At what point will house prices turn and fall significantly? ie More than 20%

ambro25

FillSpectre wrote:

I agree certain imporvements do not increase value but done correctly it will increase the value of your house.

My point was that in an ebullient market, it becomes more a case of 'maintaining' the price (- increase in line with the market), than increasing it outright.

FillSpectre

delboy159 wrote:

How mad would house prices be if there wasn't stamp duty?

The reason I ask is (I wasn't actually bringing things off topic) -
The government has a subtle tool to insulate the economy from a property down turn - decrease/remove stamp duty. Has anyone thought of this in their forward thinking? We all saw how property valued at 260k ish shot up to 317k in the blink of an eye after the last FTB stamp duty change....

Their motive won't be for the good of buyers - it will be to help get votes by
a) removing a tax
b) trying to inject some life into the market and thus boast about how they are keeping the economy going despite tough times......

It is well possible the government correctly know that removal of the stamp duty would make things go crazy. I don't think anybody would doubt that would have a massive effect. They won't for that reason plus all the people going mad about the stamp duty they paid.

a) I don't see happening becasue it would looses as many votes
b) Possible but there are so many varients on how they do it. The government play polotics which doesn't mean they don't know what is going on they just say things differently.

I think b should be happening now to slow house building and better use the current housing stock and services near by.

aniascor

I can't see them removing stamp duty because too much revenue is generated through stamp duty.

(As an aside: A certain amount of restructuring of stamp duty wouldn't go astray though. This is really obvious if you watch properties that are being advertised just below the FTB threshold (and the other thresholds no doubt). The current system of pay nothing below 317,500, and then pay 10K approx if you go one penny over that just leads "shady" deals.)

And I don't think anyone can really forecast what the impact of removing stamp duty would do to the market. The only thing we can say with a reasonable amount of certainty is that if they up the thresholds, it will just cause a price surge until house prices are once again grouped around the various thresholds.

Afuera

aniascor wrote:

You're right - but in terms of the housing market, surely the people who are effecting (and most affected by) house prices are those who are buying and selling - not those who are releasing equity.

Releasing equity on a property increases the amount of debt owed on it. It's kind of like rebuying your property at the current market price except that the bank will give you the difference between the current price and what you originally paid for it.

A recent buyer and someone who has recently released equity / remortgaged should have a similarily sized mortage to pay back. If either of them needs to sell at any stage they are unlikely to sell for less than the value they owe on it (the mortgage).

aniascor

Afuera wrote:

A recent buyer and someone who has recently released equity / remortgaged should have a similarily sized mortage to pay back. If either of them needs to sell at any stage they are unlikely to sell for less than the value they owe on it (the mortgage).

I understand what it is to release equity on your house - but if you have your mortgage fully paid off, you can decide to take out a new mortgage for 10% of the current market value, or for 90% of it when releasing equity. Because neither of those choices involves putting the house back on the open market, I don't see how they impact on market values.

um7y1h83ge06nx

People are here saying they will be interest increases of 5-8%.

This interest rate is dictated by the ECB, so if interests rates rise, not only is Ireland fcuked but the entire Eurozone is fcuked too.

I wouldn't get hysterical about things because there is no way the ECB can allow things go that far, otherwise a big chunk of Europe will be emigrating to the US or Asia.

ambro25

Afuera wrote:

Releasing equity on a property increases the amount of debt owed on it. It's kind of like rebuying your property at the current market price

Yes, but...

Afuera wrote:

except that the bank will give you the difference between the current price and what you originally paid for it. A recent buyer and someone who has recently released equity / remortgaged should have a similarily sized mortage to pay back.

...No Because who says a home acquirer always releases the full equity? They may only 'free up' €50k (added to their mortgage), not the €300k-odd that a FTB is lumped with.

Afuera wrote:

If either of them needs to sell at any stage they are unlikely to sell for less than the value they owe on it (the mortgage).

'need to sell' is the operative expression, here. The situation you depict is the precise situation corresponding to negative equity: you owe more than the asset is worth at the material time. Negative equity is only ever a problem if you need to sell while you're down value-wise - it isn't a problem so long as you don't need to sell.

The issue for people who release equity, is if -say- they've taken on a €300k mortgage 2 years ago, the property is now valued at €375k, they've chosen to release €50k from the property and must sell now for whatever reason (say Mr VISA or Mastercard caught up with them, or job loss, or... ): mortgage of €350k, minus repayments over last 2 years (say €30k) = they're now 20k in the red more than when they started 2 years ago, with no house.

Afuera

aniascor wrote:

I understand what it is to release equity on your house - but if you have your mortgage fully paid off, you can decide to take out a new mortgage for 10% of the current market value, or for 90% of it when releasing equity. Because neither of those choices involves putting the house back on the open market, I don't see how they impact on market values.

You're right that without any buying and selling there shouldn't really be any impact on the market value.

Having said that (and I'm not too sure about this but) maybe some of the market indicators (such as those by ERSI, OECD, or any of the banks) would pick up on the remortgage? If any of the market indicators were affected then it could also impact on the market value.

FillSpectre

Afuera wrote:

Releasing equity on a property increases the amount of debt owed on it. It's kind of like rebuying your property at the current market price except that the bank will give you the difference between the current price and what you originally paid for it.

Not at all you don't need to release all the equity in your house.

buy at 200k mortgage of 180k
5 years later worth 400k mortgage 172k
new neighbour buys at 400k mortgage 360k
release equity of 28k to buy a new kitchen,bathroom and 2nd small car.
Two neighbours improved house worth €410k the other still worth €400
Mortgages of €200k and €360k respectfully. THenew neighbour still had to pay stamp duty also.

The first owner could in fact release all the equity and buy a 2nd property and get renatl income

neighbor A has 2 houses worth €400 + €188 mortgae of €360 but additional income
Neighbour B has one house €400k mortgage of €360 and only salary as income.

THis is one reasn many investors will survive a crash.

20% drop €320+€150 = €470 with mortgage of 360 not bad

€320 with a mortgae of €360 not so good.


The whole talk of investors being mad often misses that it may not be bad for them at all. Admittedly they could own a €320k house with €172k mortgage which is better?

Last in will suffer IMHO

The_Conductor

Alayna Gigantic Literature wrote:

People are here saying they will be interest increases of 5-8%.

This interest rate is dictated by the ECB, so if interests rates rise, not only is Ireland fcuked but the entire Eurozone is fcuked too.

I wouldn't get hysterical about things because there is no way the ECB can allow things go that far, otherwise a big chunk of Europe will be emigrating to the US or Asia.

No.
First of all the ECB have themselves stated that they consider that moving their base rate to 4.5% would be a "normalisation of interest rates".
That is two full percentage points above the current position.

The reason Irish people will be hit a lot worse than elsewhere is that most of Europe insulate themselves from the vagaries of fluctuating interest rates, by being fixed into longterm interest rates. I have a colleague in Brussels who bought a property there 2 years ago. He has a fixed rate of 4.5% for 20 years. Its a lot higher than I am paying at the moment, but over the course of the mortgage it may very well work out a lot lower on average. It is normal on the continent to fix long term rates. They think that we are crazy here in Ireland with our addiction to tracker mortgages- hell, they are probably right. So the whole of the Eurozone is by no means fcuked, those who want to borrow short-term money or those on overnight rates might be, the rest of the continent can continue snoozing into their Cafe Cremes.

Nobody is seriously suggesting interest rates of 8%. Other than for the secondary markets for those with impaired credit histories, I very much doubt you'll see those rates anywhere. As for 5%- allowing for "normalisation" of ECB base rates at 4.5% and a local bank margin of .75% here- that brings you to 5.25%. This is entirely possible.

One of the reason that Irish banks have the highest profitability in their sectors (in the world, not just in Europe) is because of the margins they are able to generate on these stupid tracker products. They are all well and good while interest rates are low- but as they go up they totally crucify you.

Credit crunch here we come.......

aniascor

FillSpectre wrote:

The whole talk of investors being mad often misses that it may not be bad for them at all. Admittedly they could own a €320k house with €172k mortgage which is better?

Last in will suffer IMHO

I agree with you - investors in this position are not mad. They are probably laughing all the way to the bank.

The people who are going to be in trouble are those who are getting 92% mortgages for investment properties that they have purchased within the past year or two, where their rent doesn't come close to covering their mortgage repayments, and they are already asking questions about how quickly they can increase rents to help with repayments when the interest rates increase by 0.25%.

The_Conductor

FillSpectre wrote:

Last in will suffer IMHO

I'd qualify that- with "Last in will suffer first......"

Fundamentals are totally out the window. I agree with you about the argument on the TV programme about people being outbid by "investors" is wrong. Most investors are sane clinical people who are more than capable of weighing up their options and taking rational action. There was no proof whatsoever offered that the property in question had been bought by investors. More probable it was people who bought apartments a few years back and are trying to trade up while the going is good.

Its my own personal opinion that apartments have a hell of a lot less fundamental value than 2 or 3 bed semis, and will suffer a lot more when the things do start to correct themselves.

aniascor

smccarrick wrote:

Its my own personal opinion that apartments have a hell of a lot less fundamental value than 2 or 3 bed semis, and will suffer a lot more when the things do start to correct themselves.

I share this opinion. I wonder if the fact that a development is run by a property management company will affect its value if there is a down-turn in the market. Will people be openly seeking properties in areas where they won't be subjected to this additional yearly fee?

Afuera

FillSpectre wrote:

Not at all you don't need to release all the equity in your house.

Point taken by ambro25 already.

My reply was in response to aniascor who was asking a very good question on whether releasing equity can affect house valuations. I think that it's possible in an indirect way.

FillSpectre wrote:

buy at 200k mortgage of 180k
5 years later worth 400k mortgage 172k
new neighbour buys at 400k mortgage 360k
release equity of 28k to buy a new kitchen,bathroom and 2nd small car.
Two neighbours improved house worth €410k the other still worth €400
Mortgages of €200k and €360k respectfully. THenew neighbour still had to pay stamp duty also.

The first owner could in fact release all the equity and buy a 2nd property and get renatl income

neighbor A has 2 houses worth €400 + €188 mortgae of €360 but additional income
Neighbour B has one house €400k mortgage of €360 and only salary as income.

THis is one reasn many investors will survive a crash.

20% drop €320+€150 = €470 with mortgage of 360 not bad

€320 with a mortgae of €360 not so good.


The whole talk of investors being mad often misses that it may not be bad for them at all. Admittedly they could own a €320k house with €172k mortgage which is better?

Last in will suffer IMHO

This all seems rather off topic... and I think you're making some wild assumptions. I don't know of any property investor that is actually getting additional income from their recent investments (they're all loss making ventures that are banking on capital appreciation to make a gain).

Instead of assuming that the market drops by 20% why not say it drops by 40%?
Neighbour A -> EUR 240 + EUR 113 = EUR 353, mortgage of 360 plus monthly losses

Due to Neighbour A becoming an investor it has given up the chance of retaining their mortgage of 172k on a property which is now worth 240k. "No pain no gain" as they say. But with the amount of warning signs out there already it seems like a silly risk to take under the current climate.

aniascor

So to summarize (and get things back on topic!), what we have learned here is that house prices will turn and fall significantly in the future, unless they continue to rise and rise

Lex Luthor

aniascor wrote:

So to summarize (and get things back on topic!), what we have learned here is that house prices will turn and fall significantly in the future, unless they continue to rise and rise

I still think they won't fall

I'm nearly sure on that program that one of the houses she was looking at for €395k was eventually bought for €435 and she was told it was by an investor

mad m

I cant seem to sell my house at the moment,its 3miles from dublin city centre,a 3bed terraced house.Had it sale agreed but they pulled out.Now we fear we will lose the house we sale agreed. I think its sign of the times.Now we dropped the asking price.

Lex Luthor

mad m wrote:

I cant seem to sell my house at the moment,its 3miles from dublin city centre,a 3bed terraced house.Had it sale agreed but they pulled out.Now we fear we will lose the house we sale agreed. I think its sign of the times.Now we dropped the asking price.

what area?

The_Conductor

Lex Luthor wrote:

what area?

I'd guess that would be: 53.333° Latitude and -6.25° Longitude

Seriously though- it would be interesting to know where the place is.

I guess sale agreed means nothing, until the contracts are signed. It has been a sellers market for the last few years, the fundamentals are changing though.

mad m

Lex Luthor wrote:

what area?

Southside,Sundrive/Kimmage area.

JimmySmith

mad m wrote:

Southside,Sundrive/Kimmage area.

Maybe you were asking too much in the first place.
a house worth €1 million wont sell at €1.5M

Also there are other reasons houses dont sell. Such as being smelly, untidy, bad paint job, even kids hanging around outside watching the potential buyers as they go in to view it.

Remember no matter what the house is worth, people will only pay for one when they get a great first impression.

On the point of not knowiong any investors making a profit on rental income, i know loads of them.

Afuera

JimmySmith wrote:

On the point of not knowiong any investors making a profit on rental income, i know loads of them.

Are these recent investments (within last 12 months say) in Ireland? I'd love to know what area(s) they are able to manage this.

chalkitdown

You are all aware that Ireland is the only country in Europe where full term fixed rate mortgages aren't available? Save your ire for the banks when the roof INEVITABLY falls in.

DublinWriter

aniascor wrote:

The people who are going to be in trouble are those who are getting 92% mortgages for investment properties that they have purchased within the past year or two, where their rent doesn't come close to covering their mortgage repayments

Quite true, anyone I know renting property has bought said property anywhere from 20 to 5 years ago.

I think interest rates hitting 5% will be the flashpoint for newer investors dumping apartments.

Whether that triggers a wider drop is anyone's guess, but it's worth watching the apartment market because when/if the dip happens, it will happen there first.

Lex Luthor

I'm not making a profit if I pay my mortgage fully with the repayments but I am if I got interest only. Its a fine line.
I bought 15 months ago for 179..now at 230k

FillSpectre

Afuera wrote:

.
This all seems rather off topic... and I think you're making some wild assumptions. I don't know of any property investor that is actually getting additional income from their recent investments (they're all loss making ventures that are banking on capital appreciation to make a gain).

It is on topic becaue the topic assume investors have to sell or will panic sell. I am pointing out thay aren't at risk. THe extra revenue is from the fact they have the same mortgage yet Neighbour A is getting rent money i.e. extra income.

Afuera wrote:

Due to Neighbour A becoming an investor it has given up the chance of retaining their mortgage of 172k on a property which is now worth 240k. "No pain no gain" as they say. But with the amount of warning signs out there already it seems like a silly risk to take under the current climate.

a 40% drop is massively extreme and quite unlikely IMHO. Either way you didn't understand what I said as you missed ther extra revenue issue. It doesn't have to pay off the mortgage to be revenue. DOn't foreget neighbour A is still massively better off than neighbour B.

Gurgle

DublinWriter wrote:

I think interest rates hitting 5% will be the flashpoint for newer investors dumping apartments.

Investing in property is long-term.

Interest rates hitting 5% will mean that the investor is out of pocket on a monthly basis, but only until the interest rate comes back down again.

The bottom line is every euro you get in rent is paying off some of the loan you got to buy the property. Even having to top up the rent to pay the mortgage, its the best and solidist long-term investment available.

Afuera

Lex Luthor wrote:

I'm not making a profit if I pay my mortgage fully with the repayments but I am if I got interest only. Its a fine line.
I bought 15 months ago for 179..now at 230k

So currently it's possible for you to make a slight profit if it's interest only. This soon won't be possible as interest rates move up. Rises in the cost of mortgages from higher interest rates won't be easily absorbed by tenants who currently have a lot of choice in the market.

FillSpectre wrote:

I am pointing out thay aren't at risk. THe extra revenue is from the fact they have the same mortgage yet Neighbour A is getting rent money i.e. extra income.

But clearly they are at more risk than they were before they bought the investment. You assumed that Neighbour A will always be able to earn rent and hence obtain extra income. Who's to say they won't have the place lying empty?

FillSpectrea wrote:

40% drop is massively extreme and quite unlikely IMHO.

Look a 40% drop could happen over a period of 5 years (8% drop every year) or it could happen over 15 years (2.6% drop every year). It's massively extreme but then so is the current mania so you can't say that it's unlikely or beyond the realms of reality. Once things turn then it can affect everyone's outlook and suddenly people have the "sure you'd be mad to get a mortgage now" mentality.

FillSpectrea wrote:

Either way you didn't understand what I said as you missed ther extra revenue issue. It doesn't have to pay off the mortgage to be revenue. DOn't foreget neighbour A is still massively better off than neighbour B.

You're making assumptions that it's always possible to earn an income from a property by renting it. This simply isn't true.

There's no point in comparing Neighbour A with Neighbour B since one is starting off 5 years earlier in a rapidly rising market. The real question is whether Neighbour A is better off after buying the investment property or not?

JimmySmith

Afuera wrote:

Are these recent investments (within last 12 months say) in Ireland? I'd love to know what area(s) they are able to manage this.

They would mostly have bought in the last 10 years all the way up to this year.
For the purposes of this thread i'll stick to the ones who nought in the last 2 years. And there are several of them.

They have made money by buying in the right areas at the right price.
Also, they are very good at it. Not just amateur investors.
Smo==mee advice i was given was to look at areas which are just barely starting to become key areas. Examples are Swords (i would agree with this one) and Ballymun (my friends all say there is money to be made there but i dont agree). And there are more but i'll just explain these 2.
Here are the reasons i have been given.
Both are currently undervalued (when compared to areas around them - Santry, Malahide and so on). So good value to be had. Rents are high enough to almost cover the repayments of a 100% mortgage on these properties, but i'm advised that the max you should go is 60% for risk reasons - so you do need some money or property already to start off.

Both will be linked by rail to the city centre within 10 years (not too close as to make the places worth much more. But in 5 years people will be giving this new rail link serious attention - pushing values up). This puts them 20 and 10 minutes out for commuters. Swords will then become commuter distance for DCU students too.

These guys meet up every week and share their knowledge and experience. I have been fortunate enough to benefit from their knowledge, but am still of the opinion that its a big risk trying to play any market. There is a lot of guesswork involved (though they would say they take the guesswork out), but the techniques i've been shown for limiting risk were the most valuable.

Dont try and be an investor unless you have money AND can afford to lose money if it all goes pear shaped. Best thing ever to do is get rid of all your debts before you start gambling on whatever market you choose.

FillSpectre

Afuera wrote:

But clearly they are at more risk than they were before they bought the investment. You assumed that Neighbour A will always be able to earn rent and hence obtain extra income. Who's to say they won't have the place lying empty?

No not clearly they are at diffenrent level of risk. THe truth is if you buy correctly the chances are you will always rent.

Afuera wrote:

Look a 40% drop could happen over a period of 5 years (8% drop every year) or it could happen over 15 years (2.6% drop every year). It's massively extreme but then so is the current mania so you can't say that it's unlikely or beyond the realms of reality. Once things turn then it can affect everyone's outlook and suddenly people have the "sure you'd be mad to get a mortgage now" mentality.

I can say it is unlikely becasue it is extremely unlikely that production cost won't rise in the period and house prices keep going down. People often misunderstand or underestimate construction costs.

Afuera wrote:

You're making assumptions that it's always possible to earn an income from a property by renting it. This simply isn't true.

Not really I am taking it that they would buy in an area that will support rent. You are assuming that I consider rent as a income continuely. It is still an asset and a possible revenue source that one doesn't have.

Afuera wrote:

There's no point in comparing Neighbour A with Neighbour B since one is starting off 5 years earlier in a rapidly rising market. The real question is whether Neighbour A is better off after buying the investment property or not?

You keep comparing them becasue they both live in this country and will be effected by property prices. You are missing that as time goes on the mortgage reduces.