House prices falling €1,500 a month

mastermind2005

New figures show that house prices have fallen by 6% since the start of this year, following another sharp drop in November.

The latest house price index, compiled by Permanent TSB and the ESRI, showed that prices fell by 1.1% in November after a 1.3% decline in October.

In the last 12 months, prices have fallen by 5.9%, with the average price of a house in November standing at €292,124, compared with €310,409 a year earlier. This means prices have been declining by an average of €1,500 a month throughout the past year.


http://www.rte.ie/business/2007/1220/houses.html

RT_2007

Thats great news but where are these homes with Average House Prices under 300,000. we are actually considering moving to Portlaoise..

RT_2007

Thats great news but where are these homes with Average House Prices under 300,000?

IamBeowulf

What really annoys me---and I'm not firing this at you Mastermind---is how naive we've been these last few years. The government themselves coined the Celtic Tiger, then glossed it up and shoved it down our throats. We obligingly swallowed it whole and bragged about our sudden apparent affluence.

Now look at us.

Crime is out of control. Drugs are everywhere. People are overstressed and underpaid. EVERYTHING is overpriced. Morale is low. And the one good thing about our country---our ability to welcome strangers and friends alike and be friendly and be IRISH---has dissolved in a sea of greed and vanity and utter stupidity.

This housing price crash should not come as a surprise. The government is a bunch of f00king tools. Yes, they successfully deceived us into spending over-the-top prices for public services that don't work. Our taxes are swallowed up and p1ssed away and we do NOTHING. What did we expect, really? I mean, we saw the house prices rise steadily these last few years. Did we really truly believe that a miraculous reduction in day-to-day expenses would occur?

Because that's the only way you and me could afford these overbloated costs of living in half-a$$ed homes. Those b@stards saw the way the wind was blowing so they spoilt us with tax reductions last year. Yay.

Yet that did nothing. The euro has ripped us apart and left us bleeding on the curb. We have nothing to offer to other countries anymore. Our image has been tainted. We have no major export to help justify these house prices anymore. We are a global joke. Companies are pulling out because the wage rises---the only thing the governemnt thought coud be done to steady the inflation---has ruined any chance we had of attracting international copanies here. People don't trust what they're told here anymore---CONFIDENCE is low.

Investors grow weary of high tax rates. People pull out. House prices lower to match people's income---but they're STILL too high. Construction companies crumble under the weight. Unemployment rises.

WELCOME TO IRISH RECESSION / DEPRESSION 2008

We only have ourselves to blame. We stood by and let the jackals feast. Occasionally we let out a roar. But they got their fill, and now were f00ked.

patrickolee

Lol, Happy christmas IamBeowulf. I think perhaps a big deep cleansing breath might be needed. Relax.

gurramok

The ESRI are a funny bunch.

They also say the following (http://www.finfacts.com/irelandbusinessnews/publish/article_1012171.shtml , http://www.examiner.ie/irishexaminer/pages/story.aspx-qqqg=ireland-qqqm=ireland-qqqa=ireland-qqqid=50970-qqqx=1.asp)

'The ESRI has also reiterated its earlier forecast that house prices in December 2007 will be 15 per cent lower than in December 2006'

Talk about saying 2 different things about the same thing on the same day in the same report

SimpleSam06

patrickolee wrote: »

Lol, Happy christmas IamBeowulf. I think perhaps a big deep cleansing breath might be needed. Relax.

Hes right about one thing at least, Ireland is the fifth most expensive country on earth at the moment. I wonder can you swap shares in an overpriced duplex for pizza?

prendy

hmmm 1500 a month...if that keeps going il afford a place in 7.5 years!!!
wohoo!!!
hate to have bought a house this time last year and suddenly have it be alot less value.

mastermind2005

€1500 x 12 months = €18000 x 7.5 years = €135000

not that much when you put it like that

SimpleSam06

mastermind2005 wrote: »

€1500 x 12 months = €18000 x 7.5 years = €135000

not that much when you put it like that

Factor in inflation of 5.5% per year though, and a house which is €400,000 currently, in real terms becomes around €159,000.

mastermind2005

SimpleSam06 wrote: »

Factor in inflation of 5.5% per year though, and a house which is €400,000 currently, in real terms becomes around €159,000.

can you explain how that works

SimpleSam06

mastermind2005 wrote: »

can you explain how that works

Inflation reduces the value of money over time (tracked by inflation rate currently at around 5%), this is why your parents could buy a bus ticket, two pints, and a visit to the cinema for one Irish pound, while we could in no way do that now.

So if the value of the house isn't tracking inflation at the minimum, its reducing. Taking away that €135,000 from the €400,000 leaves you with €265,000, but in 7 or 8 years, every one of those euros in that €265k will be worth around 30-40% less than they are today. In other words, the price for a house might be €265,000 but the average wage will (or should) be €40k to €50k.

Personally I doubt it will go quite that far, and a lot of different factors might come into play (pay freezes, deflation and so on) but you are talking about hefty drops in any case. Besides, that €159,000 I mentioned, funnily enough thats the historical norm (around 4 to 5x wages).

So maybe its not so unlikely.

EnoughSaid

Simple mathematics: €265,000 will be worth €179,362 after 8 years of inflation at 5%:

Year 1 265,000 1.050 252,381
Year 2 265,000 1.103 240,363
Year 3 265,000 1.158 228,917
Year 4 265,000 1.216 218,016
Year 5 265,000 1.276 207,634
Year 6 265,000 1.340 197,747
Year 7 265,000 1.407 188,331
Year 8 265,000 1.477 179,362

I cannot get the columns lined up on here so:
Column 1 = the year
Column 2 = the original value
Column 3 = the discount factor at 5%
Colunm 4 = the present value of the future sum of money discounted at 5%

Therefore, €265,000 in 8 years time would only be worth €179,362 in todays money, after allowing for inflation of 5%.

johnnyskeleton

Mastermind2005 wrote:

can you explain how that works

Put another way, if you earn 30,000 now and a house is worth 400,000 now, 7 years from now the house will be worth 265,000 but you will (assuming you stay at the same job and excluding promotions, bonuses etc) be earning more than 30,000 because you wages will have increased in line with inflation so 265,000 in 7 years will be more affordable than 265,000 now.

whizzbang

What if your wage it not matched to inflation?

I think a lot of people are in this situation...

SimpleSam06

whizzbang wrote: »

What if your wage it not matched to inflation?

I think a lot of people are in this situation...

Has there ever been a situation where inflation was higher than wage increases in a country where the government had no control over key economic buttons, such as interest rates? Honest question, I have no idea, but at first glance it seems like a very bad position to be in. Is it even possible for that to happen? If people can't buy things, prices come down... of course that could leave us in a third world situation, with dirt cheap food and clothes, and electronics and cars priced beyond the range of the normal consumer.

SkepticOne

The 5% inflation we are seeing in Ireland is not sustainable in a currency union with a target of 2%. It means that the prices of services are increasing at a faster rate than other EU countries and and we are losing competitiveness. Inflation would ultimately then be brought down by unemployment as the jobs go to more competitive countries.

Although Ireland does not have control over interest rates, the government should have been using fiscal measures to remove excess money from the economy. Unfortunately, they did the opposite and poured petrol on the flames encouraging inflation and the property asset bubble.

A little bit of pain in the form of higher taxes over the last few years could have prevented the economy from overheating. For the specific property bubble, measures were briefly put in place when the bubble was recognized in the the early part of the decade but subsequently reversed under pressure from vested interests.

Everyone is going to suffer economically over the next few years but those who will feel the most pain will be those small landlords who believed Bertie and bought into the property boom as an investment in the last three years. I'm surprised these people are so silent now while the state seems to be buying up unsellable units from builders to turn into social housing.

EnoughSaid

If you were looking for theme songs for all of this, the song when everybody was piling in, in a frenzy, until until last Summer was "The only way is up" but now this has changed to the old Status Quo number "Down, down, deeper and down".

whizzbang

EnoughSaid wrote: »

If you were looking for theme songs for all of this, the song when everybody was piling in, in a frenzy, until until last Summer was "The only way is up" but now this has changed to the old Status Quo number "Down, down, deeper and down".

Here's another good one... http://www.youtube.com/watch?v=ZHt_GzOgjvA

The_Conductor

If you were to be totally honest- a discount factor of 5% is totally insufficient. Its not only inflation which should be factored into the equation, but an economic rent associated with the cost of tying up the capital in the asset in the first place. In the case of some assets, such as forestry, which have been tracked historically for over 100 years, a discount factor of 7-8% is more normal. This allows for a return on investment, after inflation is taken into account. If you plug this into the figures given above- you end up with house prices of well below even 100k in todays terms, if you factor a real fall of 5% in prices into the figures over an 8 year period. We don't use figures like this though- because we are accused of scaremongering- and historical norms are not considered as a guidance on future trends. Wonder where I heard that caveat before?........

SimpleSam06

SkepticOne wrote: »

The 5% inflation we are seeing in Ireland is not sustainable in a currency union with a target of 2%. It means that the prices of services are increasing at a faster rate than other EU countries and and we are losing competitiveness. Inflation would ultimately then be brought down by unemployment as the jobs go to more competitive countries.

Yes but inflation doesn't have to track across all sectors. Essentials such as food and clothing might drop to match affordability, but non essentials such as cars or electronics might continue to rise. This is something which is prevalent in many third world countries today.

SkepticOne wrote: »

A little bit of pain in the form of higher taxes over the last few years could have prevented the economy from overheating. For the specific property bubble, measures were briefly put in place when the bubble was recognized in the the early part of the decade but subsequently reversed under pressure from vested interests.

I think its a bit more complex than that. Taxation does remove money from the economy (leakage) but the question remains, where are those taxes going? If they are being paid to a great extent to the public service sector, that pumps the money straight back into the economy again, leading to even faster inflation. If the money gets spent on infrastructure, or similar improvements, you do in fact cool off the economy as well as laying the groundwork for sustainable future growth and domestic industry.

SkepticOne

SimpleSam06 wrote: »

Yes but inflation doesn't have to track across all sectors. Essentials such as food and clothing might drop to match affordability, but non essentials such as cars or electronics might continue to rise. This is something which is prevalent in many third world countries today.

But in a currency union like the EU if non-essential goods start like electronics start forcing up inflation then it will effect all Eurozone contries and interest rates and Ireland will be effected by that interest rate rise. Food is also starting to rise but, again, this will likely be effecting all Eurozone countries. The reason Ireland's inflation has been higher than average is rising service sector costs which are undermining competitiveness.

I think its a bit more complex than that. Taxation does remove money from the economy (leakage) but the question remains, where are those taxes going? If they are being paid to a great extent to the public service sector, that pumps the money straight back into the economy again, leading to even faster inflation. If the money gets spent on infrastructure, or similar improvements, you do in fact cool off the economy as well as laying the groundwork for sustainable future growth and domestic industry.

Yes. The money needs to be put into long term projects or used to pay off debts. We haven't been doing this to the extent necessary to keep a lid on inflation. We are going to learn about the consequence of allowing an economy to overheat.

johnnyskeleton

whizzbang wrote: »

What if your wage it not matched to inflation?

I think a lot of people are in this situation...

Standard inflation is caused by too much money chasing too few goods. While it may appear that inflation is caused by shopkeepers, service providers etc putting up the price of goods and services, this is the effect of inflation, the cause being that there is more money without any corresponding increase in the value of goods produced. One of the main factors which causes this inflation is people being paid more for doing the same job. Another is large amounts of credit coming into the country.

If everyone could agree on a fixed price for a certain job, (or, for that matter, on the fixed value of a house) then there would be very little inflation and the ecomony would in theory stabilise. But because we cant, we see people making demands for higher wages (usually basing their argument on inflated prices), and these higher wages cause even higher prices. We also have seen people not just paying over the odds for a piece of property (which is to be expected given it is such a unique purchase), but believing that the value of a property is 13 times or more their annual salary. This leads to higher expectations of salaries etc.

But with house prices going down, the cost of living has not decreased significantly (for many it has increased) so wages are likely to increase over the next few years.

Victor

johnnyskeleton wrote: »

But with house prices going down, the cost of living has not decreased significantly (for many it has increased) so wages are likely to increase over the next few years.

One has to be careful to distinguish between consumer inflation and capital goods inflation.

While the price of houses has gone down (negative capital goods inflation), because interest rates have gone up, the cost of housing has stayed much the same, even increased a little.

orbital83

Don't forget that when comparing with the EU inflation target we should compare the Harmonised Index of Consumer Prices which was 3.5% for Nov 2007 in Ireland.
So in that context we are not so bad.

The_Conductor

John J wrote: »

Don't forget that when comparing with the EU inflation target we should compare the Harmonised Index of Consumer Prices which was 3.5% for Nov 2007 in Ireland.
So in that context we are not so bad.

Thats not a fair measure= as it excludes food and fuel- which while fuel may rather surprisingly be relatively competitive here- food can be over 200% more expensive even for basic staples. Harmonised CPI for Nov in Ireland was 3.5% as against an EU average of 3.1% The 3.1% level was referred to in the ECB minutes from December- with 4 members stating that inflation was a far more serious threat than the global credit crunch. We can infer from this that if it doesn't shift drastically over the next 2-3 months, that we are looking at more imminent rate rises. AH is even now suggesting that a 50 basis points rise by March is increasingly possible. Like to see what that will do to the melting housing market here........