Prices of houses need to fall to 2005 level - AIB

Afuera

kippy wrote: »

Whatever your arguments things will not be as bad as people are predicting on this forum. We wont be slipping back into the 80's type recession.

That's great to know. I can sleep easy now. :rolleyes:
Where did you say the recovery was going to come from again?

Glenbhoy

kippy wrote: »

We wont be slipping back into the 80's type recession.
Kippy

Why not? Maybe we thought that in the 60's too? Or remember there was a time in the 17-1800's when Dublin was the second city of the British empire, everything is cyclical, people would do well remember that.

gurramok

kippy wrote: »

Whatever your arguments things will not be as bad as people are predicting on this forum. We wont be slipping back into the 80's type recession.

Provide facts and figures to backup your assertion just like the naysayers provided their backup facts and figures, else your opinion is just baseless observation.

Firetrap

In my experience (a personal opinion, nothing scientific), the only people who think stupidly high house prices are A GOOD THING have a vested interest in them. Either they're connected in some way with a property developer or they've bought a house/houses and can't contain their glee as the price they paid for it has rocketed.

kippy

We won't slip back into an 80's type recession because:
A: Mortgage interest rates are still low and due to get lower-despites comments to the opposite effect above.
B: Income tax is relatively low.
C. The country boasts almost full employment-this trend is not set to change anytime soon despitejob losses in construction-many of these loses are swallowed up elsewhere or the people who lose the job takes the option to go abroad.
This country now has far more college graduates than it ever had.
E: Despite the naysayers, this country is extremely attractive to foreign companies [non manufacturing based]
F: Despite missed chances by our government our transport infrastructure is far better than it was in the 80's.

All of the above indicate to me that we won't get into bad times like those again.
In response to the last post, I've found that to be true and likewise the people who don't currently own property tend to be the naysayers.

Again I'll say it, some people will be effected in the short term,long term,anyone with a house will be better of than without.

Glenbhoy

kippy wrote: »

We won't slip back into an 80's type recession because:
A: Mortgage interest rates are still low and due to get lower-despites comments to the opposite effect above.
B: Income tax is relatively low.
C. The country boasts almost full employment-this trend is not set to change anytime soon despitejob losses in construction-many of these loses are swallowed up elsewhere or the people who lose the job takes the option to go abroad.
This country now has far more college graduates than it ever had.
E: Despite the naysayers, this country is extremely attractive to foreign companies [non manufacturing based]
F: Despite missed chances by our government our transport infrastructure is far better than it was in the 80's.

All of the above indicate to me that we won't get into bad times like those again.
In response to the last post, I've found that to be true and likewise the people who don't currently own property tend to be the naysayers.

Again I'll say it, some people will be effected in the short term,long term,anyone with a house will be better of than without.

1. Mortgage interest rates cannot be taken in isolation, currently the more important rate is the inter-bank lending rate which is above the ECB rate. In addition, affordability is actually the key statistic in the housing area. We are constantly being told that affordability has improved since the 1980's, as affordability is somewhere around 35 - 40% of household income whereas in the 80's it was probably approx 50%. This may be true, but it neglects that 80's households generally had one income, it neglects the impact of other necessary expenditures such as childcare, taken in tandem in with mortgage payments, what is affordability now for a 2 income family?
2. What is the relevance of low income tax levels?

3. Currently employment levels are indeed at close to full employment, but with our rising labour costs will that continue? There really is no reason to assume it will. Construction employed somewhere in the region of 220K people, production is expected to halve, some jobs will be created in less labour intensive capital projects, I would imagine that's at least 100K jobs gone, and that's without thinking about the ancillary services, ranging from the lad in the spar who makes the breakfast rolls to the guy driving the block delivery lorry.
4. We had far too many graduates than we needed back in the 80's, that's whay everyone left the country.
5. Why is this country attractive, it's expensive, that's really the most important factor for many companies, our tax rates are being equalled and bettered elsewhere, the accession countries have EU access too, India etc has a large english speaking and well educated workforce too (at about 10% of the cost).
6. Yeah, this has improved, but why will that stop us slipping into an 80's style recession?

I've been brief here and haven't had time to go into this in detail, hopefully you'll be right, but there are no guarantees.

Afuera

kippy wrote: »

We won't slip back into an 80's type recession because:
A: Mortgage interest rates are still low and due to get lower-despites comments to the opposite effect above.

The current appetite for risk will determine what effect interest rate levels will have. In Japan, when they became very risk adverse after their crash, it did not make any difference how low rates went. If you can find figures showing that people are borrowing more and more money then it would suggest they are still willing to take on risk.

kippy wrote: »

B: Income tax is relatively low.

How does low income tax prevent a recession?

kippy wrote: »

C. The country boasts almost full employment-this trend is not set to change anytime soon despitejob losses in construction-many of these loses are swallowed up elsewhere or the people who lose the job takes the option to go abroad.

Where are the lost jobs being swallowed up? Have you got a report or figures that support your view? Do the current trends in employment and unemployment rates match your opinion?
If people go abroad then there will be lower demand for property. This will have a negative impact on house prices and further damage the position of homeowners with high LTV levels.

kippy wrote: »

This country now has far more college graduates than it ever had.

So has India. I am not sure what your point is here.

kippy wrote: »

E: Despite the naysayers, this country is extremely attractive to foreign companies [non manufacturing based]

The only PROs I can think of for Ireland as an economic base is its low corporation tax and the fact that it English speaking. This tax haven status for American multinationals is currently under jeopardy though and it would be unwise to count on this forever.
There are unfortunately many CONs. Lack of decent infrastructure (transport, broadband), high cost of business due to inflation and EURO currency, our location on the periphery of the Eurozone, our relatively small talent pool when compared to other locations, etc.

kippy wrote: »

F: Despite missed chances by our government our transport infrastructure is far better than it was in the 80's.

It is still light years behind most other developed countries unfortunately.

kippy wrote: »

All of the above indicate to me that we won't get into bad times like those again.

You still need to find actual facts and figures to support your opinion.

EDIT: Crossed posts with Glenbohy. I would also echo his sentiments and hope you are right. When I see supporting evidence for your opinion, I will be happy to accept it.

SimpleSam06

Firetrap wrote: »

In my experience (a personal opinion, nothing scientific), the only people who think stupidly high house prices are A GOOD THING have a vested interest in them. Either they're connected in some way with a property developer or they've bought a house/houses and can't contain their glee as the price they paid for it has rocketed.

The thing is that if it was some other investment type, people would be clapping them on the back. Housing on the other hand has a deep social impact, and if prices get too high due to specuvestors, thats a very negative impact. Its like spiking up the price of milk for your own profit, especially given poor rental conditions in this country.

astrofool

There seems to be two types of people commenting on downward house prices.

In one corner, those who see the housing market as a bubble, and are now watching it deflate back to levels supported by market fundamentals (affordability, reduction of quick money investors).

In the other corner are those who believe the entire economy is a bubble, and that we're all f*cked and heading for a huge market crash and high unemployment. These people believe that the economy is built on unsound principles and we might as well pack up, and start again somehow. They are right, that if their vision of the future pans out, then house prices will fall dramatically (50%+).

However, the doom and gloom vision is not what is driving the current house price fall, where the market is having to return to normality. Employment is still high and people can still borrow large amounts.

I've been listening to people foretelling doom and gloom for years, and they, at best, have been partially right about some things, but in general, the economy has soldiered on, and people have made a lot of money ignoring them completely. Even then, if their scenario does play out, house prices will be the least of the worries.

SimpleSam06

astrofool wrote: »

In one corner, those who see the housing market as a bubble, and are now watching it deflate back to levels supported by market fundamentals

if their vision of the future pans out, then house prices will fall dramatically (50%+).

I'm not sure why you feel those two positions are mutually exclusive. I doubt the economy is going to go to rack and ruin in the coming years. Its not especially resilient but not that shaky either. I do however feel that house prices are in for a significant drop, possibly as much as 50% (more in some cases, and I'm looking at the two bed apartements in the backwoods of Galway here, less in others), and I think thats where the fundamentals are.

gurramok

Having full employment don't mean squat on affording high prices, that factor has been overlooked in the 'full employement hysteria'
Plenty of jobs is grand in an economy, its the quality and pay element of those jobs that matter.
Adding many low wage jobs which has happened here over the years won't help keep prices high, they'll only help keeping 'normal' demand healthy where normal is normal affordability patterns(not the lunacy mortgage borrowing here)

That demand won't pay up for the average expensive house/apt if they cannot afford the high prices, thats a fact of economics.

astrofool

SimpleSam06 wrote: »

I'm not sure why you feel those two positions are mutually exclusive. I doubt the economy is going to go to rack and ruin in the coming years. Its not especially resilient but not that shaky either. I do however feel that house prices are in for a significant drop, possibly as much as 50% (more in some cases, and I'm looking at the two bed apartements in the backwoods of Galway here, less in others), and I think thats where the fundamentals are.

I'm more going after the people above who are saying we're going back to the 80's recession, and that will be the cause of house prices coming down.

We've seen at least a 20% drop already, I know what i've been looking at has come down at least that much, and reckon myself it'll eventually come down 30-40% on the peak, and then settle there for a few years, which in reality will be 50%+ drop in real terms, due to inflation. I wouldn't be surprised if it goes a bit more than that, there will always be a lower limit simply due to the fact that the banks will always lend at a certain level.

I don't however think that we'll have mass unemployment and see the markets drop massively and see recession over 5+ years. In fact, I'd be fairly confident that house prices in 10 years time will be more than they are at now (in pure euro terms, again discounting inflation).

jmayo

kippy wrote: »

We won't slip back into an 80's type recession because:
A: Mortgage interest rates are still low and due to get lower-despites comments to the opposite effect above.
B: Income tax is relatively low.
C. The country boasts almost full employment-this trend is not set to change anytime soon despitejob losses in construction-many of these loses are swallowed up elsewhere or the people who lose the job takes the option to go abroad.
This country now has far more college graduates than it ever had.
E: Despite the naysayers, this country is extremely attractive to foreign companies [non manufacturing based]
F: Despite missed chances by our government our transport infrastructure is far better than it was in the 80's.

All of the above indicate to me that we won't get into bad times like those again.
In response to the last post, I've found that to be true and likewise the people who don't currently own property tend to be the naysayers.

Again I'll say it, some people will be effected in the short term,long term,anyone with a house will be better of than without.

I can sleep easy now :rolleyes:

It is good to know that income tax will remain low, because the government will just cut the civil service numbers/paypackets and they can always close a few hospitals.

It is good to hear our high labour costs and high operating costs will not deter all those service companies coming in to gobble up all the out of work construction and manufacturing workers.
Sure we have loads of graduates to compete for the service jobs as well so why go to India or Poland. Sure they can't speak English like us.
It will be worth the extra cost to come here.

The foreigners will go home to keep our unemployment numbers low.
It doesn't matter that there will be loads of rentable accomodation available because all the landlords will hang on their properties since they know property is good bet in the long run. It won't have any knock on affects on house prices.

And sure with all the new toll roads, the non connecting Luas lines and the port tunnel people can get around a bit easier so whats the issue ?

Afuera

astrofool wrote: »

I'm more going after the people above who are saying we're going back to the 80's recession, and that will be the cause of house prices coming down.

In fairness, I don't think anyone said they thought we'd end up back in the 1980s. Kippy was the first poster to mention the 80s and then suggested that the economy will be just fine, however that opinion appears to be based on little more than a wing and a prayer.

There are too many "unknown unknowns" for anyone to truly work out where we're going to end up over the next few years. Nobody has yet picked out credible areas of growth that will carry the country through the coming years though...

astrofool wrote: »

I don't however think that we'll have mass unemployment and see the markets drop massively and see recession over 5+ years. In fact, I'd be fairly confident that house prices in 10 years time will be more than they are at now (in pure euro terms, again discounting inflation).

It depends on what you define mass unemployment as I guess. Since up to a quarter of the workforce is reliant on the construction industry (both directly and indirectly) you'd have to imagine that some of those jobs will be lost though.

Those lost jobs may lead to a net emigration once again but that would cause a knock on effect on the property market, and further destabalize any recovery there. If they stay here on the dole, then it sucks up a lot of public money. Sounds pretty much like a lose-lose situation.

I suppose they could find alternative work but when you look at the two next biggest sectors of employment in the country (civil service and services), it's difficult to justify much growth coming from there.

kippy

Apologies,
It was I who brought up the 80's. Merely trying to put into context to where our economy has come from and how far we would have to fall to get back to that (80's)level.
The doom and gloom merchants have been, in my opinion, really over reacting to what could and probably will happen in the next 5-10 years without fully realising how bad things really were for people in the 80's.
Some people mentioned how income tax effects the economy. I would have thought that fairly obvious. Someone paying an income tax of 60% (commonplace in the 80's if you were lucky enough to have a job) has a lot less disposable income than someone paying 20-40% nowadays. Surely this has a massive bearing on the economy in general.

My lack of solid figures is of course a major problem and one which of course I cannot argue with however I would say that the only solid figures we are ever going to have on this situation will be in 5-10 years when the situation can be reviewed. As I've said, all of the people I know are happy to own their own homes (some own more of the homes than others, but all own more than those who rent) and I cant see any of them being homeless or bankrupt in the next few years.

martian1980

kippy wrote: »

We won't slip back into an 80's type recession because:
A: Mortgage interest rates are still low and due to get lower-despites comments to the opposite effect above.

There's an advert on P6 of the Irish Times...

Very small ad in the corner:

Irish Permanent increases standard variable rate from 5.44% to 5.6%

seamus

kippy wrote: »

Apologies,
It was I who brought up the 80's. Merely trying to put into context to where our economy has come from and how far we would have to fall to get back to that (80's)level.

A 5-bed detached house in Templeogue cost IRP£25,000 in the 1980's. The same houses now go for €850,000 - I don't think anyone has ever suggested that we're going to drop back to 1980s levels

I do however see your point. There are a number of people declaring how ****ed we all are and trying to create the impression that everyone who bought a house in the last ten years will be saddled with unsustainable 100's of 1000's of debt on a home that's not worth the amount.

gurramok

I'd say last 5yrs at most rather than 10yrs being saddled with mortgages on an asset that's worth alot less for a long while if they are struggling to repay it or not.

punchestown

gurramok wrote: »

I'd say last 5yrs at most rather than 10yrs being saddled with mortgages on an asset that's worth alot less for a long while if they are struggling to repay it or not.

with particular emphasis on the poor saps that bought about 18 months ago. I know one poor woman with an interest only mortgage on an apartment in Duleek thats lost about 90k so far and who knows how much further!
However I have passed on Kippys soothing words and she is feeling a whole lot better!

The_Conductor

Afuera wrote: »

Those lost jobs may lead to a net emigration once again but that would cause a knock on effect on the property market, and further destabalize any recovery there. If they stay here on the dole, then it sucks up a lot of public money. Sounds pretty much like a lose-lose situation.

I suppose they could find alternative work but when you look at the two next biggest sectors of employment in the country (civil service and services), it's difficult to justify much growth coming from there.

1. There was net emigration in 2007 of just over 30,000.
2. The total number of civil servants as of September 2007 was 36,700 (just over 11% of the public sector). Perhaps you mean those HSE employees who make up almost 30% of the public sector at around 114,000..... Civil servant numbers have fallen year on year for each of the past 5 years, indeed the public sector other than health has barely remained static at around ~240k- the HSE is the only real engine of growth in the public sector- and even that is now viewed as an endless chasm into which money is being thrown with little result. So- I think you can count this one out too.....

Personally I think that Irish people are going to end up on the dole, as in a race to the bottom, as is now happening in the construction sector, more often than not its the employees from Eastern Europe who are more willing to undercut the other employees in the market in order to ensure they get a job. The average Irish electrician or plumber has gotten used to a salary around 80-100k (given, the hours they were working were ridiculous, but so too was the pay) so a sharp re-evaluation of what a fair wage actually is, may be needed.

Re: back to the 1980s- I don't think it was a serious suggestion by anyone here. I too know just how dire the situation was in this country then. I do think that a lot of people bought property, any property at all, just to "get on the property ladder", not because they really wanted to live where they were buying, and definitely not because it was suitable for their needs. These people, especially those who bought the tens of thousands of crappy apartments around the country, and even more especially those who purchased in the past 18-24 months, are the ones who are up the creek without a paddle. I could wander into any of a number of lenders and get between 15 and 20 times my salary as a mortgage with a bit of creative accounting- by promising to use the rent a room scheme and with wildly optimistic calculations of how much overtime I would get etc. How many people are there out there who spent well over ten times their annual salary on a crabby apartment in the past two years and are now locked into 30 year (or longer) mortgages on properties that they can now only sell at a loss? From statistics- around 90,000...... they are at the head of the queue of despondent people who are stuck, literally, and there are many many more not far behind them.

Afuera

smccarrick wrote: »

1. There was net emigration in 2007 of just over 30,000.

That is interesting. When was the last time we had net emigration in Ireland?

smccarrick wrote: »

2. The total number of civil servants as of September 2007 was 36,700 (just over 11% of the public sector). Perhaps you mean those HSE employees who make up almost 30% of the public sector at around 114,000.....

Sorry, for civil service, I should have said public sector. 1 in 5 jobs in Ireland are in the public sector which leads me to believe that there is not much scope for expanding it much further.

kippy

punchestown wrote: »

with particular emphasis on the poor saps that bought about 18 months ago. I know one poor woman with an interest only mortgage on an apartment in Duleek thats lost about 90k so far and who knows how much further!
However I have passed on Kippys soothing words and she is feeling a whole lot better!

Depending on why she bought the apartment and if and when she wanted to sell it she may not be that badly off. Who knows, if she wanted to keep the apartment for 10+ years she could still make some money on it, while at the same time not paying rent. If she has to sell ASAP then yes, she has lost 90K. Thats the reality of her situation and I assume she had hoped to sell it ASAP based on what you've said. I feel sorry for her in this position but that was the risk she took.
Again, the only people who lose out are those that end up HAVING to sell in the short term. In my opinion the value of an asset really only makes a difference if and when you decide to sell that asset. If you don't actually need to sell the asset it's value is irrelevant to you.
Mortgages and house prices have ALWAYS seemed really expensive, even when they were 25K for a house in Terenure in the 80's. That was still a hell of a lot of money in relative terms.
Apartments in this country, in my opinion have always been a really really risky buy and only suit the lifestyle of a very narrow range of people. Some people love them, I've never been a fan. I suppose most people who bought them bought them for the short term and they may feel the strain of the current climate however I dont really know how many people will be in a situation where the current and short term climate will actually cos them serious financial heartache.

All of the above are my own personal opinions and experiences. I am fortunate enough to have a relatively stable, decent paying job that pays the mortgage on a 4 bed purchased in Galway city 2 years ago.

SimpleSam06

Afuera wrote: »

Sorry, for civil service, I should have said public sector.

Yep I use the terms interchangeably as well.

punchestown

[QUOTE

All of the above are my own personal opinions and experiences. I am fortunate enough to have a relatively stable, decent paying job that pays the mortgage on a 4 bed purchased in Galway city 2 years ago.[/QUOTE]

Thinly veiled 'I'm alright, Jack' post.

n.b.
In England in the 1950s, the phrase “I’m alright , Jack” referred sarcastically to the attitude of people who believed all was well in the world as long as they got theirs. “As long as I’ve got mine, everything is fine.”

punchestown

kippy wrote: »

Depending on why she bought the apartment and if and when she wanted to sell it she may not be that badly off. Who knows, if she wanted to keep the apartment for 10+ years she could still make some money on it, while at the same time not paying rent. If she has to sell ASAP then yes, she has lost 90K. Thats the reality of her situation and I assume she had hoped to sell it ASAP based on what you've said. I feel sorry for her in this position but that was the risk she took.
Again, the only people who lose out are those that end up HAVING to sell in the short term. In my opinion the value of an asset really only makes a difference if and when you decide to sell that asset. If you don't actually need to sell the asset it's value is irrelevant to you.

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=MARKETS-qqqm=nav-qqqid=30274-qqqx=1.asp

a must read

Sarn

kippy wrote: »

Depending on why she bought the apartment and if and when she wanted to sell it she may not be that badly off. Who knows, if she wanted to keep the apartment for 10+ years she could still make some money on it, while at the same time not paying rent.

Obviously capital appreciation is essential, otherwise she might as well rent as it will never be her home paying interest only. Her landlord in this case is the bank, except in this case she can't terminate the lease without handing over €90k.

As you pointed out, if she does not need to sell due to a change in circumstances then she'll be fine.

gurramok

And one thing thats forgotten is the chain.

During the boom, equity was built up in everyone's house and the price always went up and people could move without owing a cent to the bank.

Hence activity in the mover(trade-upper/downer) segment will drastically reduce as there is a huge portion of people who are(will be) part of the chain in negative equity for a good few years and alot of these bought 'starter homes'.

Of course, those who don't owe much on their mortgages will still be able to move, its just the level of moving will be vastly reduced unlike in recent years.

Hence more sellers than buyers, FTB's especially will not pay crazy prices anymore and we haven't even factored in oversupply yet!

eirmail

punchestown wrote: »

Thinly veiled 'I'm alright, Jack' post.

Exactly Kippy is grand , he has a nice 4 Bed house he can afford . A 4 bed house should be enough for nearly anyone long term especially if it is near work.

I am grand too . I rent and well able to save a few quid and live a good live. That is me and kippy sorted , how about everyone else.

I think everyone on this thread is grand , because if you weren't grand these threads would be too depressing to read.

The fact remains there are lots of people out there who are not grand, Single guys and couples who bought 1 or 2 bed apartments at peak prices might not be grand. They might be looking for a bigger place soon.

2 or 3 lads who chipped in together to buy a house in 2006 on the basis they sell it in a few years, split the profit and go their own way are not grand either.

This is still a big issue for a lot of people , but I admit some people are just grand

Glenbhoy

eirmail wrote: »

A 4 bed house should be enough for nearly anyone long term especially if it is near work.

You don't surely think there'll still be work;);)

astrofool

With the downturn, I'm going to try and skip the "ladder" completely, and go for exactly what I want for the next 20 years.

The idea of a property ladder benefits no one except estate agents and the government (via stamp duty).