Bought apartment 12 months ago - value is still the same

Gabriel, in January of 2000 you could have piled up all the analysis of why Nortel was $145/share (Can $) and why Cisco, Yahoo, etc, etc were trading at such prices. A lot were charlatans, but a lot was also honest, convincing, plausible, sound arguments, based on facts; in short the prices made 'sense'. Trouble is, as I found out starting around March 2000, markets are more influenced by sentiment than by anything else. Especially markets built on the premise of selling on to the next player. Fewer and fewer people decided that they didnt want Nortel at $145, or at $120, or at $99, or indeed at $50... didnt make sense, doesnt make sense, but dems the facts. Last time I checked you can buy Nortel today for < $3.00. (BTW in case you're not familiar Nortel aint no .com pipsqueak- they're still around making things and employ >50,000 people).

ANyway, my point is not about shares vs. property vs. US$ vs. bonds vs. bananas. My point is, and was raised above on this thread, SENTIMENT is shifting... you can feel in the air... the UK is looking down the barrel of a massive switch in market sentiment.... markets are markets are markets, and people are people with the same fear/greed conflict....

At the end of the day, make sure your exposure to the housing market here is limited to having an affordable roof over your head and zero speculative interest. cos I reckon 'investors' in this market, like everyone last into any pyramind scheme, are going to have their heads handed to them... €250,000 for a 500stft apartment in D1 is gonna look like a sad joke when the panic subsides in a few years...

The last comment is very true. The sentiment on investing in houses is changing all over the world, just look at the amount of postings on the issue on this site. A year ago there were very few people making such postings. Of course houses are not as speculative as shares such as nortel. The only reason people bought shares in nortel was to make money so the speculative element in it was very high. Of course most people buy houses just to live in, but there has been an increasing speculative nature in the market over the last 5 years. This means that as the investment sentiment in housing turns the speculative element will be shaken out. This will result in a significant drop in prices but not a collapse like that of nortel shares because people still need to live in houses. My biggest worry is not what happens to house prices but what happens the irish economy, construction and building account for a disproportionate size of it. Also the amount of irish services such as solicitors and accountants dependant on a strong housing market is cosiderable. So in general if you bought your house just to live in and if your job has no dependance on a stong housing market I would not be too worried.

The above posts #41 and #42 are excellent. I often hear the argument that people need houses to live in and this somehow provides a protection to house prices. But it's the activity at the margins that impacts price.

As MA Nystrom writes on bullnobull.com :
"In economics, as in life, all the interesting activity takes place at the margins.....Just think of them (speculators) as the day traders of yore, adding no value but simply pushing up prices, crowding out legitimate buyers and artificially inflating values, squeezing out money from pure emotions. But these investors aren't in the game for fun - their investments have to make profits. This can happen only one of two ways, either through rents or capital appreciation. There is evidence that rents are no longer doing the trick ....so in order for the speculators to make profits, more speculators - or legitimate buyers -- must enter the market. The greater fool theory lives on. "

It ends
"If you are looking to invest, just realize that you're playing a game of chicken. You may come out ahead, or you may not. Beware that the signs of a top are present"

Unregistered said:

My point is, and was raised above on this thread, SENTIMENT is shifting...

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Confirmed..

http://www.rte.ie/business/2005/0509/consumer.html

I just loved the phrase

"Mr Hughes says that households may be signalling an increasingly marked disconnect between very buoyant economic commentaries and restrained perceptions of their own spending power"

I think you can translate "signalling an increasingly marked disconnect" to "not swallowing the hype" ;-)

I own 2 houses (1 ppr and 1 investment) so I do have a vested interest in the property market. I would tend to agree that the market is slowling down, although I'm not too sure that the "bubble" is about to burst.
The way I see it is that there is an over supply of apartments and 2 bed town houses. They are eveywhere!
The town where I live has seen planning granted in the last year for several new developments (over 1200 new homes) the majority of which will be apartments and 2 bed townhouses. Only 1 of these developments appears to have a good mix of 3/4/5 bed houses and these sold out in an afternoon (top price was well over 500k). Another estate with about the same number of houses but all 2/3 beds (about 12 4 beds) has been onsale for the last 6-7 months and still hasn't sold out (even after dropping the prices 10k-20k).

If I was starting out now I would avoid buying any apartment or small 2/3 bed townhouse unless they are part of development with a similar number of larger semi-detached and detached houses. If I had the money I'd go for the 3/4 bed semi or larger. A sense of community in an estate/area makes it more desirable thus adding value, but if all the homes are just rental and/or starter homes then the population is going to be (to quote a Co. Co.) "transient with little sense of community". To add to that... less desirable and poor investment.

Even though the the market does appear to be slowing, if you remember the golden rule of property "location, location, location", I don't think you can go wrong.

Fintan said:

To the orginal poster, as long as you like the apartment & the area it is in and can afford to pay your mortgage when interest rates go up, then you should be able to ride out any price moves.

Personally I think Irish property prices are over valued, especially compared to what you can get in the UK and Australia for the same price.

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I wouldn't take the UK as a good example now, the prices went crazy again there and are now in decline in many places. To be honest I'd say many areas of Ireland compare favourably to the UK now, even taking the whole Euro/Sterling argument into account.

Unregistered said:

Even though the the market does appear to be slowing, if you remember the golden rule of property "location, location, location", I don't think you can go wrong.

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I'd like to add another "location" rule that's getting easier to apply these days. "Locate" your position on the house price inflation graph.

Look at the graph that opens on this webpage and the arrow that locates you on the graph. ("You are here")

[broken link removed]

Now this graph is for the UK (anyone have a link to the Irish one?) but the Irish graph is even more severe.

I think the new golden rule should be: Buy in a good location AT A TIME when house prices have not gone "exponential". Then you can't go wrong !

Best of Luck!

Here’s what I think is the sequence of events about to unfold here.

What’s currently happening:
Cash among FTBs dried up long ago. But cash was gradually replaced by family support, untraceable secondary loans and loose lending. Now this is drying up. Serious FTBs, that is ones who can actually fork out the readies will be, if they are not already, more or less extinct. What we’ll be left with is high end residential trades- I’ll swap my €750 house in Stillorgan for your €500k high spec apartment in Dun Laoghire. This will be the norm for a while yet. What’s also currently happening is rent, especially for apartments, is coming down. It will stay this way until supply falls to meet demand.

Then:
When liquidity dries up several things happen. First, trade volume gets thin. Estate agents/auctioneers need volume to make a crust and it will be in their interests to lower valuations to get the volume back into the market again. Vendors of course will resist lowering prices tooth and nail, so inevitably many estate agents/auctioneers will go bust. Many would-be vendors will see the signs and will withdraw from the market and/or focus paying down the mortgage. There will be a long period of a very, very stagnant market, a ‘stand-off’ if you like, with very low turnover. It could stay like this for a while. The second thing that happens is sentiment firmly goes the other way; “I have to get on the ladder at any cost today” is replaced by “Sure prices are stagnant, I’ll wait and see what happens and save more deposit”. People will come around to thinking as follows: “My rent is less than the interest on a mortgage for the same place, pricing are falling/stagnant and I’m able to save for a bigger deposit as every month goes by”.

The end game:
The stalemate will be resolved in favour of buyers. Why? Because in a stagnant market with cautious buyers there’s always more distressed sellers on the margin than distressed buyers. Prices in free markets are set on the margin, ask any 1st year student of economics. In any case, the marginal distressed seller- divorce, kids, job loss, higher interest rates- will have to accept whatever price they can get. They’ll have no choice because cash will be king and serious buyers will have tremendous leverage to ratchet trade prices down and down. As one distressed seller after another accepts a lower price the falls gain moment, more people go into neg equity, and sentiment goes well and truly ugly. This part of the sequence is swift and brutal. (Aside, my guess is because the economy here is so tied to property there’ll be a recession brought on by the collapse of prices and this will make things even uglier).

Soon after this people lose interest in property. Property shows will cease to be aired on TV. Prices will flatten out. Then it becomes economic to purchase property again- because after all it’s good to own property long-term when bought at a good price.

A Great Deflation 101 lesson there for y'all.

I'd say the deflationary cycle will run from 2005 to 2010 with a big effort by Dan McGuffinagain to talk us all out of it in 2007 when the SSIA's come in big time. Thats unless prices fall a lot (20-25%) between now and 2007 when the SSIAs will be used to kickstart the market again no doubt . I would personally rather get it all over with in 2 years than be faced with a Japanese type scenario where the bubble burst in 1990 with property still going down it seems.

The last UK slump lasted from 1990 to 1996 if one recalls .

The UK slump has started again according to the BBC news

Surely the market isn't one mass entity capable of being defined singularly? Will the red brick period within a mile of Dublin city suffer the same fate as a white box in the commuter belt suburban maze?

No, the old Location Location Location maxim applies as always . If the market tanks badly then the D6 redbrick will suffer less of a fall than the suburban boxeen .

Obviously period houses in D4 are not in the same league as boxes in blanchardstown.

The going market price of a property is determined by the last transaction(s) of a comparable property. This principle is true for anything traded in a free market. You'll get few takers for your house at €250k if a more or less identical one across the street sold for €235k last week.