Housing Bubble Bursting

punchestown

Gurgle wrote: »

Nope.

What would stop them?
Banks don't give loans to people without the ability to pay them back.

:rolleyes:

I just have this image of Michael Lynn in my head that I cant get rid of!

SkepticOne

blast05 wrote: »

An interesting article alright, at the extreme end of negative sentiment on the matter but backed up by a rational argument. The whole argument however is predicated on the current large number of people who are waiting to buy with mortgage approval and all that continuing to wait and wait. Is there not a chance that as soon as a bit of positive news starts creeping out where for example 20 houses on a new 50 housing estate sell at launch for whatever reason (which would cause huge headlines and be portrayed as the turning point) that this will trigger those people who are waiting to buy to actually buy in the fear that the market has stabilised and prices will start rising again

He has dealt with this issue in the article quoted. The point he makes is that just as prices rising became a self-fulfilling prophesy so will falling prices. We lost sight of value on the way up and we will lose sight of it on the way down too. We ignored negative news and commentary during the boom ("ah you lot have been saying that for years...") so we will ignore positive messages during the bust. The fact of falling prices will be the big influencer.

SimpleSam06

seamus wrote: »

The one-bed apartment at €230k is still 10-15% overpriced

I'd have said about 60% overpriced myself, but however...

seamus

SimpleSam06 wrote: »

I'd have said about 60% overpriced myself, but however...

That depends I suppose on what you believe is an entry level for housing. You honestly believe that a one-bed apartment is worth less than €100k?

I would have said a single person on the average industrial wage (€35k?) should be able to buy it without a stupid mortgage.

So 35 x 6 = 210. 92% mortgage is around €194k. On a 30 year rate that's somewhere between €1k and €1,150 per month, which is well affordable.

Of course, put kids and another person in the equation and it changes everything but the same is true whether you're renting or buying.

punchestown

seamus wrote: »

That depends I suppose on what you believe is an entry level for housing. You honestly believe that a one-bed apartment is worth less than €100k?


A 1 bed apartment in the arse end of Balbriggan, surrounded by nothing but shoebox apartments of similiar poor quality with little by the way of services in a buyers market should cost no more than 100k! The affordable housing crowd are trying to churn out 2 bedrooms out there for 150k but the sensible ones on the list are having none of it because they can see that for whats on offer (aside from a foot on the slippery ladder) they represent poor value.

I would have said a single person on the average industrial wage (€35k?) should be able to buy it without a stupid mortgage.

So 35 x 6 = 210. 92% mortgage is around €194k. On a 30 year rate that's somewhere between €1k and €1,150 per month, which is well affordable.

Of course, put kids and another person in the equation and it changes everything but the same is true whether you're renting or buying.

How can borrowing 6 times your income noy be considered a stupid mortgage at a time in particular when the property is losing value daily? The figures you quote above would require a 35 year mortgage. The figure of his monthly mortgage repayment and his net income leave little by way of provision for the incumbent costs of an apartment aswell as the actual costs of living outside the home.

seamus

punchestown wrote: »

How can borrowing 6 times your income noy be considered a stupid mortgage at a time in particular when the property is losing value daily?

Again, that depends on whether you're buying to make a profit or buying because you want a home.

The figures you quote above would require a 35 year mortgage.

Nope, checked here: http://www.mortgagestore.ie/

The figure of his monthly mortgage repayment and his net income leave little by way of provision for the incumbent costs of an apartment aswell as the actual costs of living outside the home.

Not really. It leaves between €1300 and €1500 per month to spend on "other costs". For a single person with no real other costs except food, transport and bills, that's plenty of money.

punchestown

According to your little link there, the borrower would only be applicable for a loan of €157,500 so that might explain why your figures were managable over 30 years!

Not really. It leaves between €1300 and €1500 per month to spend on "other costs". For a single person with no real other costs except food, transport and bills, that's plenty of money.

Thats equivalent of a person buying a car at the top end of the market and the salesman telling them that they should have plenty of money left over once the monthly payment on the car is met as they have no other real costs except petrol, parts and service charges!

gurramok

seamus wrote: »

That depends I suppose on what you believe is an entry level for housing. You honestly believe that a one-bed apartment is worth less than €100k?

I would have said a single person on the average industrial wage (€35k?) should be able to buy it without a stupid mortgage.

Just one problem with that and that is averages.

From budget 2008 website:

'For 2008, the total number of income earners outside the tax net is expected to be
878,100 or 37.6% of income earners."

954,930 or 40.85% will pay tax at standard rate in 2008

504,530 or 21.58% will pay tax at higher rate excluding credits(over new 35,400k band) in 2008"

So 78.42% of the workforce earn under 35.4k and still won't be able to afford that €230k apt.
To sum up, your target market is very small for a €230k apt aimed at single people hence the price needs to go lower.

And to add.
40,000 vacant apts in Dublin alone is going to make the price even lower.

Calina

seamus wrote: »

That depends I suppose on what you believe is an entry level for housing. You honestly believe that a one-bed apartment is worth less than €100k?

I would have said a single person on the average industrial wage (€35k?) should be able to buy it without a stupid mortgage.

So 35 x 6 = 210. 92% mortgage is around €194k. On a 30 year rate that's somewhere between €1k and €1,150 per month, which is well affordable.

Of course, put kids and another person in the equation and it changes everything but the same is true whether you're renting or buying.

If one bedroomed apartments in this country were actually designed for people to live in rather than just as pitstops, maybe they might be worth €100,000. Unfortunately I wouldn't buy one because I couldn't live in one. When I have an estate agent showing me a single wardrobe and calling it "ample storage" and I have nowhere to put anything anywhere because there is zero storage, then actually, it's worth nothing to me.

Many people on the average industrial wage are not living on their own. They might be in couples, or, even tougher, they may have families. What are they supposed to do?

The average person should be able to afford to house a family. Unfortunately the average person cannot at this point in time. But you know, I actually wouldn't care about the average person not being able to afford to buy a house even if it meant that the rich just kept on moving their wealth around each other by trading them if the rental market was regulated in such a way as it protected the people living in said property and not the landed class. In other words, property sale should be removed as a reason for lease termination. If this had been the case for the past five years we probably wouldn't be facing into a property crash now.

seamus

punchestown wrote: »

According to your little link there, the borrower would only be applicable for a loan of €157,500 so that might explain why your figures were managable over 30 years!

I'm not sure where you're getting that figure from. Go here:
http://www.mortgagestore.ie/html/first_time_buyer/first_time_buyer_what_will_my_repayments_be.asp
And stick in 194000.

Thats equivalent of a person buying a car at the top end of the market and the salesman telling them that they should have plenty of money left over once the monthly payment on the car is met as they have no other real costs except petrol, parts and service charges!

Not really. After rent, my actual monthly outgoings would barely push €1k, including bills, food, petrol, and so on. And that's not scrimping and saving, there's plenty of drinking and eating out in there.

Perhaps you may only end up with €300 or €400 disposable cash left over at the end of the month, but that's not scraping the barrel. Life assurance is around €25/month, and if you have management fees, you'd be an idiot to pay more than €100 per month.

gurramok wrote: »

954,930 or 40.85% will pay tax at standard rate in 2008
...
So 78.42% of the workforce earn under 35.4k and still won't be able to afford that €230k apt.
To sum up, your target market is very small for a €230k apt aimed at single people hence the price needs to go lower.

I agree completely that €230k is still over the odds. But not nearly as much as people think. Remember that averages only give a general view. Yes, technically 78% earn less than than €35k, but how many of those are on 33 or 34k? In affordability terms, the difference between €34k and €36k is negligible.

I would like to see some form of properly normalised figure for the average wage. I would suspect that the figure is inflated somewhat by a tiny number of people earning in the tens and hundreds of millions. The average wage in Dublin, for example, is allegedly €64k. Most people I know don't even approach that but still have plenty of money.

Remember that prices won't come to a point where everyone should be able to buy their home. I'm not sure what the figures are for a "normal" country in terms of renters -v- buyers, but I'd be surprised if more than 50% of people owned their own homes in a similar country - particularly around the cities.

And to add.
40,000 vacant apts in Dublin alone is going to make the price even lower.

I still have to check that one out. Even some gloomy economists were questioning that figure - what's the proportion of undecorated apartments, for example? Napkin maths suggests 40,000 apartments could occupy a space half the size of Phoenix park (if you were to group them into blocks). Even spread across Dublin, that would be a huge number.

Calina wrote: »

Many people on the average industrial wage are not living on their own. They might be in couples, or, even tougher, they may have families. What are they supposed to do?

Rent. As I say above, there's nothing that says that everyone should or must be able to afford a home.

Afuera

seamus wrote: »

The average wage in Dublin, for example, is allegedly €64k. Most people I know don't even approach that but still have plenty of money.

Buried in this report (page 40) it quotes the median household income in Dublin city as being 64,800, not the average wage.
http://www.demographia.com/dhi.pdf

whizzbang

Afuera wrote: »

Buried in this report (page 40) it quotes the median household income in Dublin city as being 64,800, not the average wage.
http://www.demographia.com/dhi.pdf

And as we all know, a household now always equals two earners. No single earner is expected to be able to buy a place, that would just mess up the "affordability" statistics.

seamus

Aha. I just got that figure from elsewhere quoted as the average wage. Doesn't give an ideal figure at all.

Afuera

Calina wrote: »

In other words, property sale should be removed as a reason for lease termination. If this had been the case for the past five years we probably wouldn't be facing into a property crash now.

I strongly agree with your suggestion, since it is a huge limiting factor in the Irish property market. If you want security of tenure in Ireland there really is only one choice; you must buy.

I'm not too sure that changing this would have been enough to prevent a crash however. Spain has decent security of tenure and is witnessing a huge crash as we speak as well. The global wave of cheap credit and lax lending regulations that went unchecked (and was often encouraged) by governments and central banks has led us to this. Of course the lax laws that left many people without much of a choice but to dive in to market certainly has not helped the situation.

Afuera

seamus wrote: »

Aha. I just got that figure from elsewhere quoted as the average wage. Doesn't give an ideal figure at all.

No it doesn't look good for the fundamentals. The median wage is a much more useful figure than the average wage as it is not affected by the super high earners or people caught in poverty. This figure is likely to be much closer to the typical guy in the street.

newestUser

seamus wrote: »

I'm not sure where you're getting that figure from. Go here:
http://www.mortgagestore.ie/html/first_time_buyer/first_time_buyer_what_will_my_repayments_be.asp
And stick in 194000.
Not really. After rent, my actual monthly outgoings would barely push €1k, including bills, food, petrol, and so on. And that's not scrimping and saving, there's plenty of drinking and eating out in there.

Perhaps you may only end up with €300 or €400 disposable cash left over at the end of the month, but that's not scraping the barrel. Life assurance is around €25/month, and if you have management fees, you'd be an idiot to pay more than €100 per month.

If you earn 35,000, your monthly take home is 2300 approx. 1100 represents 47 % of that. I think that's too high, most times I've heard this subject being discussed, a figure of 30/33% is touted as being realistic.

Sure, you can still get by if you pay that much on your mortgage, but whether it's financially wise or not, that's another story.

seamus

Afuera wrote: »

No it doesn't look good for the fundamentals. The median wage is a much more useful figure than the average wage as it is not affected by the super high earners or people caught in poverty. This figure is likely to be much closer to the typical guy in the street.

Median wage is useful. Median household income, not so much At least not without some meaningful figures on what constitutes a normal household.

gurramok

seamus wrote: »

I agree completely that €230k is still over the odds. But not nearly as much as people think. Remember that averages only give a general view. Yes, technically 78% earn less than than €35k, but how many of those are on 33 or 34k? In affordability terms, the difference between €34k and €36k is negligible.

I would like to see some form of properly normalised figure for the average wage. I would suspect that the figure is inflated somewhat by a tiny number of people earning in the tens and hundreds of millions. The average wage in Dublin, for example, is allegedly €64k. Most people I know don't even approach that but still have plenty of money.

(64k is 2 incomes, you know household is now 2 incomes)
Thing is, how many is on 33 or 34 is guesswork. We know that 37.6% earn 20k or under so that leaves 21.58% earning between 20k and 35.4k.
Pity they dont release figures for each thousand earned, but it is suffice to say not everyone is on 33-34k to make up the numbers, thats just ridiculous saying that as probability is too small, its clutching at straws.

seamus wrote: »

Remember that prices won't come to a point where everyone should be able to buy their home. I'm not sure what the figures are for a "normal" country in terms of renters -v- buyers, but I'd be surprised if more than 50% of people owned their own homes in a similar country - particularly around the cities.

Another myth shattered, see here http://s137.photobucket.com/albums/q225/thebatoneffect/?action=view&current=homeownershipratesmyth.jpg

seamus wrote: »

I still have to check that one out. Even some gloomy economists were questioning that figure - what's the proportion of undecorated apartments, for example? Napkin maths suggests 40,000 apartments could occupy a space half the size of Phoenix park (if you were to group them into blocks). Even spread across Dublin, that would be a huge number.

Do you count IAVI as the gloomy economists?..LOL

They released that 40,000 vacant apt figure yesterday http://www.rte.ie/news/2008/0121/housing.html

'It says 40,000 Dublin apartments are vacant, causing concern that prices will continue to fall more in that sector.'[/QUOTE]

punchestown

seamus wrote: »

I'm not sure where you're getting that figure from. Go here:
http://www.mortgagestore.ie/html/first_time_buyer/first_time_buyer_what_will_my_repayments_be.asp
And stick in 194000.

I put in the average industrial wage into the how much can I borrow box and the figure I quoted was the maximum they would offer by way of a mortgage. Its great sticking in figures like 400,000 and dividing by 40 years and coming up with a four figure sum that seems reasonable as a monthly repayment but here in reality its just not an option for most people. As someone that bought pre-boom, like yourself no doubt Seamus, Im not up to my neck in **** but I despair for the future of this once great country.

Raskolnikov

gurramok wrote: »

Another myth shattered, see here http://s137.photobucket.com/albums/q225/thebatoneffect/?action=view&current=homeownershipratesmyth.jpg

That's all well and good, but from what I know of Germany, tenants actually have rights over there.

In this country, if the landlord wants to sell up/raise rents/make a nuisance of himself, you either pay up or get out.

seamus

gurramok wrote: »

Another myth shattered, see here http://s137.photobucket.com/albums/q225/thebatoneffect/?action=view&current=homeownershipratesmyth.jpg

Well then I'm surprised.

Do you count IAVI as the gloomy economists?..LOL

I'm just not sure because I'm yet to read the actual thing. But other media outlets have had commentators on who'd be far less than optimistic about the market and even they've raised question marks about the reailty of those 40,000.

As someone that bought pre-boom, like yourself no doubt Seamus, Im not up to my neck in **** but I despair for the future of this once great country

You'd be wrong, haven't bought (yet)
I'm just trying to form a reasoned view about the whole thing as opposed to the four horsemen view that plenty of media and people seem to now be revelling in and declaring as gospel.

gurramok

Raskolnikov wrote:

That's all well and good, but from what I know of Germany, tenants actually have rights over there.

In this country, if the landlord wants to sell up/raise rents/make a nuisance of himself, you either pay up or get out.

Er, we know that(and yes the goings on are a disagrace). The assumption was made that Ireland is a rare country with 50% ownership rates, the chart says its not so.

I'm also curious Seamus, nothing was mentioned what end of the market should that 230k apt for a 35k earner should be aimed at?

Is it an average 1bed apt value citywide, or are we talking about average for city centre only.

OR is it aimed at the upper end where that 1bed that is maybe 400+ now but may fall to 230k in your timeframe(lets say its in D4\D2) or is it located in the downmarket 'cheaper' areas?

Victor

gurramok wrote: »

Pity they dont release figures for each thousand earned,

The Revenue do this somewhere in their annual documentation. Not by the thousand, but by say the five thousand.

gurramok

Whereabouts, do you have a linky to such stats Vic?

ixoy

Okay so say the median household income is 64k - that's still only a maximum of 333k over 35 years. Is that reasonable given it's less than the price of an average Dublin home - the average income can't buy the average home even when they extend the mortgage over half their life.

Roonbox

Does anyone know if the sudden drop of .75% in the interest rate that the Federal reserve suddenly brought in yesterday in the States will impact our rate shortly??
Surely if rates drop again and make houses more affordable then the dropping of house prices will slow down..???

Im just guessing here...

Gurgle

ixoy wrote: »

Okay so say the median household income is 64k - that's still only a maximum of 333k over 35 years. Is that reasonable given it's less than the price of an average Dublin home - the average income can't buy the average home even when they extend the mortgage over half their life.

That's the national median wage?
And the national average house price is ~€300k

Theres no point in comparing national figures to Dublin prices.

ixoy

Gurgle wrote: »

That's the national median wage?
And the national average house price is ~€300k

No it was the national median income in Dublin apparently (from figures above).
Actually, on re-calculation, that gives a mortgage of 288k (which seems low, but that's the figure on mortgagestores.ie), which means they're a fair bit off getting the average home.

Theres no point in comparing national figures to Dublin prices.

No, but the average house price certainly appears to be well outside the median income which is surely a fundamentally flawed situation?

Do-more

Roonbox wrote: »

Does anyone know if the sudden drop of .75% in the interest rate that the Federal reserve suddenly brought in yesterday in the States will impact our rate shortly??
Surely if rates drop again and make houses more affordable then the dropping of house prices will slow down..???

Im just guessing here...

Hopefully the ECB has learned it's lesson after 9/11 not to be panicked into dropping rates just be cause the US does!

My opinion is that rates will remain at current levels.

seamus

gurramok wrote: »

I'm also curious Seamus, nothing was mentioned what end of the market should that 230k apt for a 35k earner should be aimed at?

Well considering that's actual price currently of a one-bed in a nice new estate in Balbriggan, I'd imagine it's aimed at the upper-mid end of the market. Generally graduates out of college a year or two who managed to land those particularly good grad jobs paying 33-38k.

They still couldn't afford one on their own of course because they're overpriced. Take 15% off, for example and the cost is now €195k. A 92% mortgage on that is ~€180k, which is well inside the 6 times rough calculation, and shouldn't be a problem to get from a bank (assuming a standard credit history and no other debts).
I'm very willing to accept that I could be wrong, but in my view the main problem with the market is not that people are unwilling to buy property, or that they don't want to buy property, but purely that they are unable to get the money that they need together.
Once prices hit a point where people can afford housing that's suitable for them, people will return to buying property. I don't think the majority are that affected by negative sentiment in the media.

ixoy wrote: »

No it was the national median income in Dublin apparently (from figures above).
Actually, on re-calculation, that gives a mortgage of 288k (which seems low, but that's the figure on mortgagestores.ie), which means they're a fair bit off getting the average home.

I'm not crazy about using the online "How much can I borrow?" calculators as they tend to be very conservative. I only use the "what will my repayments be" calculators because it's simple interest, you don't need to make any assumptions.

No, but the average house price certainly appears to be well outside the median income which is surely a fundamentally flawed situation?

Indeed. The average price in Dublin though is €403,233. Again, take the 10-15% "edge" off, the price is now €343,000. 92% mortgage on that is €315k, which again falls well into the rough calculation for what you'd get on a 64k household income.

Does anyone know if the sudden drop of .75% in the interest rate that the Federal reserve suddenly brought in yesterday in the States will impact our rate shortly??
Surely if rates drop again and make houses more affordable then the dropping of house prices will slow down..???

There are a whole pile of economists giving a definite yes and no about this. Some saying that the ECB will drop by .5% by the summer, others saying we'll see a rise before the end of the year.

Personally I think maintaining the current rate probably would fare best for us. A sudden drop may see affordability return to the market earlier than it should have. If people flood back in, prices will become unaffordable again and then we'll have much further to drop.
It would be a bit like trying to cure a hangover by getting hammered again, forgetting the super hangover the next day.