Housing Bubble Bursting

Rew - what should be "a bloody big issue" is the actual house price.

For a First time buyer to have to pay 11,300 euros in stamp duty means the property would be costing somewhere in the region of 376,700 Euros. Now we must compare ourselves with other European countries as it is European interest rates we pay. What will that much money buy you in Europe? How does it compare with what you were going to buy.

Take it a step further and compare it with the United States property? Thats alot of dollars....and we must compare ourselves because its US companies that are providing us with a lot of jobs outside the construction industry.

uberwolf

uberwolf wrote:

where are these properties? - I presume a long way from the Quays in Dublin. Are we then dealing with more than one property market? Within the Canals in Dublin, within the M50 in Dublin, within the Dublin commuter belt? and repeat on smaller scale for all urban centers?

Yes a long way from Dublin!! I would interpret from that ESRI report that the majority of people who bought in the past few years are commuting. This would coincide with the Census figures which show that the population in Ireland has decreased in its cities but increased in the countryside.
Essentially people have been pushed en masse away. I would hazard a guess that the reason is because property is cheaper away from the trade centers in this country.

Zambia

Rew wrote:

Im a FTB and I was about to €11,300 in stamp duty till I backed out of the sale yesterday. Its a bloody big issue for me FACT!

Was it pure stamp duty alone that made you pull out ?

Zambia232

Zambia232 wrote:

Was it pure stamp duty alone that made you pull out ?

http://www.boards.ie/vbulletin/showpost.php?p=53142725&postcount=1549

Ill be closing a 3 bed semi-d in maynooth for 381k shortly and my nerves are shot trying to decide should I pull out... Its a good house in a good location, big garden, very close to the train for comuting but I just dont know if its enough...

I have 2 main worries a) would I get it cheaper down the road b) will i pay 11,300 to the tax man as a FTB only to have stamp duty scraped a few weeks later...

Zambia

Deleted User wrote:

http://www.boards.ie/vbulletin/showpost.php?p=53142725&postcount=1549

God bless your memory ?

So what was the clincher Rew , or was it both in equal doses?

Rew

Zambia232 wrote:

Was it pure stamp duty alone that made you pull out ?

No, we looked at houses we had considered and they were down 15-20k on the asking so i thought we were over paying.

In saying that I cannt afford to throw 11k in the drain so it was a major factor. The Estate Agent offered to lets stay sale agreed to after the election but there was no budge on price.

The house was alot nicer then any of the links that went up here but by no means unique. Iv notced afew 4 beds near by were 390k and we were going to go 389k (8k for fixtures and fittings to avoide 6% stamp).

Rew - the interest rates are going to go up again. Those properties are going to have to come down in price again. Remember its a buyers market now and you need not rush into anything. Your a first time buyer - you are in the best position

miju

ixoy wrote:

I'm curious - do people expect to be able to buy a bigger property by waiting or the same?

put it this is you own a house worth €400,000 and want to trade up to a house worth €600k a 50% drop across the boards (again for example) means instead of costing you €200,000 to trade up it will cost you just €100,000 , now when you factor in the interest element of that extra 100,000 you could have had to pay thats a hell of alot

Zambia

Rew wrote:

No, we looked at houses we had considered and they were down 15-20k on the asking so i thought we were over paying.

In saying that I cannt afford to throw 11k in the drain so it was a major factor. The Estate Agent offered to lets stay sale agreed to after the election but there was no budge on price.

The house was alot nicer then any of the links that went up here but by no means unique. Iv notced afew 4 beds near by were 390k and we were going to go 389k (8k for fixtures and fittings to avoide 6% stamp).

Good decision. If prices where still falling this time next year would you still proceed with the purchase if stamp was bumped to 450k? for FTB's

I mean if you knew waiting a months saved you 5k ?

Afuera

uberwolf wrote:

do you really believe any reasonably located property is going to nearly half in price in any crash?

Sounds logical enough considering the huge oversupply out there. The rate of new properties being built has exceeded the population increase for many years now. If properties in badly located areas are a fraction of the price of well located ones, it'll exert downward pressure on the better located ones.

uberwolf wrote:

Anyone who has taken out a 35 year mortgage is not going to still be paying it back in 34 years time, even increasing payments by 3% p.a. will see you out of there 10 years earlier.

Interesting why you'd pick 3% as this is about 50% higher than the ECB's target for inflation. Regardless of the fact that it might not be so easy to keep jacking up your payments like this year on year, it only takes a couple percentage point increases in the interest rates to wipe out the advantage of doing this fairly quickly.

Rew

Zambia232 wrote:

Good decision. If prices where still falling this time next year would you still proceed with the purchase if stamp was bumped to 450k? for FTB's

I mean if you knew waiting a months saved you 5k ?

I need somewhere to live one way or another so at some point I have to jump in. September would be ideal for my girlfriend and my self so we will be keeping a very close eny on it all and saving cash between now and then at least.

We have a letter of offer from the bank and 40k+ in the account so if and when things hit the right point we will move fast. When that point is I really have no clue, if we have to rent then we will rent but im happy that were not throwing away 30k or more by being impatient.

Rew

Rew wrote:

We have a letter of offer from the bank

By this do you mean mortgage approval? I presume so.

The bank can change its mind about this if interest rates rise. Are you aware that people have gone and put down deposits on houses only to realise that since interest rates rose the bank wont give them the same mortgage approval?
Find out from your potential lender what their position is on this on this.

Duckjob

Deleted User wrote:

By this do you mean mortgage approval? I presume so.

The bank can change its mind about this if interest rates rise. Are you aware that people have gone and put down deposits on houses only to realise that since interest rates rose the bank wont give them the same mortgage approval?
Find out from your potential lender what their position is on this on this.

The letter of offer / loan approval is valid for a given period of time, used to be around 6 months, but might be less now.

Within that time period, the bank have to honor it or they run the risk being sued for lost deposits in situations such as you described.

Rew

Deleted User wrote:

By this do you mean mortgage approval? I presume so.

The bank can change its mind about this if interest rates rise. Are you aware that people have gone and put down deposits on houses only to realise that since interest rates rose the bank wont give them the same mortgage approval?
Find out from your potential lender what their position is on this on this.

Dont worry bank manager is a friend so iv gone through it with her and I wont be dropping a deposit without a fresh letter of offer anyway. Cheers for the info I can see how people would do that alright and be in real trouble.

calsatron

"Mortgage Approval in Principle" is just that, in principle.

Basically the bank is just saying if the facts are as you presented them to us and certain variables remain the same we will be willing to lend you X amount of money.

It is no way binding to the bank, think about it logically, are you suggesting that if you lose your job while you have an "in principal" approval the bank is legally obliged to proceed with the loan? Of course not.

Chipboard

calsatron wrote:

"Mortgage Approval in Principle" is just that, in principle.

Basically the bank is just saying if the facts are as you presented them to us and certain variables remain the same we will be willing to lend you X amount of money.

It is no way binding to the bank, think about it logically, are you suggesting that if you lose your job while you have an "in principal" approval the bank is legally obliged to proceed with the loan? Of course not.

Approval in principal is nothing more than an indication that if all the other pieces stack up, you could possibly be granted a mortgage of X amount. Even if there was no change in your circumstances it is not binding on the bank.

If you have an offer letter (as this guy has) then this is not approval in principal it is an offer of facilities and is binding on the bank unless there is a material adverse change in your circumstances. The offer could be withdrawn if you lose your job obviously but if you have a skill which is in demand it wouldn't be an issue as you could obtain a position with even better terms and conditions. The offer cannot be withdrawn because of an increase in interest rates, as long as you accept the offer within the time allowed which is usually stated on the covering letter and in the acceptance page in the offer letter. The bank allow for a 2% increase in rates when they are assessing your application anyway, but even if rates increased by 3% they cant retract the offer if you accept it in time.

uberwolf

Afuera wrote:

Sounds logical enough considering the huge oversupply out there. The rate of new properties being built has exceeded the population increase for many years now. If properties in badly located areas are a fraction of the price of well located ones, it'll exert downward pressure on the better located ones.

Well as I explicitly described in my post there are several 'zones'. Like men, no zone is an island, and activities in one area will have knock on effects.

Badly located properties have always been a fraction of the cost of better located properties, and there would not be a like for like movement in prices. A correlation exists certainly, but it's not one for one.

Some of the earliest posts in this thread refer to yields, and rightly so IMO. It's a reasonable way of comparing asset classes. It is well documented that the pause in property prices has coincided with rental increases. Which have been met by renters, as remaining in employment requires a home! And renters will pay just about as much as a mortgage would cost them.

In locations where a rental market remains strong, and yields remain moderate (and such places exist!) then the prices of the property will hold up far better than a s-23 property in Carrick On Shannon.

Afuera wrote:

Interesting why you'd pick 3% as this is about 50% higher than the ECB's target for inflation. Regardless of the fact that it might not be so easy to keep jacking up your payments like this year on year, it only takes a couple percentage point increases in the interest rates to wipe out the advantage of doing this fairly quickly.

I chose 3% because that was what was in an example I was reading. Most young people would have an expectation of pay rises ahead of inflation as their skills and experience are translated into real pay increases.

Do-more

I'd just like to say, "Fair play to ya" Rew. For all the indications of a slump in property prices, I'd have to say that the vested interests have been putting up a very good fight in supporting the market and it can't have been easy, with your emotions being pulled this way and that. I certainly wouldn't like to be in a position where I had to make that decision at present.

Emotionally it may get even tougher for you as I expect that there could well be a "dead cat bounce" in the market, once the election is over. You just have to hold your nerve and realise that supply far outstrips demand at present and even if there is a blip in demand after the election, supply will still be vast.

If we do get that bounce, expect a media onslaught by the vested interests, along the lines of, "you better buy now or miss your chance forever!" make your own mind up, but I for one wouldn't be falling for it!

Victor

whizzbang wrote:

for example:

buy now shoebox = 400k @ 5% x 40 years= 1928 per month = 1,928,000 over life of mortgage
buy later shoebox = 250k @ 6% x 25 years = 1,617 per month = 1,617,000 over life or mortgage

Stop molesting the numbers! In a comparision, you cna only move one factor at a time.

If interest rates go from 5% to 6% and repayment ability doesn't improve, then house prices drop like this:

500,000 @ 5% over 30 years is 2,684.11
447,001 @ 6% over 30 years is 2,680.00

Deleted User wrote:

Yes a long way from Dublin!! I would interpret from that ESRI report that the majority of people who bought in the past few years are commuting. This would coincide with the Census figures which show that the population in Ireland has decreased in its cities but increased in the countryside.

Only Cork and Limerick had drops within the official city boundaries. Or note Cork city has a population of 119,000 and urban area of 180,000 and a metropolitan area of 279,000.

Rew wrote:

The Estate Agent offered to lets stay sale agreed to after the election but there was no budge on price.

What happens if there is a regime change and they get a better offer?

uberwolf wrote:

where are these properties? - I presume a long way from the Quays in Dublin. Are we then dealing with more than one property market? Within the Canals in Dublin, within the M50 in Dublin, within the Dublin commuter belt? and repeat on smaller scale for all urban centres?

Think of it like the stock market. While the market as a whole may be going in one direction, individual shares may be going in another.

miju

well big news of the day , Fianna Fail are going to completely abolish stamp duty for FTB's.

due to be announced at 11am today

Gurgle

miju wrote:

well big news of the day , Fianna Fail are going to completely abolish stamp duty for FTB's.

due to be announced at 11am today

A bit more padding on the runway there.

Of course the plane has already landed (quite softly) but its never too late to claim credit.

Dalfiatach

All the "soft landing" snake-oil salesmen still haven't explained why, if FTBs don't pay stamp duty at all on new builds, and only on properties over 317K for second-hand, and therefore very few FTBs actually pay stamp duty at all in the first place....how, exactly, will removing stamp duty on property speculators and consequently putting a 400 million euron hole in the public finances magically reignite the housing market?

Somebody needs to do a Chewbacca Defence on you lot.

The_Conductor

Dalfiatach wrote:

All the "soft landing" snake-oil salesmen still haven't explained why, if FTBs don't pay stamp duty at all on new builds, and only on properties over 317K for second-hand, and therefore very few FTBs actually pay stamp duty at all in the first place....how, exactly, will removing stamp duty on property speculators and consequently putting a 400 million euron hole in the public finances magically reignite the housing market?

Somebody needs to do a Chewbacca Defence on you lot.

Its all soundbites. Government is not based on fact, rather on people's perception of facts.

In further news- the Department of Finance announced a 400m deficit for the first 4 months of the year (apparently this is about 120m better than they were expecting......)

What would be interesting in a debate- Fianna Fail and the PDs have signed up to spend almost 70 billion (yes, billion) over the next 6 years on infrastructure. Thats about 16k per person. Most of this is money that they intend to borrow- rather than from tax streams (as is evident from our 400m deficit in Q1 2007). What do the electorate think about borrowing 16k per head to support our construction industry in its time of need?

What is far more important to the average person in the street- even more so than stamp duty- is every 1/4 rise in interest rates removes 10% of people's disposable income. Managers from coffee shops in Dublin city centre are already reporting massive drops in cashflow- some have increased prices even further to compensate (e.g. its now 3.50 for a white coffee in a certain shop on Westmoreland street).

The services industry is beginning to hurt big- not a lot yet, but more and more. While a lot of those jobs are minimum wage that don't mean anything to primary government revenue flow- its a matter of time before a massive hole begins to rear its ugly head in public finances.....

I think it may be times to dust off our Dickens and get to grips with the inevitable.......

jobless

as far as i'm aware....FF proposals are for first time buyers, second hand buyers are not affected..... given that the vast majority or First time purchases dont involve stamp duty i dont think it going to prop up the market....
its vote buying pure and simple....to cover berties behind!

The_Conductor

jobless wrote:

as far as i'm aware....FF proposals are for first time buyers, second hand buyers are not affected..... given that the vast majority or First time purchases dont involve stamp duty i dont think it going to prop up the market....
its vote buying pure and simple....to cover berties behind!

FFs proposals include an increase in mortgage interest relief for all- to 333 per month (or 666 for a couple).....Errrr thats just evil.......

jobless

smccarrick wrote:

FFs proposals include an increase in mortgage interest relief for all- to 333 per month (or 666 for a couple).....Errrr thats just evil.......

what is it at the moment?

whizzbang

smccarrick wrote:

Managers from coffee shops in Dublin city centre are already reporting massive drops in cashflow- some have increased prices even further to compensate (e.g. its now 3.50 for a white coffee in a certain shop on Westmoreland street).

hmm, I thought you were meant to lower prices when you weren't getting business?

Zambia

Are they gonna promise to back date it ?

El Stuntman

smccarrick wrote:

I think it may be times to dust off our Dickens and get to grips with the inevitable.......

Hard Times? :eek:

Bleak House?

or, if you are a VI, maybe Great Expectations.....;)

Afuera

uberwolf wrote:

It is well documented that the pause in property prices has coincided with rental increases. Which have been met by renters, as remaining in employment requires a home! And renters will pay just about as much as a mortgage would cost them.

Besides some of the most undesirable areas in Ireland, you'll be very hard pushed to find a property where the mortgage costs anything close to the rent these days.

Be careful about reading too much into the recent spike in rental prices as it isn't based on any long lasting fundamentals. If you check out daftwatch's stats on rentals and sales in Dublin you can see that the amount of properties available to rent fell between December and April. The amount of properties for sale in Dublin over the same period increased dramatically suggesting that investors were trying to sell BTL properties.

While demand for rentals may have shifted upwards somewhat due to would-be buyers getting cold feet and deciding to rent, the effect of the reduction of supply in rentals can't be ignored either. Interestingly enough, since April the amount of places to rent in Dublin has been increasing. This will in time bring downward pressure on rental prices.