Will the bubble burst?

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.

FillSpectre

smccarrick wrote:

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.

That is the kind of thing I expect many "investors" are doing. The loss of value doesn't quite bother them as it is not strictly what the property was bought for. I think there is more lateral thinking going on then being given credit. Say you were saving with an SSIA and now you decide to invest that into a property shortfall to give the property away in 10-15 years the chances are you will be alright. You might just decide on an interest only so your child can buy it at current market prices. A little bit risky but I think putting your own house on pause in rental accomadation is a lot riskier as it is mostly financially based. Owning your own furniture is an issue etc... DO peopel still take out life insurance if they don't buy a house?

Afuera

FillSpectre wrote:

Say you were saving with an SSIA and now you decide to invest that into a property shortfall to give the property away in 10-15 years the chances are you will be alright.

Are you suggesting that property in 10-15 years will be more expensive than it is now? This is highly dubious considering long periods of inflation are usually followed by long periods of deflation. The boom-bust cycle has never been broken and still holds true.

Back to the original posters question though about predictions for the next 12-18 months... I think that there will be no real sign of cooling for at least a year anyway. The SSIAs will keep things ticking over for a little while longer and there is still a lot of demand. Predictions of a slowdown to rises that are more in line with inflation in 2007 are quite likely but I think if something like that happened then in time it would eventually lead to a larger slowdown.

If price growth slowed down to match inflation you won't get people panic buying (afraid that they'll never be able to afford a house if they don't do it now) and they'll adopt the "wait-and-see" attitute. Also, investors who are hoping to make capital gains may start to get edgy if they could be getting better returns from leaving their cash in a bank (and new investors wouldn't be so gung-ho).

Other factors to consider are that younger and younger first time buyers, as well as parents buying for their children, has already removed a lot of future demand for housing. Most immigrants to Ireland are not planning on settling here for the long term and further opening up of the EU will make places such as Germany much more attractive to Eastern Europeans.

A decline in housing demand would lead to a decline in work in the construction industry, estate agencies, banks etc. Less work in these areas would increase unemployment, making Ireland less attractive for immigrants still. Less immigration/higher emigration would reduce demand for houses, cause prices to drop, and the spiral would continue.

It's hard to know how accurate that scenario above may be, but it's also equally hard to refute it as not being possible. If you are considering buying under the current climate I think you need to be aware of the fact that you could be overpaying for your property (the OECD economic thinktank has already realeased figures suggesting that properties are overvalued here). The fact that rent is so cheap right now, relative to a mortgage, makes adopting the "wait-and-see" attitude more prudent I feel.

ambro25

FillSpectre wrote:

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.

Look at the term (35/40 years) and do the maths - we've been through this before

You may end up with more, but then again you may not - buying a property, in this respect, is no more certain than renting and using the variance (equivalent mortgage for place rented minus rent paid) to invest.

Wih property, you only 'make money' if the property appreciates over the term and you cash in: if you never cash in (you've bought to live), the question is moot.

But so long as you're paying a mortgage, you've 'lost' money (€500k of it) at day one of the morgage until you've paid it all back, with interests. To make this even clearer, think of a repo situation: same mortgage for €500k, you've repaid -say- half of it, but then *problems* (whatever - no job, interest rates quadruple, can't trade down, etc, etc/ -) and bank repossess: you get left with next to nothing out of the €250k you've paid to date (because with a standard mortgage, you've been mostly paying interests during the first half of the term, and not much of the €500k capital you've borrowed. And of course I don't need to explain the situation with an interest-only mortgage, do I?)

FillSpectre wrote:

Do people still take out life insurance if they don't buy a house?

If you have dependents, yes. It would take a sh*t of a long time for a monthly premium of -say- €20, starting from zero, to accrue to -say- a payable premium of €75000 (without working the markets and taking serious risks along the way).

If you have other investments providing interests over and above €20 net, paying such a €20 premium for a "what if" once you have dependants becomes a sensible option.

Note that I'm not calling it an investment - it's lost funds if I don't peg... so I'd be rather happy for it to stay lost funds for a while

FillSpectre

Afuera wrote:

Are you suggesting that property in 10-15 years will be more expensive than it is now? This is highly dubious considering long periods of inflation are usually followed by long periods of deflation. The boom-bust cycle has never been broken and still holds true.

I am saying it is smallish risk to cover what is very possible. I got the impression that it was quite difficult to get a house in many areas hence the prices rose. A house in a good area now may be very difficul get in that area in a 10 years. It is the lateral thinking with an eye on reality. Hedging bets but there is still risk. Property as mentioned does act differently to many assets and if you want you family to live close to you when they are grown up it might be best buy a property so they will be able to.

Afuera wrote:

Back to the original posters question though about predictions for the next 12-18 months... I think that there will be no real sign of cooling for at least a year anyway. The SSIAs will keep things ticking over for a little while longer and there is still a lot of demand. Predictions of a slowdown to rises that are more in line with inflation in 2007 are quite likely but I think if something like that happened then in time it would eventually lead to a larger slowdown.

The OP is from last year so it was about what has happened that is the point. It isn't will it burst within the year, it is somebody saying last year will it burst in the year just gone. It didn't and the same stuff said then is being said now. It can't go up, it doesn't make sense to investe etc... THe theories have sound logic but as they have been said for so long now it is becoming a parody. I think a very simplist view is being taken and massive assumptions on what investors are doing are being made. It ignores many of the human aspect of housing and the nature of property. IF people keep saying there is a bubble and it will burst maybe the will be proved right buthey have been very wrong about when it will burst. THe fact google trensds shows people have looked up property bubble suggests people are aware of the claims and have researched it themselves. I think people are making informed choices in much the same way Bluehair did. Only time can tell and nobody will be proved a fool. You can make good decisions and have bad outcomes and vise versa is true also. Owning your own home has a sense of pride, security and opens potentials these have value too. Renting has its own values such as no mainteance, better location and changibility. After years of living with a crazy disorganised life I realised that living spur of the moment doesn't make me happier being in more control reduces stress and does make me happier. Sounds like a seatled down but it isn't that it is I prioritised what I feel is important. Having things I can afford is fine and I try not to compare my buying power with others as it either makes you smug or envious. THis is all speculation about the future when it really should be talk about last years speculation and why one was ight and the other was wrong. No point in repeating stuff that was wrong last year. Can you explain why people taking your line last year were wrong then and the year before and before. People were saying SSIAs would effect the market and it was dismissed but manay people believe that is what drove the 100% mortgages at the end of last year and effectng prices now.

I don't think prices will keep going up but I also don't see a crash coming just becasue prices go too high, has this happened before? I know there have been crashes just I always thought there was a reason for them.

FillSpectre

ambro25 wrote:

Look at the term (35/40 years) and do the maths - we've been through this before

Yes we have and I disagree with you. I believe people can do things but certain steady appraoches are less risky.
I believe owning a home has a lot of value and even if that is meantl that is value.
Banks reposses houses a lot less than landlord kicking tenants out.

AS I have been saying strokes for folkes. The air of superiority of some people is flawed IMHO. I am better off paying a mortgage then renting others will be different. If you play russian roullete and don't get shot it doesn't prove anything about a smart dicision just you took a risk and won.

Work smart for your situation and try not to compare what you have with others.
Can you explain why the "bubble" hasn't burt? When did it become a bubble?

People throw the term around too easily. I am sure somebody will quoote figures showing how they believe it is a bubble but when it started and will end is a mystery to them. I think that indicates a lack of understanding of the term. I don't like to use the term because it seems unproven with out a start date it is like the term overpriced. Price used to mean what somebody was willing to pay so how do we get over priced?

When I did economics it was not common speech now it is, it appears many people don't quite understand the concepts or the terms yet use them.

ambro25

FillSpectre wrote:

Yes we have and I disagree with you. I believe people can do things but certain steady appraoches are less risky.

And I can respect that - we didn't agree to disagree, which I think we should: at the end of the day, it's an attitude to risk thing

FillSpectre wrote:

Can you explain why the "bubble" hasn't burst?

Because it will take a lot of socio-economic variables to collude, and that takes time. Mentions of 'The Bubble' surface everytime oneof such indicators edges closer to critical (e.g. interest rate, increasing divestment, etc.), but it's the combination of them all at some point in time, that will trip the thing. I lack time (and the server probably lack storage space ) to fully detail this further.

It's a bit like a chain reaction: takes a long time and a lot of effort setting it up and getting it going, but once it starts...

FillSpectre wrote:

When did it become a bubble?

I'll not play that semantic game. I know where it always end on Boards

FillSpectre wrote:

Can Price used to mean what somebody was willing to pay so how do we get over priced?

Because there's two approaches to define "what somebody is willing to pay", each of which being just as relevant as the other, but one of which being regularly dismissed because of the other (which is itself dictated by the market practices and the emotional component of the transaction) :

(i) how much they believe the property is worth?

(ii) how much they have to pay to buy the property?

For instance, I'm referring to another thread in here, wherein the OP stated that they'd been in a bidding war and in the space of a few days, the price went from €360 or so to €420 or so - that's a difference of €60k.

Now, let's put some context about that number:

(i) not quite the average Dublin wage, is it? Yet in the space of a few phone calls, the OP has -just like that- decided to up the ante by about double the average Dublin wage... This in the days of 10x average Dublin wage mortgages.

(ii) that will buy you quite a nice Merc' or Beemer, say (Note: just an example to which a lot of people can relate - I pesonally hate German metal and only ever buy second hand ). Yet the OP in that thread might never have wanted anything more than a 1.0L Micra. Again, in the space of a few phone calls, the OP has -just like that- decided to up their debt by the equivalent of buying a top of the line luxury car.

Just examples, of how you find yourself in debt for an over-priced property: the over-pricing most often has its base in the emotional component of the transaction. The skill (for lack of a better word) in buying property, is to remain entirely dispassionate and stick to whatever budget calculated - no matter how much the property would be ideal/exactly what one is looking for/etc. That way you never get caught out financially. The emotional component (well... the 'not-quite-estimatable-variable') in buying property, should just be whether you believe you are getting value for money or not. That way you never get buyer's regret.

Beta2

FillSpectre wrote:

I am better off paying a mortgage then renting others will be different. If you play russian roullete and don't get shot it doesn't prove anything about a smart dicision just you took a risk and won.

This is a very sensible idea, but remember it can be applied to both sides of the argument, just because it hasn't burst in the last few years doesn't mean it wont.

Why hasn't the bubble bust, well to begin to answer this we need to understand what a bubble is:

An economic bubble (sometimes referred to as a "speculative bubble") occurs when speculation in a commodity or asset class causes the price to increase, thus producing more speculation. The price of the good then reaches absurd levels (that no longer reflect utility of usage and purchasing power) and the bubble is usually followed by a sudden drop in prices, known as a crash or a bubble burst. Both the boom and bust phases of the bubble are examples of a positive feedback mechanism, in contrasts to the negative feedback mechanism that determines the equilibrium price under normal market circumstances. Prices in an economic bubble can fluctuate chaotically, and become impossible to predict from supply and demand alone.

You can only determine if it is a bubble and what caused it in hindsight.

The problem is that the vast majority of people here are irrational and emotionally attached to property prices, people subconsciously choose to ignore all the warning advice.

Virtually every economist in Ireland says house prices are over inflated, the ESRI says so, OECD agrees, so does a recent report by the EU commission, the IMF says we're in a bubble the economist magazine thought so to as did business week.

But if I had a mortgage of 250K on a house worth 500K and then released some equity to buy an investment property I wouldn't want to believe it either. The thoughts of even a 20% drop in prices would make me sick, so I’d blank out all rational thoughts and hope for a miracle. Maybe Ireland’s economy is special!

FillSpectre

AMbro

The definition of price has not changed it is still what people are willing to pay. Their reasons for doing so don't matter and to suggest they do is to try and change the definition. That is speaking from an economics point which is what we are talking about. If other people are willing to pay the same then it is not overpriced.

Estate agents use guide prices to attract people and it appaars they are all 10-20% below expected prices. €360k *120% = €432k so I expect that is what the property is valued at.

This is not an example of how you find yourself in an over valued property. You have to pay more than anybody else is willing to. AS owning a house is debt it is highly subjective the words you used. I pointed out before that while you have a point you keep denograting the other view. It is possible to just state your view instead of using terms to suggest there is something plain wrong with owning a house becasue everybody in Dublin is in huge debt in over valued houses. This isn't fact you are basically screaming you are right when obviously it is point of view with no backing.

When did houses become over priced and where?

It seems strange how many people state this yet can't even name a rough point in time. SOme claimed it was 2 years ago and a crash was any minute others 3 etc... It easy to get people to say over priced but it doesn't make it fact and it goes agasint the very idea of what a free market is.

Beta2

FillSpectre wrote:

If other people are willing to pay the same then it is not overpriced.

This is not the same as overvalued.

FillSpectre wrote:

This isn't fact you are basically screaming you are right when obviously it is point of view with no backing.

:rolleyes:

ambro25

FillSpectre wrote:

This is not an example of how you find yourself in an over valued property. You have to pay more than anybody else is willing to.

That's precisely how you buy the house and not the other viewers who put in an offer less than yours. Ergo how real estate works as standard, for the private buyer/bidder. Last time I checked.

FillSpectre wrote:

Estate agents use guide prices to attract people and it appaars they are all 10-20% below expected prices. €360k *120% = €432k so I expect that is what the property is valued at.

So say you. Could it also be that guide prices are not so skewed, and buyers expect them to go for 10% or more anyway (giving rise to 10% annual price increases)?

FillSpectre wrote:

AS owning a house is debt it is highly subjective the words you used.

How many times... Owning a house is not debt, buying one with a mortgage is. Will you please understand the difference between owning (it's already yours) and acquiring (it will be yours).

(i) you have €10k for a deposit and buy a €100k house
(ii) the bank lends you €90k to buy the house, whereby the owner (or his bank if it's still being mortgaged) gets €100k
(iii) you therefore owe the bank €90k secured on the house you are acquiring (it's not yours, it's the bank's, because they have paid the seller on your behalf)
(iv) once you've paid the bank back, it's yours - you are now a home owner

Have you ever heard of "One Account" -type mortgages? I had one in the UK some years back: it's a great way of realising that a mortgage is a debt (as well as a great way of realising how much everyday life costs generally, and what your real 'spending power' is): your current account goes from €1k in the green to €300k in the red overnight (the current account being your mortgage, operatively).

I'm not demeaning people for taking on debt - it's what makes the world go around and their choice. And if they have done so informedly and by not stretching themselves, good for them. Heck, if I want something and can get finance for it @ 5% when my capital earns more than the loan repayments, I'd be dumb not to borrow instead of using my capital!

FillSpectre wrote:

I pointed out before that while you have a point you keep denograting the other view. It is possible to just state your view instead of using terms to suggest there is something plain wrong with owning a house becasue everybody in Dublin is in huge debt in over valued houses. This isn't fact you are basically screaming you are right when obviously it is point of view with no backing.

I don't believe that I have been partisan in any way, nor been laughing at home buyers and chanted look-at-them-idiots-walking-to-the-slaughter. I have merely outlined some common pitfalls of home acquisition and addressed some points about which I have an informed opinion. If my neighbour can buy his pad €500k with cash on the table tomorrow, I'm not gonna laugh at him for paying way-over-the-odds: I'll say good on him for capitalising cleverly up to now, and not being at the mercy of interest rates, his professional situation, or the bank manager, when buying his property.

I have even gone so far as to explicitly acknowledge that you are right yourself, considering your apparently very risk-averse nature. So can you please drop the personal attack some. Just because I don't agree with some of your points, doesn't mean that I should de facto agree with them all to please your good self.