House Market Weakening?

[Remix]

More signs that sentiment in the media is beginning to go bearish..

Are they bearish enough to get the message across though?

For example in last 24 hours we have had some very hawkish statements from ECB council members which could be interpreted as warning that interest rates may rise quicker than anticipated.

Also some very hawkish news coming from Japan and this could have ramifications around the globe.

The market digesting this info has caused the banks on the ISEQ to plummet today.

And yet the main story over on RTE.ie/business at the moment is on the spectacular gains made in property in the past 10 years !!

I suppose you could take the RTE story as a veiled warning suggesting that things have risen too much too fast but why not unveil the beast
and show it like it is - warts and all !

 

[beattie]

Are they bearish enough to get the message across though?

For example in last 24 hours we have had some very hawkish statements from ECB council members which could be interpreted as warning that interest rates may rise quicker than anticipated.

Also some very hawkish news coming from Japan and this could have ramifications around the globe.

The market digesting this info has caused the banks on the ISEQ to plummet today.

And yet the main story over on RTE.ie/business at the moment is on the spectacular gains made in property in the past 10 years !!

I suppose you could take the RTE story as a veiled warning suggesting that things have risen too much too fast but why not unveil the beast
and show it like it is - warts and all !

The Indo seems to be giving a more balanced view than the IT at least, it was interesting to see that they had some bloke on today saying his repayments had sky rocketed recently though it had something to do with his type of loan. This type of reporting is to be more welcomed than what the IT trots out on a continous basis.

 

[Guest107]

though it had something to do with his type of loan.

many modern Dublin mortgages are interest only so they 'skyrocket' as he puts it. Many investors also have interest only mortgages rather than repayment ones.

Here is a typical scenario Interest Only 400k mortgage over 35 years .

Started a year back at 3.0% now 3.75% , 1% over base at all times.

€1540 @ 3%
€1722 @ 3.75%
€1771 @ 4.0%

later this year

€1832 @ 4.25%

and next year

€2019 @ 5%

and possibly by 2008

€2281 @ 6%

 

[Remix]

Here is a typical scenario Interest Only 400k mortgage over 35 years .

Started a year back at 3.0% now 3.75% , 1% over base at all times.

€1540 @ 3%
€1722 @ 3.75%
€1771 @ 4.0%

.
.
.
and possibly by 2008

€2281 @ 6%

Could be a double whammy there as it's likely that the skyrocketing payments will not happen in isolation.

In adjusting to the new interest rate environment there is a real possibility that payments will be skyrocketing on an asset that is falling
in price.

 

[Neffa]

many modern Dublin mortgages are interest only so they 'skyrocket' as he puts it. Many investors also have interest only mortgages rather than repayment ones.

Here is a typical scenario Interest Only 400k mortgage over 35 years .

Started a year back at 3.0% now 3.75% , 1% over base at all times.

€1540 @ 3%
€1722 @ 3.75%
€1771 @ 4.0%

later this year

€1832 @ 4.25%

and next year

€2019 @ 5%

and possibly by 2008

€2281 @ 6%

For an IO mortage, the increase is more severe than you've listed:

400K @ 3% = 400000*0.03/12=1000pcm
400K @ 6% = 400000*0.06/12=2000pcm

Payments should increase linearly with the interest rate so if we go from 3% to 6%, it doubles.

Meanwhile, rents rise at inflation (at best).

Hmmmmmm !

 

[Guest107]

Payments should increase linearly with the interest rate so if we go from 3% to 6%, it doubles.

You are absolutely right but thats what Karls Mortgage calculator gave me ....dUHHHH me that is.

The height of lunacy I heard of so far is an accountant who bought a 1 bed in Dublin Docklands a year back, interest only , for €520k and him on a €50k salary. That would have been about (520 *0.03)/12 or €1300 a month initially where his take home is about €3k a month + or - €100. Comfortable enough i hear some say and I agree with that.

It will be €1733 a month shortly, 4% Mortgage rate .

It will be €2167 a month by next year , 5%

and

It will peak at the top of this rate cycle at around 6% (base rate 5%) by 2008 or so . Thats €2600 a month. No room to let and thats most of his salary gone on the mortgage.

 

[gearoidmm]

Don't forget management fees of probably 150/month on top of that

 

[Duplex]

You are absolutely right but that's what Karls Mortgage calculator gave me ....dUHHHH me that is.

The height of lunacy I heard of so far is an accountant who bought a 1 bed in Dublin Docklands a year back, interest only , for €520k and him on a €50k salary. That would have been about (520 *0.03)/12 or €1300 a month initially where his take home is about €3k a month + or - €100. Comfortable enough i hear some say and I agree with that.

It will be €1733 a month shortly, 4% Mortgage rate .

It will be €2167 a month by next year , 5%

and

It will peak at the top of this rate cycle at around 6% (base rate 5%) by 2008 or so . That's €2600 a month. No room to let and that's most of his salary gone on the mortgage.

That's before service charges and utilities, you wouldn't want to be a big eater.

 

[Duplex]

Don't forget management fees of probably 150/month on top of that

Beat me to it.

 

[beattie]

I would have thought an accountant would have no known better

Unfortunately there are going to be many in that boat in the next year or so IMO. When rates go to 4% what investor in his right mind would buy that one bed off him. There could be a shortage of buyers for those type of properties.

 

[TheSphinx]

I was talking to a guy in one of the development I was looking at last week, I was having difficulty to decide whether I should go for a property in the Development. He kinda made my mind up...

He is currently renting one of the properties in the development - his house where he pays his mortgage is in Wales where his wife resides. He said, if you don't intend to have children, then there is no necessity for you to buy a house, (I don't intend to have children). There is no point in some single person living, in some village having to commute hours to work, away form friends and civilisation, should one not decide where to live where they will be happy and not where they can afford, especially in the current climate...

 

[gearoidmm]

Does one feel proud of oneself, looking around your tiny one bed apartment, having spent 1/2 million on it. I moved into one last year with my better half - in a really nice area, in an 'exclusive' development. We moved out after 2 months. the claustrophobia was killing us (and our relationship) and this was in summer when we at least could go outside in the evenings and escape the place. We gladly gave up our deposit

Never, ever again. I wouldn't live in one again if it was given to me for free. I'd rather rent for the rest of my life. And this one was ~450 sq feet with a big balcony! It was bigger than average - I just can't imagine what it must be like in the smaller ones.

What is going to happen to these people when this mindless mania ends?

 

[room305]

The article says 275,000 were actually identified as being vacant.

I know an enumerator in Kilkenny city who was absolutely shocked by the number of vacant dwellings there. Before performing the census he was of the opinion that house prices were being driven so high by a housing supply shortage. However, since discovering that about one in ten houses in the city were lying vacant he has become very sceptical of the sustainability of this boom. He genuinely believes that the official census figures on the number of vacant buildings will give people pause for thought.

I don't personally. I'm waiting for some convoluted stories from the bulls about people making their homes look vacant to avoid the census officials etc.

 

[whizzbang]

I don't personally. I'm waiting for some convoluted stories from the bulls about people making their homes look vacant to avoid the census officials etc.

I'm betting on "We were all on holiday"

 

[Glenbhoy]

It will peak at the top of this rate cycle at around 6% (base rate 5%) by 2008 or so . Thats €2600 a month. No room to let and thats most of his salary gone on the mortgage.

Firstly, where does the 6% come from - you know what they say about people trying to predict interest rates don't you.
Secondly, accountants salaries are racing ahead at massive rates at the moment, so he should still have a fair bit of disposable income left over.
Thirdly, from my knowledge of city centre apartment prices, that price normally indicates some sort of tax incentive (possibly not, but 18 months ago it would).
Fourthly, I'd rather have that property than the two bdrooom apartment in Blanch/Adamstown/Celbridge......

 

[Guest107]

And this one was ~450 sq feet with a big balcony! It was bigger than average - I just can't imagine what it must be like in the smaller ones.

450 sq ft is a shoebox . There will be no proper storage bar one wardrobe and a kitchenette + diner+ sittingroom . Could not live in that place either. Its what was called a tenement really.

Firstly, where does the 6% come from - you know what they say about people trying to predict interest rates don't you.
Secondly, accountants salaries are racing ahead at massive rates at the moment, so he should still have a fair bit of disposable income left over.
Thirdly, from my knowledge of city centre apartment prices, that price normally indicates some sort of tax incentive (possibly not, but 18 months ago it would).
Fourthly, I'd rather have that property than the two bdrooom apartment in Blanch/Adamstown/Celbridge......

1. NORMAL GERMAN Interest Rates, not emergency rates as in post 9/11 . I would expect base rate 5% which equals 6% Mortgage rate and by 2008. I am not predicting higher in this strenghtening cycle.
2. Accountants salaries will not double before his mortgage payments do. The guy will have to pass a few exams and hand in a logbook before he goes much higher.
3. It was out around Googleland somewhere.
4. I'd rather my 3000 sq ft in the country myself, thanks. It did not cost me anywhere like €500k either

 

[Glenbhoy]

I'd rather my 3000 sq ft in the country myself, thanks. It did not cost me anywhere like €500k either

That's a different matter entirely - would'nt we all, unfortunately, many of us have to stay where the work is!!
He could sell now and make a tidy packet of course, but overall, it's better to buy there imo than somehwere bigger in the outlying regions. Rent, transport etc being the key factors.

 

[lff12]

450 sq ft is a shoebox . There will be no proper storage bar one wardrobe and a kitchenette + diner+ sittingroom . Could not live in that place either. Its what was called a tenement really.

Actually tenements were basically houses broken up into bedsits (basically) and then let out to families. My Dad grew up in one. They had a family of 6 plus 3 cousins living in about 2 rooms!

Would guess though, that this scenario is likely to return with a vengence if the current levels of social welfare private tenants keeps increasing.

 

[SidTheDweeb]

[FONT=Verdana, Arial]

Niall O'Grady, Head of Marketing with Permanent TSB, believes rising interest rates will force the market to cool, but not decline.
And despite growth of 4pc in the market in just the first quarter of 2006, he believes first time buyers (FTB) should buy now rather than later.
"A number of years ago people were sitting on their hands and waiting for negative equity to happen," he said. "It didn't happen and they had to struggle to get onto the property ladder.
"We wouldn't be advising FTBs to ever hold off buying."
He pointed out that all of the "fundamental drivers" behind the property market - low interest rates, economic growth, strong employment and inward migration - are still present in Ireland.
He also pointed out that affordability remains around the same. Although prices have risen, interest rates and income tax levels have fallen.

That's from todays Indo, the article about a soft landing. What absolute nonsense, of course it will be swallowed up by everyone...

[/FONT]

 

[Raskolnikov]

Some more property madness for you all. One of my cousins, a receptionist in an office and single mother of one (no child support from Daddy) has recently been talking up her recent bargain purchase. Apartment was second hand and about a 25 minute walk from Cork City centre and cost €260K, she herself is only on €32K with very little chance of career progression or a wage increase beyond inflation. Has a lodger at the moment bringing her in €320 a month so that leaves her with a €850 or so mortgage to cover. If the screws get turned on interest rates, then she's going to be in serious trouble. Of course though, she doesn't see that as a risk. In the eventuality of that happening she's going to sell and still come out with the €20K that the property has appreciated since she bought it