Contracts have yet to be exchanged Gordon - that’s really the key point.
I think the IRES share price is a reasonably good proxy for Irish property prices. It has absolutely tanked over the last month.
Key Post Gone sale agreed , should I proceed with purchase?
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I think the IRES share price is a reasonably good proxy for Irish property prices. It has absolutely tanked over the last month.
Gordon Gekko
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Hi Sarenco,
I respectfully disagree. One of the advantages that “real” property has is that it’s not marked to market. IRES’ share price represents the sentiment of people who invest in Irish REITs. I don’t think that’s an accurate proxy for a long-term family home. IRES is not analagous to the purchase of a family home for a multi-decade holding period. If it’s the right “forever home”, I would crack on; it’s a home first and an investment second.
Just my view.
Gordon
NoRegretsCoyote
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100% agree. REITs are quite geared which tends to amplify changes in expectations around valuations and future rents.
Changes in interest rates can also have a big impact on REIT share prices, even with no changes to rents and portfolio valuation.
Well, it's certainly true that an individual house doesn't come with a ticker tape, showing you its ever changing price on a minute by minute basis.
But that obviously doesn't mean that the price/value isn't constantly fluctuating.
IRES is certainly not an analogue for any particular property (or property type).
A REIT is essentially a securitised real estate portfolio - the IRES portfolio is made up of thousands of individual residential properties. As such, I do think IRES represents a reasonable (but certainly imperfect) proxy for Irish residential property generally.
The last time I checked, IRES employs gearing at a rate of around 30% on its underlying portfolio (and cannot exceed the 50% maximum permitted by the Irish REIT regime). The majority of single family homes are bought with a considerably higher level of leverage than 50% LTV and property prices, in general, are impacted by changes to interest rates.
I'm not saying I necessarily disagree with the advice to proceed with the purchase, given the particular circumstances, but it's a tough call IMO.
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NoRegretsCoyote
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Exactly. The value of the equity in your house will fluctuate much more than the market value of the house itself.
That's why I don't read too much into short-term REIT performance, which are also influenced by other factors too.
Edit: For example IRES Reit lost 10% of its market value between January and November 2018. But house prices continued to rise by every metric in that period. Why was that?
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Well, leverage certainly amplifies gains and losses (I think that's your point).
My interpretation of the CSO data is that residential (particularly apartment) prices in Dublin peaked in the summer months of 2018 so that would be consistent with the IRES share price movement.
NoRegretsCoyote
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You don't have to interpret, you can [broken link removed]
CSO residential property price index for Dublin apartments was 87.8 in January 2018 and 91.1 in November 2018.
From the uber proponent of "something is worth what someone is willing to pay for it' this is a surprise.
The CSO residential price index is a lagging indicator because of the length of time (typically 4-6 months) it takes to complete a property sale/purchase from the time the price was agreed. So, yes, the index does require some interpretation.You don't have to interpret, you can [broken link removed]
In contrast, share sales/purchases are pretty much instantaneous and reflect the consensus market view of the future prospects for a particular business.
If rent the OPs sister is paying exceeds the interest charge on the mortgage, then she will be in profit on the purchase from day one.
The it might be cheaper next month argument is speculation, which is foolish when it comes to a dram home.
If they want it and they can get it, tomorrows problems will have to be dealt with tomorrow.
If you can't pay rent are you better or worse off than if you can't pay a mortgage.
The it might be cheaper next month argument is speculation, which is foolish when it comes to a dram home.
If they want it and they can get it, tomorrows problems will have to be dealt with tomorrow.
If you can't pay rent are you better or worse off than if you can't pay a mortgage.
I am still of this opinion , something is worth what the market values it as a fair price, but my firm belief is that house prices have dropped but this will not be reflected in estate agents windows or websites for some months down the line. I don't think that someone who has agreed a purchase last month is getting a fair price buying now. Do you believe that property is totally insulated from the rest of the economy ?
I really don't think its speculation , I don't think it's cheaper next month I think its cheaper now, but its not visible as its not a market that you can see changing on your screen.
Brendan Burgess
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Hi Gordon
Having dealt with so many people stuck for 10 years or more in negative equity, I can see what a terrible place it is.
Many of these also lost their jobs and were unable to keep up the mortgage repayments.
I think that it is perfectly reasonable to tell a would be seller that you cannot complete until the current crisis is over.
If you are buying an investment property for cash, it's different. You might pay €300k for a property which is now worth only €250k. So what, in the longer term?
Brendan
Having dealt with so many people stuck for 10 years or more in negative equity, I can see what a terrible place it is.
Many of these also lost their jobs and were unable to keep up the mortgage repayments.
I think that it is perfectly reasonable to tell a would be seller that you cannot complete until the current crisis is over.
If you are buying an investment property for cash, it's different. You might pay €300k for a property which is now worth only €250k. So what, in the longer term?
Brendan
sellers are quick to cancel "sale agreed" if a higher offer comes in,so why not the buyers?. i think its madness to be buying now. surely property prices will drop at the very least 20% in the coming months . the indicators are there. stocks and shares are tanking.
JSnowWinterfell
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Why will house prices drop in the current situation? There are different factors to those in 2008.
Brendan Burgess
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1) There is going to be a significant fall in economic activity
2) 170,000 job losses - even if most are temporary
3) A general level of uncertainty
4) The banks will probably stop lending or at least dramatically tighten their criteria. I always thought that 90% LTV was very risky. I would not lend more than 60% LTV today.
Brendan
Regardless of the Corona, the housing crisis still persists. I can't see things changing that dramatically (as in 2008). There is still a huge need in the property sector unlike 2008 when there was a surplus of houses. Also we didn't reach the property trough until 2013 so it took around 5 years. This corona will be short lived as we expect a vaccine fairly soon (within 12-18 months). It's a very temporary problem although I understand the economic issues may persist for sometime afterwards.
JSnowWinterfell
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This will test the mortgage lending rules put in place and the regulation put in place by banks since the financial crisis.
Do we think they are going to fall because prices are overvalued or fall under true value?
Consider two similar houses (same street, size etc). Both listed at 500k, House A went sale agreed in December at 500k, House B is currently still on the market. How should I determine the value of House B today?
Brendan Burgess
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I don't think you will know for some time, as it's going to be very slow to sell.
Brendan
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