House prices have much further to fall: Morgan Kelly

Joseph Kuhr · 18-08-2008 12:57pm

There are a lot of properties out there that aren't good homes. They're badly designed, they're small, they're badly finished and they're out in the middle of nowhere. Not only are they a bad buy but they don't even have any rental potential.

I think the problem with economists is they can only see figures. They do not take bad homes into account and they start their analysis on the basis that every single home has the god given right to sell at the going rate, regardless of whether its a dud or not.

My view and my experience is that good homes will sell for a good price (good price for the buyer as its a buyers market of course but that does not mean a bad price for the seller).

The real issue here is not that the market has crashed, but that there are a lot of people who bought dud homes over the years. There's a subtle difference here. Let me put it this way: there are certain homes (mainly apartments but not all apartments) out there that a sensible person would not touch with a barge pole even during the height of the madness. If you have one of these homes your problem is not that there is/isn't a property crash, your problem now is that people have wised up and you're going to have trouble shifting your home no matter what, whether it be a buyers market or a sellers market.

jackal · 18-08-2008 1:02pm

martian1980 wrote: »

tell me more about these strong rental returns

Also tell us about how the banks simply *love* snapping up property. I hear its really popular in America. But for some reason, I am a bit confused here... they don't seem to sit on these "assets" as you suggest, but they sell them for whatever they can get in an auction on the city hall steps. You should give those guys a ring and see if you cant expand your portfolio. Now I realise that America is not as Strong an economy as Ireland, but the house prices are getting more and more realistic every day, and if we are not careful, people might just be able to buy them themselves instead of renting them off people with "portfolios" (whats in your portfolio anyway, is it an A3 sized folder with pictures of 2 bed townhouses in a field in longford?)

Joseph Kuhr · 18-08-2008 1:07pm

martian1980 wrote: »

tell me more about these strong rental returns

A good home will get good rental returns. But it all depends what you expect. A lot of people think that tenants should be paying their mortgage for them, i.e the mortgage is €1000p.m so therefore the rent should be €1000p.m. This is not how it works and its not the definition of strong rental returns.

jackal · 18-08-2008 1:11pm

Joseph Kuhr wrote: »

There are a lot of properties out there that aren't good homes. They're badly designed, they're small, they're badly finished and they're out in the middle of nowhere. Not only are they a bad buy but they don't even have any rental potential.

I think the problem with economists is they can only see figures. They do not take bad homes into account and they start their analysis on the basis that every single home has the god given right to sell at the going rate, regardless of whether its a dud or not.

My view and my experience is that good homes will sell for a good price (good price for the buyer as its a buyers market of course but that does not mean a bad price for the seller).

The real issue here is not that the market has crashed, but that there are a lot of people who bought dud homes over the years. There's a subtle difference here. Let me put it this way: there are certain homes (mainly apartments but not all apartments) out there that a sensible person would not touch with a barge pole even during the height of the madness. If you have one of these homes your problem is not that there is/isn't a property crash, your problem now is that people have wised up and you're going to have trouble shifting your home no matter what, whether it be a buyers market or a sellers market.

What you are saying about dud property is true, but you think that 800k or more is a good price for a completely average 3 bed semi in south dublin? Yes there are good properties out there, but my god, the money people are asking (and were getting up to recently) is pure bull****. A 3 bed semi is a roof over your head and a nice family home. Unless the walls are made from diamonds it should not cost the guts of a million! People have lost the run of themselves, seriously. There is no way for this mess to be sorted without some pain along the way. The warnings were plentiful, but the market was allowed to continue to boom in an unsustainable way, and we will see a bust and sure as the sun sets in the west after rising in the east.

faceman · 18-08-2008 1:14pm

jackal wrote: »

Have you a better suggestion?

yes, i have plenty. But you will have to buy my cash in book to find out more! If everyone else is doing it, so am i!

Calina · 18-08-2008 1:16pm

Current rental yield in Ireland is approximately 3% if you are lucky. It's below what you will get in a deposit account in a bank. In many cases, rental income doesn't even exceed interest rate outgoings. At the very least, rental income should exceed interest rate outgoings.

The rental market in Ireland, in other words, is a mess. You can talk all you like about good houses; they exist but they are not commanding strong rents. Not only that, supply is on the upward trend.

Joseph Kuhr · 18-08-2008 1:27pm

Calina wrote: »

Current rental yield in Ireland is approximately 3% if you are lucky. It's below what you will get in a deposit account in a bank. In many cases, rental income doesn't even exceed interest rate outgoings. At the very least, rental income should exceed interest rate outgoings.

The rental market in Ireland, in other words, is a mess. You can talk all you like about good houses; they exist but they are not commanding strong rents. Not only that, supply is on the upward trend.

True. But you're not looking at the bigger picture. Put your money in a deposit account for 25/30 years and compare it to your rental yield over 25/30 years of a good home.

People are selling good homes out of fear of being stuck. There's desperation coupled with a bit of ignorance that even in a buyers market they should be looking to get a good bit more than what people are offering (not more than the asking price but more than what people are offering).

jackal · 18-08-2008 1:33pm

Joseph Kuhr wrote: »

True. But you're not looking at the bigger picture. Put your money in a deposit account for 25/30 years and compare it to your rental yield over 25/30 years of a good home.

People are selling good homes out of fear of being stuck. There's desperation coupled with a bit of ignorance that even in a buyers market they should be looking to get a good bit more than what people are offering (not more than the asking price but more than what people are offering).

Look, most rental yields in Ireland are bollocks. People were making money on capital appreciation. With that rug pulled, the rental market will consist mostly of landlords effectively subsidising people to rent their house. But hey, as Journey say... Don't stop Believin'!

Joseph Kuhr · 18-08-2008 1:35pm

Calina wrote: »

supply is on the upward trend.

And this backs up my point that a good home will get a strong rental yield. When every tom dick and harry has their holiday home on the market, yes of course supply increases. But for those that are smart with their money a home with good rental potential, that ticks most of the boxes is only going to look more attractive than the inferior apartments down the road. Stick the word "Luxury" in the broshure

Joseph Kuhr · 18-08-2008 1:41pm

jackal wrote: »

Look, most rental yields in Ireland are bollocks. People were making money on capital appreciation. With that rug pulled, the rental market will consist mostly of landlords effectively subsidising people to rent their house. But hey, as Journey say... Don't stop Believin'!

The rug is not pulled on capital appreciation....its down and battered yes. And it takes those with a bit of balls and cop on to sort the mess out. So why don't you go follow the next bubble and buy a load of corn crops or whatever the latest craze is. Leave the property investment to those who know what they're doing.

SkepticOne · 18-08-2008 1:46pm

Joseph Kuhr wrote: »

I think the problem with economists is they can only see figures. They do not take bad homes into account and they start their analysis on the basis that every single home has the god given right to sell at the going rate, regardless of whether its a dud or not.

But by definition the going rate is the rate at which it sells.

Duckjob · 18-08-2008 1:52pm

Joseph Kuhr wrote: »

People are selling good homes out of fear of being stuck. There's desperation coupled with a bit of ignorance that even in a buyers market they should be looking to get a good bit more than what people are offering (not more than the asking price but more than what people are offering).

What is it about property in Ireland that makes people think house prices can defy free market economics?

Sellers can 'look' for more all they want, but any market what they can get will be dictated by what buyers are willing to pay. In a falling market, the sellers that grasp this concept the quickest will lose the least money.

Joseph Kuhr · 18-08-2008 1:55pm

SkepticOne wrote: »

But by definition the going rate is the rate at which it sells.

Not when you're looking at figures on a screen it doesn't. The going rate is based on statistics and probability.

Calina · 18-08-2008 2:00pm

Joseph Kuhr wrote: »

The rug is not pulled on capital appreciation....its down and battered yes. And it takes those with a bit of balls and cop on to sort the mess out. So why don't you go follow the next bubble and buy a load of corn crops or whatever the latest craze is. Leave the property investment to those who know what they're doing.

Those who know what they are doing are staying out of the market because there is no capital appreciation on offer right now and will not be until prices reach their trough.

Joseph Kuhr · 18-08-2008 2:00pm

Duckjob wrote: »

What is it about property in Ireland that makes people think house prices can defy free market economics?

Sellers can 'look' for more all they want, but any market what they can get will be dictated by what buyers are willing to pay. In a falling market, the sellers that grasp this concept the quickest will lose the least money.

Yes exactly. Maybe I'm not getting my point across too well here. I'm talking about getting a good price for a good property. Do you think its stupid to buy a property that is going to lose value in the short term? I don't not if its A) a good home that either fits your families needs or b) has good rental potential if thats what you're after. Prices will go back up, when is irrelavent if you're in it for the long term.

With prices still in decline you need to make an eduated judgment on whether now is a good time to buy or can you get the same property for less in a few months or even next year. that educated judgement can be based on a whole rake of things depending on your situation and on your assesment of the vendors situation.

I guess what I'm saying is the games not over....its just got a whole lot interesting

jackal · 18-08-2008 2:02pm

Joseph Kuhr wrote: »

The rug is not pulled on capital appreciation....its down and battered yes. And it takes those with a bit of balls and cop on to sort the mess out. So why don't you go follow the next bubble and buy a load of corn crops or whatever the latest craze is. Leave the property investment to those who know what they're doing.

Is that you Brendan O Connor?

And whats this about corn? Are ryanair flying there soon?

So there we have it - when you actually get into the sums with most landlords this is what it always comes back to. Rental yields are bollocks and they were riding the capital appreciation gravy-train. They also tend to make condescending remarks about leaving it to the big boys and waffle on about risk-taking, balls and canny/savvy decisions.

Oafley Jones · 18-08-2008 2:13pm

mrgaa1 wrote: »

from the way I see it this is the best time to buy. Prices will not get much lower because any developer who has borrowed money to buy and build has to repay back any loan and interest on that. Any house below 200k that is newly built will not drop anymore - in fact i'd say that most new houses can not drop anymore. Banks are starting to look for bigger deposits so that the LTV is less for them..

This guy has to be a shill.

We'll see how low prices will get when the banks start repossessing the mothballed estates from developers and start selling the houses themselves.

Oafley Jones · 18-08-2008 2:14pm

jackal wrote: »

Is that you Brendan O Connor?

BO'C is the name that came into my head as well.

jackal · 18-08-2008 2:24pm

Joseph Kuhr wrote: »

What can I say. There's no other way to say it without being condescending. The fact is the market has been flooded by every gob sh!te in the country and now they're all bailing and offloading their "investments" for next to nothing.

You truly are a captain of industry and I salute your mad entrepreneurial skillz.

Look maybe you are making fistfuls of cash off your rental properties excluding capital appreciation, and if you are then fair play, you did your homework. If not then you are pretty much describing yourself above. A "good" rental property that does not make money from the yield is as bad as anything else.

Ryaller · 18-08-2008 2:32pm

Oafley Jones wrote: »

This guy has to be a shill.

Naah, he's just one of those "Smart Ballsy Guys"...

Joseph Kuhr · 18-08-2008 2:40pm

jackal wrote: »

You truly are a captain of industry and I salute your mad entrepreneurial skillz.

Look maybe you are making fistfuls of cash off your rental properties excluding capital appreciation, and if you are then fair play, you did your homework. If not then you are pretty much describing yourself above. A "good" rental property that does not make money from the yield is as bad as anything else.

I think you've just misinterpreted what I've said or maybe haven't read all my posts in this thread and are just nit picking points and taking them out of context. I'm not delusional, I'm fully aware of the current economic crisis and that there are few properties in Ireland with capital appreciation at the moment.

Joseph Kuhr · 18-08-2008 3:00pm

jackal wrote: »

A "good" rental property that does not make money from the yield is as bad as anything else.

A bad property will be bad no matter what the state of the market. If you were to buy a good property right now, yes its going to be bad right now. But you're not selling right now. you're not even selling within the next 10 years. At the end of the day, when its all done and dusted you're left with a good property with its potential being fulfilled and a healthy rental yied and dare I say good capital appreciation. for those buying a home as a home, you're left with a good home no matter whats going on in the market.

Of course there is a lot to consider when buying a property. For example, I may be able to get a 92% mortgage now, but if I wait any longer I may only get an 80% mortgage...leaving me stuck and unable to move.

But with articles like this in the paper its only going to increase the availability of good properties as people panick....thats when things get interesting. For me anyway I think that time has come already and over the next 2 years the availability of good properties at good prices is going to get better and better. It may be smart to hold off a bit longer. It all depends on the circumstances of that particular purchase and the circumstances of your loan. It also depends on whether you are thinking with a clear head or whether you're still fueled by the greed of the celtic tiger.

SkepticOne · 18-08-2008 3:53pm

Joseph Kuhr wrote: »

But with articles like this in the paper its only going to increase the availability of good properties as people panick....thats when things get interesting. For me anyway I think that time has come already and over the next 2 years the availability of good properties at good prices is going to get better and better. It may be smart to hold off a bit longer. It all depends on the circumstances of that particular purchase and the circumstances of your loan. It also depends on whether you are thinking with a clear head or whether you're still fueled by the greed of the celtic tiger.

I think the panic has yet to come. There's no flood of properties onto the market at present, despite the vast amount of investors who bought at the top in the last few years and the vast amount of unsold inventory. This inventory has built up (and continues to build up) not because of huge numbers of sellers coming onto the market (very few sellers are entering the market these days) but because buyers have fled the market in even greater numbers. There is no panic, just denial. Sellers think that buyers are going to return if they hold out long enough but this will not happen. It does not occur to them to lower prices so more and more houses pile up unsold on the market.

We are still due general panic and this will happen when builders are forced to sell their inventory at whatever price people are willing to pay however low.

SkepticOne · 18-08-2008 3:54pm

Joseph Kuhr wrote: »

Of course there is a lot to consider when buying a property. For example, I may be able to get a 92% mortgage now, but if I wait any longer I may only get an 80% mortgage...leaving me stuck and unable to move.

What do you expect to happen to prices if 80% becomes the maximum available mortgage?

Joseph Kuhr · 18-08-2008 4:05pm

SkepticOne wrote: »

What do you expect to happen to prices if 80% becomes the maximum available mortgage?

It doesn't matter what happens because my indecisiveness will have put me out of the market...long term. the price drop in line with mortgage rates will not happen quickly, if at all (there's a lot of older people who can afford an 80% mortgage). I'm not saying everyone should buy now for this reason I'm just giving you one scenario. And its a scenario a lot of people holding out should be worried about.

SkepticOne · 18-08-2008 4:16pm

Joseph Kuhr wrote: »

It doesn't matter what happens because my indecisiveness will have put me out of the market...long term. the price drop in line with mortgage rates will not happen quickly, if at all (there's a lot of older people who can afford an 80% mortgage). I'm not saying everyone should buy now for this reason I'm just giving you one scenario. And its a scenario a lot of people holding out should be worried about.

Do you think prices will fall?

Joseph Kuhr · 18-08-2008 4:29pm

SkepticOne wrote: »

Do you think prices will fall?

It depends. If a bank is offering you an 80% mortgage based on your finances, career etc etc and its got nothing to do with the property then no I don't necessarily think it will fall because the next bloke might get a 92% mortgage or he might only need an 80% mortgage. Also depends on how much the drop is. If its not much (considering) then yeah people who are desperate or anxious will drop the price just to get moving.

SkepticOne · 18-08-2008 4:40pm

Joseph Kuhr wrote: »

It depends. If a bank is offering you an 80% mortgage based on your finances, career etc etc and its got nothing to do with the property then no I don't necessarily think it will fall because the next bloke might get a 92% mortgage or he might only need an 80% mortgage. Also depends on how much the drop is. If its not much (considering) then yeah people who are desperate or anxious will drop the price just to get moving.

If you reread my earlier question it was "What do you expect to happen to prices if 80% becomes the maximum available mortgage?". Would you agree that this will reduce the number of available buyers and therefore have a downward effect on price?

Ootermus · 18-08-2008 5:20pm

The only thing i'll say is that you need to differentiate between nominal house prices and real house prices, ie taking into account inflation as well. Nominal house prices are down 15-20% or so from their 2006/07 highs, but in real terms inflation has probably shaved another 7-8% off those, so we're already in 25% territory. Given that the unions are looking for 5% pay rises over the next year, you could be looking at a 'real' drop of 30% by Oct/Nov. This brings affordability levels back to mid-2005 area, around 20% on a national basis, and much more in line with the longer term sustainable averages.

ronbyrne2005 · 18-08-2008 5:43pm

Prices will approximately half in real terms over next few years compared to 2006 peaks. This is based on reading almost every report,study and stat on property market and economy over last 3 years via this site and thepropertypin.com and others and my degree in finance/economics etc.

House prices have much further to fall: Morgan Kelly

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