Future price of Irish properties
- Thread starter bacchus
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So presuming the prices continue to increase by approximately 8-10% for the next 2 years, that means that the house I want to buy, valued at around 500K at the moment will have increased to 605K, then a correction to the market (the polite term for a crash) of almost 20% is required to get back to the price I can pay now.
The question for me is - do I purchase now (when interest rates are lower and bank lending criteria is a bit lower) or do I wait, because like many on here (on this thread anyway), I am highly dubious of the sustainability of the economy and housing market at current levels?
Glenbhoy said:
It's a hard one to call, especially for first-time buyers with ever increasing prices for entry level homes and apts. It's a kinda damned-if-you-do, damned-if-you-don't scenario. Does one sit tight and watch prices continue to rise or jump in and hope for the best?
Personally, I think we are going to suffer in the long-term for our current property spending frenzy fuelled by historically low interest rates and lax lending policies. There are many potential hazards which could derail economies in the coming years... rising energy costs, US dollar collapse, instability in the Middle-East, competition from China and India to name just a few.
bearishbull
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glenbhoy if you want to live in your own home and arent gonna be moving for a long time then i'd say buy and dont worry about prices dropping in future,even if prices do correct in 2,3,4 or more years they may not go much lower than the price you will pay now.though when supply catches demand and interest rates rise and economy slows and rental yields fall further it will be interesting to see how much prices drop.
W
walk2dewater
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bearishbull said:
Based on what? The tune has changed noticeably in the last year, from "prices won't fall" to "if they fall it won't be by much". Prices have >tripled since 1997, who would have thought that in 1996? Current prices are purely psychologically driven and have no basis in economic returns; I cant remember the last time I saw a property in Dublin that had a positive real yield. In fact, is anyone paying attention to prices at all? €300k, €400k. €500k, who cares is the view, as long as the monthly committment can be met eh? We've climbed the 'wall of worry' and sent prices to the moon, sooner or later we'll face the 'slope of hope' as the market tops and turns, and psychologically the mood does a 180. Fear of being left out is replaced by fear of massive, bankrupting-sized, losses.
Interesting times indeed.
bearishbull
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walk2dewater said:
i said they MAY not go much lower which is possible given the high price(often irrational value )irish people place on owning a house.
if you have read my previous posts you will know i am very negative on future house prices but if your buying your own home to live in for next 20 years house price movements shouldnt be of too much concern to you.
if you can afford it and intend to live in it and dont lose your job(in a crash the wider economy would probably be affected and many jobs would be lost) you'll be fine,if house prices slump every house slumps and you can move to a cheaper house by selling your equally cheaper house.
bearishbull
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maybe there should be a windfall tax on all the property developers who made many millions each from young people for doing little just buying land up and sitting on it till its rezoned or developed,the ultra low taxes shouldnt apply to them as houses are a neccesity and unlike multinationals developers cant move country if taxes are too high
N
Neffa
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Bearishbull,
I lived in the UK during the crash of 1989/90 and believe me, it took much more than 2,3 or 4 years for things to come back.
The general attitude in Ireland seems to be "sure, we'll ride out the drop if it happens". The problem is that the ride in the UK took far longer than people imagined because the scarring effect it had on people's appetite to buy was dramatic. In 1989, you were mad if you did not want to own a home - one of my colleagues at work saw a fight where one man had beaten another to the last of a new build development outside Birmingham! - but by 1991 you were mad if you wanted to buy because all you could see were prices falling. Everyone I talk to here says that they'd look to buy in again if/when the market falls, but the uncertainty in the market means that few do and the market gets messy for a long time. Banks squeezed credit and it became harder to buy.
In London, it took 8 years for the market to recover. For many, that meant no holidays or other "treats" during that period as they had to fund high mortgage costs to avoid a repossession.
We bought a house in London in Summer 1998. The previous owners bought it in the Autumn of 1989, months before the crash. It took the market until January 1998 to recover. That's a long, long time.
I've been back in Ireland for just under a year, and I feel strongly that the market is overheated and ripe for a fall:
1. Irish house prices relative to income are the highest in the world.
2. Irish prices are higher than the UK (about 40% higher) but salaries are lower in general.
3. Salaries are growing at 3-5% but prices are growing at twice that rate and mortgage withdrawals are three to four times that rate.
4. You can rent a house in nice parts of Dublin for about 60% of the cost of buying it. This is based on personal experience of our rented house in South Dublin. People are willing to pay a large premium for "ownership" which is unrealistic.
5. Buy-to-lets are just breaking even for many people at interest rates of 3.5% or so. Even if we see another ECB rise of 0.5% before year-end, the typical €350K mortgage for a 2-bed apartment in much of the country will add over €150/month to costs which will make yields for many buy-to-let investors turn negative.
SSIAs may disguise this impact for the next 12 months, but I think things could get very, very interesting in the 2nd half of 2006.
Neffa
I lived in the UK during the crash of 1989/90 and believe me, it took much more than 2,3 or 4 years for things to come back.
The general attitude in Ireland seems to be "sure, we'll ride out the drop if it happens". The problem is that the ride in the UK took far longer than people imagined because the scarring effect it had on people's appetite to buy was dramatic. In 1989, you were mad if you did not want to own a home - one of my colleagues at work saw a fight where one man had beaten another to the last of a new build development outside Birmingham! - but by 1991 you were mad if you wanted to buy because all you could see were prices falling. Everyone I talk to here says that they'd look to buy in again if/when the market falls, but the uncertainty in the market means that few do and the market gets messy for a long time. Banks squeezed credit and it became harder to buy.
In London, it took 8 years for the market to recover. For many, that meant no holidays or other "treats" during that period as they had to fund high mortgage costs to avoid a repossession.
We bought a house in London in Summer 1998. The previous owners bought it in the Autumn of 1989, months before the crash. It took the market until January 1998 to recover. That's a long, long time.
I've been back in Ireland for just under a year, and I feel strongly that the market is overheated and ripe for a fall:
1. Irish house prices relative to income are the highest in the world.
2. Irish prices are higher than the UK (about 40% higher) but salaries are lower in general.
3. Salaries are growing at 3-5% but prices are growing at twice that rate and mortgage withdrawals are three to four times that rate.
4. You can rent a house in nice parts of Dublin for about 60% of the cost of buying it. This is based on personal experience of our rented house in South Dublin. People are willing to pay a large premium for "ownership" which is unrealistic.
5. Buy-to-lets are just breaking even for many people at interest rates of 3.5% or so. Even if we see another ECB rise of 0.5% before year-end, the typical €350K mortgage for a 2-bed apartment in much of the country will add over €150/month to costs which will make yields for many buy-to-let investors turn negative.
SSIAs may disguise this impact for the next 12 months, but I think things could get very, very interesting in the 2nd half of 2006.
Neffa
W
walk2dewater
Guest
bearishbull said:
Renting is a much better option to ride out this storm. Why buy now when you can save more and buy more later? I'd rather be liquid and have my money in non-property assets until this situation gets sorted.
walk2dewater said:
This is an interesting perspective, I have certainly noticed much more bearish sentiment around of late. Do you think this is indicative of an imminent collapse or have I just not been paying enough attention up until now?
Is there anyone reading who is as certain that we won't see a sudden "correction?" (I love this euphemism - can you also say "six people died in a multiple car correction on the motorway?")
I think that this is what everybody thought when we hit 2000 and turned the century. We all expected that the prices were going to at least stop if not go down a little. There was a serious lull in the market for a few months and then the maddness started all over again.walk2dewater said:
I would not advise anyone that was in a position to buy a house to live in and needed a house, to wait and "hope" to get it cheaper next year. I could not be responsible for the consequences of that advise.
This correction has been coming a long time and probably will come but nobody in the business is seeing it coming soon. The price of developement land has gone from half a million an acre to over a million in the greater Cork region in the past 18 months. Who do you think is buying up that land and do you think that they are idiots. I doubt it.
That's the problem, there's no way I could afford anything that would do me for the next 20 yrs - what with the 8 kids
. We have a very nice apartment at present, made a few euro on it, but that will be very quickly eaten up by the stamp duty and deposit. It probably won't be viable to stay here for much more than another 18mnths, it's hard to know - there have been some good replies here which certainly give food for thought. And I certainly would'nt be keen in extending myself too far if there is a possibility of falling house prices (as we all know, this would affect everything in the economy, and not in a nice way).Neffa
Without trying to be smart, where did you get this information for number 1 and 2, and what exactly do you mean by No.4?
Currently renting an apartment for E1400 per month. Similar apartment in the smae development was sold for ~E600000 last year. 100% mortgage @ 3.25% over 40 years would cost E2235/month and management fees and waste etc approx E150/month.
Therefore total cost of buying is E2385/month compared to E1400 to rent - 58.7% of the cost. Of course this only works out if there little or no capital appreciation. It makes absolutley no sense to buy unless you think there is going to be good appreciation or if you think that you have found a place that you will be happy to stay in for a long time. I haven't, and I'll likely have to move abroad in 2-3 years so renting makes sense to me (despite what my Mammy keeps telling me)
W
walk2dewater
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woods said:
Well I'm not trying to convince anyone, least of the the anyone "in the business". At this stage there's really no point in debating the issue further. Personally, I see minimum 50% drop in prices from peak to trough, far more in some areas/types, such as apartments etc. in West Dublin.
Want to know more? Well I see prices topping in late 2006 early 2007. The correction will be 3-5yr event, sharp falls then some bounces, then even more severe falls, etc. The instability, psychological shock will create an unavoidable wider economic recession. After the pain of this coming recession and after the first green shoots of recovery appear, Ireland will be a nicer place.
What am I doing? Currently renting a very nice terraced house in south city centre for 60% of what a conventional mortgage would cost. Have my assets in 60% short-term EU/CAN$ bonds (i.e. near cash), 20% in prec metals and prec metal shares, 20% in mining and energy shares. I expect a return of minimum 10% p.a. over next 5 yrs, depending on my leverage, while res property takes an almightly beating in UK, Aus, USA and esp. Ireland.
WTTW
Whilst I understand what you are saying, would I be right in saying that if you bought an apartment for 350K at 3.25% for 40yrs (there are a number of apartments close to town that could be purchased for this price), your repayments then would be €1303 per month, 948 interest and 356 capital, would this not then be more advantageous to you than renting (dead money as I'm sure your mammy tells you - experience
). Obviously you now have interest rate risk to consider and the possibility of a correction..Whilst I understand what you are saying, would I be right in saying that if you bought an apartment for 350K at 3.25% for 40yrs (there are a number of apartments close to town that could be purchased for this price), your repayments then would be €1303 per month, 948 interest and 356 capital, would this not then be more advantageous to you than renting (dead money as I'm sure your mammy tells you - experience
Not necessarily. Given that I will be moving on in a couple of years, what with transaction costs at first and the fact that I would lose first-time buyer status (I'm planning on returning to Ireland eventually) unless there was a lot of appreciation, I would lose out on the deal in the long run. Also, the apartment that I could buy for that amount would probably be a one-bed or very small 2-bed. the place I'm renting at the moment is exactly what I want in terms of location and size and I could never afford to buy it.
I suppose I'm making a lifestyle choice as much as anything. I no longer think the market is going to crash though, not unless the banks cut off the credit supply and I can't see that happening and the Irish imperative to own property will keep the whole bandwagon going
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