Future price of Irish properties
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Neffa
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Hmmm....
€1m average price means at least €125-€150K average salaries in 5 years time. I think not.
€1m average price means at least €125-€150K average salaries in 5 years time. I think not.
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Neffa
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Guys
There's been some push back on part of my original post but no-one has yet presented any arguments on why renting here is so much cheaper than buying. For me, that is the single biggest indicator that something is wrong.
The only conclusion I can draw is that investors are using interest-only mortgages to finance these properties and aim to cover the interest cost only on the assumption that the capital gain is "free". But when interest rates rise, some people will be in negative yield territory and some will try to sell, forcing the price downwards, making the capital gain go away, which then makes more want to sell...and so it goes on until the market shakes out.
Any comments?
There's been some push back on part of my original post but no-one has yet presented any arguments on why renting here is so much cheaper than buying. For me, that is the single biggest indicator that something is wrong.
The only conclusion I can draw is that investors are using interest-only mortgages to finance these properties and aim to cover the interest cost only on the assumption that the capital gain is "free". But when interest rates rise, some people will be in negative yield territory and some will try to sell, forcing the price downwards, making the capital gain go away, which then makes more want to sell...and so it goes on until the market shakes out.
Any comments?
I think they introduced a 100 year mortgage in Japan in 1989/1990, which seems to have had the desired effect.
http://www.iht.com/articles/2005/12/25/business/bubble.php
http://www.iht.com/articles/2005/12/25/business/bubble.php
Re the spreadsheet.
The idea is that one put in your own values and then play with the percentage returns and interest rates and such.
I realise I need to factor in an increase in rent but I don't know the relevant fomula.
See
http://www.finfacts.com/Private/curency/historicalstocksreturnsperformance.htm#DOW%20JONES%20INDUSTRIAL it saids the US stock market average annualised return (1926-1999) is 11%.
The idea is that one put in your own values and then play with the percentage returns and interest rates and such.
I realise I need to factor in an increase in rent but I don't know the relevant fomula.
See
http://www.finfacts.com/Private/curency/historicalstocksreturnsperformance.htm#DOW%20JONES%20INDUSTRIAL it saids the US stock market average annualised return (1926-1999) is 11%.
I think that the problem is pensions. As long as nobody can be sure of a pension that will keep them in some degree of comfort then everyone sees the need to have a rental property to fall back on and as long as everybody wants that extra property then the demand will stay up. Who here feels secure with their pension prospects.
Actually there was some talk about multigenerational mortgages in the press at the weekend - would this be the straw that breaks the camels' back.
Back in September 2006 the Irish Finance Authority affirmed the roll-out of Multigenerational mortgages (MGMs) to Irish home buyers. This proved very effective in allowing first timers to enter the market. People did not care that their children would inherit their debts. One Dublin man told this paper "My kids ardnt even bordn yet, so they wont know any differdince if they have to pay my mortgage after Im dead and gone since everyone will be doin it - it'll be just part o' life".
It seems people will shell out and agree to whatever is thrown at them just as long as they get their hands on their own pile of bricks.
However the strategic US dollar devaluation in December 06 whose aim was to reduce the CA deficit invoked the ECB under the direction of Trichet to increase Eurozone Interest lending rates to 4% to remain competitive.
This had a minimal effect at first as homeowners just tightened their belts further. "Sure its only 150 nicker a month, I'll just stop goin out for so many dinners and give up the fags- the wife can do her own hair now aswell..."
The overall mood, however, started to shift. The media became a little more sceptical of further increases to the property market, this feeling started to bleed into the public at large.
A few big investors started to offload property in early 2007, followed by smaller investors who were scared by the antics of the big boys.
Suddenly the market was flooded by highly priced rental property, there were not many buyers as most of the FTBs had been sponged up by the earlier introduction of 120% mortgages and MGMs, speculators were aware of the big sell and naturally "Wouldnt touch anything at the moment with a sh***y stick".
Prices started to drop as investors became more and more aware of the volume of property out there - they gradually started to drop prices a little to make a quick sale.
As prices of some properties dropped a little, more investors started to worry and started to sell at even lower prices aware that they had bought early and were still way above what they paid for the properties in the first place so wouldn't be too badly off if they knocked 50 or 75 grand off the asking.
Others, who had bought later, were knocking more off as they were getting closer to negative equity - Some speculators waiting on the sidelines started picking up a few properties here and there believing that things wouldn't go much lower - this stabilised things for a short time but there was no growth between winter 2008 and spring 2009 - many investors and landlords took a deep breath.
The Average house in Dublin was priced at €240,000 at around Christmas 2008.
Summer 2009, More bad news, a large American corporation was pulling out of Ireland and heading for China - on the belief that others would follow suit the mood plunged.
Investors who had bought at the turn of the century were nearing break even point and couldn't hold out - knowing it was a sellers market they offloaded their 'keenly priced' investments and watched as the price again plummeted.
December 2010, The banks have reported that they have had as bad a 2010 as 2009 - AIB and BOI stocks have fallen for a 4th year in succession.
Unemployment is at 15% as all of the major construction contractors have been hit hard.
We have seen 50,000 immigrants leave Ireland this year, the biggest outfux of people from our shores since 1986.
Credit has run dry, and mortgage approval rates have not been as low since 1972.
Irish Debt collection agencies have increased operations by 300% and large UK Debt Collection agencies are offering franchises in locations throughout the country.
Home and Vehicle reposessions are at the highest in the states history.
The average price of a Dublin 3 bed semi is now €190,000.
But things are starting to look a little more positive as many investors who didn't suffer in the "Celtic Lemming" are starting to pick up the cheap property.
---the only way is up!!
Back in September 2006 the Irish Finance Authority affirmed the roll-out of Multigenerational mortgages (MGMs) to Irish home buyers. This proved very effective in allowing first timers to enter the market. People did not care that their children would inherit their debts. One Dublin man told this paper "My kids ardnt even bordn yet, so they wont know any differdince if they have to pay my mortgage after Im dead and gone since everyone will be doin it - it'll be just part o' life".
It seems people will shell out and agree to whatever is thrown at them just as long as they get their hands on their own pile of bricks.
However the strategic US dollar devaluation in December 06 whose aim was to reduce the CA deficit invoked the ECB under the direction of Trichet to increase Eurozone Interest lending rates to 4% to remain competitive.
This had a minimal effect at first as homeowners just tightened their belts further. "Sure its only 150 nicker a month, I'll just stop goin out for so many dinners and give up the fags- the wife can do her own hair now aswell..."
The overall mood, however, started to shift. The media became a little more sceptical of further increases to the property market, this feeling started to bleed into the public at large.
A few big investors started to offload property in early 2007, followed by smaller investors who were scared by the antics of the big boys.
Suddenly the market was flooded by highly priced rental property, there were not many buyers as most of the FTBs had been sponged up by the earlier introduction of 120% mortgages and MGMs, speculators were aware of the big sell and naturally "Wouldnt touch anything at the moment with a sh***y stick".
Prices started to drop as investors became more and more aware of the volume of property out there - they gradually started to drop prices a little to make a quick sale.
As prices of some properties dropped a little, more investors started to worry and started to sell at even lower prices aware that they had bought early and were still way above what they paid for the properties in the first place so wouldn't be too badly off if they knocked 50 or 75 grand off the asking.
Others, who had bought later, were knocking more off as they were getting closer to negative equity - Some speculators waiting on the sidelines started picking up a few properties here and there believing that things wouldn't go much lower - this stabilised things for a short time but there was no growth between winter 2008 and spring 2009 - many investors and landlords took a deep breath.
The Average house in Dublin was priced at €240,000 at around Christmas 2008.
Summer 2009, More bad news, a large American corporation was pulling out of Ireland and heading for China - on the belief that others would follow suit the mood plunged.
Investors who had bought at the turn of the century were nearing break even point and couldn't hold out - knowing it was a sellers market they offloaded their 'keenly priced' investments and watched as the price again plummeted.
December 2010, The banks have reported that they have had as bad a 2010 as 2009 - AIB and BOI stocks have fallen for a 4th year in succession.
Unemployment is at 15% as all of the major construction contractors have been hit hard.
We have seen 50,000 immigrants leave Ireland this year, the biggest outfux of people from our shores since 1986.
Credit has run dry, and mortgage approval rates have not been as low since 1972.
Irish Debt collection agencies have increased operations by 300% and large UK Debt Collection agencies are offering franchises in locations throughout the country.
Home and Vehicle reposessions are at the highest in the states history.
The average price of a Dublin 3 bed semi is now €190,000.
But things are starting to look a little more positive as many investors who didn't suffer in the "Celtic Lemming" are starting to pick up the cheap property.
---the only way is up!!
N
Neffa
Guest
jhegarty said:
What about 75 or 100 years?
Joking aside, no matter how long the mortgage is, you always have to pay the interest - that's the issue. Making it longer gives you more time to pay off the capital, but leaves the interest element in place. The difference between a 35 year deal and a 50 year deal is not much in terms of monthly payments but a shed load extra in total repayments.
In this old thread I mentioned the possibility of long term mortgage financing akin to the Pfandnbrief system in Germany becoming more common (or available at all?) in Ireland.
bearishbull
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if you rent for cheaper and invest the money saved in a pension you get immediately 42% extra if your on higher rate of tax,pensions have returned an average of 10% a year over last ten years,in long term 10%per annum isnt unreasonable so this strategy is sensible in the current uncertain market where there are clearly asset bubbles.yes your rent will rise by a few per cent a year but so will your salary. property historical has risen 10% per year but a lot of that would be inflation,in reality after inflation property hasnt increased much over last hundred years-only 1% per annum(according to yale economist shiller).
people think interest rates are so low nowadays so things are different but in reality when interest rates where 15% inflation was around the same! so real interest rates were around same as now! i heard the economic editor of irish times argue that we are in permanant low interest rate enviroment and this justifies higher prices but when interest rates were 15% inflation was 15% which erroded the value of the initial loan! and wages were rising at close to inflation so the debt got smaller in real terms.
people think interest rates are so low nowadays so things are different but in reality when interest rates where 15% inflation was around the same! so real interest rates were around same as now! i heard the economic editor of irish times argue that we are in permanant low interest rate enviroment and this justifies higher prices but when interest rates were 15% inflation was 15% which erroded the value of the initial loan! and wages were rising at close to inflation so the debt got smaller in real terms.
bearishbull
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even better!
Does anybody know which "experts" have been saying there will be a crash for any time longer than 5 years?
We all read the reports from 10 years ago that were predicting price crashes I am just wondering are these peopel still saying the same thing that they were wrong about consectutively for just 5 years.
A lot of people here are making the assumption that people must buy property at some point. No talk about the fact that some people simply may never own now. If you want to look at examples of where this happened look at all the georgian buildings owned in Dublin. Very few are owned by individuals or used as houses. The only reason I can see is that that kind of living had to change. If you compare dublin density etc to other European cities nobody elses seems to live with our density. I reckon this is what will change and not a drop in prices. The big problem with many "experts" is they look at the financial records and less at the social element or the engineering elements of society.
Many people quote huge drops yet in many cases that means houses prices would drop below construction costs. It is possible but not likely in the certain places such as those close to Dublin due to a constant demand. If employement dries up more country people will have to move to Dublin. No matter what Dublin will always be the main area of employment in this country.
We all read the reports from 10 years ago that were predicting price crashes I am just wondering are these peopel still saying the same thing that they were wrong about consectutively for just 5 years.
A lot of people here are making the assumption that people must buy property at some point. No talk about the fact that some people simply may never own now. If you want to look at examples of where this happened look at all the georgian buildings owned in Dublin. Very few are owned by individuals or used as houses. The only reason I can see is that that kind of living had to change. If you compare dublin density etc to other European cities nobody elses seems to live with our density. I reckon this is what will change and not a drop in prices. The big problem with many "experts" is they look at the financial records and less at the social element or the engineering elements of society.
Many people quote huge drops yet in many cases that means houses prices would drop below construction costs. It is possible but not likely in the certain places such as those close to Dublin due to a constant demand. If employement dries up more country people will have to move to Dublin. No matter what Dublin will always be the main area of employment in this country.
bearishbull
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people havent been warning for ten years only around 6 and just because people are warning for a long time doesnt mean it wont happen, in fact the longer economists warn about a situation the more likely it is to happen as it brings us closer to the inevitable downward movement that all asset markets experience at some time as these markets are cyclical.Loki said:
construction costs are only 30% of the price for most properties,land is the largest and most significant cost element.
i dont know what your point is regarding georgian houses but it doesnt make much sense and i think "experts" have taken all aspects of the scenario into consideration when judging the realisticness of house price valuations.
W
walk2dewater
Guest
Loki said:
The prospect of much lower property prices is totally unbearable for those with highly leveraged positions. It would mean absolute and total financial ruin. So there is no possibility of having a rational, unemotional discussion on the matter with them. It's psychologically too painful. Prices MUST NOT fall, young people must be encouraged to get in at the bottom of the pyramid, I MUST be able to sell on to someone else in the future for a higher price, I must stay in control my retirement depends on it. In such an environment, supportive explanations for existing or higher prices become ever more contrived and bizarre... east euro immigration etc. The unfavourable scenario is far to gruesome to consider.
There will be enormous economic, social carnage when prices unravel in this country. Everyone will be impacted in some way. FF will be severely, if not fatally, damaged as a political party.
WTTW
Sorry you are wrong there I remember reading lots about house price warning and it was 10 years ago. It has certainly going on longer than 6. I only asked for the last 5 as I thought it would be easier for many people. I never claimed it won't happen justbearishbull said:
I suggest you try to get a house built and you will find construction will run a lot higher than 30%. I think if you gauge it by mass estates built by a developer you may find construction costs go dwon to 30%. The problem is that to build a house you need many other services which will push up the cost to build a house.bearishbull said:
Georgian houses were too expensive for people to live in, in the manner they did. The form of lifestyle changed not the property as it will and will always last longer than the social order. The same applies now the 3 bed semis are an unviable constatn currently in Dublin. A 3 bed semi close to the city will no longer house a family instead it will be split and sold seperately like what happened to georgian houses. It happened all around London. The demographic of this country will change to need mre singel dwellings. Financial "experts" tend to look at financial issues and don't normally think in human terms enough. PLanners/Engineers "experts" tend to not think the financial loan aspects out very well. The experts in my eyes tend to miss the full picture.bearishbull said:
If the experts stories of doom an gloom don't come true for 6 years yet they keep saying it they will eventually be right but it doesn't mean they are calculating it out or ever right. A broken clock is right twice a day. How many experts after saying something will happen in the next year come back and say well I was wrong and here is why or what I didn't consider?
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