Boycott Of The Housing Market

daveirl

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Afuera

FillSpectre wrote:

Then everything is speculation in your eyes. No matter what type of business it can be said to be speculation. It is the opinion of many other people to be a standard model for property investement

No, not every business is speculative. But a business model that is making a loss every month and will only realise a gain due to rises in the price of it's assets (at some undetermined stage in the future) is speculative.

FillSpectre wrote:

Rents cannot be raised on a whim. I know people who are renting the same place over 10 years.

The fact that you know people renting for 10 years proves nothing. The landlord can still change the rent as he likes, whereas in other countries it can't be changed for a certain time.

FillSpectre wrote:

So it isn't rising prices it is rising prices compared to income? That is rising prices which people are claiming will cause some change.People in here are not worried they are hoping it will happen.

It's property inflation vs wage inflation and over the long term trend they can't deviate too far from each other.

Don't pretend you know what other people want.

FillSpectre wrote:

No it's not hard that is what a census is for. It just needs to be close. If Ireland is made up of mostly 3 bed semis as there were mostly families and now there are less families and more single people we end up with a housing problem. This is why we suddenly need more property as the housing stock doesn't match our current needs. Dublin is certainly rstricted when it comes to housing

A census done every 5 years is hardly going to catch the transitory nature of people these days.

Restrictions in the amount of housing around Dublin are false. There is no shortage of land.

FillSpectre wrote:

Do 80% of the adults you know own their home?

Yes, it'd be in or around there anyway.

FillSpectre wrote:

If you can't buy you are going to have to rent. You are working on the assumption investors will always have to rental yoeld based on current house prices when it is based on what they buy for.

They don't have to rent. They can always move off to some other part of the world where they can afford to buy.

Rental yield is not just based on the price the property was bought at. It's also dependant on what the renter is actually willing to pay.

FillSpectre wrote:

I kind of agree that investors won't keep coming in but by that I would mean individual investors. Comercial property is more owned by big investors and companies generally I think that could happen to residential property. Very few buildings, if any, on Grafton street are owned by investors but are owned by insurance companies,banks etc... In other EU countries it is this that provides rental property. They can take the slow burning investment. It is already happening in fact

Last I looked in the papers all the banks and big institutions were selling off their property stocks.

Afuera

daveirl wrote:

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Interesting spreadsheet daveirl. I can't really fault it, although maybe a 5% annual rise in the value of the property could be a bit optimistic. The ECB's aim is to keep inflation no higher than 2% so I don't see why property inflation would continue to exceed that.

ronbyrne2005

FillSpectre wrote:

As pointed out investment isn't always about pure capital returns and appreciation worked out as you said a rental income once the house is paid for can easily out perform a pension. Investors are not fools they can see what you seem to not see. It depends on why you are investing and what your expectations are. You are asuming the expectation and dismissing the other reasons for investment. Has property out performed pensions in Ireland? I know it can't keep going as is but stock crashes were also damaging to pensions. Pensions can't be passed on to children our a spouse. Fine to say houses are over priced and not a great investment but don't ignore the massive benifits of owning something physical with a purpose. My pension is not worth much more than what I put in but if I put it into property I would have had a better return and over 30 years maybe they would even out but nobody really knows.

Equities out perform property over the long term ALWAYS, albeit with a higher variance.
Pension/equity funds have returned as much or more than irish house prices since the property boom began around early nineties and that doesnt even include the tax benefit of pensions or reinvestment of dividends FACT. You can pass your equity investments to your children no problem!. why are 40% of houses bought in Ireland in last year bought by investors? simple, the EXPECTATION of capital appreciation,no rational investor would buy a risky asset yielding less than the risk free rate if he didnt expect to make his returns in the form of capital gains rather than in form of yield(rent), anyone following rental trends knows they are unchanged in real terms since 2000 so it seems unlikley they will rise sufficiently to make current prices attractive on a yield basis. Take it from me ,prices will slow down and fall substantially in next 2-5 years,i'll have the humble pie ready for you then.

ronbyrne2005

Afuera wrote:

Interesting spreadsheet daveirl. I can't really fault it, although maybe a 5% annual rise in the value of the property could be a bit optimistic. The ECB's aim is to keep inflation no higher than 2% so I don't see why property inflation would continue to exceed that.

PRoperty inflation has little to do with general inflation and all to do with wage inflation, if wages rise by 5% houses could easily rise by 4/5% in medium term once they werent highly overvalued to begin with. Also interest rates are important in determining price growth ,lower rates means more potential growth but in long term the long term average rates will determine growth. have a look at long term bond yields to determine the predicted long term average interest rate,in eurozone average rates over next ten years are predicted by market to be around 4% so mortgage rates are expected to average around 5-5.5%

Afuera

ronbyrne2005 wrote:

PRoperty inflation has little to do with general inflation and all to do with wage inflation, if wages rise by 5% houses could easily rise by 4/5% in medium term once they werent highly overvalued to begin with.

Sorry ronbyrne2005, I don't buy this argument. I think that easy access to credit might have more to do with property inflation than wage inflation would.

Having said that, over the long term it probably wouldn't make sense for property inflation to deviate dramatically from wage inflation as the money does have to be paid back at some stage.

Are wage rises not usually determined from the general inflation level? The partnership program only managed to eek out a 10% rise over 3 years. This is only 3.33% per year so I think 5% annual rises in property prices is too high an estimate.

FillSpectre

Afuera wrote:

No, not every business is speculative. But a business model that is making a loss every month and will only realise a gain due to rises in the price of it's assets (at some undetermined stage in the future) is speculative.

AS I pointed out that is not what people maybe doing. No rise in the asset is required the rental money will be income after a period of time. It is not speculation. 20 years of loss to own an asset which gives revenue and may appreciate in value also.

Afuera wrote:

The fact that you know people renting for 10 years proves nothing. The landlord can still change the rent as he likes, whereas in other countries it can't be changed for a certain time.

No the but the changes to the tenancy act which restrict rent increases does. It is not true landlords can raise rent on a whim or as he likes.

Afuera wrote:

It's property inflation vs wage inflation and over the long term trend they can't deviate too far from each other.

"Too far" but that does not mean a lot further and it still is not a reason for a crash. I also think they can deviate an amazing amount as generational mortgages prove.

Afuera wrote:

Don't pretend you know what other people want.

I am not pretending they are stating it

Afuera wrote:

A census done every 5 years is hardly going to catch the transitory nature of people these days.

Actually yes you can and demographics are the most important aspect. Are you going to deny that there are more single parent families, less marriages and more divorce? It is actually pretty amazing that you ignore this stuff yet choose to beleive the figures based on the same infomation to get 80% homeownership figures.

Afuera wrote:

Restrictions in the amount of housing around Dublin are false. There is no shortage of land.

Not really. There are restrictions you just choose to beleive that it can be changed but they still exist. Just becasue you see feilds and you think they should be rezoned means nothing as it isn't zoned and there are no houses there. Land is pretty useless unless there are road,sewage, transport and all the other important stuff

Afuera wrote:

They don't have to rent. They can always move off to some other part of the world where they can afford to buy.

So you beleive there will be mass emigration becasue people can't buy a house? What country do they move to where they can get a job and can afford to buy a house? Affordability of houses elsewhere, is it really so much better than here? If it was wouldn't more countries have high homeownership?

Rental yield is not just based on the price the property was bought at. It's also dependant on what the renter is actually willing to pay.

I don't recall seeing lots of people living on the streets becasue they refused to rent! There are certain things you can't do without. Electricity prices go up means expenses go up but you can't do much about it. Rent goes up the same applies. Some people can leave but others can't and generally only the young do.

Afuera wrote:

Last I looked in the papers all the banks and big institutions were selling off their property stocks.

Selling their own comercial property for massive profits. I am saying residential investment schemes that are apparently already built here now. THere is a lot of assumption that the only thing that has to give is prices and I am just pointing out there are lots of other things that can and are likely to change also. Price drop is likely at some point but how it progresses and who is effected will be cvaried. Many people assume it will be country wide while I doubt that and I also beleive there needs to be a casue. Has anybody got a casue for a possible crash other than prices just getting too expensive either directly or comparitvely?
Lots could happen say fuel prices go up so far away places lose value and prices touble as people try to move closer to work but that would force city prices up. Of course it is speculation fuel prices will go up or is it an inevitability?

ronbyrne2005

Afuera wrote:

Sorry ronbyrne2005, I don't buy this argument. I think that easy access to credit might have more to do with property inflation than wage inflation would.

Having said that, over the long term it probably wouldn't make sense for property inflation to deviate dramatically from wage inflation as the money does have to be paid back at some stage.

Are wage rises not usually determined from the general inflation level? The partnership program only managed to eek out a 10% rise over 3 years. This is only 3.33% per year so I think 5% annual rises in property prices is too high an estimate.

Excluding interest rates academic studies demonstrate that the drivers of house price growth in real terms over long term are income growth and population growth. Easy credit obviously increases growth rate of assets but general inflation doesnt have that much if anything to do with house price inflation.

Gurgle

ronbyrne2005 wrote:

general inflation doesnt have that much if anything to do with house price inflation.

General inflation is an effect of house price inflation, not a cause.

ronbyrne2005

FillSpectre wrote:

AS I pointed out that is not what people maybe doing. No rise in the asset is required the rental money will be income after a period of time. It is not speculation. 20 years of loss to own an asset which gives revenue and may appreciate in value also.

your not making much financial sense here, ever here of opportunity cost, cash return on capital ,alternative investment,risk and return

FillSpectre wrote:

Not really. There are restrictions you just choose to beleive that it can be changed but they still exist. Just becasue you see feilds and you think they should be rezoned means nothing as it isn't zoned and there are no houses there. Land is pretty useless unless there are road,sewage, transport and all the other important stuff

Theres loads of brownfield sites around dublin to be develpped and high density will increase the amount of spce for housing,theres loads of land actually zoned and with planning permission in dublin waiting to be built on.

FillSpectre wrote:

Selling their own comercial property for massive profits. I am saying residential investment schemes that are apparently already built here now. THere is a lot of assumption that the only thing that has to give is prices and I am just pointing out there are lots of other things that can and are likely to change also. Price drop is likely at some point but how it progresses and who is effected will be cvaried. Many people assume it will be country wide while I doubt that and I also beleive there needs to be a casue. Has anybody got a casue for a possible crash other than prices just getting too expensive either directly or comparitvely?

Do you think if prices are falling in one part of ireland that other investors around the country wont get worried and decide to sell up, the negative sentiment would result in a downward spiral.

ronbyrne2005

Gurgle wrote:

General inflation is an effect of house price inflation, not a cause.

Wrong, house price inflation isnt included in general inflation, only increases in interest rates and rents are included. General inflation is caused by increased money supply and imported inflation.

Afuera

FillSpectre wrote:

AS I pointed out that is not what people maybe doing. No rise in the asset is required the rental money will be income after a period of time. It is not speculation. 20 years of loss to own an asset which gives revenue and may appreciate in value also.

So you think the estimated 32 thousand investors that bought last year are all in it for the long haul; the next 35 years or so? You don't really want to contemplate the fact that many of them are on interest only mortgages and will not own the property even after 35 years.

FillSpectre wrote:

demographics are the most important aspect. Are you going to deny that there are more single parent families, less marriages and more divorce? It is actually pretty amazing that you ignore this stuff yet choose to beleive the figures based on the same infomation to get 80% homeownership figures.

The demographics can change on a month by month basis in this era of no borders and cheap flights. Less marriages doesn't mean there are less couples, or more single people living on their own.

FillSpectre wrote:

So you beleive there will be mass emigration becasue people can't buy a house? What country do they move to where they can get a job and can afford to buy a house? Affordability of houses elsewhere, is it really so much better than here? If it was wouldn't more countries have high homeownership?

Emigrating was put forward as an other option besides renting but they could also just move in with friends or family. You stated that if they can't buy, then they have to rent. That's plain wrong.

FillSpectre wrote:

There are certain things you can't do without. Electricity prices go up means expenses go up but you can't do much about it. Rent goes up the same applies. Some people can leave but others can't and generally only the young do.

Comparing the price fixing of a company which is in a monopoly to the prices of an open market is not very helpful. What's more, the demographics that you seem so fond of show a very young population in Ireland.

FillSpectre wrote:

THere is a lot of assumption that the only thing that has to give is prices and I am just pointing out there are lots of other things that can and are likely to change also.

I think the assumption is that the LIKELY thing to give will be price.

hmmm

daveirl wrote:

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By way of example, this shows the historic interest rates in the UK. Anyone who says that we're not at historic and temporary lows is fooling themselves

I'm more than happy for someone to take my spreadsheet and fix it if it's broken and show me how I should be going out to buy a house right now.

It's an excellent spreadsheet and vividly illustrates the rental vs buy argument at the moment. I believe that in the long run house price appreciation cannot exceed wage inflation, in fact unless there is a serious imbalance between demand and supply it won't even get close to meeting that. So plug in 3% house price growth average and do similar with rent.

The only problem with your figures is that for some reason you are comparing house price "gain" versus rental investment. It would make more sense to compare house price versus investment because that's the difference in terms of money in hand at the end of your period.

Plugging in 3% increase in rent and house prices, you could afford to both purchase the house and have saved 250k at the end of the period.

ronbyrne2005

Even if all these "investors " (johnny come latelies IMO) hold their properties for 30/40 years and prices go through no crash and grow at slightly less than wage growth do they not realise that given we are now building 100k housing units a year and even if that slows to 60k units for 30 years we'll have more houses than families to fill them!! Supply will vastly exceed demand long before the 30/40 long term investment period is up! we all know what happens when supply vastly exceeds supply! So in a sense its inevitable that prices will fall substantially as long as we keep building so many homes which ironically is caused by strong house price growth! So the price growth now is causing builders to build so many homes that these excess homes in years to come will cause a downward movement in price.

GreeBo

The flaw in your argument is that house unit A is not the same as house unit B.
Location, location location is not just a TV show.
A house in a desirable area is a finite commodity, your argument ignores this.

ronbyrne2005

GreeBo wrote:

The flaw in your argument is that house unit A is not the same as house unit B.
Location, location location is not just a TV show.
A house in a desirable area is a finite commodity, your argument ignores this.

Location is no guarantee. Ireland and Dublin are small places, if house prices fall loads in Dublin 3 but not in Dublin 4 eventually people in Dublin 4 will cash in and buy same type house for a load less in Dublin 3. House prices in the coastal parts of california which are the best location have been fallin recently. Some unique properties like seafront in Dublin and a few streets in Dublin 2/4/6 will always have a large premium but if every where else is falling people are less likely to buy if the premium is excessive, there are generally substitutes for most houses in different but almost near identicaly suitable locations ,and people wont pay if theres an adequte yet much cheaper substitute,its a competitive market.

SkepticOne

Lemo wrote:

I'm not a financial guru but I think the reason why property investment seems to work better for most people is that it's the only investment where a bank will lend you massive amount of money to get invoved in (once you have your own house to borrow against)?

So while I would struggle to find €10K to invest in "alternative opportunities", I would have no problem getting a bank to lend me €400K to buy a second house...

Am I missing something here?

I would agree with you to a point. Because people have found it easy to borrow to buy houses for investment purposes many of them did, and the fact that so many were buying caused inflation in that asset class.

But now we find that instead of taking out that loan put what would have been a deposit into an interest bearing account and every month put 600 euros (this is the amount above the rent he is recieving FillSpectre needs to pay the mortgage loan) into that same account. What you find is that over 30 years you only need a net interest of 2% to build up target savings of 350 euros.

There is no need to borrow (and take on risk). All you need to do is find something paying more than 2% and put your money there. If you took stamp duty, maintenance costs, insurance, risk into account, just putting your money into decent savings account makes far more sense.

It does not make business sense to borrow to become a landlord. You are totally dependent on capital appreciation and the existence of "greater fools".

The big unknown is how many Greater Fools are out there yet to buy?

FillSpectre was asking about how a market can crash without external factors. This is how: when the market is dependent on capital appreciation and the asset makes no business sense otherwise (like FillSpectre's property) then it depends on more and more people coming into the market, the so called greater fools. The crash happens when the last fool has bought. Then suddenly people realise that they are sitting on grossly overpriced assets and the thing starts to fall.

GreeBo

ronbyrne2005 wrote:

Location is no guarantee. Ireland and Dublin are small places, if house prices fall loads in Dublin 3 but not in Dublin 4 eventually people in Dublin 4 will cash in and buy same type house for a load less in Dublin 3. House prices in the coastal parts of california which are the best location have been fallin recently. Some unique properties like seafront in Dublin and a few streets in Dublin 2/4/6 will always have a large premium but if every where else is falling people are less likely to buy if the premium is excessive, there are generally substitutes for most houses in different but almost near identicaly suitable locations ,and people wont pay if theres an adequte yet much cheaper substitute,its a competitive market.

Nah I dont buy that at all.
People dont just up root themselves and (possibly) cash in on negative equity.
People have jobs and friends and social circles setup in an area, they choose to buy in that area for a reason.
You wont find many ready to pack in a house in Dundrum and move to Clonsilla.
Why are they not doing it now, Clonsilla is far cheaper than Dundrum?
Why does your argument only kick in during a downturn?

ronbyrne2005

GreeBo wrote:

Nah I dont buy that at all.
People dont just up root themselves and (possibly) cash in on negative equity.
People have jobs and friends and social circles setup in an area, they choose to buy in that area for a reason.
You wont find many ready to pack in a house in Dundrum and move to Clonsilla.
Why are they not doing it now, Clonsilla is far cheaper than Dundrum?
Why does your argument only kick in during a downturn?

im talking about areas that are relatively similar, theres enough similar areas to provide a competitive market. Most people wont sell when in negative equity but thats not what im saying, im saying theoretically in market as a whole if prices dropped 40% prices in the best locations would still fall 20-30% for example, there may be a few properties (a few 100) that see little or no falls but these will only be the multi millionare exclusive pads.

Gurgle

The flaw, as I see it in the 'bursting bubble' scenario is this:

A house does not have a price tag on it. You can't walk down a driveway, bang on a front door and say 'Your house is worth €300k, heres a cheque, get out'.

The market value is only relevant if a house is on the market. If the market isn't providing the selling price hoped for, the owner can just take it off the market.

It doesn't matter what its 'worth', all that matters is whether the owner, occupier or investor, can pay the mortgage.

daveirl

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hmmm

Gurgle wrote:

The flaw, as I see it in the 'bursting bubble' scenario is this:

A house does not have a price tag on it. You can't walk down a driveway, bang on a front door and say 'Your house is worth €300k, heres a cheque, get out'.

You've touched on something that many people who currently own property don't quite realise. Property prices are set by the marginal activity i.e. they are set by the most recent sales, not like equities where practically the whole stock is available for a price. This is important because it can lead to wide fluctuations in the pricing and valuation of houses.

E.g. let's say there is a demand for 11 houses in an estate which has 100 houses in it. If 10 houses are sold at 500k each, in the current market valuers would say to the other 90 people "your houses are valued at 500k". These happy homeowners now go out and buy SUVs because they originally purchased for 200k.

Now let's say 10 houses more go on the market. Because there is only 1 buyer left, the prices offered will collapse, and again the marginal (most recent) price will become the "valuation" for the remaining 80. Cue much angst.

In a situation where buyers stay out of the market for whatever reason (priced out or decide to hold back), prices for property can rapidly drop, depending on the urgency for the seller to complete a deal.

CiaranC

daveirl wrote:

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How do you know what people are happy with? I have friends living in apartments in the areas they grew up in, where their social circles and employment is who are delighted with themselves.

They recognise that the nature of housing is changing, and they are happy to go along with it. Gone are the days of the 3 bed semi near the city, affordable on a single income. New housing today is more in line with the rest of Europe.

This notion that places like Blanchardstown are full of people from Foxrock who couldnt afford to live there and are too stupid to rent is nonsense. Places like Blanchardstown are full of people from Blanchardstown who bought their first property near home.

chump

CiaranC wrote:

They recognise that the nature of housing is changing, and they are happy to go along with it. Gone are the days of the 3 bed semi near the city, affordable on a single income. New housing today is more in line with the rest of Europe.

It's more than 'more in line', has gone well beyond that line!
It's not the deviation from 3bed semi that is the issue, it's the cost of the 2 bed apartment.

daveirl

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JimmySmith

SkepticOne wrote:

I wonder how many people are like JimmySmith and don't really look into alternative investment opportunities. There must be thousands of people who could be making more money on relatively low interest bearing accounts with significantly less risk. Probably there are a lot of people who are losing money overall as an investment and are totally dependent on capital appreciation.

However it is good that such people as JimmySmith exist. They are the people that buy as other people are getting out. They are the people that you can rent from as you invest elsewhere.

You dont even know me.

Let me just say that i have made plenty of money from properties already.
And thats real money, in the bank, not paper money on unsold assets

JimmySmith

daveirl wrote:

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I commute because i dont want to live in the city, but the only work in my field is in the city. I'm not alone

DublinWriter

I think this topic it going a lot off-beam as people are discussing the owner-occupier and investment residential markets in the one breath.

But anyways, I haven't seen one person here who proffers the 'oohhh the bubble will burst' argument lay down one single reason as to why this will happen.

As I've said over and over and over 'till I'm blue in the face, the property market is not the equities market.

Just because the equities market went belly-up for a couple of years in 2001 over over-valued dot-com shares doesn't mean that that same pattern of investor behavior holds true in another completely unrelated market with different dynamics.

The one and only reason there would be a 'bust' is if interest rates shot up unexpectedly in a short time-frame.

Let's look at the experience of our nearest neighbours and how the property bust happened to them. Multi-billionaire George Soros wakes up and decides to dump billions in Sterling on the International Currency Market on 'Black Wednesday', leading to chancellor Gordon LaMont raising interest rates four times in one day.

The Euro is a juggernaut of a currency and wouldn't be as susceptible to a single multi-billionaire waking up with a sore head one morning.

Again, I say to the 'busters', stump up one good reason why.

miju

there's plenty of very good reasons outlined throughout the thread dublinwriter if you didnt ignore them for whatever reason IMO opinion and alot of other peoples opinions too the fundamentals in the property market are beginning to change as people are increasingly becoming very pessimistic about the property market ,that coupled with another year of rate hikes to normalise them at about 4.5% can be enough to cause a massive drop in prices over a few months

i think when people say crash i dont think they mean overnight per se , they're more talking about a massive devalution in properties (for example say 30-50%)

CiaranC

daveirl wrote:

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Huh? Im talking about people who live in apartments in Dublin.