House Prices

madisona

Is the rise in property prices set to continue. Will there be a gradual slowdown or is there are chance that the bubble will burst?

Victor

Let me check my crystal ball......

.... no, its says nobody knows for sure.

MorningStar

madisona wrote:

Is the rise in property prices set to continue. Will there be a gradual slowdown or is there are chance that the bubble will burst?

Start with out any assumptions and look at the facts. For starts stop assuming there is a bubble.

leahcim

The Irish Examiner have a story today saying that the AIB expect house prices to increase by 7% a year for the next few years.

http://www.examiner.ie/pport/web/business/Full_Story/did-sgH49gXZIMzjUsgDQQ5wn3uAIg.asp

But of course they are a vested interest being a mortgage vendor.

Culchie

leahcim wrote:

The Irish Examiner have a story today saying that the AIB expect house prices to increase by 7% a year for the next few years.

http://www.examiner.ie/pport/web/business/Full_Story/did-sgH49gXZIMzjUsgDQQ5wn3uAIg.asp

But of course they are a vested interest being a mortgage vendor.

Of course they do, but that doesn't alter the fact there is still a strong demand in the market, and the 100% mortgage and SSIA's coming on stream is only going to add further fuel to the market again.

copacetic

nobody knows, the same groups that predict a collapse are the same taht have been predicting it for 5 years and prices have kept going up.
i think the most likely result is a gradual slowdown which is what seems to be happening, but like the AIB report says 7% is a 'gradual slowdown'. 7% is still a chunk of change on current house prices!

the development I am in has gone up ~ 15% since march.

MorningStar

daveym wrote:

nobody knows, the same groups that predict a collapse are the same taht have been predicting it for 5 years and prices have kept going up.
i think the most likely result is a gradual slowdown which is what seems to be happening, but like the AIB report says 7% is a 'gradual slowdown'. 7% is still a chunk of change on current house prices!

the development I am in has gone up ~ 15% since march.

Well generally if you pay attention to the property market and not just the head line in the papers you can make a pretty educated guess.
The impact of the SSIAs is going to be the real driver as demand never really slowed and production is tailing off if you look at what planning has gone through.

I don't know what development you live in but if it is part of phased devlopment jumps are not uncommon. In saying that as far I can figure house prices around me have gone up 35-40% in a year and half.

copacetic

MorningStar wrote:

Well generally if you pay attention to the property market and not just the head line in the papers you can make a pretty educated guess.
The impact of the SSIAs is going to be the real driver as demand never really slowed and production is tailing off if you look at what planning has gone through.

I don't know what development you live in but if it is part of phased devlopment jumps are not uncommon. In saying that as far I can figure house prices around me have gone up 35-40% in a year and half.

of course anyone can guess, educated or not, i said nobody knows

threebeards

As Victor said it's a crystal ball thing. Economists differ hugely on their opinions. The guy from IIB (Hughes I think) is always very optimistic and claims that there will be moderate growth going forward and then you have doomsayers like Jim Power from Friends First - it's said that he's correctly predicted 13 out of the last 2 recessions

Victor

daveym wrote:

the development I am in has gone up ~ 15% since march.

Be wary of things like that, based on individual developments.

* Completion of a development, will increase prices - no more construction traffic / noise. Residents settling in.
* Phased development - builders will test the waters with lower prices at the start, if they aren't selling they will slow down / stop building. Later phases will pay higher prices.

Remember that second hard buyers stamp duty will cut that 15% increase in half.

copacetic

Victor wrote:

Be wary of things like that, based on individual developments.

* Completion of a development, will increase prices - no more construction traffic / noise. Residents settling in.
* Phased development - builders will test the waters with lower prices at the start, if they aren't selling they will slow down / stop building. Later phases will pay higher prices.

Remember that second hard buyers stamp duty will cut that 15% increase in half.

agreed, but my 15% estimate is a combo of the new phases and the increase in price people are getting on second hand ones too, tbh it looks like they will be developing here for another 2-3 years at least. still the cheapest apts in phase in march were 320 and in the latest phase are 360 and imo aren't as nice.

Of course by the time it is all finished there are bound to be 5-10 apts for sale second hand at all times so if you are in a rush to sell could be in trouble..

Victor

daveym wrote:

it looks like they will be developing here for another 2-3 years at least.

Then realise that for that period of time, you are unlikely to be able to sell at even the new apartment price because of stamp duty. Yes, your property will be more tried and tested, more settled, but also a little more worn.

copacetic

Victor wrote:

Then realise that for that period of time, you are unlikely to be able to sell at even the new apartment price because of stamp duty. Yes, your property will be more tried and tested, more settled, but also a little more worn.

well they are developing in phases off a main entrance road, i.e you can get into my phase without having to go through any of the others, the only issue is mucky main road in.... The phases are quite seperate and there have seem to have been a reasonable amount of sales going on and judging by rumour and myhome etc they have been doing alright. some of the house and apts in the first phase are 2 years old I think, they seem to be doing well anyway.

Am in no rush to sell though, I am hoping when things are a bit more finished and all the shops and new roads are in it will be a big selling point..

it's aiken's village in sandyford out of interest.

ixus

The 2 sides as i see it:

1. Developers have full control of their land,with the banking of the banks, they decide when to release developments and when to hold back. Thus controlling the market. As has been said above, banks are vested interests, so are the likes of Goodbody Stockbrokers. They all want property prices to continue rising..

2.We have a bit of a vicious circle appearing in terms of the construction industry. The more houses built, the more workers required, hence the eastern european influx. What happens when development slows down? Do the cheaper Eastern Euroeans get sent home or do Irish people lose their jobs? Either way, it's a problem, whether it's unemployment or house vacancies from foreigners sent home.

Then there's inflation and interest rates. What happens if & when it rises?

For me, the biggest thing is when Intel departs this isle, which hasn't been helped by the recent EU ruling which encouraged Intel to set-up inn Israel.

For me it's a case of 1 for the next year or two with 2 coming soon.

Could be toally wrong though!

Lex Luthor

ixus wrote:

For me, the biggest thing is when Intel departs this isle, which hasn't been helped by the recent EU ruling which encouraged Intel to set-up inn Israel.

For me it's a case of 1 for the next year or two with 2 coming soon.

Could be toally wrong though!

Intel not departing here any time soon...I'm in the thick of the construction phases there and we are gonna be flat out for the next few years...then when we're finished you are talking about at least another 4-5 yrs of manufacturing....the move to Israel was only a set back....the 2nd extension to the latest fab will happen in 2007...too much money invested by them to turn & run in next 2 yrs

copacetic

Lex Luthor wrote:

Intel not departing here any time soon...I'm in the thick of the construction phases there and we are gonna be flat out for the next few years...then when we're finished you are talking about at least another 4-5 yrs of manufacturing....the move to Israel was only a set back....the 2nd extension to the latest fab will happen in 2007...too much money invested by them to turn & run in next 2 yrs

also intel have been in israel for a long time already, there was no new move into israel recently as ixus implied. they just decided to build a new fab, which is what could have happened anyway, just like what happened after the last fab was finished in Ireland.....

Lex Luthor

daveym wrote:

also intel have been in israel for a long time already, there was no new move into israel recently as ixus implied. they just decided to build a new fab, which is what could have happened anyway, just like what happened after the last fab was finished in Ireland.....

To be honest they've wanted to put a new fab in Israel for years....I think F24 was in doubt at the planning stage here cos Israel nearly got it.

Intel Ireland is the benchmark for Intel worldwide.

Thats off the topic......

I also think that estate agents are very much responsible for the rises in house prices also...a 3 bed semi was sold 2 dorrs down from me 9 months ago for €320k. There are now 2 others in the street behin with asking prices of €350k & €355k. Ok asking prices are asking prices, but the estate agents are recommending them..
Plus, there is very little in the way of new developments in our town to guide these prices on, so they seem to be just asking for well over the odds.

The bubble will continue to grow for the forseeable future.

lomb

ixus wrote:

The 2 sides as i see it:

1. Developers have full control of their land,with the banking of the banks, they decide when to release developments and when to hold back. Thus controlling the market. As has been said above, banks are vested interests, so are the likes of Goodbody Stockbrokers. They all want property prices to continue rising..

untrue, the planners have control, over density, zoning etc. if i owned 500 acres of land in certain parts of co dublin, it would be useless for anything except farming ,until it is rezoned.
development plans are written every 5 or 10 years. developers take positions on lands outside development zones hoping they will be rezoned (sometimes bribing and loobying etc but thats another story kids)
when they are rezoned u can build build build. until then u can farm farm farm:D
ps hope land is worth 500 grand per acre, agri land is worth 12 -20 grand an acre, development land is probably worth anything from 1 million an acre to the sky is the limit based on density and location.

there is a lead time in all business, even if i bought land in a development zone, it would take 2 years to get to market, after id have wasted 6- 8 months with the planners, 2 month with architects,1-2 months on tenders, 1-2 year for phased construction etc etc etc.

folks theres more to building than u realise..

Trampas

Rumours are interest rates could rise in the next 3 - 6 months maybe only a 1/4% but what would ever happen to a rise of 1% in the next year.

Will people be able to afford their house??

I am not to sure.

What do estate agents do but look after themselves??

Newshound

Just imagine over the next 18 months. Lots of couples will get around €40000 between them in a lump sum. Also they'll have about €500 extra each month in their pockets they won't be putting into their SSIAs.
I see house prices going only one way - up for the next few years.
But thats only my personal crystal ball. Which is as unreliable as everyone elses

dochasach

Culchie wrote:

Of course they do, but that doesn't alter the fact there is still a strong demand in the market, and the 100% mortgage and SSIA's coming on stream is only going to add further fuel to the market again.

Since the Irish Newspapers and lenders have been so unbiased (cough) regarding the property bubble, I'll use their stats. In the recent Examiner article:

"...the record 77,000 houses being built this year will be equalled in 2006 and 2007"

The article concludes with:"It is a statistical fact however, that our population is continuing to grow. By 2025 another million people will live here.
For that reason talk of a price bubble still looks like an unwarranted fear."

Now, let's do the numbers. Assuming the economy stays strong, the birthrate remains high and immigrants aren't kicked out, there may be a net 1 million increase in Ireland's population by 2025. And if the current rate of construction, 77000 homes/year continues for the next 20 years there would be 1.54 Million new homes. Every man, woman and child would have 1.5 homes to themselves.

So clearly sometime during the next twenty years the explosive construction rate has to slow. But here's the rub, construction has become such a huge part of the Irish economy that slack in this industry would hurt the entire economy. Unemployment would rise and lead to less immigration and more emmigration. Whenever a nation faces high unemployment, people blame immigrants and pressure the government to keep them out. What happens if immigrants go home? A recent Irish Times insert claimed that a high percentage (30?%) of the new buyers are non-nationals. If they stop buying or are forced to sell and leave, the downward propety spiral would continue.

A second frightningly wrong but almost universally accepted assumption is that variable interest rates will stay low or rise only slightly. The only way this would happen is if the economy in France, Germany, other large E.U. states and the United States continues to languish while Ireland magically thrives. That's what I call betting on luck.

Then there is the old 150 rule of thumb. Check boards.ie or the newspapers to see how much a given property rents for. Multiply the monthly rent by 150 and you'll have (approximately) what the property should sell for. This is sort of a price/earnings ratio for property and nearly everything in Dublin is selling for almost double what it should be worth.

Oh, you figure, I'll just rent out my 2 bedroom investment property for 2000/month. Right, and where exactly is the money coming from? Another ratio which eventually obeys the laws of economics is the ratio of wages to rents. Either all of us are due for a 50% pay rise, or property has to fall. Which do you think is more likely? This invariable ration is the reason why rents are falling. From 2000-2004 my rent rose every month to nearly 1200/month. We found a better place at a lower price and later learned that our previous apartment sat empty for several months before finally renting at less than 900/month.

What about overseas property? In parts of the E.U., the average age is rising and population is falling and so more property will become available in coming decades.

Sorry to frighten anyone on halloween, but I'd sooner bet on a lame horse than bet that Irish property prices can continue to defy the laws of economics forever.

AndyWarhol

dochasach wrote:

Since the Irish Newspapers and lenders have been so unbiased (cough) regarding the property bubble...

...We found a better place at a lower price and later learned that our previous apartment sat empty for several months before finally renting at less than 900/month...

Well seeing as you rent, isn't your hopeful analysis biased? Every man and his dog it seems is a property expert these days.

lomb

ur forgetting inflation is a fact of economics and inflation is compound hence in 100 years the average dublin house will be probably be worth about 2 million euros-3 million euros. BUY BUY BUY:D

TheBigLebowski

Dochasach, people gave very similar arguments 5 years ago and if you had bought a house then, instead of renting, you'd be doing very well.
Obviously the current rate of increase can't last forever. That's obvious, but there is a difference between a slow down in the rate of increase and the doomsday scenario you predict. If property prices were to fall it is unlikely that they will fall by much. It is considered a property price crash is if prices drop 10-15%. I would stake my life that a house that sells now for 300k will never sell for less than 250k.
At the current rate of increase, if you bought a house now. Your property will increase by that 10-15% within 2 years anyway, and I don't see a crash coming within 2 years. Also I'm pretty sure you wouldn't be waiting too long for prices to pick up again as peoples wages are only going to go up.

MorningStar

dochasach wrote:

Now, let's do the numbers. Assuming the economy stays strong, the birthrate remains high and immigrants aren't kicked out, there may be a net 1 million increase in Ireland's population by 2025. And if the current rate of construction, 77000 homes/year continues for the next 20 years there would be 1.54 Million new homes. Every man, woman and child would have 1.5 homes to themselves.

So clearly sometime during the next twenty years the explosive construction rate has to slow.

Why do you think they will keep producing houses ant such a huge rate constantly? It's not going to happen. People will stop building if there is no money in it. Expecting it to go on like that for ever is really un realistic.

In fact you arguments seems to take massive leaps and jumps that to an extent counter each other.

THe only real people who get effected by a massive price crash are those who bought very close to the time of the crash. THe next two years are unlikely to have this problem due to the SSIAs after that a drop is possible. It might not be a crash and there are still an awful lot of people wanting to own a property at the moment in fact tha majority of irish adults under 25 want to own a house at some point. You need to kill all them to stop the house demand.

dochasach

AndyWarhol wrote:

Well seeing as you rent, isn't your hopeful analysis biased? Every man and his dog it seems is a property expert these days.

I've owned property and was even a landlord for a while. I made a few quid on a decade of property inflation. But no thanks, I think I'll sit this one out. Propertys can no longer break even on rent alone, they all depend on a continuence of the bubble which depends on ultra-low intrest rates. I'm not an expert and neither is my dog, but this guy: http://www.fortune.com/fortune/investing/articles/0,15114,1117911-1,00.html is an expert and he is getting out. Tom Barrack (smarter, quieter and more successful version of Don Trump) is normally fearless but even the relatively tiny property bubble in the U.S. has him nervous.

Yeah I know. Ireland is different {insert suitible magic incantations and handwaving from estate agents, newspapers, building cartels, property investors, politicians and bankers ... all of whom have much to gain by prolonging the bubble}.

Remember, Alan Greenspan's "Irrational Exhuberance" remark was made in 1996. The tech bubble continued to increase for another 4 years before bursting. Bubbles always deflate but no one can predict exactly when because this depends on the mob psychology.

Sorry, I may be biased, but from where I sit the emporer is stark naked.

TheBigLebowski

You make many assumptions. The main one being that there is in fact a bubble. Personally I think that property was undervalued 10 years ago and is now more inline with what it is actually worth.

To add, I think that comparisons with the stock market are a little far fetched. The reason being that everyone needs somewhere to live. If I have shares in Microsoft and I get bored with them, I can sell them and blow the cash. I can't do that with my house because I along with everyone else needs somewhere to live. This along with the fact that investors still make up a very small percentage of the market as most owners are owner occupiers means that there is not much chance of a collapse anything like the tech stock crash.

MorningStar

dochasach wrote:

I've owned property and was even a landlord for a while. I made a few quid on a decade of property inflation. But no thanks, I think I'll sit this one out. Propertys can no longer break even on rent alone, they all depend on a continuence of the bubble which depends on ultra-low intrest rates. .

I have never heard of a small investor being able to make enough rent off the bat to pay all expenses of the property. Some devlopers yes but not small time investors. Regardless of how you feel this all works if you are paying rent and own no prperty you aren't saving any money over the long term. Your advise and rational thus far don't seem to have perals of wisdom showing through.
I very much doubt you have the expertise and knowledge given how unbalanced the things you have said. I think anybody will be pressed to find a financial expert in the world that will say it is better to rent in Ireland when you have the money to buy.
Property is really simple buy a good property in decent location so even if there is a crash you will have the most protecction and quickest recovery. If you can afford the house andand a 1% increase you will most likely be alright. Property is always a risk the idea is to reduce your risk not avoid it completly. In the game of your home you aren't really playing the property game as such but the property market may effect your home.

LegacyUser

I agree with you Morning Star, some very good points made however, Why add such a personal attack in the middle of the post though .. and others in this forum

"very much doubt you have the expertise and knowledge given how unbalanced the things you have said."

At first reading, your posts are very informative .. but then those sort of comments give the impression of a disgruntled being?

dochasach

MorningStar wrote:

I have never heard of a small investor being able to make enough rent off the bat to pay all expenses of the property.

You must be younger than me, before the bubble this was possible.

I very much doubt you have the expertise and knowledge given how unbalanced the things you have said. I think anybody will be pressed to find a financial expert in the world that will say it is better to rent in Ireland when you have the money to buy.
....

This is O.K. advice with all the disclaimers:
IF you can afford it (if you need a 100-120% adjustable mortgage, you can't)
IF it is your primary home
IF you can ride out 5-25 years of stagnant or falling property prices and
IF you have the right to live in Ireland long enough to ride out a period of negative equity.

I just reread the Irish times insert headline, 30% of current buyers are non-nationals. How many of those 30% are here on 1-2 year visas? How many have visas tied to employment in the construction industry? How many are among those the populist government continually tries to evict? And here's the really scary one, how many are foreign investors with no interest in Irish property other than that it is currently a golden goose?

I think we have a bubble. Tom Barrack, The Economist magazine, Alan Greenspan and the IMF agree. If I'm wrong I'm in good company. The global bubble is more intense in Ireland because of the low EU unified interest rate, builder cartels, the recent economic boom and government meddling to please developers, (deja-vu? *cough* *chaughy*) but it's still a bubble.

I'm not even sure why I care enough to mention it here because its clear that those who have bought into the property hype won't be convinced until they see falling prices and then they'll blame the early messengers for upsetting the fantasy.

Here are a few places where non-inflation adjusted property prices have fallen in the past: Sydney, Hong Kong, San Diego, Houston, San Francisco, London, Tokyo, Amsterdam, Berlin.

But Dublin is different...

copacetic

hardly 'early messenger' in fairness. people have been saying exactly what you are spouting above for 6 years or more now and we are still waiting for the crash. People like you will keep saying it for the next 6 years no doubt and will eventually be right, everyone knows the market moves in cycles, but a 'crash' is looking less and less likely.

As for your guesswork on non-nationals, you can't get a mortgage on anything but a full permanent working visa, so all your ??'s are pointless.

GreeBo

dochasach wrote:

Tom Barrack (smarter, quieter and more successful version of Don Trump) is normally fearless but even the relatively tiny property bubble in the U.S. has him nervous.

You reckon the US has a tiny bubble?
Are you taking the country as a whole or looking at the areas with Massive increases?
Florida, California, etc?
I wouldnt call it tiny myself.

TheBigLebowski

Dochasach, it appears you are quite bitter about the fact that you sold property and the prices have continued to rise, and so every day they rise it's like you're losing money.

Victor

Note: Interest rates dropped to 2% in the USA. Anyone who got to lock-in on a rate like that could buy something very expensive.

30% of current buyers are non-nationals.

- I suspect quite a few of the properties under this heading could be non-resident investors. The vast majority of non-Irish workers here are from the EU or are skilled enough not to have their works permits / visas pulled. While a sudden downturn in construction or services activity could see a lot of people leave the country, domestic demand will probably remain.

dochasach

Victor wrote:

Note: Interest rates dropped to 2% in the USA. Anyone who got to lock-in on a rate like that could buy something very expensive.

AFAIK U.S. consumers could never lock in 2%, the U.S. prime rate is the _short term_ interest rate federal banks charge banks. But yes a low interest rate makes property more afforable and tends to raise prices. Today the U.S. Fed raised interest rates for the 12th consecutive time. It now stands at 4%. Inertia keeps prices rising for a while but eventually high rates make property less affordable and when no one can afford it, demand evaporates. Then prices start to fall and it's just as difficult to turn things around as it is to slow a rising bubble. Japan dropped it's lending rate to 0% and it still couldn't bring back the boom.

The E.U. has so far decided to keep its rate stable but in order to attract investors it may eventually have to raise rates to be closer to the U.S.

Victor wrote:

- I suspect quite a few of the properties under this heading could be non-resident investors.

These speculators are the most dangerous investors. They have no desire or vested interest in Ireland. They'll bail out immediately if things go sour and dump property on the market at discount rates just to get out.

GreeBo wrote:

You reckon the US has a tiny bubble?
Are you taking the country as a whole or looking at the areas with Massive increases?
Florida, California, etc?
I wouldnt call it tiny myself.

Oh it's big enough in the northeast, california, florida and many of the big cities, but if you ever compare property in an average U.S. city to property in Ireland you'd see that the U.S. bubble is tiny in comparison. There are still places in the U.S. where you can get a 3 bedroom detached house with a garage on 1/4 acre in a good neighborhood for under 100,000 Euro.

TheBigLebowski wrote:

Dochasach, it appears you are quite bitter about the fact that you sold property and the prices have continued to rise, and so every day they rise it's like you're losing money.

No, I'm pretty happy and I have no regrets. I'd do the same in the same situation and my rental property is far better than what I could buy with a lifetime of mortgage payments equaling my monthly rent. I am bitter about the fact that young people and their parents are being put into a potentially disasterous financial situation in order to benefit a few ultra-wealthy developers and politicians.

I'll leave you with this advise:
http://biz.yahoo.com/special/afford05_article1.html

MorningStar

dochasach wrote:

You must be younger than me, before the bubble this was possible

My family and I have been involved in property for a long time well before what you probably call a bubble. AS it has been going for over 10 years maybe you can tell me where it started and where you think prices will roll back too?.

dochasach wrote:

This is O.K. advice with all the disclaimers:
IF you can afford it (if you need a 100-120% adjustable mortgage, you can't)
IF it is your primary home
IF you can ride out 5-25 years of stagnant or falling property prices and
IF you have the right to live in Ireland long enough to ride out a period of negative equity.

..

Mostly people were just talking about their homes. If people were to take the same path you did they would not own and be renting. The objective of most people is to own their house and not rent. So if you have bought rented out and now are a tenant most people see that as a failure on the objective. So I can't really see why anybody would listen to you!

lomb

theres an emotional value to property every irish person wants it and has always wanted it (perhaps as a hangover from british colonial days where they took alot of the good land from paddy), even if they dont need it.its one of the few things that distinguish the boys from the men, that has value also.

GreeBo

Another point is that a bubble only bursts for *you* if you are trying to sell.
If your house price collapses it doesnt matter a sh1te unless you are trying to sell.
As long as your house has a "good" value when you want to sell the rest is someone elses problem.
(obviously if you are trying to borrow against your house then its an issue, but if you are in a down turn you shouldnt be increasing your debt anyway!)

GallicProphet

There might be a bubble ... or not... as far as I m concerned I didnt buy my house for the promise of a bonanza, but because I need a place to put my feet up in the evening, raise a family and call home. The market might fall, rise or do summersaults I couldnt be bothered.

RainyDay

GallicProphet wrote:

There might be a bubble ... or not... as far as I m concerned I didnt buy my house for the promise of a bonanza, but because I need a place to put my feet up in the evening, raise a family and call home. The market might fall, rise or do summersaults I couldnt be bothered.

This makes perfect sense. If you're buying as a home for your family, forget about the market predictions. Your mortage will be the same regardless of whether your house market value goes up or down. The potentially disastrous impact of being priced out of the market while waiting for the bubble to burst is more important than the risk of the bubble bursting.

Buying for investment is a different story altogether - There does seem to be a rash of people who think that property prices can only go one way (up) and who ignore the yield that they are going to get on their property.

FreeAnd..

I have decided to enter the property market for 2 reasons - need a place to live medium term and as a long term investment. After years of paying of someone elses mortgage through crazy rent prices the only thing that I will judge the worth of the property by is by how much it is worth after I move out. Even if the price drops over the next 5 years once it is by less than 72k (which i can't realistically see happening) I will be happy because that is the kind of rent I will have paid in that time (sharing with my girlfriend 1200 pm).

I do believe that it is stupid to go into it blind thinking that rent will always fully cover someones mortgage and crazy to not be able to absorb a significant increase in interest rates but it still feels alot better to be paying off my own mortgage than someone elses and I would be willing to throw in an extra few hundred a month to cover the mortgage while renting the place out, because at the end of it I will end up with an asset that is hopefully worth more than was paid for.

dochasach

MorningStar wrote:

My family and I have been involved in property for a long time well before what you probably call a bubble. AS it has been going for over 10 years maybe you can tell me where it started and where you think prices will roll back too?.

As you said on another thread, this is only my opinion. You can hear thousands of other _OPINIONS_ that say this isn't a bubble and the runup will continue 'til doomsday, but here is my opinion.

Before the (B{oom or ubble}) average mortgages were approximately 4X salary and now they are approximately 12X Salary (Source, RTE this morning.) This would make the average property overvalued by 300% but even I don't think that's quite right so let's look at the Price/Earnings ratio. The average house should sell for no more than 200X average monthly rent. According to this recent report (http://www.daft.ie/report/DaftReport-Q22005.pdf) the average rent in dublin is 1164. By this standard the average dublin property should sell for no more than 232800. Now this average contains many 1 bedroom and possibly shared places so it's more meaningful to look at what has happened over time. As the daft report notes, rents are 15% below what they were in 2002 and yet property continues to rise. I'd expect a 15% drop at minimum. So to answer your question, I expect property to drop to what it was in 2002. When will it happen? That all depends on a combination of mob psychology and when the property cartels decide to throw in the towel. The runup could continue another 2 years but I sure wouldn't bet on it. If we had any real estate transparency laws, we would have some warning with a rising trend of time-on-market (as they're currently seeing in parts of the U.K. , U.S. and Austrailia.) Perhaps there is an estate agent here who would like to share with us monthly time-on-market data?

Mostly people were just talking about their homes. If people were to take the same path you did they would not own and be renting. The objective of most people is to own their house and not rent. So if you have bought rented out and now are a tenant most people see that as a failure on the objective. So I can't really see why anybody would listen to you!

No I'm not suggesting to sell your primary home, though if others were in exactly the same circumstance as I was, they might consider it. If the objective is to own at all cost, by all means go right ahead. But if the objective is to be financially self-sufficient and have a roof over your head, buying isn't always the right answer. Remember if you have a 100-120% mortgage you don't own the property. You don't own it entirely for 10-40 years and you don't own any of it until you start paying the principle. Except that you are paying taxes and maintainence, you are basically renting from the bank. Now I know my landlord, an extremely good person who has treated us well. She hasn't raised the rent and I trust that she wouldn't without good cause. If you have a variable mortgage you are at the mercy of your bank and whoever decides the E.U. interest rate. I don't know these people. I don't trust them.

copacetic

can you link that report from RTE where they said average mortgages were 12 times salary??

It just can't be true tbh.

Culchie

daveym wrote:

can you link that report from RTE where they said average mortgages were 12 times salary??

It just can't be true tbh.

I heard it as well this morning, although I think it said 'Income' (implying household Income) rather than Salary

japanpaul

I have to say that although I don't agree with everything that dochasach is saying you do have a lot of valid points.
I would definitely agree that the house prices here in proportion to salaries is crazy. A lot of couples buying E350,000 houses now on 35 year mortgages will have to have both people working continuously until their late 50's early 60's to pay off the mortgage. We have it good in Ireland at the moment with nearly full employment, "free" 3rd level education, etc but if this changes there will be difficult times for many people.
I am just back from Japan where I lived for a few years, because the salary here looked so good(I'm on 45% more than I was in Japan). But I am saving less here than I was there even though my social life here is non existent.
My friend stayed over there and bought a new 3 bed house for E140,000, about 5-6 times his salary(salaries in Japan are not big outside Tokyo). With interest rates in Japan so low and the possibility of a fixed 10 year mortgage at 1.9% he will be paying E587 a month for the next 10 years on a 25 year mortgage, but with Irelands rates(which could easily rise) at 3.5% he would be paying E700 a month. This is hypathetical anyway, because you are never going to find a house at 5-6 times your salary in an area where you would want to live.

copacetic

Culchie wrote:

I heard it as well this morning, although I think it said 'Income' (implying household Income) rather than Salary

would that not be even higher, eg if average household income is 60k (double average industrial wage)that is saying the average mortgage is 720k!
(average householf income is prob lower but you get the idea)

was it 12 times the industrial wage? that would still be 360,000 which is not an average house price countrywide.

MorningStar

dochasach wrote:

No I'm not suggesting to sell your primary home, though if others were in exactly the same circumstance as I was, they might consider it. If the objective is to own at all cost, by all means go right ahead. But if the objective is to be financially self-sufficient and have a roof over your head, buying isn't always the right answer. Remember if you have a 100-120% mortgage you don't own the property. You don't own it entirely for 10-40 years and you don't own any of it until you start paying the principle. Except that you are paying taxes and maintainence, you are basically renting from the bank. Now I know my landlord, an extremely good person who has treated us well. She hasn't raised the rent and I trust that she wouldn't without good cause. If you have a variable mortgage you are at the mercy of your bank and whoever decides the E.U. interest rate. I don't know these people. I don't trust them.

Besides having your facts wrong as is easily shown by working national average wage and average house costs out you then make wiild assumptions. Rent value has a relationship to house price but not a direct one as you suggest. A 15% drop in house prices would not even bring house prices back 2 years in most places but certainly not for the majority of Dublin.
You make the assumption again that people are saying own at all costs but nobody really is. Nobody here said that. You again assume everybody getting a mortgage is getting 100-120%. Very few people are getting this and not that many applied either. The main reason for them is to pre-empt the SSIA money. I trust my EU elected reps more than I would trust you when it comes to money matters as you after years of having property ended up renting.

You are looking at a doomsday situation but it truth the chances of all your beliefs being true or happening are unlikely. Some might happen but not to you complete extremes. You aren't completely wrong but tone it down and get more accurate details. Don't forget the media bubble that distorts facts.

Culchie

daveym wrote:

would that not be even higher, eg if average household income is 60k (double average industrial wage)that is saying the average mortgage is 720k!
(average householf income is prob lower but you get the idea)

was it 12 times the industrial wage? that would still be 360,000 which is not an average house price countrywide.

I dunno, all confused:o

Definitely the 12 times multiple was used, compared with 4 times 15 years ago.....seems it is salary after your example.


BTW and slightly OT, I've my house for sale (suitable for first time buyers market), had first visitors yesterday evening, 2 offers already, both above quoted asking price, so one think I know for sure, is the market is H..H..Hot at the moment.

Tazz T

In either case, fewer households would have had two incomes 15 years ago.

dochasach

MorningStar wrote:

Besides having your facts wrong as is easily shown by working national average wage and average house costs

Source please? I'm only saying what I heard on the radio, now it was early and maybe I wasn't fully awake but it seems others heard it also. My own disbelief that people would be stupid enough to indebt themselves up to 12 times their salary is why I ignored it and used other parameters to come up with my guess.

MorningStar wrote:

out you then make wiild assumptions. Rent value has a relationship to house price but not a direct one as you suggest. A 15% drop in house prices would not even bring house prices back 2 years

O.K. then maybe I'm underestimating. You're right the drop should be to at least 15% below 2002 values.

MorningStar wrote:

I trust my EU elected reps more than I would trust you when it comes to money matters as you after years of having property ended up renting.

I'll try not to take this as a personal attack. I may be renting but I haven't squandered billions of euros in stamp duty and other taxes the government is obviously raking in because of the boom. Don't you ever wonder why our public services aren't much better than before the boom and in some cases still not as good as they are in 3rd world countries? Maybe I should also mention that I'm in very much the same position my great-grandfather was in 1928. He died a millionaire property baron and afaik he took most of it with him ;-)

MorningStar wrote:

... tone it down and get more accurate details. Don't forget the media bubble that distorts facts.

Tone it down? In every case in the above posting I ignored the wild doomsday estimates (300% overvalued) and used the most optimistic figures. I even left out that the P/E range should be 150-200X monthly rent which means the average should be 174600-232800. And as you found yourself, I grossly understimated that the potential fall would only be 15% when it really should fall to 15% below 2002 levels.

Methinks thou dost protest too much.

MorningStar

dochasach wrote:

Source please? I'm only saying what I heard on the radio, now it was early and maybe I wasn't fully awake but it seems others heard it also. My own disbelief that people would be stupid enough to indebt themselves up to 12 times their salary is why I ignored it and used other parameters to come up with my guess.

The average industrial wage in Ireland? You want me to tell you what it is? Maybe you should try find that out for yourself but it has been stated and do some fundemental research

dochasach wrote:

O.K. then maybe I'm underestimating. You're right the drop should be to at least 15% below 2002 values.

Maybe you are over estimating there. Can you not give us that translated to current markets? Considering in the time you are talking about wages went up and the minimum wage was introduced and raised. So as far as I can see wages have increased as have the production costs of housing so for them to drop at huge levels you are talking is actually a reduction to below production costs. What you are talking about is something like a 50% drop. If you can give me any story of where this happened to a whole market other than caused by war I'd be interested.

dochasach wrote:

Tone it down? In every case in the above posting I ignored the wild doomsday estimates (300% overvalued) and used the most optimistic figures. I even left out that the P/E range should be 150-200X monthly rent which means the average should be 174600-232800. And as you found yourself, I grossly understimated that the potential fall would only be 15% when it really should fall to 15% below 2002 levels.

You may have ignored some wild assumption but it doesn't stop you piecing together facts from these studies and coming up with your own wild assumptions. Rent is not directly proportional to house prices! I don't believe your fall figure are actually close to what could be possible as you have not considered current production cost. House may start selling below cost of production at some point but that is only ever short term.

dochasach wrote:

Methinks thou dost protest too much.

I think you are assuming a lot there. If you are so wise with what the market is going to do why are you renting? No matter what happened according to you use of knowledge you should own a house. It sounds like you made a few mistakes to get where you are so how can you be the man with the answers.

You view relies on half facts and assumptions. You are expecteing catastrophic failures to hit all at once and no action from the government. You ten ignore the basic fact that a place to live is important. Even at a 50% price drop most home owners will be safe not much of the population would truely be devastated by such a drop.