Housing Bubble Bursting

Firetrap

If the truth be told, most Irish people would rather not live in an apartment if they can help it. Especially not the horrible shoeboxes thrown up by developers the length and breadth of the country which lack basic facilities like adequate storage, laundry facilities, green areas for kids to play in and room to swing felines.

Now, with property prices coming down, I've a feeling that potential buyers are thinking that instead of buying an apartment that they don't really want, if they hold out they might be able to afford that nice semi-d which they were hoping to end up with eventually anyway. Thing is, there's no real demand for apartments. They're fine for renting but long-term a lot of people don't want to live in the things. Folk owning apartments are going to have a hard job shifting them.

El Stuntman

DublinDilbert wrote: »

For example i know one person that bought an apartment in 2004 for €195K, has been trying to sell since 2006, had some viewings early on, but none really in the last 12 months. Their asking price went €285K (2006) -> €250K -> €240K -> €230K(2008) and they still haven't sold, and have no signs of interested in it. So it looks like the current value of it is quite close to the 2004 value (€195K), if not below it..

especially when you take into account time value money and adjust for inflation; do that and he's made a loss

jmcwobbles

I'm a FTB-to-be - one of ones who has been hanging back and waiting to see what happens with the market, myself and my boyfriend are only now starting to go to viewings and apply for approval in principal etc, but we're in no rush to buy until we see a house (NOT apartment) that we really want for the right price.

Did you all see that article talking about how FTBs are better off buying than renting now (link: http://www.ireland.com/newspaper/finance/2008/0404/1207240099817.html) - do you think that will have any effect on the market? Seems to me that FTBs are starting to come out of the woodwork and venture onto the property ladder again, so just wondering if ye think prices will still continue to trundle downwards? Hard to know when they'll settle or even start to rise again (if they do), so want to get in at the right time...

Tom123

jmcwobbles wrote: »

I'm a FTB-to-be - one of ones who has been hanging back and waiting to see what happens with the market, myself and my boyfriend are only now starting to go to viewings and apply for approval in principal etc, but we're in no rush to buy until we see a house (NOT apartment) that we really want for the right price.

Did you all see that article talking about how FTBs are better off buying than renting now (link: http://www.ireland.com/newspaper/finance/2008/0404/1207240099817.html) - do you think that will have any effect on the market? Seems to me that FTBs are starting to come out of the woodwork and venture onto the property ladder again, so just wondering if ye think prices will still continue to trundle downwards? Hard to know when they'll settle or even start to rise again (if they do), so want to get in at the right time...

The logic in that article is deeply flawed!

You are still better renting even if house prices only remain static.

If they fall by 10% you are much much better off waiting.

Personally I think that the article is nothing short of misleading and irresponsbile

smooth operater

Can someone copy and paste?

jmcwobbles

Here it is:

Buying a house can now beat renting

AFFORDABILITY FOR first-time buyers continues to improve as house prices fall, according to the latest edition of the EBS/DKM Affordability Index. Laura Slattery reports.

The average first-time buying couple is better off buying than renting today if they intend to keep their property for more than three years, according to an analysis by DKM Economic Consultants - even if Irish property prices fall as much as 10 per cent in 2008.

The affordability index, published by Irish Property Buyer, indicates people buying their first home in 2008 will spend 21.9 per cent of their disposable incomes on mortgage repayments, as prices fall and higher rates of mortgage interest tax relief come into effect.

Overall, the slice of income needed to pay the mortgage on an averagely priced house has dropped from more than 26 per cent in December 2006 and 23 per cent in December 2007.

People buying a property with the average Dublin price-tag in March are spending 26.6 per cent of their incomes on their mortgages, compared to 32.5 per cent if they bought in December 2006 and 27.6 per cent if they bought in December 2007.

EBS and DKM say affordability will continue to improve as the year progresses, making it easier for first-time buyers to get on the property ladder.

But EBS director Dara Deering said potential buyers were adopting a "wait-and-see" approach. Demand from people who did not want to buy property at the top of the market, or who foresaw further significant declines, made rents increase 12 per cent last year.

But Ms Deering said the "tipping point" between people renting and buying was now close.

Typical first-time buyers are better off buying than renting, DKM director Annette Hughes said. The consultants assume prices will fall 10 per cent this year, before rising at an average of 3 per cent over the next six years.

"By year four, the buyer would be better off by almost €5,000, and by year seven - even after selling his property and paying transaction costs - the buyer would be better off by almost €41,000," Ms Hughes said.

© 2008 The Irish Times

The_Conductor

The article you are quoting is positively bubbling with enthusiasm and is totally contrary to forecasts for the Irish market by most international commentators. If you accept that even by their optimistic forecasts that you will be in a negative equity situation of 10% by next year- when in fact it could indeed be a lot worse, I'm not sure how they spin the article in the manner they did. If you are buying somewhere and have no intention of moving in the medium to longterm (aka 10-15 year period) perhaps it might not be a bad idea- but if current trends continue- you will save far more by continuing to rent in the shortterm.

jmcwobbles

smccarrick wrote: »

The article you are quoting is positively bubbling with enthusiasm and is totally contrary to forecasts for the Irish market by most international commentators. If you accept that even by their optimistic forecasts that you will be in a negative equity situation of 10% by next year- when in fact it could indeed be a lot worse, I'm not sure how they spin the article in the manner they did. If you are buying somewhere and have no intention of moving in the medium to longterm (aka 10-15 year period) perhaps it might not be a bad idea- but if current trends continue- you will save far more by continuing to rent in the shortterm.

When you say short-term, do you mean one year, 3 years, less, more?

beeno67

jmcwobbles wrote: »

Here it is:
The consultants assume prices will fall 10 per cent this year, before rising at an average of 3 per cent over the next six years.

"By year four, the buyer would be better off by almost €5,000, and by year seven - even after selling his property and paying transaction costs - the buyer would be better off by almost €41,000," Ms Hughes said.

© 2008 The Irish Times

This is just plain stupid. Not even their maths makes sense. First of all if you assume their figures are correct and prices will fall 10% and then rise 3% a year for next 6 years, then why buy now. Surely smart people would wait until next year after prices have fallen the 10%.
Secondly and more worring is their maths. If property prices fall 10% and then rise 3% a year, at year 4 you would still have a loss. Even after year 5 (which is 4 years of 3% growth which is maybe what they meant) you would have a gain of 1.3%, which means only first time buyers who bought houses around the 400,000 mark would have seen the price increase 5,000. After 7 years of 3% growth the gain would be €37000 after 1% auctioneer charges not 41000.
Finally they are totally ignoring the fact that for these 8 years the person has been paying interest on the mortgage of 5% a year

smooth operater

Now throw the cost of renting into that equation

beeno67

smooth operater wrote: »

Now throw the cost of renting into that equation

Well roughly speaking a €400,000 mortgaged at 5% is 20,000. I think it would be pretty easy to rent a house worth €400000 for less than 20,000 a year. Also you would not have to pay for upkeep of house or furniture.

punchestown

depends what form of rent you choose from. You could be a very silly couple who take on a 1 bed apartment paying 1200 a month or a very smart couple who have been house sharing paying 500 a month and saving the difference in a high yield interest account waiting for prices to continue to fall!

smooth operater

beeno67 wrote: »

Well roughly speaking a €400,000 mortgaged at 5% is 20,000. I think it would be pretty easy to rent a house worth €400000 for less than 20,000 a year. Also you would not have to pay for upkeep of house or furniture.

Ok, now im just tryna add everything up here....As im renting and considering buying

A 400,000 house; Renting would cost what; €1250 a month? So thats 15k a year...?

So your up 5k after year 1,

Now if you owned that 400k house and rented 1 of the rooms from it, €300 a month? Thats €3600 up, and some of the bills split.
So at the end your down €1400 if you owned the house?

astrofool

punchestown wrote: »

depends what form of rent you choose from. You could be a very silly couple who take on a 1 bed apartment paying 1200 a month or a very smart couple who have been house sharing paying 500 a month and saving the difference in a high yield interest account waiting for prices to continue to fall!

I'd take exception to someone being called a "silly couple" for having their own place, rather than sharing with others. If you really want to save money, you should move back in with mammy and daddy, but people want to live too, and that must be respected.

punchestown

astrofool wrote: »

I'd take exception to someone being called a "silly couple" for having their own place, rather than sharing with others. If you really want to save money, you should move back in with mammy and daddy, but people want to live too, and that must be respected.

Any couple paying 1200 a month for a 1 bed apartment are more than silly (I was being diplomatic in refering to them as silly) This generation dont seem to appreciate short term sacrifice for long term gain and lining the pocket of a btl for the sake of your own place is madness!

martian1980

astrofool wrote: »

I'd take exception to someone being called a "silly couple" for having their own place, rather than sharing with others. If you really want to save money, you should move back in with mammy and daddy, but people want to live too, and that must be respected.

agreed. I pay just shy of 1200 with my girlfriend for a 1 bed place in the centre of town. If we move into a house with others, we lose the exclusive use of the living room and kitchen. When we were sharing a 2 bed place, the other person was doing working from home and ALWAYS there. I can go from my front door to my desk in 7 minutes. How much cleverer would I be if I moved further out?

edit. I'm saving just shy of a grand a month while renting here. If I lived in a decent house, I'd be paying maybe €150 less in rent and spending about €60 on travel. The extra hour a day I save on travel is worth that to me. Am I buggering up my future here?

ixoy

punchestown wrote: »

depends what form of rent you choose from. You could be a very silly couple who take on a 1 bed apartment paying 1200 a month or a very smart couple who have been house sharing paying 500 a month and saving the difference in a high yield interest account waiting for prices to continue to fall!

Tried house sharing and it didn't work - there's some sacrifices that just don't appear worth it. We rent our own place now and the difference in quality of living is immense - you can't be too focused on money at the expense of your own happiness.

What we did do though is move further out from town and keep our other living costs low. You can live in comfort, without sharing, and make changes elsewhere and save away. My future deposite is still building up on a monthly basis and yet I'm able to be content at the same time.

groom

This article is rubbish. If prices are going to drop by 10% this year then you are better off waiting at least a year. Then they some figures arrive predicting increases after that. What is the basis for these figures?

Anyway this is what the IMF says about our property market


It's 33% overvalued for no good reason. See page 11
http://www.imf.org/external/pubs/ft/weo/2008/01/pdf/c3.pdf

SkepticOne

jmcwobbles wrote: »

Did you all see that article talking about how FTBs are better off buying than renting now (link: http://www.ireland.com/newspaper/finance/2008/0404/1207240099817.html) - do you think that will have any effect on the market? Seems to me that FTBs are starting to come out of the woodwork and venture onto the property ladder again, so just wondering if ye think prices will still continue to trundle downwards? Hard to know when they'll settle or even start to rise again (if they do), so want to get in at the right time...

No I don't think it will have much effect. People here have pointed out the errors in logic and arithmetic in that article, but I think the main reason this will have no effect is that those vested interest groups that put out this stuff have very little credibility left and even if they had credibility the incontrivertible fact of high but falling prices will override what anyone has to say no matter how good the argument.

Before the bubble in Ireland popped, no amount of argument no matter how logical and well argued had any effect on the upward movement of prices. Likewise on the way down weak PR like this will have no effect but to sucker a few into buying overpriced properties.

I think the important thing to remember is this sort of PR is very cheap to produce. It only needs to net a few sales and it has paid for itself. I'm sure those who put it out don't expect much of a turnaround.

faceman

The property market is always going to be overvalued. Just like oil.

groom

faceman wrote: »

The property market is always going to be overvalued. Just like oil.

Oh right! I'd better yet myself a gaff so

blast05

It's 33% overvalued for no good reason. See page 11
http://www.imf.org/external/pubs/ft/.../01/pdf/c3.pdf

One comment, this report does not factor in cultural differences between countries regarding propery, i.e.: the desire to own your own property, which i am sure has an effect on average price in a given country relative to where the IMF think it should be.

Calina

That has been used as an excuse to support the situation in Ireland where houses cost up to 10 times average salaries.

Unfortunately, in some respects you have to put it in the following context: in 2006 40% of new property sales were to investors. I would say the cultural issue there is "want to make a killing on property cos it's easy money" rather than "need to own your own home".

Our priorities have been half assed in this country for the past number of years. We have not been building houses to live in - they are often poor designed with inadequate storage - just ways to move credit around the place.

The key cultural difference in Ireland right now is not the historical desire to own your own home, it is the inadequate regulation of the rental sector. If you sorted that out, the desire to own property and land in this country would start to dissipate. If half the landlords in this country actually had to adhere to the sort of legislation that was the norm in France, Germany and Belgium, it is entirely possible that it would cost a lot less to buy and a lot more to rent purely on supply and demand.

Victor

Firetrap wrote: »

If the truth be told, most Irish people would rather not live in an apartment if they can help it.

I think you are mostly wrong.

johnnyskeleton

smccarrick wrote: »

Like to elaborate?
Personally I'd be of the opinion that a lot of the property in D15 direction has a hell of a lot more to fall than elsewhere.
No-where is immune from largescale falls, however those falls, be they on paper, are purely notional until such time as you *have to* dispose of the property.

I think that if someone owns a similar house (e.g. new development 3 bed house in blanch), they might look at those drops and realise that those prices went down, but not associate those drops with a drop in their own property's value. I don't think people necessarily associate drops in these developments with the drops across the board or a drop in their own property's value.

Gurgle

johnnyskeleton wrote: »

I think that if someone owns a similar house (e.g. new development 3 bed house in blanch), they might look at those drops and realise that those prices went down, but not associate those drops with a drop in their own property's value. I don't think people necessarily associate drops in these developments with the drops across the board or a drop in their own property's value.

Because the average middle-income professional couple who own those houses are too stupid to make the connection?

Now thats a bit of a blinkered assumption.

DublinDilbert

On the way up for years economists tried to predict the peak of property prices, now it looks like the banks are predicting the minimum:-
http://www.rte.ie/business/2008/0408/economy.html

Does anyone actually believe things are going to pick up in the second half of this year?? With and extra 12000 people on the live register in march alone!!!

johnnyskeleton

Gurgle wrote: »

Because the average middle-income professional couple who own those houses are too stupid to make the connection?

Now thats a bit of a blinkered assumption.

No, it's because they don't want to see the connection. This is why houses aren't selling - because people refuse to accept that 1) houses have actually dropped in price and 2) that those other drops in price means that their house is now worth a lot less.

faceman

The article below again highlighting the rag that is the the Indo.

http://www.independent.ie/national-news/property-crash-hits-asking-prices-by-up-to-7pc-1341296.html?from=dailynews

Since when does a price drop in certain regions of upto 3% constitute a crash? Also i dont see reference in their table to the increase in prices in Dublin city centre or Galway city.

Not denying prices are coming down, but if 0.3% and 3% is considered a "crash", then what's 20% or 30%????

Gurgle

johnnyskeleton wrote: »

No, it's because they don't want to see the connection. This is why houses aren't selling - because people refuse to accept that 1) houses have actually dropped in price and 2) that those other drops in price means that their house is now worth a lot less.

3) People who would sell if they got the right money but aren't so desperate to sell that they'll do so at any price.