Irish Property Market chat II - *read mod note post #1 before posting*

But your problem is that your only evidence that people would support falling house prices is one opinion poll. You pretty much have to ignore every other bit of evidence. As an article I linked to shows we have a situation where a 75 year old man(he's very unlikely to sell again or get a new loan etc)is prepared to engage in potentially criminal behaviour because he feels a new development has reduced the price of his house. You can't get better evidence that people do care about falling house prices even at a very local level. It may be very illogical but that doesn't not make it true.

You also have to remember nominal house prices on there own don't tell a lot. Houses sold worth 400k in 2000, 2007, 2012, 2024 etc are all effectively selling at different prices once you factor in inflation. There's a post a few pages ago that goes into this in more detail. But it's important to remember that house prices can effectively be falling even if the nominal prices are increasing. That will be the where normal inflation exceeds house price inflation.

It's important to keep in mind inflation because that will drive the cost of building houses as normal inflation is driven by stuff like wages, oil price, building material costs etc. If second hand house prices drop dramatically but the costs of building new builds doesn't it ends up being cheaper to buy secondhand compared to a new build. In that situation house building stops ie what happened after the 2008 banking crash. It's one of the reasons why we are in this mess.

Prices didn't drop when our rates increased by 2%. Still plenty of cash out there snapping up property off plans.

Touched a nerve it seems

Dublin area median house price is around 450k now? If the median dropped to 300k overnight as per your unrealistic scenario, worst case is someone who just bought with min 10% deposit would be in negative equity of just over 100k.

On a 25 year mortgage term at 4% it'll take about 8 years to get back into the black. Not trivial but for a FTB having to stay in same house for 8 years from buying before moving on is not the end of the world. I believe that's less than current avg duration for Irish households to live in one owned home before trading up/or down.

As for the claims that 2nd hand market stalls because of those in negative equity - nonsense. The people at risk of negative equity from a drop in prices are the most leveraged, and the most leveraged are those least likely to sell and move in the first place before any fall in prices should happen.

The current 2nd hand market stalls we are experiencing is all to do with lack of supply of new builds, and also the perception that there is little value in 2nd hand homes due to prices being too high for people looking to trade up! Because when you trade up you pay in nominal terms not % terms.

A 40% difference in price trading up is feck all going from 300k to 420k, it's much bigger going from 500k to 700k.

Also regarding developers not building due to lack of lending - that is already happening today with our record high house prices. The only reason building is keeping up at the minute is state intervention. LDA, state purchasing of new build homes, turnkey acquisition scheme, and the various schemes from government to directly fund apartment building. The private lending drying up has already happened, and it had nothing to do with low house prices.

Nothing would happen for most people in reality if prices dropped 20%, you will just have more people outbidding each other for the same houses. More housing is what is needed.

You lost me at HUNDREDS of thousands of homeowners with adult children living with them who cant move out.

Exaggerate much?

Im telling you now. A poll showing over 60% of homeowners wanting house prices to fall is not getting any sort of accurate results when asking its question. Its probably like the woman who used to call to my student house and give us vouchers for beer. She would come in to the living room with her survey once a month or so.

Tell each of us what we were. (male 40s Irish, female 50's from the UK) and ask us 18 year olds to answer as those people. A lot of the time we would do a few surveys as different people. Off she would go with her surveys done for the day and we would have vouchers for pints. win/win for us and for her, but the survey results were, lets say, highly suspect.

Assuming a mortgage of 405k, it would take about 9 years to get out of negative equity. But at that point, they still have to stay in the same property, because they are only out of negative equity which means they have no equity. This means they have no deposit for trading up. So it'll be far longer than 9 years that they are stuck in the house.

So let's say the property started at 450k (and the trade up property they wanted was 630k, 40% more expensive). If it dropped to 300k (and the trade up property dropped to 420k), they would be waiting 9 years to get out of negative equity and then another 3 years to build up 42k of equity. So 12 years in total before they have enough equity to be in a position to go from Property 1 to Property 2.

If we assume property prices remain static, property 1 would have 45k of equity on day 1, and the purchasers would need to build up an extra 18k (to reach 63k) of equity before being in a position to trade up. On a 25 year mortgage at 4%, it would take 22 months to get to a position where they would have enough equity to serve as a deposit for the trade up property.

If property prices were growing by 4% per year, at the end of year 1, Property 1 would be worth 468k, Property 2 would be worth 655k and our imaginary couple would have equity of 73k of equity. They would have a large enough deposit for Property 2 after a single year.

If it was a young couple who bought Property 1, there's a real possibility that they wouldn't be able to have the family they wanted to have if they were stuck in Property 1 for 13 years. The fact that the nominal difference between Property 1 and Property 2 would be smaller is of absolutely no benefit to our couple, because they don't have any equity to be able to make the move.

And what are the statistics for the 1980s so? Do show us.

The statistics I posted showed an astronomical increase in the number of Irish people living at home in the last 14 years. And show that we're now a complete outlier with the number of adults living at home both in Europe in general, and compared to our peers in wealthy Northern Europe in particular.

Two thirds of Irish people in their late 20s do not want to be living in their parents house, in any society with a functioning housing market only a tiny fraction of people in this age demographic live at home. They're being forced to be there by our dysfunctional housing market, to the deteriment of both their quality of life and their parents, the homeowners, quality of life.

That is one factor definitely, building standards do not come for free.

However a much bigger issue is soft costs. Labour and materials are less than half the cost of new build houses these days. It's all the other regs, levies, part V, and in particular the cost of finance that is impacted viability the most.

It's almost impossible for small builders to build more than 1-2 units at a time now because it's so difficult to finance, both availability and the rates are prohibitive to development. This has resulted in a near total cessation of building outside of GDA, Cork, Galway

Not really - as the great recession demonstrated negative equity puts people on the back foot with regard to their lenders. If your property price is falling, you cannot get a good mortgage rate, or perhaps cannot switch mortgage at all. And given that a lot of people will sell and move to a bigger or smaller home at some point, you will be denied that also. One of the biggest impacts of negative equity has been people falling into arrears, having their loans purchased by specialist finance, and then being locked in to whatever interest rates they can get away with - we currently have people stuck on 6-7% who have no possibility whatsoever right now to change to another lender.

Anyone arguing that house prices should average 300k is calling for a housing price crash. A drop of 30%(assuming current average is 430k) is big. We had at least one political party arguing that. And that's before you factor in inflation with is relatively high making the real price decrease even bigger than the nominal would suggest.

A drop of that magnitude would make the housing crisis worse as it would become uneconomic for anyone to build new houses. Remember after the crash at the end of 00's house building nearly stopped because second hand homes where cheaper than new builds. It's one of the reasons we have a housing crisis. A lot of houses that were needed long term didn't get built and the capacity of the construction sector dropped(abet from arguably an unsustainable level) as construction workers either emigrated, found alternative employment or just retired and not enough new people were trained during this period. When the economy and banking system recovered there hadn't been the capacity in the industry to keep up with demand.

Central bank rules impose strict limits on how much people can borrow and effectively put a ceiling on house prices. The issue with the housing situation in Ireland is that there are not enough houses due to a whole range of different issues. Housing is affordable in Ireland, Irish Central bank and ECB rules basically force banks to be conservative when lending. The problem is there is no where near enough affordable housing. Anything that would cause average nominal house prices to drop to 300k or drop in general in a period of relatively high inflation is going to have a big knock on impact on the economy in general.

Remember back in 2009,2010 house prices were low but not very affordable because of how difficult it was for a lot of people to get mortgages to buy.

It may have been true a decade ago, it no longer holds true. We have long since passed the point of profitability for new build housing in terms of build costs, soft costs and availability of finance is another story. But it will not be solved by higher prices either

Never understood the obsession with comparing property here with other countries

Dept of finance has all sorts of red flags going due to state intervention in property market at all time highs.

As dept of housing is likely to increase its targets from 33k to 50k, dept of finance advising that homebuilding is already over depending on state financing, and any increase to 50k will likely mean more state funding needed.