Housing Bubble Bursting

BobbyD10

Nearly at the 5,000th post in this thread....been interesting reading...

RoryW

Gegerty wrote: »

.........David MacWilliams who has hedged his whole career and reputation on a housing crash. If you keep saying every day its going to rain, eventually you are going to be right. ....

A broken clock is right twice a day:)

EnoughSaid

EnoughSaid wrote: »

You are mixing up cost and value. The cost of a property is the cost of construction + the cost of the land. The value of the property is what somebody is prepared to pay for it. A property can cost a lot but if nobody is prepared to buy it, it is valueless!

Fair comment (I should have transposed cost & value, orig post edited), but what I mean it that it should be possible for decent housing to be available & affordable for the majority of families to own.

Definition of affordability, no more than 35% of take home pay, assuming 10% mortgage interest! No good being maxed out at the current rates as any rise would push you over the edge.

I did specify "location, location, location" as I was referring to a bog standard semi in a decent location, not some folly in the arse end of north Mayo.

Cantab.

RoryW wrote: »

A broken clock is right twice a day:)

People who slag off McW are living in another dimension -- a world where the laws of quantum mechanics (that nobody really understands) prevail.

Time behaves very strangely in such a world and the larger the fall in house prices, the more correct DMcW will prove to have been. Our economy should never have been allowed to grow this fast -- our clock was ticking away on overdrive when it should have been properly re-calibrated after the dot-com crash. But no -- FF gombeens knew what was best (for their retirement). When we get back to 2000/2001 price levels, we'll be moaning/compaining to our highly paid government economists and ministers (long since retired): "why didn't you listen to DMcW?"

The sooner we get back to Newtonian laws of economics the better for everyone.

BobbyD10

BobbyD10 wrote: »

Nearly at the 5,000th post in this thread....been interesting reading...

I think that if i'd read every single one, I'd be insane by now.
I just peek in every now and then!

johnnyskeleton

Cantab. wrote: »

Time behaves very strangely in such a world and the larger the fall in house prices, the more correct DMcW will prove to have been. Our economy should never have been allowed to grow this fast -- our clock was ticking away on overdrive when it should have been properly re-calibrated after the dot-com crash. But no -- FF gombeens knew what was best (for their retirement). When we get back to 2000/2001 price levels, we'll be moaning/compaining to our highly paid government economists and ministers (long since retired): "why didn't you listen to DMcW?"

I don't know, I'm not sure that there is much more that could have been done by the government to stop house prices rising. Granted, a lot of what they did by way of s.23 and affordable houses simply resulted in more money in developer's pockets and unrealistic prices, but their aim was to increase the housing stock generally and that's exactly what they've done. I would be very wary of the inevitable search for scapegoats to blame, but the reality is that people made imprudent financial decisions without making themselves fully aware of the consequences.

To BobbyD10, it should reach 5000 posts soon enough. Then it's just another 50k and this thread will be the longest thread on www.boards.ie after the bar in BGRH.

williamb

johnnyskeleton wrote: »

I don't know, I'm not sure that there is much more that could have been done by the government to stop house prices rising.

Well the government controls the Central Bank, which still regulates the financial instutions. Here's what I had to produce, to get a mortgage in 1995 :-

1. 12 months worth of pay slips.

2. 2 P60s.

3. 12 months worth of current account statements, and this had to be the current account my salary was being paid into.

4. 12 months worth of statements for every financial institution I dealt with (credit cards, etc).

5. 20% of the purchase price, and a surveyor's reports stating that the purchase price was reasonable.

At some point, the Central Bank allowed the Irish banks to relax those criteria.

Given that the Central Bank is entirely under the control of the government, and the financial institutions are entirely under the control of the Central Bank, yes Ahern,McCreevy,Cowen and co do bear a heavy responsibility.

johnnyskeleton

williamb wrote: »

1. 12 months worth of pay slips.

2. 2 P60s.

Most banks will require proof of income for 2 years, whether that is P60s and payslips or 2 years of audited accounts (for self employed individuals).

williamb wrote:

3. 12 months worth of current account statements, and this had to be the current account my salary was being paid into.

Again most banks will require this. Some banks would require previous bank statements if you just wanted to open up a current account (and if you had no previous current account you had to operate a savings account with them for a year beforehand).

williamb wrote:

4. 12 months worth of statements for every financial institution I dealt with (credit cards, etc).

I'm not sure this is still required, but banks will usually ask about other financial committments such as credit card debt and personal loans.

williamb wrote:

5. 20% of the purchase price, and a surveyor's reports stating that the purchase price was reasonable.

Surveyor's report still required, as is a certificate of good title.

So the only one of those criteria that changed over the boom (apart from sub-prime lenders, although these were few in Ireland) is the requirement of a 20% deposit. Another change was that the multiple of your salary was increased, and also the banks would often cook the books a bit so that people's incomes seemed artificially high.

However, of these three things, I'm not sure the government could have done anything:

1) deposits - it's up to each individual bank to determine how it secures it's own loans and since it's the bank's lookout, the Central bank isn't really competent to tell them to have certain minimum deposits.

2) multiples of salary - as far as I know the central bank's main concern is the stress testing of salary rather than a simple multiplication of income (though I'm open to correction), and during the times of low interest rates stress testing in practice was fairly lax.

3) cooking the books - i suppose the central bank should have clamped down on this, but the reality was that everybody - the banks and their customers - were complicit in this and they all wanted to get as much money borrowed out as possible.

williamb wrote:

Given that the Central Bank is entirely under the control of the government, and the financial institutions are entirely under the control of the Central Bank, yes Ahern,McCreevy,Cowen and co do bear a heavy responsibility.

In hindsight, knowing that we were setting up for a crash, they could have interfered but ultimately it was society that was running amok on property porn, greed, the need to be on the ladder and above all the idea that we were all becoming very rich and important, and nothing could stop us. Therefore I believe that it is Irish people as a group, and not the government and banks, that are responsible.

Duckjob

johnnyskeleton wrote: »

There was an apartment scheme which was marketed with the tagline "the spirit of gracious living" with the pictures of champagne, diamond earrings etc. It would be interesting to see if this development turns out to be a run down, half occupied kip or is maybe offloaded onto the county council as social/affordable housing.

Yes, that type of marketing showing champagne dinner parties full of smiling affluent people has been the hallmark of most developers marketing campaigns over the last couple of years.

Buyers have been relentlessly drilled with the Property=Success mantra, and bull****ted with the promise of ever increasing value - classic pyramid scheme tactics where the suckers are told whatever they need to hear to buy in on the bottom.

Right now, an increasing number of disgruntled people are coming to the realisation that they allowed themselves to be sold a very expensive dog-turd.

beeno67

williamb wrote: »

Well the government controls the Central Bank, which still regulates the financial instutions. Here's what I had to produce, to get a mortgage in 1995 :-

1. 12 months worth of pay slips.

2. 2 P60s.

3. 12 months worth of current account statements, and this had to be the current account my salary was being paid into.

4. 12 months worth of statements for every financial institution I dealt with (credit cards, etc).

5. 20% of the purchase price, and a surveyor's reports stating that the purchase price was reasonable.

At some point, the Central Bank allowed the Irish banks to relax those criteria.

Given that the Central Bank is entirely under the control of the government, and the financial institutions are entirely under the control of the Central Bank, yes Ahern,McCreevy,Cowen and co do bear a heavy responsibility.

I also bought a house in 1995 and needed 10% of purchase price not 20. Also we needed 6 months statements not 12. Things have not changed that much. The biggest change is the multiple of incomes allowed

jmayo

One poster mentioned it is the 21st century and we now have appartment living. Maybe they should compare appartment living in this country with that availabloe in other European countries. The siting of appartment blocks, the layout of appartments, the lack of storage areas, the lack of facilities for children, the management fees etc mean that our great appartment complexes are only suitable for couples and singles.
Appartments were build to give developers as much return per sq meter of ground as possible, there was no regard for fact that families may want to or rather have to live in them.

Of course our whole planning strategy as ever in this country was pathetic.
How many more Tallaghts (no facilities for years) have we created in the last 5 years?

Regarding government and central bank...
The government didn't care about the future.
FF's attitude is make sure our supporting friends (the builders and developers) are doing well and of course make sure we get elected the next time, we will only worry about the long term when we get nearer to it and are trying to get elected. Sure wasn't the SSIAs their way of ensuring election.
The central bank to me always appears a bit toothless (like the revenue was up until recently regarding banks) and is more controlled by the major banks than the other way around.
Of course this is just my perception.
They would also be under pressure not to rock the boat, after all the banks were doing great, the exchequer was doing great so better off to just leave things alone.

luckat

It seems to me that the reason house prices soared so fast was that we joined the euro, and so the Central Bank no longer had the ability to raise interest rates to slow down house price rises.

Not that I'm against the euro.

But the Central Bank/Government didn't look at other ways of slowing the rocketing prices, and so no brake was put on their rise. Until now.

iguana

luckat wrote: »

It seems to me that the reason house prices soared so fast was that we joined the euro, and so the Central Bank no longer had the ability to raise interest rates to slow down house price rises.

No, but they could have insisted that all mortgages were stress tested and only given to people who could comfortably afford repayments in the event of a 3-4% rise in the base rate.

BigglesMcGee

The biggest reason property went up so much and banks increased the multiples of income is the fact that it has become the norm for both halves of a couple to be working now.

example :

A young Couple starting out on a combined €70,000 salary (not at all unusal) get a mortgage for €400,000.

Take home pay is about €5000PM

Mortgage Payments : about €1800PM

Leaves them with €3200PM to spend. (Vey liveable sum i would think).

Suddenly the multiple of salary doesnt really mean as much as it used to.

Houses are much more affordable now than they have ever been.

But there are other factors at work now.

We have reached a tipping point where people are no longer in a race. The amount of money being spent now makes them take notice of what they are spending their money on, even if they can afford it.

There are 3 main things reversing prices right now.

One is that there were too many new house built the last few years.

Two is the banks being too tight for the moment.

The other is people waiting to see where the bottom is thats stopping them buying houses now. Its not at all that they cant afford them.

As they wait, they save more, becoming better prospects for the banks who will loosen up again when they smell more profits, sucking up the over supply of houses.

When? Who knows? but i'm sure David McWilliams will be telling us all that property prices will go up And he'll be right again - eventually.

daveirl

This post has been deleted.

BigglesMcGee

daveirl wrote: »

This post has been deleted.

You should do your sums again. You're way, way off - on all of your calculations.
Mine (though not exact, but close enough) would make sense to you if you did yours properly.

Another side effect of the celtic tiger is that young couples get married and dont have children til much later in life (some do but most dont anymore). Both probably earning a lot more money at the stage (due to inflation) when they decide to have children.

I wasnt talking about gas, electricity, how many cars they have etc. I was talking about what is left of their wages after paying for a roof over their heads. People who rent have those costs too you know - well i do anyway.

Theboinkmaster

BigglesMcGee wrote: »

You should do your sums again. You're way, way off - on all of your calculations.
Mine (though not exact, but close enough) would make sense to you if you did yours properly.

Another side effect of the celtic tiger is that young couples get married and dont have children til much later in life (some do but most dont anymore). Both probably earning a lot more money at the stage (due to inflation) when they decide to have children.

I wasnt talking about gas, electricity, how many cars they have etc. I was talking about what is left of their wages after paying for a roof over their heads. People who rent have those costs too you know - well i do anyway.

Eh no you should do your sums again - €70k pa does not equate to €5k per month net my friend you're way off. I shuld know as I earn about that and it's more like €4,000-€4,100 net pm

Didn't bother reading the rest of your figures as you can't seem to even get the most basic one right

Perhaps you shouldn't be so arrogant and take out a calculator

BigglesMcGee

Theboinkmaster wrote: »

Eh no you should do you sums again - €70k pa does not equte to €5k per month net my friend you're way off. I shuld know as I earn about that and it's more like €4,000-€4,100 net pm

Didn't bother reading the rest of your figures as you can't seem to even get the most basic one right

Perhaps you shouldn't be so arrogant and take out a calculator

Think couple.
Think Tax credits.
Think Deposit.
Think FTB.
Think Mortgage Interest relief.

Why not tell us how much YOU think a couple would have left using those figures. (might as well do both married and co-habiting)

BigglesMcGee

http://www.jeacle.ie/mortgage/

http://www.taxcalc.eu/

miju

so 5,000 posts on this thread now and where do we stand ?

Theboinkmaster

BigglesMcGee wrote: »

Think couple.
Think Tax credits.
Think Deposit.
Think FTB.
Think Mortgage Interest relief.

Why not tell us how much YOU think a couple would have left using those figures. (might as well do both married and co-habiting)

you said take home pay - those above things don't give you an extra €1,000 pm ffs

Firetrap

It doesn't matter anyway. Prices are falling.

BigglesMcGee

Theboinkmaster wrote: »

you said take home pay - those above things don't give you an extra €1,000 pm ffs

Will you work it out then and tell us how you would calculate this figure?

Do you know what tax credits, tax individualization, mortgage interest relief are?

Do you know that one person on €70K pays a hell of a lot more tax than 2 people on €35K each?

Did you look at those links i posted?

Did you read my post at all?

steo123

:(house prices still absolutely rdiciulous the average wage not enough for the average house

BigglesMcGee

steo123 wrote: »

:(house prices still absolutely rdiciulous the average wage not enough for the average house

It never has been and unfortunatly never will be though, unless you get on the social housing list.

I agree with you that huse prices are too high.

gurramok

BigglesMcGee wrote: »

It never has been and unfortunatly never will be though, unless you get on the social housing list.

Oh yes it has. My bro bought a house in Celbridge in 1996 for about 56k on a below average wage at the time on a single income.
That house is asking 330k now, way past the average wager's grasp.

On your other point, a couple on 35k each getting nearly 6 times salary is wreckless.
Couple's are usually assessed 4.5 times income which would make about 315k loans max. (check any of the online calculators).
Unless your factoring in the rent a room scheme which would increase the amount borrowed, a couple would be mad to get a lodger in if they wanted privacy, it defies logic.

Plus your saying anyone who wants to buy a gaff needs to have a partner, screw the rest of the singletons

A Dub in Glasgo

BigglesMcGee wrote: »

It never has been and unfortunatly never will be though, unless you get on the social housing list.

It certainly was before I left Dublin. My dad bought a 3 bed semi in Firhouse in 1992 for £IRL43,000.

The_Conductor

Current calculations for mortgages have changed (depending on the lender). Now the norm is in fact 4.5 time the main income + twice the second to a max of 90% of the open market value of the property (which can itself be determined to be far below what you believe you have to pay for it.......)

Good luck trying to find any lender willing to take rent-a-room income, bonuses, overtime or any other non-definite cash income into account too- those days are well gone......

A couple on 75k (40+35) would qualify for a mortgage of 250k, providing 250k is less than 90% of the open market value of the property (unless they are civil servants or accountants- in which case they *may* get the 100%).

Ps- for two civil servants earning a joint salary of 79k and claiming all relevant reliefs and credits (35,500 & 43,240) works into a takehome pay of 2412 + 2085 per month, net EUR4,497 per month.

When taking ownership into account- over renting, there are a number of additional expenses that need to be taken into account that someone renting would not necessarily encounter.

1. Management Charges. (depending on the location and facilities this is typically anything betwee 1,000 and 4,000)
2. Life assurance and mortgage protection policies (price depends on the amount of the mortgage, your age, your health, your habits (smoking etc)).
3. Typically people tend to rent in the vicinity of their employment- while they tend to buy in the suburbs. Often someone renting has no need for a car or high transport costs (Ireland is a bit of a connundrum though- thanks to our appalling planning). The 2 car household tends to be for property owners nonetheless.
4. Maintenance and upkeep of property (when renting these are entirely tax deductable expenses for your landlord- when you own the house/apartment- you pay from your net take home income).

etc.

Looking at the mortgage in isolation of other costs is really a false way of looking at things. Sure you get your TRS on the mortgage payments- but unless you're a FTB, these do not make a massive difference to things.

BigglesMcGee

gurramok wrote: »

Oh yes it has. My bro bought a house in Celbridge in 1996 for about 56k on a below average wage at the time on a single income.
That house is asking 330k now, way past the average wager's grasp.

On your other point, a couple on 35k each getting nearly 6 times salary is wreckless.
Couple's are usually assessed 4.5 times income which would make about 315k loans max. (check any of the online calculators).
Unless your factoring in the rent a room scheme which would increase the amount borrowed, a couple would be mad to get a lodger in if they wanted privacy, it defies logic.

Plus your saying anyone who wants to buy a gaff needs to have a partner, screw the rest of the singletons

What wage was he on, and how much did he have left after it? I remember back then the average wage in Ireland was less than £15,000 a year and tax was (more) penal at about 27% and 48%.


Go to a broker and you'll get a hell of a lot more than what theonline calculators say. Hell, even speak to your friendly neighbourhood bank manager and he'll give you more. Rightly or wrongly.

I'm not saying its a good thing, im just pointing out that they do.

The point i was trying to make though was that affordability is there and why banks left behind the multiplier rule in the boom. The more spending money after putting the roof over your head, the less multiples mean. Their reasoning for it was that they calculated if you had enough to live on after you paid the mortgage, so multiples became less of a factor.

Im not saying anyone who wants to buy a gaff needs a partner at all. Im just saying it ishas become the norm the last few years and has contributed big time to the runaway of house prices.

BigglesMcGee

A Dub in Glasgo wrote: »

It certainly was before I left Dublin. My dad bought a 3 bed semi in Firhouse in 1992 for £IRL43,000.

Im not even going to try to think what the average wage was then.

Bet it was less than £10,000 and only 1 person was earning?

They were the dark days