure stats publically available?

Altho rates may increase we will NEVER see the days of high interest rates again due to stricter economic policies of the EU.

But if Ireland has an economic slump and Germany is on the mend, interest rates are going up and there isn't a thing Bertie could do about it. I don't know if you'll see 10% anymore, but people are taking out ARMs which would break them if central bank rates even rise to 5%, which is not only possible, it's likely.

...
- Ireland is a small country were the MAIN CBD (central business district) is Dublin. Land in dublin and suburbs is scare and ppl generally will want to live as close as possible to were they work. Drogheda and even dundalk are starting to become satelite towns of dublin.

- SSIA's - as someone pointed will continue to be paid out for next 2 years which will fuel demand. Fact.

According to this survey, only about 1.2 billion is planned to be spent on new property.
http://www.rte.ie/news/2006/0512/ssia.html
Isn't that only a few hundred euro per person? Hardly enought to make a dent in the average semi price.

- Competitive Mortage Products. All lenders want in on the action. Defaulting on mortgages is low and after all it is a secured loan against your property. We are seeing 100% mortgages and more recently interest only mortgages.

When mortgage lenders feel they must offer such products and borrowers feel they have to take them, it's a sure sign that both lenders and borrowers are backed against the wall by insane property valuations. To me this is one of the surest signs that the end is near.

- Growth rates: in the event growrth slows i expect short to medium term it will only slow the growth rate. Its highly unlikely within the next 4-5 years we will see a point where prices decrease.

But then, nobody knows what happens when the worlds largest economy experiences stagflation, the dollar drops and Irish companies can no longer compete.

- Immigration: We are now starting to see our early immigrants of past few years in a position to apply for a mortgage as they have built up a credit history in ireland. The census results will be interesting in show how many non nationals we have living in ireland now. Remember immigration is not in decline and far exceeds emmigration

Not all of us non-nationals think it's a good idea to risk a negative equity "anchor" in a country where failte has become conditional on potential for exploitation.

Anyway thats my piece. Im only giving my opinion not giving sound financial advise so dont sue me if things go belly up for you!

Oh yeah someone mentioned saving with rabobank? i understand AIB now have a savings account with a 5% return.

I'm with you here, ditto!

PoolDude

Dan McLaughlin was on the radio talking about this and he like many others is suggesting that what will be seen is a decrease from the 15% increase in house prices projected this year to 2% next year.

This still means a significant increase for the rest of this year and even then when interest rates have gone up 1% in 12 months and 1.5% by next spring the house prices are still going to ncrease by 2% per annum.

So, my opinion if you are buying to get on the ladder, the sooner the better you buy but if you are investing there may be better sources in the medium term. Just my 0.02c

Lex Luthor

PoolDude wrote:

Dan McLaughlin was on the radio talking about this and he like many others is suggesting that what will be seen is a decrease from the 15% increase in house prices projected this year to 2% next year.

2% from 15%? I'll wait & see. They expected them only to go up by 6-7% this year and now they are saying 15%.

Beta2

faceman wrote:

No one can predict the future but take these factors into consideration:
- So far the interest rate increases have had NO effect on demand - check the statistics freely available on the web. Altho rates may increase we will NEVER see the days of high interest rates again due to stricter economic policies of the EU. Note im not saying it will never effect demand but considering that number of increases so far have had zero effect, there is still a cushion there.

less than 30 years ago the germans had interest rates of over 8%, thats less than the average length of a new mortgage. The ECB suggests rates of 5% to be the norm. Unfortunately people aren't rational when buying a property they get a discounted rate of 1.5 - 2.5% for the first two years, they then assume property prices will rise and their wages will go up so they'll be able to cover 4% in interest. Irresponsible banking is a major problem.

faceman wrote:

- Ireland is a small country were the MAIN CBD (central business district) is Dublin. Land in dublin and suburbs is scare and ppl generally will want to live as close as possible to were they work. Drogheda and even dundalk are starting to become satelite towns of dublin.

Thats quite simply wrong. We have half the population density of the EU average. In terms of world population densitys we're in the bottom half. We have one of the lowest population densities in Europe Link

faceman wrote:

- SSIA's - as someone pointed will continue to be paid out for next 2 years which will fuel demand. Fact.

I agree to you with a large extent but many people have already jumped the gun and taken out 100% interest only mortgages, with the anticipation that the price of the property will rise in 2 years and they can then use their SSIA as a deposit when it matures. I think that this is the "last man in" theory at play. i.e. the ssia provided people with their last opportunity to get on the ladder, after the SSIA is all gone they'll be fewer FTB's, many poeple who bought a "starter" property will want to move to somewhere they like more but with fewer FTB's this could be hard. ( can someone suggest a link to this theory)

faceman wrote:

- Competitive Mortage Products. All lenders want in on the action. Defaulting on mortgages is low and after all it is a secured loan against your property. We are seeing 100% mortgages and more recently interest only mortgages.

This pratice is wholly irresponsible by the banks, these people will be the first to feel negative equity, even if house prices don't fall, they just slow down to 1 - 2 % or so they will end up owing more than their property is worth!!!

faceman wrote:

- Growth rates: in the event growrth slows i expect short to medium term it will only slow the growth rate. Its highly unlikely within the next 4-5 years we will see a point where prices decrease.

I'm shaking my eight ball, it says the same thing, I hope its right! Here's an interesting chart of London property prices. Contrarian_house_price_chart.gif

faceman wrote:

- Immigration: We are now starting to see our early immigrants of past few years in a position to apply for a mortgage as they have built up a credit history in ireland. The census results will be interesting in show how many non nationals we have living in ireland now. Remember immigration is not in decline and far exceeds emmigration

Have you got any data to back up this claim? From what I've seen most people are here to make money and send it back home to their families and not to buy houses. 20 - 30% of the economy depends on the construction industry, with a slight dip in house prices many construction jobs will be lost, many people will be on the first flight home. When they leave their rented houses will be empty and the owner will either have to drop the rental price or sell up. If they sell up they'll have to drop the price and the vicious circle starts again.

faceman wrote:

Anyway thats my piece. Im only giving my opinion not giving sound financial advise so dont sue me if things go belly up for you!

Very sensible, I'm not expert either its just how I see things (from my biased view). Truth is know one can tell for sure how things will pan out over the next few years.

FillSpectre

Beta2 wrote:

Thats quite simply wrong. We have half the population density of the EU average. In terms of world population densitys we're in the bottom half. We have one of the lowest population densities in Europe

I think you might be missing the point that I am at least took from density. As Ireland has such a low density and Dublin is very low density too for a city that doesn't mean there is more space just less houses on the same space. Are you going to knock down all the houses that were built in the 70 and 80s to build higher density? They take up space and the amount of space left is limited and restricted. People want to live in houses in Ireland whether you like it or not. The developers are building low density in the majority of cases. Density is gettinng higher but we can't catch up with the low rise building we build. Blame who you like (developers, planners, NIMBYs and buyers) but the fact remains we are not increasing our density enough to keep supply going in Dublin at least hence prices will go up. It does appaer we might have enough 3 bed houses for the actual need but the demand is higher. Look about here the suggestion that somebody should buy what they need is seen as begrudgery not a sensible approach

Your London property price chart doesn't reflect Ireland where home ownership is more important. I have no problems with comparisons but that one doesn't apply to here. Not that we are special just that isn't true here.

There is a lot going on and if selling a house a year ago and then renting is seen as the smart move it should be understood that only suits very few people. If you are setting up your life selling up to cash in id not the best idea. Considering the SSIas coming through I personally think it was a bad idea to sell a year ago on finacial speculation but life is a different story.

Beta2

FillSpectre wrote:

I think you might be missing the point that I am at least took from density. As Ireland has such a low density and Dublin is very low density too for a city that doesn't mean there is more space just less houses on the same space. Are you going to knock down all the houses that were built in the 70 and 80s to build higher density? They take up space and the amount of space left is limited and restricted. People want to live in houses in Ireland whether you like it or not. The developers are building low density in the majority of cases. Density is gettinng higher but we can't catch up with the low rise building we build. Blame who you like (developers, planners, NIMBYs and buyers) but the fact remains we are not increasing our density enough to keep supply going in Dublin at least hence prices will go up. It does appaer we might have enough 3 bed houses for the actual need but the demand is higher. Look about here the suggestion that somebody should buy what they need is seen as begrudgery not a sensible approach

I'm not 100% sure what you're trying to say? If you are talking about spacial strategies and not enough highrises in the center of Dublin then we agree.

FillSpectre wrote:

Your London property price chart doesn't reflect Ireland where home ownership is more important. I have no problems with comparisons but that one doesn't apply to here. Not that we are special just that isn't true here.

I didn't say that it reflected Irelands position, I'm just sure that people who bought at those peaks also expected strong growth to continue.

FillSpectre wrote:

There is a lot going on and if selling a house a year ago and then renting is seen as the smart move it should be understood that only suits very few people. If you are setting up your life selling up to cash in id not the best idea. Considering the SSIas coming through I personally think it was a bad idea to sell a year ago on finacial speculation but life is a different story.

Is hard to pick the optimal time to sell, if there is a steep downturn in prices Bluehair will considered to have been a very smart guy, however if prices continue to rise for the next 5 years then people will consider him an eejit.

Only time will tell. I personally think he's right, but I could be very wrong.

Bluehair

Beta2 wrote:

Is hard to pick the optimal time to sell, if there is a steep downturn in prices Bluehair will considered to have been a very smart guy, however if prices continue to rise for the next 5 years then people will consider him an eejit.

Only time will tell. I personally think he's right, but I could be very wrong.

Ah yes good old boards, you can be damn sure someone else will bump this thread over the years to work out which i was

On the density issue i must say though this is the biggest red herring the construction industry ever put out there.

Look at any map of the Dublin area and you'll realise there is abundant land with zero reason for high density other than inflating profits. There is however a severe shortage of serviced and zoned land but that's something that can be changed with the stroke of a pen and the right political will (ain't gonna happen right now).

We've created a viscious circle of coming up with newer and newer methods of allowing ftbs to come on board the pyramid while keeping prices going up. Higher densitys and 35 year or 40 year mortgages are part of that.

My honest analysis is this can only end badly, i wish that weren't so but i've washed my hands of the whole madness and am glad to have done so.

faceman

Despite ppl's strong views no one really knows i guess. We cant compare ireland to UK tho for millions of differents reasons (ok maybe a few different reasons) which i cud no longer be a$$ed goin into cos someone will have a counter argument.

Anyway time will tell. Either way, i still think Bluehair sold too early!

Lex Luthor

faceman wrote:

Anyway time will tell. Either way, i still think Bluehair sold too early!

Me too, but maybe bluehair needed to move to a different part of the country to go to college...we don't know

FillSpectre

Bluehair wrote:

Ah yes good old boards, you can be damn sure someone else will bump this thread over the years to work out which i was

Well you have been proved wrong so far that is nobodies fault just the reality.

On the density issue i must say though this is the biggest red herring the construction industry ever put out there.

Bluehair wrote:

Look at any map of the Dublin area and you'll realise there is abundant land with zero reason for high density other than inflating profits. There is however a severe shortage of serviced and zoned land but that's something that can be changed with the stroke of a pen and the right political will (ain't gonna happen right now).

A stroke of a pen doesn't fix sewage capacity. It doesn't make the people living in the area agree to planning. The people who own the land don't sell their land or can't due to building agreements. I know my old school sold houses and the planning was conditional that they could not build on the football pictches without local agrement. People don't want high rise living so why would builders build it? There is no political will becasue of the desire of the public. Their is limited space as a fact the reasons don't matter as they remain.

Bluehair wrote:

My honest analysis is this can only end badly, i wish that weren't so but i've washed my hands of the whole madness and am glad to have done so.

The problem is you have made a decision based on your view there is no way you are going to let anybody challenge that. You jumped out before the peak that is fact. You were wrong one way or the other. It doesn't make it a bad decission just there was better for more money.

Afuera

faceman wrote:

Anyway time will tell. Either way, i still think Bluehair sold too early!

It's better to get out a year too early than a year too late!

I think that Bluehair has done the right things for him personally. He's reduced his exposure to the property market, which he no longer has faith in. Now he does not need to stress about anything besides investing time in himself for college.

Once that's behind him he can reasses the situation, but with predictions of only 3% increase in property prices next year (more or less the same as inflation), I don't think he's risking too much by stepping out of the market for now.

FillSpectre

Afuera wrote:

Once that's behind him he can reasses the situation, but with predictions of only 3% increase in property prices next year (more or less the same as inflation), I don't think he's risking too much by stepping out of the market for now.

That is one of those maths things that many people don't quite understand.

If bluehair sold and got €200k and gets his interst payments of say 3% he matches house price rises is the logic. THat is of course not true

House prices are on the whole house say €600k @ 3% you don't need to work out the sums to see that 3% of €200k is less than 3% of €600k.

Rent as an expense and mortgage as reduction on a loan more or less balance out the costs unless your mortgage is massive compared to your rent. People who bought a while ago tend to be alright.

Of course 3% as a prediction is still a rise which relies on accepting expert advise which would say don't sell your home and rent in the same area. Experts do say it might be best to rent rather than buy which is very different.

Bluehairs personal situation might mean it suited him but as a general advise to make money and/or have a home it is not good.

jhegarty

whatever about the rest of you , i bought last september , and am delighed I did...

Afuera

FillSpectre wrote:

That is one of those maths things that many people don't quite understand.

If bluehair sold and got €200k and gets his interst payments of say 3% he matches house price rises is the logic. THat is of course not true

House prices are on the whole house say €600k @ 3% you don't need to work out the sums to see that 3% of €200k is less than 3% of €600k.

The logic is actually that his 200k should grow at the same rate as house prices, thus allowing him to sit it out with minimal risk and reenter the market later at the same level he left.

The loss of earnings you are refering to through leveraging the property don't really exist until you sell the property on. If things start to slow down it can become much harder (or impossible) to sell in which case you may never get to realise any of the gain. With another 80,000-90,000 houses supposed to be built this year, second-hand houses which have stamp duty charged on them when sold certainly don't look very appealing to buyers.

FillSpectre wrote:

Rent as an expense and mortgage as reduction on a loan more or less balance out the costs unless your mortgage is massive compared to your rent. People who bought a while ago tend to be alright.

Since rents have not risen in over 5 years, I think they would have had to buy quite a long while ago to actually be paying the same as they would for rent.

FillSpectre wrote:

Of course 3% as a prediction is still a rise which relies on accepting expert advise which would say don't sell your home and rent in the same area. Experts do say it might be best to rent rather than buy which is very different.

I personally think if property only rose by 3% (the soft landing), then it would lead to a much harder fall quite quickly.

A small rise like this in the prices of property will be a major jolt to lots of people who are buying today. The perception of investors (currently making up about 40% of buyers) is that they can make a lot of money very quickly through capital appreciation. If that fails to happen a lot of them will be wondering what they're still doing in the market (often subsidising their tenants).

The perception of many first time buyers trying to struggle onto the ladder is that they can release the equity or remortgage soon after to cover all the initial borrowing required to get a property setup. If this is not an option and interest rates continue to rise then unfortunately many of these will end up getting squeezed.

FillSpectre wrote:

Bluehairs personal situation might mean it suited him but as a general advise to make money and/or have a home it is not good.

I agree, If you are happy in your home and have no intentions of moving out of it then selling it to try and time the market is madness.

For people with second homes or those that are intending to move to a different location in the future, then holding on to them for more capital appreciation sounds equally crazy.

FillSpectre

No money is real untill you spend it is a theory. If you get 3% on an asset and your asset is bigger you make more money. AS you need to live somewhere rent versus mortgage and interest in an asset is better in the long run. Has money in a bank ever out stripped house prices on the long run?

Rents have risen in 5 years in Dublin according to my friends but I don't know for sure.

I am not quite convinced that Irish people are buying for quick large gains on property and find the adamant belief they are a little harsh. It sounds like begrudgery and wishing that investors will be punished for greed.

I think it is people diversifying their main asset as it is affordable for many people. After owning a house for 10 years you could remortgage and buy a second property and maybe have a smaller mortgage than your neighbour who bought 2 years ago.I know my neighbours kind of think it is funny I paid so much for my house.

A second property might be very affordable and no risk at all if your home went up in value enough as your earning power incresed.

Somebody will get hurt I am sure but I am not convinced it will be investors.

Lex Luthor

rents might be cheaper but I'd rather pay more for owning my own house than to rent some place that wasn't mine

Tazz T

I find it hard to believe reading this thread that people really think property value wil rise eternally in double digits. If property goes on rising by 12% a year who is it that will actually be buying this property - anybody here?

As for the market slowing down, historical data shows that bubbles do not slow down, they burst. Look at any graph in any house market at any period in time, place it alongside the Irish model and, unless we're any different, it's clear to see that our bubble has peaked. These graphs all show a final burst at the end of each bubble of people getting onto the housing ladder out of sheer desperation - these are the ones that end up in negative equity (see any current article about the Australian model) and, in the case of the Japanese market, will spend the rest of their lives in that property (if they aren't repossessed) unable to move.

First time buyers last month are 15% lower than they were at the same time last year. Once people stop stepping on the first rung of the market, it only takes a couple of months for that to filter through to the next rung. Properties don't sell, people panic, investors sell, prices plummet. And we have several interest rate rises ahead of us this year to push this along. Yes, no one knows what will happen, but we can give a pretty good guesstimate based on previous experiences.

Afuera

FillSpectre wrote:

No money is real untill you spend it is a theory. If you get 3% on an asset and your asset is bigger you make more money. AS you need to live somewhere rent versus mortgage and interest in an asset is better in the long run. Has money in a bank ever out stripped house prices on the long run?

I think you're confusing wealth with money. One of them is a lot more tangible.

FillSpectre wrote:

I am not quite convinced that Irish people are buying for quick large gains on property and find the adamant belief they are a little harsh. It sounds like begrudgery and wishing that investors will be punished for greed.

It's very easy to throw the begrudgery card out if someone disagrees with your rosey picture of things in Ireland. The facts remain that a certain amount of flipping is a normal part of the property market in Ireland nowadays. The high percentage of investors in the market alone suggests that people expect to make large gains. I never suggested that anyone should get punished for taking a risk.

FillSpectre wrote:

After owning a house for 10 years you could remortgage and buy a second property and maybe have a smaller mortgage than your neighbour who bought 2 years ago.

A second property might be very affordable and no risk at all if your home went up in value enough as your earning power incresed.

This is of course based on the assumption that your house will actually be worth more in 10 years time. If there was a correction in the market then your neighbour who bought 2 years ago would have the smaller mortgage and less exposure.

FillSpectre wrote:

Somebody will get hurt I am sure but I am not convinced it will be investors.

Why would investors be immune to any fallout? The builders have protection of sorts since they are often able to sell their houses before they are fully built. Also newly built houses are more appealing to buyers because of breaks on the stamp duty.

ambro25

FillSpectre wrote:

No money is real untill you spend it is a theory. If you get 3% on an asset and your asset is bigger you make more money. AS you need to live somewhere rent versus mortgage and interest in an asset is better in the long run. Has money in a bank ever out stripped house prices on the long run?

Rents have risen in 5 years in Dublin according to my friends but I don't know for sure.

How strange... I'm sure we two have had this whole conversation elsewhere a short while ago - where I made the same point (fairly stagnant rent vs stratospheric rise in mortgage over the past few years and the fact that a house is not your asset until it's yours... in 35 or 40 years when the bank gives you the deeds).

Investment is to be differentiated from speculation, note: investment means that you plough €X and can expect no less than €X at the end of the period considered, speculation means that you plough €X and can expect anything at the end of the period considered ('negative equity' applicable to property acuisition being relevant, depending on the period considered). In that context, property bought on the sole basis that it will appreciate by €X per year over the next two years, at which time the "switch" is considered (sell to upgrade in expectance of increased pay/savings/etc. - with an interest-only mortgage in the meantime), is nothing more than speculation: the market could maintain the double-digit growth, and it could stop dead, and anywhere in-between. Putting your €X at 3% in Rabo is sure to bring you 1.03 €X at term, no matter what.

As for "No money is real untill you spend it is a theory", the suggestion by BlueHair and others is -I believe- that releasing capital appreciation in cold hard cash by selling
one's property is not "spending money": it's actually "making money". Remortgaging to buy a second place, or even mortgaging for the first place, is "spending money" you don't have.

Somebody will get hurt I am sure but I am not convinced it will be investors.

No, your are quite right: it will be the first time buyers who will have bought a few months before the burst (if -I concede- it ever happens).

FillSpectre

Afuera wrote:

I think you're confusing wealth with money. One of them is a lot more tangible.
No I meant what I said

Afuera wrote:

It's very easy to throw the begrudgery card out if someone disagrees with your rosey picture of things in Ireland. The facts remain that a certain amount of flipping is a normal part of the property market in Ireland nowadays. The high percentage of investors in the market alone suggests that people expect to make large gains. I never suggested that anyone should get punished for taking a risk.

I don't have a rosey view I rekon prices can't keep going up. I never stated any rosey view. I don't think you can claim the number of investors means you know what they are thinking. I have also heard some strange figures about housing and investors. Any tangable facts for those of of us who don't know.

Afuera wrote:

This is of course based on the assumption that your house will actually be worth more in 10 years time. If there was a correction in the market then your neighbour who bought 2 years ago would have the smaller mortgage and less exposure.

No it isn't based on that assumption it is based on paying of the mortgage. I was saying that the first buyer has a smaller mortgage but owns two properties as is possible. My house has doubled in value in 3.5 years but my mortgage is 4 times my neighbours.

Afuera wrote:

Why would investors be immune to any fallout? The builders have protection of sorts since they are often able to sell their houses before they are fully built. Also newly built houses are more appealing to buyers because of breaks on the stamp duty.

I am not saying they are immune just that they are naturally covered agaisnt the impact. Property has to drop over 50% before I am back to the situation there I have only at the point that my own equity is what I paid off.

You know not everything is as black and white as for property and against. I am looking at what I can see and what my risks are with my home. I am not nervous and many people who have invested are not at risk. Those late into the market are at the highest risk and that will be FTBs,Investors and devlopers not just investors for investing.

Afuera

FillSpectre, you need to either sell or rent out an asset to make money from it.

This article recently highlights the level of activity by investors if you don't believe it's a big factor in the Irish market:
http://www.unison.ie/irish_independent/stories.php3?ca=303&si=1609298&issue_id=14005

Out of FTBs, investors and builders I think builders are the least at risk for the reasons I stated earlier (no stamp duty on their houses make them attractive to buyers, possible for them to sell house before it's even completed).

FTBs are vulnerable if they are stretching themselves to buy the property and have not given any space for higher interest rates. If they buy their property with the aim of trading up in the future then that option may be taken away from them if prices of houses level off or drop.

Investors can have other risks such as vacant rentals, they may be risking their own home if they've used it as collatoral, interest only mortgages are the only way to make it viable because of the low return from rents meaning that they are more susceptible to interest rates rises... You're still not convinced that investors will end up getting hurt?

Beta2

Throughout history, financial bubbles, whether in houses, equities or tulip bulbs, have continued to inflate for longer than rational people believed possible. House prices are already at record levels in relation to rents and incomes. But, as demonstrated by dotcom shares at the end of the 1990s, some prices could yet rise even higher. It is impossible to predict when prices will turn. Yet turn they will. Prices are already sliding in Australia and Britain. Ireland's housing market may be a year or so behind.

Many people on this board protest that house prices are less vulnerable to a downturn. Houses, are not paper wealth like shares, you can live in them, I’d rather buy than rent. Houses cannot be sold as quickly as shares, making a price crash less likely. It is true that house prices do not plummet like a brick. They tend to drift downwards, more like a brick with a parachute attached. But when they land, it still hurts. And there is a troubling similarity between the house-price boom and the dotcom bubble: investors have been buying houses even though rents will not cover their interest payments, purely speculating large capital gains, just as investors bought shares in profitless firms in the late 1990s, simply because prices were rising. (Many buyers are getting on the ladder now as they are scared that they won’t be able to afford it next year) But to quote people here it is still a good investment to a point.

The biggest difference between houses and shares is a huge cause for concern me, people are much more likely to borrow on the strength of their new perceived wealth from house price increases.

Not only are new buyers taking out bigger mortgages ( 10+ times salary!!), but existing owners have increased their mortgages to turn capital gains into cash which they can spend. Dumb lending always has its consequences. It's like a disease that doesn't manifest itself for a few weeks, like an epidemic that doesn't show up until it's too late to stop it. As a result of such borrowing, housing booms tend to be more dangerous than stock market bubbles, and are often followed by periods of prolonged economic weakness.
Most important of all, house-price boom has been driven far more by investors (40% of new properties) than in the past, and if prices start to dip, they are more likely to sell than owner-occupiers.

Just to reiterate, I think if you're buying a house as a home it a good investment. If you have an "investment property" it may be time to start formulating exit strategies and securing profit.

The_Conductor

Hornet wrote:

The advise regarding RaboBank is a good one, by the way, if you don't plan to use the money in the short term.

--Hornet

I disagree- inflation is higher than their interest rate- so investing with them would produce a net loss on your capital in real terms (and thats before DIRT enters the equation).

Imposter

A quick question about rents covering repayments! (Sorry if this is OT)

Was it always the case (pre celtic tiger etc... say pre 1995) that rents covered repayments on a newly aquired property?

The reason I ask is that over here in Austria noone even in their wildest dreams expects rent to cover loans and other costs. Rent is about 33% cheaper than owning too which means more people are content with renting.

FillSpectre

Afuera wrote:

FillSpectre, you need to either sell or rent out an asset to make money from it.

Make a saving is the same as making money. If it is cheaper to have a mortgage than rent you are "making" money as you have to live somewhere. The fact you can have more assets as a result of a house also has value. You can also increase your assets value.

The assumption that all homes only appreciate due to the market is being over estimated.

Imposter wrote:

Was it always the case (pre celtic tiger etc... say pre 1995) that rents covered repayments on a newly aquired property?

Not from my understanding. In the 80s there were 21% interest rates

ambro25

FillSpectre wrote:

Make a saving is the same as making money. If it is cheaper to have a mortgage than rent you are "making" money as you have to live somewhere. The fact you can have more assets as a result of a house also has value. You can also increase your assets value.

Not quite - if you'll permit - savings is money you have made, which you have not spent. Interests is money your savings make.

FillSpectre wrote:

The assumption that all homes only appreciate due to the market is being over estimated.

Homes conform in full to the basest market dynamic: supply and demand. For any one house, if more than one buyer wants to buy it, its price rises over time, QED. The reasons why more than one buyer would want to buy it can be numerous: better location, better fittings, better state of repair, etc.

But such factors have, by Dublin standards, increasingly less relevance: I've seen an increasing amount of 3-bed semis 'shells' not touched for 20 years go for just as much as one just done up (give or take €10-€20k) in the past year. Mind you, even if this was isolated, it is symptomatic at any rate.

As for returns for houses/flats bought-to-let, there's two 'winning' formulas (if achievable):
(i) buy-to-live for a fair few years (until your own financial situation makes markets dips and turns irrelevant re. mortgage - such as people who bought in Dublin 10 or more years ago), and rent it out once your financial situation becomes such that you can have two mortgages (one completing soon - rent that property out but do not offset second mortgage against it: the arch-type mistake of 'semi-recent' home-acquirers, who have put their first property as collateral for second mortgage for buy-to-let, not realising that the equity released is only paper and hypothetical until they sell)

(ii) buy cheapest possible (studio/1-bed apts) with best occupancy prospect (near hospitals/universities). Rent 'differential' (rent amount vs mortgage amount) is less the smaller mortgage you go, as rent for a 1-bed is usually disproportionate for given sq.feet, relative to 2/3/4-bed house. My rule of thumb, which has served me well over the years - if you can't rent annually for at least 15% of purchase price gross, then it ain't worth it (your return will be too small after tax, regular maintenance, insurance, service charges, provisioning for periodical building maintenance, etc.).

My €0.02

The_Conductor

Re: Rent meeting mortgage interest payments.

A number of properties in Lucan village (some of which sold recently) are being let for between 1,200 and 1,300 per month. They have a current market value of 450,000. I was talking to one landlord who purchased almost 3 years ago for 315k. He is not meeting his interest repayments (much less any other costs) at present (I can only imagine its a lot worse for anyone who has purchased as a buy-to-let in the interim).

It is not a reasonable assumption that rental income will cover mortgage repayments. Caveat emptor.

FillSpectre

You have to live somewhere if owning a house means your expediture is lesss iti s the same as making money as you end up with more. THe symanteics of it making money don't mater there is no material differnce. The principle of renting instead of buying relies on it being cheaper not the action itself.

Your example of investors requires them to be stupid. I don't believe they are that stupid. I am sure there are some but I would think that is a small portion. It is possible to have a smaller mortgage (made of 2) than your neighbour and own two properties exclusing any rental income. WIth rental income you may be much better off. It may be better value than a holiday home.

The_Conductor

Investors are (in general) not stupid.
The landlord I was talking to bought the property in one of his children's names and intends to gift it to them at some point in the future. The fact that he is not covering his outgoings, while an annoyance, is not the end of the world for him. If he had to pay the mortgage on a vacant property he would most probably be more than willing to do so.

Lex Luthor

Imposter wrote:

A quick question about rents covering repayments! (Sorry if this is OT)

Was it always the case (pre celtic tiger etc... say pre 1995) that rents covered repayments on a newly aquired property?

The reason I ask is that over here in Austria noone even in their wildest dreams expects rent to cover loans and other costs. Rent is about 33% cheaper than owning too which means more people are content with renting.

If I opt for interest only mortgage on my investment property, my rent covers it as well as other costs...if I opt for repayment mortgage, it doesn't.
So I just about break even which is still a good investment for me. I don't plan to profit from it now but in years to come.