property prices growth accelerates again!the madness continues!

ronbyrne2005

i really think the irish people are going mad! really starting to look like a bubble,wages arent increasing massively ,interest rates are on way up,rental yields are puny and decreasing.property is alreay dearest in europe how can it go much higher?

from rte
Figures released today show that house price growth has accelerated in the second half of this year, with prices for first-time buyers continuing to rise at a much faster rate than other sectors.

The Permanent TSB/ESRI house price index shows that house prices for first-time buyers rose by 10.8% in the first ten months of this year, compared with an average of 6.8% for all houses. The figure for second-time buyers was 6.1%. The average price paid by a first-time buyer is now €245,341.

National house prices rose overall by 1.2% in October, slightly faster than September's 1% rise. The annual rate of growth moved up from 6.2% in September to 7.2%.


Permanent TSB's Niall O'Grady said the figures showed that there was plenty of life left in the housing market yet. He said he was still expecting a 'relatively moderate' level of growth for the full year, but it was more difficult to predict how 2006 would develop, especially ahead of an expected rise in interest rates later this week.

Dublin house prices grew by 1.4% in October, while prices elsewhere were up 1.3%. The annual rates of increase were 8.1% and 6.1% respectively.

Prices of new homes were up 1.5% in October, with second-hand prices increasing by 1.3%, bringing annual growth rates to 6.8% and 7.4% respectively. House prices for first-time buyers rose by 1.3% in the month and 9.8% over the year.

Merrion

"Permanent TSB's Niall O'Grady said the figures showed that there was plenty of life left in the housing market yet. "

Asking a lender's view of the housing market is like asking a ticket tout's view of a sporting events' popularity

The thing is that even though it went up 12.5% the cost of borrowing is farcically low at the moment so property prices will continue to go up.

ronbyrne2005

artifically low interest rates are luring people into the market
the ssia's will further inflate the market
economies hit bad patches and recessions and ireland will be no different,we cant keep growing at 3%everyyear,worst case scenario is growth increases in EU and slowdown of economy in ireland then interest rates will rise in eu zone yet if irish economy is slowing higher rates would further accelaerate a slowdown in this country,higher interest rates would lead to stronger europe which could further affect our economy.
the rental yields are ridiculously low,if i had the whole price in cash for a house i wouldnt put a cent into the property market.

Culchie

I think the % rise is understated as well, as it;s a 12 month average.

The market is really hot at the moment, especially first time buyer because of the 317K ceiling, the 100% mortgages and the SSIA's coming up.

My house sat at about 240K for 18 months, until 6 months ago. I have 3 bids on it at the moment at 304k+ ... it is unbelieviable, I'm pulling out of Dublin, so I'm a very happy camper.

coolhandluke

The Bank's/Building society's have a lot to answer for with all these price increases,lending guidelines seem to have gone completely out the window.
The government doesn't seem to care(probably due to all the extra revenue it's bringing in),the central bank is just standing idly by doing nothing.The longer it's takes for someone to shout stop,the more damage is going to be caused to the economy in the long run.Rental yields now bare no resemblence to actual prices in many aera's.I know many people with mortgages way way above what they should have got,a tax on second homes was required a long time ago to cool the market from all these amateur investor's,it's probably too late now as there's so many people with second homes this would probably only hassen a crash.Well done the government for getting the country into this situation,well done !.

hmmm

I've often thought to myself "who the hell is buying these properties?". Then I talk to some friends and hear the nonsense advice, usually from parents, about what to do e.g. phrases like "property ladder" (assumes prices always go up) and "rent is dead money" (not unless it's more expensive than mortgage interest).

It's explainable, and I'm glad to let those people mortgaging their life away do their thing while I get on with my life.

dahamsta

hmmm wrote:

"rent is dead money"

Much to my own shame (yet secret delight), I didn't move out of the family home until I was 31; into a small little flat - all I wanted - in town @650/month. Everyone told me I was mad, because rent is dead money. I've since moved to a very nice 2-bed apartment (not shared) in the burbs, at 900/month, and when I moved in everyone told me I was mad, because rent is dead money.

Nobody tells me rent is dead money any more. People are catching on.

Don't get me wrong, I will buy. But now? I'd be mad.

adam

ronbyrne2005

270k apartment say 250k mortgage
30 year mortgage
total repayments(principal +interst) (assuming interest rates average 5% for loan duration(relatively low) and 1% for other costs of ownership-interest ,repairs etc)
=490kapprox in real terms after allowing for inflation,and 20k down payment,the aprtment is costing ya 510k over the 30 year period,so unless it doubles in value after inflation you dont make a profit.i dont think we're gonna see anywhere like the house price growth over next 30 years compared to last 30 years,it was a one off boom for a variety of reasons,look at other advanced economies where house prices have actually fallen substantially over last 10years japan etc.

renting is quite cheap now especially if you share.it has the advantage of flexibility,you can give notice and leave quickly if you change job,you arent tieing your capital up in property,you could use your borrowing ability to raise capital to start a business.
if renting was such dead money then why do so many on the continent do it?

the irish have an obsession in owning their own home which inevitably leads to a buble,theres plenty of room to build in this country-we have very low population densities so when the housing stock exceeds demand prices WILL fall ,might be next year may be 5 years but it will happen and lots of people will get burned.

SouperComputer

Much to my own shame (yet secret delight), I didn't move out of the family home until I was 31; into a small little flat - all I wanted - in town @650/month. Everyone told me I was mad, because rent is dead money. I've since moved a very nice 2-bed apartment (not shared) in the burbs, at 900/month, and when I moved in everyone told me I was mad, because rent is dead money.

Nobody tells me rent is dead money any more. People are catching on.

Don't get me wrong, I will buy. But now? I'd be mad.

adam

yea, we're renting too ATM. I just finished my first year being self employed (which seems have a major stigma) and my wife is from the US so basically we are not in a position to get a mortgage, yet. TBH even if we were, I think we'd head off too the states and get somthing bigger than a kennell for our money! The sooner Bush is out of power the better.

Rent is dead money alright, but we are paying €800 for a two bedroom house that has parking space for two cars and a decent back garden. Plus the business can contribute to the rent as the landlady is first of all sound (we've been know to buy each other wine and have cups of tea together) but also she is above board.

I like to think we are making the most of a bad situation.

I think its funny they way some people I know have bought property, insist that rent is dead money and then buy brand new cars each year on credit!

dunkamania

My view isnt so bleak.I bought a house earlier this year,still living with parents though.The house is been rented out and and mortgage costs
about 100 more than rent.I will be looking to borrow against the equity in about a year,when my SSIA matures and buy a second property abroad depending on global markets.

For me renting is dead money,a mortgage costs more but at least you have something to show for it.I can understand why people are reluctant to buy however,as the market is overpriced.There are always good deals out there.

hmmm

dunkamania wrote:

For me renting is dead money,a mortgage costs more but at least you have something to show for it.

You see there's the problem. Saying something like "Rent = dead money" is an opinion on financial matters. But finance isn't about opinions, it's just mathematics. Every day I listen to "opinions" on finance when the simple maths of the situation disproves the opinions - but there is plenty of people in this country who are happier to believe in simplistic opinions rather than doing the calculations.

ambro25

"Rent = Dead Money" = B*ll*cks > Seconded.

Own in France (fairly large ancestral family home, 3 floors + attic good for a duplex conversion, + 2 acres and a bit).

Owned in UK, made an indecent amount on selling at the top of bubble (around Xmas '05), when moved to IE (had managed to repay half of mortgage in 5 years )

Now still renting in IE at €1,2k pm. That's in D16, 3 beds and an office, carport for 2 cars, 50 yards + backgarden, Phoenix 10 mins walk away.

Babies from UK principal + elsewhere still outstrip yearly rent by over €5k, with pay packet untouched. Why sink it all in a semi in the burbs? :rolleyes:

Opinions cost nothing to the opinionated, only to the people who make financial decisions based on them. Maths tell me one thing: when I get to the stage where I am financially independent (that means my capital earns more than it costs me to live, all in, including rent), it won't matter one bit whether I own stone or not.

See, when your mortgage for the house which you have bought and in which you are not living costs you more than you're making back on the rent, you're essentially taking a gamble that the principal which you sunk in buying the place plus what you're adding monthly to supplement the insufficient rent money will be outstripped by the market price increase. That's a pretty big assumption - good trend and all that, for sure but still a pretty big assumption - what if interest rate climbs further / in what time frame? / what if you can't pay the mortgage overnight? / etc, etc. ? What if market prices slow down or worse - freeze (which accelerates the oncoming negative equity)?

Buying property does not equate to financial independence (unless you're buying all of it cash - and you're making at least a 10% return from rent yearly), because it does not generate any revenue (in your case), and the overnight actual loss -caused in the main by factors entirely outside your control- can be vastly disproportional to the eventual gain... whereas that's pretty much what anybody should be striving for these days, with ever-shrinking State-sponsorising (no more pensions/no more social security/etc.).

@ hmmm - so true, so true

ronbyrne2005

people also forget about the opportunity cost of capital,that capital tied up in bricks and mortar could be earning returns elsewhere either riskfree in bonds or in shares or a small business etc.


i totally agree with the person saying people think rent is dead money but then buy a new car on credit every year! they also borrow to go on holidays and have large credit card debt

dunkamania

My decision to buy was based upon my interpetation of the figures,and not on opinion.I chose a property that gave reasonable rent yield ,in an area which I believed was undervalued based on market factors.

I have no problem with people who find it makes financial sense to rent(bear in mind I am a landlord).I dont believe the figures justify my renting however,as the rent would be a large proportion of salary.My goal is too
be Financially Independent,to that end I am trying too accumulate assets,
by making financially sound investments.Based on the calculations I cant see how it makes sense for me too rent.If I am mistaken,I would appreciate the feedback.

With regards too Ronbyrne' estimate of 510k cost of the apartment,Ron what inflation rate did you use.Over the same period paying 1200 rent a month adds up too 432,000 (nominal).What is the equivalent real figure?If rent growth matches inflation than i suppose 432,000 is the real figure.
Also a 270k house that grows annually @2% would be worth 489k after 30
years(I think) and 655k @3%(both nominal figures)

So a house that costs 510k even if only sells for purchase price 270k 30 years later is better than paying rent of 432k.

Discussion welcome.

coolhandluke

dunkamania wrote:

My view isnt so bleak.I bought a house earlier this year,still living with parents though.The house is been rented out and and mortgage costs
about 100 more than rent.I will be looking to borrow against the equity in about a year,when my SSIA matures and buy a second property abroad depending on global markets.

For me renting is dead money,a mortgage costs more but at least you have something to show for it.I can understand why people are reluctant to buy however,as the market is overpriced.There are always good deals out there.

Right dunkamania,let me make a few assumptions :

1.you bought the house as a first time buyer/owner occupier
2.you didn't pay any stamp duty
3.your not declaring the rent
4.your not paying any tax on the rent
5.your claiming mortgage interest relief

If i'm wrong i sincerely apologise.
However hundreds/thousands IMHO are in exactly this position,some knowingly some not i might add.
You seem to equate rent + E100 = mortgage,but that is far from the true cost of investment property.When u factor in the investor stampduty and tax on rent,that gap u will find,starts to get much wider.
The revenue commisioners are well aware of all this,but as their dealing with all the people who thought they got away with DIRT tax in the eighties,they haven't quite caught up.IMHO this is like a steam train coming down the tracks and will be one of the next big investigations by the revenue as there's so much money involved.Just because everyone tells u," u can't lose in property" doesn't mean their all right.

hmmm

There's a couple of studies out there which compare the cost of renting versus buying over the medium to long term. The Economist recently calculated that in many cases renters were several tens of thousands ahead over the medium term
http://www.economist.com/displaystory.cfm?story_id=S%27%29%280%2DQA%5B%2A%20P%21T%0A

If you assume that house prices will always go up by 10% a year then stop reading now - just go buy and don't let me bother you.

Here's one or two other examples
http://money.cnn.com/2005/04/05/real_estate/rentprices/ - US centric, but look at the table that compares renting to owning

http://www.flickr.com/photos/28622918@N00/7443262/ - from the Wall Street Journal illustrating the same point

ronbyrne2005

dunkamania wrote:

My decision to buy was based upon my interpetation of the figures,and not on opinion.I chose a property that gave reasonable rent yield ,in an area which I believed was undervalued based on market factors.

I have no problem with people who find it makes financial sense to rent(bear in mind I am a landlord).I dont believe the figures justify my renting however,as the rent would be a large proportion of salary.My goal is too
be Financially Independent,to that end I am trying too accumulate assets,
by making financially sound investments.Based on the calculations I cant see how it makes sense for me too rent.If I am mistaken,I would appreciate the feedback.

With regards too Ronbyrne' estimate of 510k cost of the apartment,Ron what inflation rate did you use.Over the same period paying 1200 rent a month adds up too 432,000 (nominal).What is the equivalent real figure?If rent growth matches inflation than i suppose 432,000 is the real figure.
Also a 270k house that grows annually @2% would be worth 489k after 30
years(I think) and 655k @3%(both nominal figures)

So a house that costs 510k even if only sells for purchase price 270k 30 years later is better than paying rent of 432k.

Discussion welcome.

i used 2.8 or 3% inflation,cant remember. if house grows by 2 or 3% is this after inflation? if assume average inflation of 2.5% then you need 4.5% nominal growth every year to achieve a real growth of 2%. then the opportunity cost of capital must be factored in.
of course buying a property is a good investment IF you get large returns say over 7% rental yield a year and IF its likely that house prices will rise substantiallyover mortgage period(most people agreen they cant grow by much more than income growth over next 30 years,income growth wont be anywhere near rate of last ten years,also house supply will catch up and exceed demand) i just think theres too many IF's now compared to 5 or 10 years ago,irish housing seems priced for perfection in terms of economic growth population growth interest rate growth etc,too risky considering the miniscule rental yields.
i would rather buy property in good locations in major european cities that are yielding good rates and have potential for capital growth such as many german cities and some eastern european cities like budapest kiev prague krakow bucharest where the gdp growth over next few decades will pull up asset prices and rents.

ronbyrne2005

heres an article about the yale professor who correctly predicted the dot com and general stock market crash in 2000. there seems to be an increasingly large body of evidence that housing is vastly overpriced in historical terms in many countries of the world
''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''
"NEW YORK (MONEY Magazine) - Yale University economist Robert Shiller made one of the great calls in stock market history. His book "Irrational Exuberance" hit the shelves in March 2000, the same month the tech-stock bubble struck a sharp pin.





new chapter on what Shiller believes is the bubble in residential real estate.

The housing-price boom that is taking place in big metropolitan areas in the United States and around the world, he maintains, has no basis in economic fundamentals or precedent in real estate history.

Even if you don't buy Shiller's argument, you'll want to know what he's thinking -- and not just because he was right once. Shiller knows this subject. He and Wellesley College professor Karl Case are principals in Fiserv CSW, a respected real estate analysis and forecasting firm.

Shiller aims to pop the conventional wisdom about the causes and sustainability of the current boom, and about the real return of investing in homes.

There are always popular explanations for real estate booms, but "popular" doesn't mean "correct."

A number of glib rationales have been offered for the run-up in prices in many places in the United States and elsewhere since the late 1990s. One is that population pressures have built up to the point that we have run out of land and that home prices have shot up as a result. But we didn't just run out of land since the late 1990s: Population growth has been steady and gradual.

Another theory is that the things that go into houses -- the labor, the lumber, the concrete, the steel -- are in such heavy demand that they have become very expensive. But construction costs are not out of line with long-term trends.

Finally, some argue that the boom is due to the interest-rate cuts implemented in many countries in an effort to deal with a weak global economy. But while low interest rates are certainly a contributing factor to rising home prices, central banks have cut interest rates many times in history, and such actions have never produced such concerted booms.

There is no hope of explaining home prices solely in terms of population, building costs or interest rates. None of these can explain the "rocket taking off" effect starting around 1998.

So what did cause this real estate boom in so many parts of the world? My conclusion: Home-price speculation is more entrenched on a national or international scale now than ever before.

In the United States before 1960, people were living in a less avowedly capitalist economy, and they were not primed to believe that their well-being depended in large measure on their property.

Today, with good public information about prices -- information that might help generate irrational exuberance -- widely available, our increasing public commitment to market solutions to economic problems has led people to worry more about home prices, and hence to make them more prone to the kind of feedback that generates bubbles.

Stories have abounded since 2000 of aggressive, even desperate, bidding on homes. People have been afraid that the price of housing would soon rise beyond their means and that they might never be able to afford a house, and so they have rushed in to bid.

Regional housing booms aren't uncommon, but what's going on today is different -- and dangerous.

It is commonly said that there is no national home market in the United States, only regional markets. There is something to that statement, but it is not completely true, and it appears to be getting less true. Real (that is, inflation-adjusted) home prices for the U. S. as a whole increased 52 percent between 1997 and 2004.

Yes, the increase was higher in some areas and lower in others, but the fact that there was a 52 percent increase overall is remarkable. There was only one similar time in U.S. history: the period that followed World War II.

The ascent in home prices since 1998 has been much faster than the rise in incomes, and this raises concerns about the long-run stability of home values. From 1985 to 2002, the median price of a home rose from 4.9 years of per capita income to 7.7 years in the eight most volatile U.S. states; thus in these states, which account for more than a quarter of the country's population, there are significant new stresses on family budgets in making mortgage payments.

This price behavior is dramatically different from the behavior of long ago. The late 19th and early 20th centuries saw many local bubbles surrounding the building of highways, canals and railroads.

Even when land was so abundant that one could buy it, in some places, for a dollar an acre, there could be real estate booms. If land prices were to go up to $2 an acre near a new rail line, this prospect could be quite exciting to investors. Regional real estate booms are nothing new.

But there was no national boom in home prices to accompany the sharply rising stock market of the Roaring Twenties. Home prices were not carried along by the stock market, nor did they drop in real terms when the stock market crashed starting in 1929.

After World War II, there were large real home-price increases, at least in the big cities. Government restrictions had severely limited the supply of new homes during the war. Returning soldiers wanted to start families; they were about to launch the baby boom.

But prices in that period did not overshoot, and they did not have to come crashing back down. Even though demand soared, there was no real buying panic, as the conventional wisdom of the time was that construction would soon greatly increase the stock of available homes.

It is different now. We are feeling worried and vulnerable, and the market volatility that flares up from time to time, in both the stock market and the housing market, reflects this.

The big glamour cities (and associated regions) of the world can experience a massive boom at the same time. The similarity among the price paths for these cities (really stunning price increases both in the late 1980s and after the late 1990s, with stagnant or falling prices in between) is striking, as is the similarity of popular stories of exaggerated excitement about and speculation in homes. Whatever it is that drives this excitement, it can cross vast oceans.

The notion that home prices always go up is very strong, and very wrong.

It is true that, for the United States as a whole, real home prices were 66 percent higher in 2004 than in 1890, according to the index my research assistants and I have put together. But all of that increase occurred in two brief periods: the time right after World War II and since 1998.

Other than those two periods, real home prices overall have been mostly flat or declining. Moreover, the overall increase, including the booms, is not very impressive -- 0.4 percent a year.

Why then do so many people have the impression that home prices have done so well? People remember the prior purchase price of a home from long ago and are surprised at the difference between then and now. In closing out the estate of an elderly person, one may be surprised to see that he purchased a house in 1948 for $16,000 and that the estate sold the house in 2004 for $190,000.

The appearance is that the investment in the house did extremely well. But the consumer price index rose eightfold between 1948 and 2004, so the real increase in value was only 48 percent, or less than 1 percent a year.

In fact, the theoretical argument that home prices can be expected to appreciate faster than consumer prices in general isn't strong. Technological progress in the construction industry may proceed faster than in other sectors. Barbers and teachers and lawyers are doing things more or less as they always have, but new materials, new equipment and prefabrication help make housing cheaper.

As for land prices, in most parts of the United States there is abundant land relative to demand. There is still plenty of room to spread out. True, there is little empty land available to build on in Los Angeles or Boston, or, for that matter, in London or Sydney.

But when home prices rise to the point that mortgage payments take up a large share of family income, there is a powerful incentive to move to a lower-cost area. This safety valve tends, in the long term, to prevent the price of homes from rising too much and to burst bubbles that have inflated too far.

The increase in home prices since 1980 in Los Angeles has really not been so much larger than in Milwaukee. But Los Angeles has gone through two booms and a crash along the way.

Life was simpler once; one saved, bought a home as part of normal living and didn't think to worry about what would happen to its price. The increasingly large role of speculative markets for homes, as well as of other markets, has fundamentally changed our lives.

The price activity that was once very localized and connected to the building of highways and the like is now connected to popular stories of new economic eras. The changing behavior of home prices is a sign of changing public impressions of the value of property and of a heightened attention to speculative price movements. It is a sign of a bubble, and bubbles carry within them the causes of their ultimate destruction
'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

betelgeuse

Just to go back to the OP, yes I believe the madness is continuing. Not that I'm complaining... bought an apartment at the end of August, it won't be ready until August '06, but it's already gone up in value somewhere between 9-13% based on the asking price of apartments in the second and third blocks of the same development that were released last week. Even if I never move into it I reckon I'll have made a tidy profit by this time next year.

ronbyrne2005

betelgeuse wrote:

Just to go back to the OP, yes I believe the madness is continuing. Not that I'm complaining... bought an apartment at the end of August, it won't be ready until August '06, but it's already gone up in value somewhere between 9-13% based on the asking price of apartments in the second and third blocks of the same development that were released last week. Even if I never move into it I reckon I'll have made a tidy profit by this time next year.

that sums it all up! how can anyone expect such rates of increase to continue! long term house price growth after inflation over past 100 years is only 2% per annum. people need to start looking at the underlying fundamentals and the long term prospects for supply demand prices etc.

the longer these prices keeping growing in that range above and with interest rates staying low then the bigger the correction will be in the next few years.

ambro25

ronbyrne2005 wrote:

the longer these prices keeping growing in that range above and with interest rates staying low then the bigger the correction will be in the next few years.

"Correction" : that is going to become one very scary word soon - the kind of word which people daren't even whisper...

Nuttzz

you'll notice in the media that the construction people, banks and estate agents are very bullish about the housing market.

the assests of banks are tied up in mortgages, a "correction" in the market will harm the banking sector and make credit less available to the average punter in turn putting a squeeze on the economy.

personally i think the economy here is now reliant on house prices

coolhandluke

Nuttzz wrote:

you'll notice in the media that the construction people, banks and estate agents are very bullish about the housing market.

For people with such vested interests,to say anything else would be akin to turkeys voting for christmas.

The housing boom has been driven by confidence as much as anything else(bar maybe low interest rates),people earning x amount where confident that they would earning x + 5% next year and so on.While maybe slightly off topic i believe the irish ferries dispute has the potential to damage this confidence.
Rather than how much more will i get next year,it's whats to stop my employer hiring people on lower wages than me they'll be thinking,people are starting to wake up to the celtic tiger.

Nuttzz

i agree, low rates and the availability of credit, any one in their 30's will remember back 10/15 years ago and shuddering at the idea of being over quater of a million quid in debt, now its normal.

outsourcing is getting bigger, i know of some irish IT companies that are moving their development to India, others that are brining in eastern europeans on lower wages and replacing their staff (as they leave) with eastern europeans.

JimmySmith

I think the main driver is Women working.

While even 10 years ago women stayed at home much more than they do now and even got paid less money for the same jobs as men, equality has come a long way and women are no longer encouraged to stay at home- a good thing.

So now we have couples both working who pay can one mortgage. This has driven the prices high for the last 10 years - until now you HAVE to have both people working to buy a house.

Will it stop - or will people start buying in 3's to afford a mortgage - driving the market even more.

ronbyrne2005

3 of my friends(3 lads) chipped in toghether to buy a house in live in!all 3 are university graduates and in years gone by they could have afforded a house on their own but its getting that bad that they had to buy together!

JimmySmith

ronbyrne2005 wrote:

3 of my friends(3 lads) chipped in toghether to buy a house in live in!all 3 are university graduates and in years gone by they could have afforded a house on their own but its getting that bad that they had to buy together!

oh no! its started

We'll be on 100 year mortgages soon too.

shoegirl

hmmm wrote:

I've often thought to myself "who the hell is buying these properties?". Then I talk to some friends and hear the nonsense advice, usually from parents, about what to do e.g. phrases like "property ladder" (assumes prices always go up) and "rent is dead money" (not unless it's more expensive than mortgage interest).

It's explainable, and I'm glad to let those people mortgaging their life away do their thing while I get on with my life.

They are not totally wrong you know. My rent for the last year went up by 7.7%. However my pay rise was only 4.5%. However if I'd had a variable rate mortgage the recent rate rise would have been lower than my pay rise, which would have left me paying effectively less rather than more. Overall this leaves me slightly worse off. Likewise on a fixed rate mortgatge I'd have paid no more until the fixed rate term ran out.

The other problem is that once you pay off a mortgage you no longer pay monthly payments, whereas if you rent you can expect it to permanently keep increasing. This means that the 400 euro per month you now pay might be 2000 euro in 30 years time - if not more! Unless you have an enormous pension you simply are not going to be able to afford this - which will mean that you will end up working until you drop dead. (This by the way, is my theory on why pension provision is so poor and low in Ireland - people are investing in property to avoid being priced out of the rental market as pensionners).

On the other hand there is no guarantee that housing prices will continue to rise. However historically in Ireland they have not fallen in value since the 1950s. Favourable demographics would suggest that unless Ireland's fortunes change dramatically property will hold its relative values for at least another 25 years. However I am NOT suggesting that anybody invests right now.

The big danger is a short sudden shock similar to what happened in the far east in the late 1990s or a collapse in property values similar to the UK property crash. This would leave more recent investors out of pocket.

I do think that a house is a wise purchase as a residential property as rents in Ireland are very poor value for money and tax relief pitiful. Also a lot of rented accomodation in Ireland is totally substandard and repairs/maintenance a nightmare. I recently went through grief with the agency who were "managing" the house I rent only to discover that the reason they were so difficult about getting simple repairs sorted was that the proprietors wife was the landlady - in other words they had a vested interest in minimising the cost of repairs! These people also have openly admitted in the past that they are not declaring it for tax - and these are supposed to be property professionals!!

On the other hand you could invest in the equity market and take your chances there......

shoegirl

hmmm wrote:

There's a couple of studies out there which compare the cost of renting versus buying over the medium to long term. The Economist recently calculated that in many cases renters were several tens of thousands ahead over the medium term
http://www.economist.com/displaystory.cfm?story_id=S%27%29%280%2DQA%5B%2A%20P%21T%0A

If you assume that house prices will always go up by 10% a year then stop reading now - just go buy and don't let me bother you.

I think the point being made by international comparisons is fair, however one of the problems in Ireland is that rents themselves have also gone up by far more than the rate of inflation and in many cases far more than rises in property values. For example my rent generally has gone up by around 6-7% per year while my par rises have tended to lag well behind this. If the rent goes up by more than average property values then the tenant is not gaining.

Generally I think the tenant is worse off because somebody who starts paying rent at 30 and lives until 75 pays rent for 45 years while somebody on a 25 year term mortgage is finished after 25. This means that unless the tenant is paying significantly less than they would pay for a mortage they are not going to be better off.

However if rents don't change much then yes, the tenant may end up better off. You have to remember that Ireland abolished rent controls which means that comparisons with countries with more reasonable levels of rent are not a good comparison. Generally the cost of renting in Ireland has historically been higher than buying - which is one of the reasons why property has a higher value.

Lastly tax reliefs for tenants are extremely less generous than those for owner occupiers - this also skews the equation in favour of the owner.

But then again, for me as a tenant who simply cannot afford to buy, maybe the grass on the other side of the hill is greener.
On the other hand, I have paid out 35000 in 8 years in rent for no capital gain. Had I bought a house worth 150,000 5 years ago the same amount would have paid a good chunk of the mortage and it would now be worth around 290,000 which would theoretically have left me with a significant gain. Of course - again this is theoretical!

ronbyrne2005

no one is advocating renting for your whole life but five/ten years renting from now (2005) isnt that bad a move when you consider house prices cant go much higher rents are very low relative to house prices and you may benefit from a correction over next decade which imo is inevitable as interest rate rises are inevitable. rents actually went down between 2001 and 2003 in dublin when you fator in inflation and house prices did dip in real terms in 1979/1980.
read these anyone considering buying now.
http://www.housepricecrash.co.uk/
http://www.thetrumpet.com/index.php?page=article&id=1181

ronbyrne2005

also if house prices start falling or stay still and inflation is present then it makes more sense to rent.
also if you did rent for your life at 400euro inconstant terms (despite recent rent increases rent as a percentage of income doent usually go up much over the long term) and say it would cost you 800 a month for mortgage for same accomodation over 25 years for the next 25 years you would have an extra 400 a month in your pocket to invest in other assets or have more holidays cars etc and although you would own the asset unless you plan to leave the asset to someone in your will who cares if you rent you sole residential property?