Housing Bubble Bursting

johnnyskeleton

smccarrick wrote: »

People's sentiment, and indeed their perspectives of what is important, have changed. Sentiment is incredibly fickle- and now that its turned- interest rates and their changes, while welcome to all of us, as we're all hocked to our gills, are pretty meaningless in the context of our future purchasing intentions. We've moved on.

In an otherwise excellent post, I have to disagree that interest rates dropping are welcome to all of us. It's great for people who have lots of debt, but people who have no debt and savings lose out.

Banks are slashing their savings interest rates. A lot of banks have reduced their savings to around 2-3% from a fairly steady 5%.

Add to that higher DIRT and cheaper mortgage rates, it almost seems like everyone is conspiring against savers and subtly trying them to stop sitting on the fence and buy a property.

If there are further rate drops, even zero interest rates, we could see savings rates go back to the old school .2% like it or lump it rates.

BendiBus

johnnyskeleton wrote: »

Banks are slashing their savings interest rates. A lot of banks have reduced their savings to around 2-3% from a fairly steady 5%.

But at the same time, inflation is falling dramatically. It's the difference between interest and inflation that determines if you're winning or losing. Absolute rates mean little.

smooth operater

johnnyskeleton wrote: »

In an otherwise excellent post, I have to disagree that interest rates dropping are welcome to all of us. It's great for people who have lots of debt, but people who have no debt and savings lose out.

Banks are slashing their savings interest rates. A lot of banks have reduced their savings to around 2-3% from a fairly steady 5%.

Add to that higher DIRT and cheaper mortgage rates, it almost seems like everyone is conspiring against savers and subtly trying them to stop sitting on the fence and buy a property.

If there are further rate drops, even zero interest rates, we could see savings rates go back to the old school .2% like it or lump it rates.

AIB Regular Savings 5.75% €300 pm Can't save more than 3,600 euro per year.
Halifax Monthly Saver 7.0% €350 pm If a saver misses a monthly payment or makes more than 2 withdrawals in a year, the rate falls back to 2.25%.

Here's the real sneaky bit! This rate doesn't apply to accounts opened prior to Oct. 24th 2006.
Anglo Irish Bank 8.0% €1,000 pm No withdrawals for first 6 months!




I took that from rabo's website, but there are still a handfull of banks giving high interest rates, however wouldnt trust that anglo!!

SimpleSam06

smooth operater wrote: »

there are still a handfull of banks giving high interest rates

Yup, weighed against the lower interest rates is the "we desperately need deposits despite spending our professional careers calling them a liability" sentiment from the banks.

johnnyskeleton

BendiBus wrote: »

But at the same time, inflation is falling dramatically. It's the difference between interest and inflation that determines if you're winning or losing. Absolute rates mean little.

That's not the point - the point is that lower interest rates are not in everyone's interest, and people who have been net savers rather than net debtors are less well off with reduced interest rates.

johnnyskeleton

smooth operater wrote: »

AIB Regular Savings 5.75% €300 pm Can't save more than 3,600 euro per year.
Halifax Monthly Saver 7.0% €350 pm If a saver misses a monthly payment or makes more than 2 withdrawals in a year, the rate falls back to 2.25%.

Here's the real sneaky bit! This rate doesn't apply to accounts opened prior to Oct. 24th 2006.
Anglo Irish Bank 8.0% €1,000 pm No withdrawals for first 6 months!




I took that from rabo's website, but there are still a handfull of banks giving high interest rates, however wouldnt trust that anglo!!

Northern Rock 5% lump sum deposit. I bet the Irish banks are none too keen on seeing their savings (which have increased massively since the bank guarantee) go to NR & Investec.

BendiBus

johnnyskeleton wrote: »

That's not the point - the point is that lower interest rates are not in everyone's interest, and people who have been net savers rather than net debtors are less well off with reduced interest rates.

I don't think you can really separate the two points, except in theory.

Sure, if inflation fell and your deposit interest rate remained high then you'd be better off. But it's certainly a case if wanting to have your cake & eat it.

In practice, you are no worse off than you were when inflation & interest rates were higher. Of course it depends on the exact levels of reductions in both and differs for each individual.

And as pointed out above there are still some good interest rates to be had from banks desparate for cash.

johnnyskeleton

BendiBus wrote: »

I don't think you can really separate the two points, except in theory.

Sure, if inflation fell and your deposit interest rate remained high then you'd be better off. But it's certainly a case if wanting to have your cake & eat it.

I didn't mention inflation. Forget inflation. SMC said that lower interest rates are welcome to us all. I disagree, I don't welcome lower interest rates. For a person who has a lot of savings rather than debts, lower interest rates are a bad thing. Also, we need to rebuild our shattered economy with savings and sensible investments, not try to gloss over the downturn with cheap loans.

Interest rates are not going to affect inflation significantly IMO, because I don't think people are going to be taking out any more personal loans etc to buy luxuries for the foreseeable future, and AFAIK mortgage interest is not included in the calculation of the CPI.

It all seems to send the message - don't save, spend. I don't think that is the way to go to be honest.

astrofool

Right now, people saving their money only leads to reduced tax incomes and even further problems with the countries finances. They can either make this up through DIRT, or higher income tax, both worse options for everyone who saves, than the interest rates being lowered.

As people say, it tracks inflation anyway, and with deflation you're making an even better spread on the cost of day to day living. You've got to stop thinking in terms of numbers with your money, and more on what that money saved will be worth in order to give you the lifestyle you want.

johnnyskeleton

astrofool wrote: »

Right now, people saving their money only leads to reduced tax incomes and even further problems with the countries finances. They can either make this up through DIRT, or higher income tax, both worse options for everyone who saves, than the interest rates being lowered.

I don't agree that savings are bad for the country, if that is what you are suggesting. While there is a short term gain in government revenue by increasing consumption and decreasing saving, it is a false gain, and it is what has lead to this mess in the first place. Economies need savings & investment to provide capital for future growth. Without savings the banks become seriously undercapitalised & won't give out loans. For a more technical argument, look at this article link which I should credit GreenBear of tpp for providing the link.

astrofool wrote: »

As people say, it tracks inflation anyway, and with deflation you're making an even better spread on the cost of day to day living. You've got to stop thinking in terms of numbers with your money, and more on what that money saved will be worth in order to give you the lifestyle you want.

I think people are finding my point hard to understand. Lower interest rates IMO will have a very minor impact in decreasing deflation, and in any event this will only become apparent a year - 18 months from now. So let's take two examples:

A) ECB rates remain high - inflation is -.5% p.m average, savings rates are c. 5%.

ECB rates are reduced - inflation is -.4% p.m. average, savings rates are c. 3%.

Therefore the rate cuts mean that someone who is a net saver loses out by rate cuts because they get a reduced savings rate but also because the effect (if any) it will have on inflation is increase it, or in this case decrease the deflation. Therefore the ECB cuts are not welcome to savers, who would be much better off if the rates remained high.

astrofool

Unfortunately, governments seem to rarely look beyond one year when deciding anything. However, the ECB rate drops are usually a bit longer thinking, and are dropping as inflation has dropped significantly (which was always it's mandate to control), and is verging towards deflation (bad for everyone), by lowering the rate, they encourage spending. Interest rates are always a bit of a false dawn for savers, they're basically matching inflation (due to their low risk nature), and really only ensure that what you can buy with €10 today, is the same in 10 years time. Rarely are they ever money making (for this you need to be putting your money in riskier assets).

Don't get me wrong, savings are good, and should be encouraged, see the effort gone to get everyone to start a pension, but if everyone saves all their extra money, we're all screwed.

johnnyskeleton

astrofool wrote: »

Unfortunately, governments seem to rarely look beyond one year when deciding anything. However, the ECB rate drops are usually a bit longer thinking, and are dropping as inflation has dropped significantly (which was always it's mandate to control), and is verging towards deflation (bad for everyone), by lowering the rate, they encourage spending. Interest rates are always a bit of a false dawn for savers, they're basically matching inflation (due to their low risk nature), and really only ensure that what you can buy with €10 today, is the same in 10 years time. Rarely are they ever money making (for this you need to be putting your money in riskier assets).

Don't get me wrong, savings are good, and should be encouraged, see the effort gone to get everyone to start a pension, but if everyone saves all their extra money, we're all screwed.

I disagree though. It was reckless spending that got us into this mess to the detriment of savings and investments. We need to save and rebuild a solid foundation for the economy, and this means that we will have to have a short term drop in spending.

It's as though we have been drunk for the last 15 years and are now having the hangover. We can grin and bear it, or we can try to drink our way through it. Trouble is, if we try to drink our way through it, we end up with an even bigger headache with less time to fix the fundamental problem. The fundamental problem is the reckless drinking, not the hangover.

astrofool

money in the bank won't rebuild the economy, investing in education and encouraging sustainable business to set up here will.

johnnyskeleton

astrofool wrote: »

money in the bank won't rebuild the economy, investing in education and encouraging sustainable business to set up here will.

Where do you think the money to invest in education & encourage sustainable business comes from?

People put money in the banks on deposit, which is subsequently loaned out to businesses which is used to create jobs for people who put more money on deposit etc. All the while tax is paid on all of this. Without bank deposits the banks won't lend, if the banks won't lend it becomes harder for start up businesses to get finance (but not impossible). Essentially, the money in an economy is divided between consumption and saving/investment. Without savings/investments the economy crumbles. But it seems we are to be discouraged to save, there is nothing worth investing in (nothing productive in any event) and instead spend more than we have on luxuries.

Eglinton

I've been glancing every now and then at MyHome and daft. There are plenty of houses and apartments that I like the look of but they're still being advertised at ridiculous prices. I'm mostly looking at Dublin 2, 4, 6, 14 and 18. I never want to commute long distance so I'm willing to stretch the budget a good bit but not a crazy amount.

Example - A good sized 2 bed apartment in Ranelagh advertised at 475K. Some say that prices will drop 20%. If they do, this becomes a much more reasonable 380K. Still a lot but not for the area.

Do you think this sort of place will drop 20% in say, the next year?

There's another place I've been looking at in Dublin 6 - A 2 bed apartment next to the Luas. It's been on the websites now for at least 8 months. Price hasn't shifted at all - 445K

Within the same block there's a 1 bed on the market for a year or so. It was 400K. It's now 300K

I'd never consider a one bed but it might be a indication of what's going to happen the 2 beds. Fingers crossed.

trellheim

get the property bee add-on and do a daft search for all 2-bed apartments in D6

that will tell you the true story so far.

Eglinton

trellheim wrote: »

get the property bee add-on and do a daft search for all 2-bed apartments in D6

that will tell you the true story so far.

That looks pretty impressive. I'll give it a shot later on. Thanks.

spockety

Another thing to remember is that apartments built in the last 4/5 years probably can't come down much, because their owners can't take the equity hit.

They will just stay on the market at inflated prices forever, or be withdrawn.

faceman

spockety wrote: »

Another thing to remember is that apartments built in the last 4/5 years probably can't come down much, because their owners can't take the equity hit.

They will just stay on the market at inflated prices forever, or be withdrawn.

Thats true, very few people will be willing to sell at a loss.

Eglinton

Quite true. Although something has to give I'd say. The developers are a bit screwed either way. Sell at a loss or don't sell at all. A few will cut their losses. I wouldn't dream of buying something built in the last few years though. Too small and shocking quality.

johnnyskeleton

Eglinton wrote: »

Example - A good sized 2 bed apartment in Ranelagh advertised at 475K. Some say that prices will drop 20%. If they do, this becomes a much more reasonable 380K. Still a lot but not for the area.

Do you think this sort of place will drop 20% in say, the next year?

You can get 2 beds in the city centre advertised for c. €300k (so you could probably get a bit more knocked off that). While Ranelagh is a nice area, there is no reason for an apartment there to be more expensive than the city centre (even if the city centre location isn't the best). Therefore I think €475k is way too much for a 2 bed in Ranelagh.

I think 2 beds across the city will level out between 150k and 250k. 150k for the bog standard ones (no one will buy the poorly built cramped ones in far out suburbs), 200k for a decent one, and 250k for a really top class apartment in the city centre. Therefore, no matter how nice the Ranelagh apartment is, I wouldn't pay more than 200k for it.

However, this is just my personal opinion, and you should make up your own mind. What I will say though is that you should base your decision on your personal circumstances and historically accepted measurements of how much you should pay rather than x% off 2006 prices.

Eglinton

johnnyskeleton wrote: »

You can get 2 beds in the city centre advertised for c. €300k (so you could probably get a bit more knocked off that). While Ranelagh is a nice area, there is no reason for an apartment there to be more expensive than the city centre (even if the city centre location isn't the best). Therefore I think €475k is way too much for a 2 bed in Ranelagh.

I think 2 beds across the city will level out between 150k and 250k. 150k for the bog standard ones (no one will buy the poorly built cramped ones in far out suburbs), 200k for a decent one, and 250k for a really top class apartment in the city centre. Therefore, no matter how nice the Ranelagh apartment is, I wouldn't pay more than 200k for it.

However, this is just my personal opinion, and you should make up your own mind. What I will say though is that you should base your decision on your personal circumstances and historically accepted measurements of how much you should pay rather than x% off 2006 prices.

Amen to that. It would be fantastic if they reduced that much. The day will come, very soon I should think, that Auctioneers will just have to bite the bullet and reduce. Apartments are not worth anything like a house and they've got to revise the prices accordingly.

You're definitely right. There's no particular reason that Ranelagh should be much more than anywhere else in the city. 250K would be a fair price for a great apartment in the city. That's 5 times a very decent salary - which is proper order.

ntlbell

at the end of the day you're not going to lose any money by waiting...

keep saving increase your initial deposit and your time will come..

ntlbell

Eglinton wrote: »

250K would be a fair price for a great apartment in the city. That's 5 times a very decent salary - which is proper order.

which is 8 times the average salary which is still too high

Eglinton

True enough. But that would only be for a very decent apartment. And the city centre would always have a bit of a premium

Blackjack

Eglinton wrote: »

Some say that prices will drop 20%. If they do, this becomes a much more reasonable 380K. Still a lot but not for the area.

Asking prices are unlikely to reduce as much as Selling prices.
If you're genuinely interested, why don't you offer 20% less than the asking. All they can do is say no.

gamer

theres a premium for southside residence,ie you can easily get a 1bed apartment for 250k near thomas st, ie you pay extra for ranelagh ,rathmines ,rathgar etc its your business if you want to pay 450k to live in rathmines,working class areas on the southside are cheaper ,old saying location /location,is there a parking space with that? theres plenty of apartments on the northside too,eg standard house is like 150k more if its on the southside ,on average .I understand there is some dodgey areas on the southside too ,and theres posh areas on the northside.you could probably buy a a 2/3bed older house in the city center for 270/300k with 2 parking spaces outside,no service charges ,rent out 1 room 100euro per week ,rent a room scheme.I cant understand some1 paying 450k for a 1bed apartment in rathmines ,with plus 1000 service charges.

EKRIUQ

ntlbell wrote: »

which is 8 times the average salary which is still too high

Husbands average salary €30,000, Wives average salary €30,000

Total salary €60,000 still attainable for most

SimpleSam06

faceman wrote: »

Thats true, very few people will be willing to sell at a loss.

They'll sell at a loss now or when they have the mortgage plus interest paid off, probably for lower than current prices. Or they can hang on to it permanently and try to cover their expenses, inflation adjsuted, for the next five or so decades. Its a lose-lose.

EKRIUQ wrote: »

Husbands average salary €30,000, Wives average salary €30,000

Total salary €60,000 still attainable for most

Have you got any figures for the number of the workforce that are a) married, b) both individuals in the marraige earn median or greater wage, and c) are unencumbered by outstanding debt? If not, the listed average is the one we'll be using for a rule of thumb, thanks. Although I've come to prefer multiples of rental rates for the area myself.

gurramok

And the old reliable, couples who are settling down with ba-ba's on the way would be lunatic to buy an Irish apt.

Why?

Irish apts are not designed for families, they are designed for singletons hence its best practice to price apts on a singletons wage.