What will happen to rents if the housing market collapses?

[Duplex]

This data might give an indication of what might happen in Ireland if the bubble bursts. The supply of rental property has increased as sellers fail to find buyers and inventory builds. See the third column.

 

[Superman]

I think there is still a level of shortage for good quality rental houses in Cork - just basing it on my observations as well as a couple of people I know are looking to rent in around Cork city right now & find that the rent (for decent houses) are high enough.

That's my observation but interested in hearing others.
ninsaga

Agreed. My parents have a couple of rental properties in Cork. Up to even a year ago rents would have been the same for modern apartments and old properties. (i.e. one could have a truly wonderful apartment in a great location, include pictures of it on Daft etc. so people were aware of it, but if it were more than €50 above the average price, it would not rent). Now though, rents for new properties are starting to be dictated by those who bought properties in the last year or two. (Since, the building boom in Cork has really taken off in the last 2 years, prices paid for most apartments are 2004/5/6 prices), they are demanding - and perhaps surprisingly enough getting - higher rents.
Also rents in general have increased significantly this year IMO.
Here would be my estimate, on city centre apartments:
2005
1 bed: €650
2 bed: €900
3 bed: €1100

2006
1 bed: €750
2 bed (old): €900
2 bed (new): €1100-€1200
3 bed: €1250

 

[Dipole]

Drop -
When our economy implodes everyone will have less money in their pockets. Landlords may have motivations to put up rents but there won't be enough people around able to service higher rents.
Only thing that will help to keep rent prices stable is government intervention through social welfare payments which is already the primary determinant of what a rental property returns in many areas.

 

[liteweight]

Drop -
When our economy implodes everyone will have less money in their pockets. Landlords may have motivations to put up rents but there won't be enough people around able to service higher rents.
Only thing that will help to keep rent prices stable is government intervention through social welfare payments which is already the primary determinant of what a rental property returns in many areas.

Do you think that Banks, Mortgage Brokers, Stockbrokers, the financial sector in general, will trim staff? There are a lot of businesses out there reliant on the property market. That's a given and these usually have the disposable income required to service a high rental market.

On the other hand if so many are now cashing in and believe renting is the more affordable option, then surely demand must rise and after all they do have all that loot made on property!

The Government already have a scheme in operation which might well grow if more and more people come onto their list. I don't think it's geared toward those who may have trousered 50K or more in profit by cashing in a first time property on which they paid no stamp duty.

 

[Dipole]

I expect every business that is dependent on the Irish economy will lay people off or reduce their hours or drop all overtime. There will be much less money in circulation and people get kicked off the demand curve through lack of purchasing power.

 

[sunrock]

hi
what happens if in a house prices correction when the price of houses drop 10%, 20% or whatever it is a large number of mortgage holders ,especially those who bought in the last 1 or2 years,decide to just hand in their keys to the mortgage provider
i mean are there any repercussions?
can the mortgage provider come after them in the case of negative equity or other expenses
if its as simple as handing in the keys im sure even in the case of a 10% reduction in price many thousands would clearly see that to hand in the keys and rent for maybe 500+ a month less than their mortgage would make such a lot of sense
increasing interest rates and hence mortgage payments and decreasing rents_my opinion in this scenario_would convince any doubters
10% of 300000 is 30000 and for a firsttime buyer no stamp duty _so their buying costs are maybe 5000 so to hand back the keys will save them 25000 on paper
of course the next time they buy they will have to pay stamp duty if the gov dont change the rules but so what
of course the mortgage providers have sold on the debt so they are covered
smiles all around
to keep on thread our unburdened of his keys ex house owner now suitably chastined and now a vociferous critic of the madness! of the huge rise in house prices(to which he contributed) that inevitably led to a price reduction,joins the rental market
of course its not a problem
allthe repossed houses are of course now pressed into service
i mean there is no reduction in house numbers
people are not as well off with job losses etc so its unlikely rents will increase may even decrease
appreciate any feedback

 

[liteweight]

"Hand back the keys" is a phrase that is bandied about all the time. You can't hand back the keys. I think this has been discussed elsewhere on AAM. The lender does not physically want the keys, they want their money and a certain process is followed which includes taking the apt/house and putting it up for sale. However, while they are waiting for this to happen, the borrower still incurs interests and probably penalties. They also pay for expenses incurred by the lender trying to recoup his money. The above is a simplified version of events but basically, handing back the keys is a non-runner!

 

[thewatcher]

I'd agree with that,u can't just "hand back the keys" with no consequence unless you plan to skip the country.You have defaulted on probably the biggest loan in your lifetime,you will have a major black mark against your with every credit institution in the country.To think you can just hand back the keys,rent till prices fall and then get a another mortgage when house prices readajust is just pie in the sky stuff.
In saying that i know people with investment properties where the fundamentals don't stack up,and where the loan is secured on the investment property only.If these people decide to pack up what are the banks going to do then ?and i presume this is the case for a lot of investment mortgages.

 

[Maine]

I'd agree with that,u can't just "hand back the keys" with no consequence unless you plan to skip the country.You have defaulted on probably the biggest loan in your lifetime,you will have a major black mark against your with every credit institution in the country.To think you can just hand back the keys,rent till prices fall and then get a another mortgage when house prices readajust is just pie in the sky stuff.
In saying that i know people with investment properties where the fundamentals don't stack up,and where the loan is secured on the investment property only.If these people decide to pack up what are the banks going to do then ?and i presume this is the case for a lot of investment mortgages.

Non national buyers may be alot more happy to hand back the keys and scoot. This could be a big bogey for the banks as these buyers will not subsidise the payments if their big plan is to go back home.

I think non nationals have been good for ireland but they do not have the same incentive to protect their credit scores in ireland. Most irish people would probably do the same if they were living in saying latvia and knew the consequences of jumping ship were slight

 

[sunrock]

thanks for shedding light on "handing back the keys" process
i suppose it seems clear the bank have considered this possibility and have a big legal framework in the smallprint to recover all monies due.
nevertheless a mortgage holder who is in negative equity and who could rent a similiar property much cheaper than the mortgage payments_especially if he cant really afford his mortgage payments and if he has no savings_what would happen if he hands back the keys
maybe he has lost his job
can he declare himself bankrupt
can the bank get part of his wages or dole money
can he open a credit union account even
its clear he wont get another mortgage
ofcourse he/she could leave the country like a non national
what draconian powers do the banks have to cover them selves
this could be a serious issue in the event of a downturn
i know in the uk downturn in house prices 1992 many of these "hand back the keys " people got chased up for monies due

 

[soma]

i know in the uk downturn in house prices 1992 many of these "hand back the keys " people got chased up for monies due

Alot of Irish people still hold a rather naive and IMHO childish view of financial institutions. The fact that large amounts of mortgages have been sold off as mortgage-backed securities, will most certainly (IMO) put to rest the impression of the local friendly bank not wanting to hurt their 'image' by repossessing properties.

 

[phoenix_n]

Commuting is going to be the next 'issue' insofar that couples will rather rent than own and commute as by owning(in suburbs) you will not be gaining much financially but you will be losing alot socially. Thus rents in city centre will sky-rocket ( in this market if a stress vendors property went within my price i might consider re-entering) whilst those in outlying areas will depress.

 

[delboy159]

My economics lectures (as much as my drink soaked student brain could remember from long ago) always worked on the premise that in rising interest rates and falling house prices rents would consequently increase. The reasonong behind this was -
Less houses being built and thus people were more inclined to rent. The a-typical 25 year old couple are buying now (or were 6 months ago) - whereas the a-typical 25 year old couple in a recession will rent.

This will increase the demand on rental property - which should increase rent levels. One would assume there won't be enough "new" rent dwellings as houses aren't being built because we are in a recession

The high IR rates are irrelevant - a landlord can't just turn around and say to a tenant my mortage has gone up by 20% - therefore I'm increasing your rent... The rental market is a seperate supply and demand market...

Supply of renters will increase, thus increasing demand for rental properties. Supply of property will fall due to a building recession.

Also, to answer the valid point on the "massive inventory of unoccupied properties", most of these are in areas where these is no demand - and won't feed into the overall market. Places like Carrick-on-Shannon or towns in the midlands etc. with lots of vacant homes - they will probably feel some sort of rent deflation. But in urban centres - I expect that rents will increase. I am open to contradiction though......

Just saw phoenix_n's 3 lines which essentially says what I'm saying - just better!

 

[walk2dewater]

Interesting thread, as a confirmed renter in Ireland, this issue has intrigued me. IMO rents will stay flat or fall.

Why? Bottom line is there is no shortage of places to live in Ireland, either to buy or to rent, either in local markets or generally. We are awash in residential accommodation, and there’s another 100k units coming this year. Sentiment has been blown apart, how can prices rise more now?

Prices for all housing services WERE supported by general and widespread willingness to pay ever higher prices for purchased housing without reference to yield, i.e ‘a speculative mania’. This supports prices from the top to the bottom of the market. Sentiment has changed, i.e. ‘bubble bursts’, soon we will see exactly just how much property there is in this country (lots). We will also see what prices emerge as importance of yield returns and ability to borrow is much reduced (i.e. much lower prices).

 

[liteweight]

Commuting is going to be the next 'issue' insofar that couples will rather rent than own and commute as by owning(in suburbs) you will not be gaining much financially but you will be losing alot socially. Thus rents in city centre will sky-rocket ( in this market if a stress vendors property went within my price i might consider re-entering) whilst those in outlying areas will depress.

This is my view also and I haven't seen a decent argument against it yet.

Sunrock, the lenders will go after everything you own, not just the house! I can't stress this enough. If you want to rent, a landlord will normally look for a reference from the bank and also want you to pay by direct debit/standing order. Bankruptcy is a much more serious step than you seem to imagine. Again some people hold the view that it's a matter of throwing your debts up in the air and saying 'I'm bankrupt....I can't pay'! Banruptcy hold serious repercussions for the bankrupt.

As to foreign nationals, I can see that some might flit, especially those from non EU countries. These are becoming less and less and I think we'll see a future where our lenders have agreements with others in different countries, in the not too distant future.

 

[darex]

Basically long term it is very simple:

There will be less people in the country with less money to spend and an ever increasing number of properties so rents will fall. People can leave the country but currently built properties cannot.

However in the short to medium term it is much harder to predict as you have a number of positive and negative factors each playing out on their own timescales:

1) How long will the current increase in population take to turn into a decrease

2) How quickly and by what percentage will average disposible income decrease (or rise more slowly)

3) How many properties effectively taken out of circulation due to transaction periods increasing

4) As the ratio of renters to buyers changes nationally the areas in which people are prepared to live also changes causing location based divergence in rental prices.

5) The current bubble may have distorted the natural ratio of renters to buyers causing medium term transitional effects in rent prices. Again it is anyones guess as to whether this is a positive or negative factor.

My gut feeling is that rents may rise a little in desirable city centre locations for a short while before falling back. In outlying areas rents should fall immediately.

 

[Duplex]

The absolutely crucial variable is the migrant population. I think that we might see a reduction in their number by up to 50% if a sharp economic slowdown is visited upon us. This might result in an additional 60,00-80,000 rental units hitting the market.

 

[phoenix_n]

I can tell you now what i would be doing if i had an apartment to let. Short-term let it. I have been trying to secure a 2 week let on an apartment in Dublin for this month and there is nothing available.

 

[Foxtrot]

I think rents here, at least in Dublin, are just crazy - and I lived in San Francisco during the dot.com boom. All of my friends who rent are paying extortionate amounts for dank cupboards. IMHO rents are just as inflated as the housing market.

 

[Neffa]

I think rents here, at least in Dublin, are just crazy - and I lived in San Francisco during the dot.com boom. All of my friends who rent are paying extortionate amounts for dank cupboards. IMHO rents are just as inflated as the housing market.

I disagree. Renting here is 30-50% cheaper than London (nice two-bed in most of decent areas in London is 1200-1400 pounds per month, it is 1200-1400 Euro here). For a 4-bed family house, you'd pay 2500-3000 pounds per month in London in a nice area whereas it would be circa 3000 Euro in Dublin.