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Housing Bubble Bursting
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wow...just did the calc for the first time ever....OMG......!!!??!?!?!
Irish average wage is 32k.
Average house price is 258k.
http://www.finfacts.com/biz10/irelandhouseprices.htm
They're still almost TWICE the long term trend (4x earnings or there abouts compared to the current 8 times earnings....8!!!) even at this level!!!
This bubble must have been the biggest housing bubble in the history of the world....EVER...worse then Japan in late 80s...and in Japan they're still down 60% from the peak 20 years later in housing and 80% in stocks!
Bottom is still 2.75 x earnings...or about 88k euros for an average house, which is a 65% haircut FROM HERE.....
I never knew it was that bad...
People better start praying they turn the printing presses on...which I think they will...eventually.0 -
Prove it.
Show us your research then.
And make sure its average household income and not average income for one person.
Lol, do your own research...it will help you a lot. And you don't use household income for this calc as a standard. Different metrics apply to single and joint incomes for mortgage purposes in most places in the world.0 -
see attached for trend lines....all be it a bit squiggly to see how property prices undershoot the trend in a bust after overshooting in a boom.
Probably wont happen here though...right? Irelands a special case.
Somehwhere under 100k in Irelands case looks about right for the average house price...if it undershoots the long term trend in the usual way.0 -
Join Date:Posts: 30620
Explain it to us then genius.
Why dont you tell us all how much it will cost to service a loan to buy a €100k property if interest rates go up? How much would you like them to go up for your example?
And take into account mortgage interest relief while you're at it.
Or what about this.
Think about how much a couple would get on the dole between them. And then tell us what a stupid idea it is that a couple on the dole can afford the payments on a property close to the city center.
Knock yourself out.
Bobbbbb - consider yourself on a warning for personal abuse.
If you disagree with what someone says- refute the post, without attacking the poster. Regards, SMcCarrick0 -
wow...just did the calc for the first time ever....OMG......!!!??!?!?!
Irish average wage is 32k.
Average house price is 258k.
http://www.finfacts.com/biz10/irelandhouseprices.htm
They're still almost TWICE the long term trend (4x earnings or there abouts compared to the current 8 times earnings....8!!!) even at this level!!!
This bubble must have been the biggest housing bubble in the history of the world....EVER...worse then Japan in late 80s...and in Japan they're still down 60% from the peak 20 years later in housing and 80% in stocks!
Bottom is still 2.75 x earnings...or about 88k euros for an average house, which is a 65% haircut FROM HERE.....
I never knew it was that bad...
People better start praying they turn the printing presses on...which I think they will...eventually.
Listen to yourself. Now you are saying an average house is going to be 88k. Mortgage €80k. if only.0 -
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smccarrick wrote: »Bobbbbb - consider yourself on a warning for personal abuse.
If you disagree with what someone says- refute the post, without attacking the poster. Regards, SMcCarrick
Where did i attack the poster?
Sorry, i forgot this is the "only stupid unrealistic posts as long as they agree with the mods allowed" thread.
No dose of cop on allowed at all. 88k for an average house. Please dont tell me that you dont think thats a stupid post too.0 -
88,000 for an average house wouldn't be bad at all but I expect 190K will be about average for an average house. For a 1 bedroomed apartment, on the other hand, 88K is more than enough, particularly given the lack of services in this city.
You seem to be of the opinion that because prices have gone high, they cannot go very low. This is misguided at best and dangerous at worst.
The truth is for 5 years up to 2006, people were paying far too much for property. The disconnect between average salary growth and average house price growth is an indicator of this. You could argue it off by talking about second incomes, but the truth is families need to be able to survive on one, in case of children, for example, or creche fees or caring for elderly relatives amongst all those.
It is not sustainable to have property prices at around 10 times average income. It only works at historically low interest rates and for those to continue we need an economic crisis to continue. With an economic crisis, however, uncertainty means fewer people are likely to take out huge loans that they are not sure of being able to repay particularly in a society where repossession proceedings are increasing.
Buying a house is always hard; this much is true. But it gets easier if you have a reasonable principle compared to your income. Over time, it gets eaten away. The time required for that to happen when your initial cost is comparatively higher (eg 8 times a salary rather than 3) is longer.
The Irish property market has only been sustained since about 2004 by 1) increased mortgage terms, sold with the "you can always remortgage line" 2) increased salary multiples and 3) monumental sacrifices in terms of time/commuting time on the parts of those buying into it.
We have run out of people to buy into it.0 -
88,000 for an average house wouldn't be bad at all but I expect 190K will be about average for an average house. For a 1 bedroomed apartment, on the other hand, 88K is more than enough, particularly given the lack of services in this city.
You seem to be of the opinion that because prices have gone high, they cannot go very low. This is misguided at best and dangerous at worst.
The truth is for 5 years up to 2006, people were paying far too much for property. The disconnect between average salary growth and average house price growth is an indicator of this. You could argue it off by talking about second incomes, but the truth is families need to be able to survive on one, in case of children, for example, or creche fees or caring for elderly relatives amongst all those.
It is not sustainable to have property prices at around 10 times average income. It only works at historically low interest rates and for those to continue we need an economic crisis to continue. With an economic crisis, however, uncertainty means fewer people are likely to take out huge loans that they are not sure of being able to repay particularly in a society where repossession proceedings are increasing.
Buying a house is always hard; this much is true. But it gets easier if you have a reasonable principle compared to your income. Over time, it gets eaten away. The time required for that to happen when your initial cost is comparatively higher (eg 8 times a salary rather than 3) is longer.
The Irish property market has only been sustained since about 2004 by 1) increased mortgage terms, sold with the "you can always remortgage line" 2) increased salary multiples and 3) monumental sacrifices in terms of time/commuting time on the parts of those buying into it.
We have run out of people to buy into it.
So a couple, both working full-time earning minimum wage can pay less than 1 weeks salary to buy a 1 bed apartment then?
Do you not see how unrealistic that price is?
Im all for prices coming down. But people, there is a floor as well as a ceiling.0 -
The question I would ask is why not? Why can't a couple earning the average salary pay less than a quarter of that on a one bedroomed apartment? Why should they have to impoverish themselves by coughing up up to 35% of their disposable income on accommodation which will not last then 5 years if they want to have children.
And we need them to have children to plug some of the pension gaps. Ultimately, a population which is predominantly aging is screwed as well. This is a key problem for Japan and a looming problem for most of Europe.
I think it should be feasible for someone on a starter salary to afford a starter home on their own. Fine if you want to work really hard to get a house, but a one bedroomed apartment at 5 or 6 times the average salary just isn't sensible for society, particularly given the one bedroomed apartments we have built. They are too small.
Yes there is a floor. But there's no magic number at which things stop. They will stop when they reach a sustainable level and that level is not one at which the average person has to be impoverished by buying a one bedroomed apartment. I don't think we are there yet.0 -
@Calina....190k is way above trend...WAY above....it almost 6 x earnings...at a time when employment is collapsing.
Ireland isnt a special snowflake Im afraid.
Im not 100% sure of the exact figure, but even 35% of income for housing is a huge amount. I think around 15-20% is trend.0 -
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No dose of cop on allowed at all. 88k for an average house. Please dont tell me that you dont think thats a stupid post too.
Its only stupid in terms of expectations and Euros from your point of view. From an earnings point of view, its not silly at all....its typical during a bust...and I've given you proof of sorts using historical references. What part of the stats don't you agree with specifically?
Please dont say 88k....think of earnings. Why is 2.75 out of whack after a huge bubble? Its happened plenty of times in plenty of places after huge bubbles.0 -
So a couple, both working full-time earning minimum wage can pay less than 1 weeks salary to buy a 1 bed apartment then?
Do you not see how unrealistic that price is?
Im all for prices coming down. But people, there is a floor as well as a ceiling.
While it may seem ridiculous, if prices go that low will the banks lend to people on the minimum wage? You might need a bullet proof job and a decent salary to get mortgage approval.0 -
Any responsible* lender will take into account the fact that interest rates will increase considerably at some in the not too distant future and will also need to remember that inflation may not erode the effects of the repayments like it has done in the past.
It will go back to how it used to be, average income earners will buy average houses, higher earners will get better (more expensive) houses, low/minimum wage earners will only be able to rent!
Perople won't be allowed to "max out" their mortgages any more, but they will still seek out the best house their funds will allow them.
The days of people needing 8x income to buy a poky little shoebox miles from anywhere, hopefully are gone forever.
*But Ireland is different!0 -
@Sarn
No one on minimum wage will be able to borrow salary 4.7 x salary of 18.7k euros for an 88k house...
9 euros per hour, 40 hours a week for 52 weeks a year is 18.7k. Taking real pay rates and holidays in, min wage is likely to be closer to 9 x 35 x 47 which is 14.8k. Thats 5.94 x salary for an average house....a bit closer to the reality. (How do people live on that?)
They wont be able to afford average houses at 88k. They will be living in one bedroom flats at 55-60kk. National averages we're talking about here.
In the UK, they're legislating the bottom of the property market in effect.
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/4995778/FSA-to-cap-mortgage-borrowing.html
3 times salary max....BY LAW. So unless everyone puts down a 50% deposit, 6 times salary house prices are a wishful dream for current homeowners.
2.75 x income isn't far fetched IN ANY WAY during a huge bust.0 -
This discussion re a 100K apartment started with references to a city centre apartment. Do people really expect that it will be possible to get an apartment within easy walking distance of the city centre for 100K ? Perhaps fair enough in Blancharadstown or in Lucan but no way city centre. If we do see 100K 1 bed apartments in the city centre, then what price for a 2 bed apartment in say Roscommon ....... 25K ???
AIB offering 10 year fixed mortgages at 4.65% would seem to fly in the face of that. Presuming you have fixed yours for as long as possible so ?The 500 euros a month for todays mortgage could easily be 2000 to 3000 a month if this pans out the way I think it will...but Ive been wrong before, though rarely on stuf flike this.
Some people seem to be hoping that interest rates go double digit. I reckon this would bankrupt a very high percentage of the owners of rented properties in this country .... unless rents sky rocketed as well ..... and can't see rents increasing by 2 to 3 fold in the short to medium term either.0 -
This discussion re a 100K apartment started with references to a city centre apartment. Do people really expect that it will be possible to get an apartment within easy walking distance of the city centre for 100K ? Perhaps fair enough in Blancharadstown or in Lucan but no way city centre. If we do see 100K 1 bed apartments in the city centre, then what price for a 2 bed apartment in say Roscommon ....... 25K ???
AIB offering 10 year fixed mortgages at 4.65% would seem to fly in the face of that. Presuming you have fixed yours for as long as possible so ?
Some people seem to be hoping that interest rates go double digit. I reckon this would bankrupt a very high percentage of the owners of rented properties in this country .... unless rents sky rocketed as well ..... and can't see rents increasing by 2 to 3 fold in the short to medium term either.
There isnt necessarily a contradiction here. AIB are lending based on their current financial position, not their future position. These tranches of mortgages for specific deals are sometimes secured in advance at fixed long term rates in wholesale markets, then retailed to Joe Public.
In your example, rents cant go up to that degree unless wages do. The people bankrupted will be landlords who cant finance the debt. They can try and put rents up to compensate, but the market will chastise them if they are too greedy. If wages dont rise, then they are limited in their scope to pump rents.
The ultimate constraint of local prices is local wages over the long term...that and the availablilty and cost of mortgages in the medium term.
Discussing how many euros it costs for a house is pretty silly at any time for any knowledgable investor. Its a bit like saying Company Y shares are cheap at $300 a share becuase they were once $700...its the debate of dumb money. $300 a share isnt cheap if its got a PE ration of a million and flat growth prospects, regardless of what the previous price was.
Just look at financial stocks. Many have lost 100% of their value. Were they cheap when they lost 99% of their value? No, becuase buying them still meant you lost 100% of your investment when they fell that last 1% as they went busto. Previous blue chip, household names that couldnt possibly fail. Ofcourse, the brokers were busy shovelling these share to dumb money..as usual.
Due to completely skewed expectations of house prices in Euro terms now, (OMG it can never go to X euros...forget PE ratios and historical trends....X Euros is completely impossible!) its dangerous to measure house in Euros and not use long term trends and wage multiples. They are teh PE ratios of house prices....the ultimate arbitrers of its intrinsic value...not some X euros fantasy land calc.
Using Euros as a measure is just plain dumb...and is only used by dumb money. Smart investors know better.
EDIT: I sold my house in Nov 2005 after I bought it in 1997 for £45 down, fees included, with one of the first 100% deals around in that cycle. Stocked up on gold then. I now rent a beautiful pad for 600 euros a month and expect to continue to do so for at least another 3 to 4 years. My landlord is bleeding from the eyeballs.0 -
This discussion re a 100K apartment started with references to a city centre apartment. Do people really expect that it will be possible to get an apartment within easy walking distance of the city centre for 100K ? Perhaps fair enough in Blancharadstown or in Lucan but no way city centre. If we do see 100K 1 bed apartments in the city centre, then what price for a 2 bed apartment in say Roscommon ....... 25K ???
Why not?
1bed apts are for single people. There are already 1beds going for under 200k around Mountjoy Square/Parnell St areas.
These were 300k in 2006, they were 150k in 2003 and cheaper beforehand. If someone told you in 2003 that house/apt prices would double in 3 yrs time, you'd laugh!0 -
100k city center apartments were a realityin 2000.
they could be again, but listen ireland is on a knife edge. If things go bad for Ireland it wont be the case the the average Joe will swoop in an buy the place because he can get 4.5% for 10 years.
To get to that situation banks will stop lending to most people and most people will not have jobs.
You could get a 3 bed house in a nice southside suburb like dundrum in 1988 for less than 50k. Why were people not swooping in and buying 10 at a time. That economic situation is most likely to return, although most people will not have to sell at that level.
The average Joe will not have a Job, we are talking Intel, Ebay, Apple, IBM what if they all shifted to eastern europe. Think they like Ireland because of the weather!
And dont talk about education, that means nothing. Given the fiasco at queens in belfast and not to mention the idiot guards trying to catch a polish fellow called drivers license. The Irish are the laughing stock, and while lobbists can point to league tables for high school the irish are hardly the leaders in the global economic spectrum
I wouldnt buy a place anywhere in Dublin now, it is guaranteed to loose money.
Best bet, buy in poland, learn the language and head there. Eastern europe is set to be the next tiger economy once the recession ends in the US at the end of this year.
The Irish economy could be OK but again its boom was based on housing (at least since 01/02) and that is never to return. So something needs to replace it, with Ireland rejecting Lisbon like the spoilt child of europe do you think any sympathy is forth coming.0 -
http://www.irishtimes.com/newspaper/property/2009/0319/1224243064310.htmlFLAMBOYANT PROPERTY developer Donal Caulfield, who admitted to The Irish Times recently that he is now working for the bank rather than for himself, is the latest homeowner who has had to rent out his house rather than sell it.
There were no takers for the five-bedroom house at €2.75 million, despite its prime location and lavish makeover that includes a Chalon kitchen and ritzy bedrooms dressed with a snakeskin effect wallpaper.
The house has since been let, for upwards of €3,000 a month, which may be some small comfort to Caulfield who now spends a good deal of time in Ibiza.
As pointed out on the Property Pin, not even a 1% yield on the rent. For a decent yield, he should be getting €15,000 a month!
P.0 -
100k city center apartments were a realityin 2000.
they could be again, but listen ireland is on a knife edge. If things go bad for Ireland it wont be the case the the average Joe will swoop in an buy the place because he can get 4.5% for 10 years.
To get to that situation banks will stop lending to most people and most people will not have jobs.
You could get a 3 bed house in a nice southside suburb like dundrum in 1988 for less than 50k. Why were people not swooping in and buying 10 at a time. That economic situation is most likely to return, although most people will not have to sell at that level.
The average Joe will not have a Job, we are talking Intel, Ebay, Apple, IBM what if they all shifted to eastern europe. Think they like Ireland because of the weather!
And dont talk about education, that means nothing. Given the fiasco at queens in belfast and not to mention the idiot guards trying to catch a polish fellow called drivers license. The Irish are the laughing stock, and while lobbists can point to league tables for high school the irish are hardly the leaders in the global economic spectrum
I wouldnt buy a place anywhere in Dublin now, it is guaranteed to loose money.
Best bet, buy in poland, learn the language and head there. Eastern europe is set to be the next tiger economy once the recession ends in the US at the end of this year.
The Irish economy could be OK but again its boom was based on housing (at least since 01/02) and that is never to return. So something needs to replace it, with Ireland rejecting Lisbon like the spoilt child of europe do you think any sympathy is forth coming.
Bobbb's not so cleverly disguised back up account? :rolleyes:0 -
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http://www.irishtimes.com/newspaper/property/2009/0319/1224243064310.html
As pointed out on the Property Pin, not even a 1% yield on the rent. For a decent yield, he should be getting €15,000 a month!
P.
You know what I love about this example...what exactly is the purchase of a property anyway? The rationale given by most people is that you buy a house as somewhere to live so that someday you can stop paying a mortgage. I cant stand property as an investment. You're tied to it, its hard to sell, costs a fortune to keep running and pays you nothing while draining your income and only grows at a similar pace to earnings over the long haul. Everyone says..." Oh, you can gear property investment". So what...show me an investment you cant gear? I know if you have kids and a job that you cant do from a laptop somewhere sunny, the arguments change. Im a global gypsy though, working from my computer...
Give me the speed of cash and stock or commodities any day.
If you can find a top quality stock at these battered down prices yeilding 10%, you only need the income from a capital sum of 360k to live in a house like this, essentially free.
And this guy wants me to swap my (imaginary) 2.75m euros for it? What planet is he on? I'd rather keep @2.4m, invest 360k at 10% and rent it with the income from @15% of the purchase price and put the rest of the cash to work in something that goes UP in value while his continually goes down.
Property at these levels when Japanese stocks are at 1982 levels....LOL.0 -
I am not bobbb as someone sugested. I dont think property will stay at its current levels.
Ireland isint in the same boat as other countries as it never had a recession before. I had a very bad economy until the 90s.
The last 20 years are the exception for Ireland, not the norm, so its back to the 80s. High unemployment, very high taxes to pay for it all, and prices on property are going to nose dive.
There are no models, historical or economical for where the Irish economy is right now.
But, look at it this way, massively dependent on credit, totaly dependent on american investment that is now getting lured away to eastern europe, (and dont think for a second that Intel, IBM, EBAY etc are not considering options behind the scenes), a huge building industry that has now vanished and is likely never to come back.
And of course europe was a little sore about the lisbon treaty.
Then we have the Irish moaning about people taking their jobs, I hate to point it out but they were never Irish jobs, they were american jobs.0 -
I am not bobbb as someone sugested. I dont think property will stay at its current levels.
Neither do i. It has room to fall still.
I was just pointing out how daft some peoples expectations are on here. The pendulum has swung the other way. Unrealistic expectations of increasing prices have given way to unrealistic expectations of price drops.0 -
Its very hard to tell how hard Ireland will fall. If the banks are stabalized that is one thing but you still have a dead building industry that is very unlikely to be revived.
Foolish people bought rental properties and liked to brag about it to friends. I do admit some jumped ship and made some money but thats the only way to really do it.
Regardless of the American and mainland european economies what people need to realise is that this was going to happen to ireland regardless.
My opinion is that if the market crashes as it could then people will not be able to buy houses. Let me say it again, for a house that is worth say 350k to drop in value to 100k then YOU will not be able to buy it.
Because for that to happen we need 20% unemployment, we need 60% tax rates, we need an abolition of interest relief. All equity in established homes would be gone and banks would not lend on that basis.
So the fellow who is making 2,000 euro a month and thinking he would swoop in a buy said property for 100k needs to realise.
He will be taking home 700 euro a month, but most likely he will not have a job at all and will be on the dole.
The people who couldnt afford a house over the last 7 year are the lowest rung on the economic ladder and they are the ones who will fare worst as this goes on.
So If you couldnt afford 400k in the boom there is no way you are going to be able to get 100k in a recession.0 -
Historically, the people at the bottom of the income ladder have never been able to afford to buy a house.
It's lower income earners who are sometimes able to afford to buy that make the difference as these are typically the largest group (by population) of potential buyers.
A relativly small drop in price (large drop in price if stringent earmings/mortgage ratios are enforced) will open the market to a much larger section of the population.0 -
90,000 US jobs in Ireland ..... but then again there are 80,000 jobs Irish jobs in the US.I hate to point it out but they were never Irish jobs, they were american jobs.My opinion is that if the market crashes as it could then people will not be able to buy houses. Let me say it again, for a house that is worth say 350k to drop in value to 100k then YOU will not be able to buy it.
Because for that to happen we need 20% unemployment, we need 60% tax rates, we need an abolition of interest relief. All equity in established homes would be gone and banks would not lend on that basis.
I'm not sure if you are proposing this as a likely scenario or what..... but the one thing that would bankrupt this country in double quick time is abolition of interest relief which is nothing but a business expense that is tax deductable in all other businesses imho. In any case, if this came to pass (and yes, i admit, it would hurt me), what would stop landlords creating a company, transferring their properties into this company and pay standard corporation tax rates on any profits ?0 -
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Stamp Duty on the transfer of ownership?
I guess, although for any landlord with high loan to value it would nearly pay off in a few years if he is having to pay 42% of all rent in tax instead of 12.5% ..... particularly given that the current valuation would probably drop it down to lower percentage stamp duty rates.
Other question is would they still keep the savage stamp duty rates we have along with the almost enevitable property tax ?
What about landlords transfering the properties into one of his kids names ? Exempt from stamp duty ?
I better not highlight all the ideas i am thinking off in case they are all closed off as options :P0 -
Neither do i. It has room to fall still.
I was just pointing out how daft some peoples expectations are on here. The pendulum has swung the other way. Unrealistic expectations of increasing prices have given way to unrealistic expectations of price drops.
In what way are they unrealistic relative to wages and historical trends?
The only way they are unrealistic in your mind is that a house worth 4 or 5x euros can never go back to X euros...for some reason that is unrealistic but for which you have yet to explain the rationale in a meaningful way, non "dumb money" way.0 -
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So the fellow who is making 2,000 euro a month and thinking he would swoop in a buy said property for 100k needs to realise.
.
Here are a few scenarios that would stop him from owning that house...- If they make a law here the same as a recently proposed UK law that banks cant lend more than 3x income, the job is done. 24k x 3 equals 72K. He would need to save 14 months income to get the house.
- If his take home pay was ravaged by taxation and he was only taking home 1000 euros a month, he couldnt afford the repayments.
- If interest rates went to 10%, he would have to fork a huge chunk of his income in this scenario and might think renting was a better idea.
- If credit conditions were tight and he was in a precarious occupation that banks didn't like or if he had any blemishes on his credit record.
The days of money for everyone with a pulse are gone and never coming back.0
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