DOE - House prices could fall up to 46% in 2009

20goto10

smccarrick wrote: »

There is a difference between working hard, and selling your soul to the local bank manager. Keep in mind- traditional mortgages were for 15-20 years- now there are 45 year mortgages on the market.......Working hard should not equate with penury in old age.

15-20 years? When was that? My parents last mortgage was 25 years in 1982.

You also talk as if a person on 30K is stuck on that for the rest of their lives. I consider that to be a starter salary for a lot of professions. Meaning wage increases and inflation lessen the burden of the loan over time.

Lets look at the facts based on AIB mortgage calculator and this tax calculator.

This is pre-budget

Person earning 30K has a monthly take home pay of 2,177 p.m
They can get a mortgage of 276K for a 300K home.
But this person is sensible and is putting in a 10% deposit, so mortgage on a 300K home is 270K.

270K for 30 yrs = 1,572 p.m
less 167 TRS = 1405 p.m

Cash left over after mortgage is 772 p.m

Its a stretch but it shows that a person on a 30K salary can afford a 300K house with a 10% deposit and a reasonable 30 year loan. And that is just 1 person.

I know the arguments are that its too much of a stretch. Yes maybe. So your options are:
Buy a cheaper house
Save a bigger deposit
Get a better paid job
Give up going out every weekend
Meet a girl and buy together
Get a longer term (unwise but an option non the less).

You have many options. Why should your only option be sit on your ass and expect everyone to drop their prices so you can get what you want without working for it or making sacrifices?

Don't get me wrong. If you think prices will fall further then by all means sit it out and get a cheaper home if thats what you want. but don't fool yourself into thinking its the way things should be. The way things should be is the way things have always been throughout the generations. People work hard and make sacrifices.

shenanigans1982

20goto10 wrote: »

The way things should be is the way things have always been throughout the generations. People work hard and make sacrifices.

That is the way it is for the majority of people, but when greed kicked in and all the developers, banks and estate agents could see were dollar signs people became forced to work too hard, too long and make too many sacrifices all for a property they didn't really want.

gurramok

Here we go again about 20gto10's definition of affordability.

A buyer should fork out 65% of their net pay according to your calculations, 9 times their wage, this is absurd and laughable and hopefully the banks would not tolerate this sub-prime type mortgage.

mrgaa1 - what is an 'extremely low price'?

Shambo

gurramok wrote: »

Here we go again about 20gto10's definition of affordability.

A buyer should fork out 65% of their net pay according to your calculations, 9 times their wage, this is absurd and laughable and hopefully the banks would not tolerate this sub-prime type mortgage.

mrgaa1 - what is an 'extremely low price'?

Good points Gurramok- the banks won't- this shambles of a govt will with this Local Govt loan thing they are proposing

trellheim

what was wrong with the old way of figuring it ?

10% deposit

2.5 times higher earners salary + 1x lower earners salary is the mortage ceiling

40% of after-tax income should be the absolute max ceiling for the monthly repayment

This, however, would introduce an unwanted level of fiscal prudence.

20goto10

gurramok wrote: »

Here we go again about 20gto10's definition of affordability.

A buyer should fork out 65% of their net pay according to your calculations, 9 times their wage, this is absurd and laughable and hopefully the banks would not tolerate this sub-prime type mortgage.

mrgaa1 - what is an 'extremely low price'?

There are 2 sides to every equation. 65% is based on wages and price. You choose to focus on one side of the equation and ignore the other. This is the definition of a biased argument.

gurramok

20goto10 wrote: »

There are 2 sides to every equation. 65% is based on wages and price. You choose to focus on one side of the equation and ignore the other. This is the definition of a biased argument.

Bias is not, common sense it is

Can you explain 'You choose to focus on one side of the equation and ignore the other.'?

What is the 'other side'? Do you mean that a person should fork out 65% of their net wages on a housing unit as it's 'affordable' in your view? :eek:

SimpleSam06

mrgaa1 wrote: »

There is absolutely no way house prices will drop 46% as being forecasted.

And your reasoning for this is:

mrgaa1 wrote: »

but I'm looking at people - the irish people - and the way we are and what we're about. We are survivors and we will move on from this and tell children about the time this all happened.

Moving on from this does not mean a growth in property prices. The survival of the economy and the country as a whole does not equal your survival and the survival of your personal business model.

smccarrick wrote: »

By what measure would one decide that a property was reasonably or unreasonably priced?

Well lets look at the fundamentals, supply and demand, and the costs involved in building houses, labour and materials, which are themselves affected by supply and demand.

Rental returns are a fairly accurate reflection of supply and demand, since rent is higher in areas which are in high demand, or larger houses, so it makes sense to figure out the proper value of housing in terms of rental rates.

The question really becomes then what would be the average rental returns in a healthy property market, with a decent supply of houses and a stable population. 8%? 7%? If that is the case, and I would well believe it is, accurate property prices must be around the 12x to 14x annual rental return region. This figure is a reflection of market fundamentals, not skewing factors like cheap credit and poor rental legislation.

20goto10 wrote: »

Is it because houses are too expensive or because wages are too low?

We have people moving here from first world, highly industrialised nations like France because of our high wages. We're extremely uncompetitive as things stand on an international scale, regardless of tax incentives, and this keeps away a lot of FDI. If you honestly need to ask that question, you really need to learn a bit more about how a healthy economy functions.

The little tin gods of the property market are gone.

whizzbang

65% of take home wage.... at current interest rates... who says interest rates will stay in this range for the next 35 years?

ParkRunner

20goto10 wrote: »

15-20 years? When was that? My parents last mortgage was 25 years in 1982.

You also talk as if a person on 30K is stuck on that for the rest of their lives. I consider that to be a starter salary for a lot of professions. Meaning wage increases and inflation lessen the burden of the loan over time.

Lets look at the facts based on AIB mortgage calculator and this tax calculator.

This is pre-budget

Person earning 30K has a monthly take home pay of 2,177 p.m
They can get a mortgage of 276K for a 300K home.
But this person is sensible and is putting in a 10% deposit, so mortgage on a 300K home is 270K.

270K for 30 yrs = 1,572 p.m
less 167 TRS = 1405 p.m

Cash left over after mortgage is 772 p.m

Its a stretch but it shows that a person on a 30K salary can afford a 300K house with a 10% deposit and a reasonable 30 year loan. And that is just 1 person.

I know the arguments are that its too much of a stretch. Yes maybe. So your options are:
Buy a cheaper house
Save a bigger deposit
Get a better paid job
Give up going out every weekend
Meet a girl and buy together
Get a longer term (unwise but an option non the less).

You have many options. Why should your only option be sit on your ass and expect everyone to drop their prices so you can get what you want without working for it or making sacrifices?

Don't get me wrong. If you think prices will fall further then by all means sit it out and get a cheaper home if thats what you want. but don't fool yourself into thinking its the way things should be. The way things should be is the way things have always been throughout the generations. People work hard and make sacrifices.

A person on a 30k salary also has to pay income tax dont forget which would give them take home pay of..off the top of my head €22,500. Try pay off a €300k mortgage on that. In reality a take home pay on €30,000 is much less than 2,177 per month after the most common deductions

EnoughSaid

The main reason for the big increase in property prices over the last 10 years has been the huge increase in credit because the banks became too lenient in giving mortgages by:

1)Letting people have high multiples of their salaries;
2)Giving people 100 and 110% mortgages, and
3)By measuring affordability based on what people can currently pay based upon the current rate of interest, rather than looking at what they could afford if interest rates rise towards the long term average of about 6.5% or 7%.

All of this pumped more money into the housing market, thereby increasing prices and the people who suffer most from the high burden of debt will be the young who took on these huge mortgages.

Due to the credit crunch and in order to reduce the poissibility of further bad debts, banks will become alot more careful when lending and the will go back to the old basics, such as asking for a deposit of about 20% and reduce the maximum loans to something 3 x salary or 2.5 x 1 and 1 x the other. This will reduce the amount of money in the housing market and will be a major factor in reducing house prices. Another major factor will be confidence in the housing market and in the economy. People will not want to take on big mortgages if they think that their jobs are in doubt due to the recession.

A house is only worth what somebody will pay for it and this itself is dependent upon how much the banks are willing to lend. As the banks will be lending less in future, you can expect house prices to decline.

20to10 - you need to remember that high salaries are also uncompetitive salaries and can lead to multinationals relocating.

eon58

i am in a position at the moment where i am looking to get on the property market...we are saving 1000 euro a month since last feb...im just wondering will the house prices fall further in 09 and when would be the right time to go to the bank...

who_ru

if i were you eon58 i'd continue to save and wait at least 12 months before considering making a purchase as house prices will certainly continue to fall throughout 2009. when the economy is hitting the buffers, employment set to rise by 100,000 or more this year, house prices will only be going on way. and that's not up.

pipsqueak

who_ru wrote: »

if i were you eon58 i'd continue to save and wait at least 12 months before considering making a purchase as house prices will certainly continue to fall throughout 2009. when the economy is hitting the buffers, employment set to rise by 100,000 or more this year, house prices will only be going on way. and that's not up.

i presume you mean unemployment???

Sarn

I'd advise waiting as well. Prices are expected to drop further making your deposit work more for you. Depending on what type of property you're going for you'll need at least an 8% deposit plus extras for legal fees etc. Unless the familly are lending a hand you'll need to keep saving. An extra year of saving would really help.

Personally I'm waiting to see how things are looking towards the end of '09 but don't expect to make a move until '10. The lump sum deposit will make things a hell of a lot easier.

jhegarty

eon58 wrote: »

i am in a position at the moment where i am looking to get on the property market...we are saving 1000 euro a month since last feb...im just wondering will the house prices fall further in 09 and when would be the right time to go to the bank...

Keep saving and keep a very close eye on prices.

No one on here can tell you when things will recover , only that it will one day.


Some on here will tell you it's tomorrow , still will say it's never. Each is as equally full of bull plop.

pipsqueak

eon58 wrote: »

i am in a position at the moment where i am looking to get on the property market...we are saving 1000 euro a month since last feb...im just wondering will the house prices fall further in 09 and when would be the right time to go to the bank...

you could have your eye on a particular house and just say it was 300000euro and your hoping in a year prices will drop by 10%, whats stopping you offering that 10% price drop now?? They could accept and possibly even take less than the 10%drop,especially with lower interest rates and possible further ones in next few weeks. Only takes a call...

FGR

I'm looking at a house in Co Cork which is currently being advertised at 209k. Three bed semi with generous garden and beside a bypass leading to the City. I've made a call to get a good look at one of these and, if I like it; will probably make an offer 30% below asking. Just to test the waters!

These houses have been on the market for quite some time and are in a beautiful location. It'll be interesting to see whether I'll be laughed out of the place or not.

krugerrand

Heathen wrote: »

If the house prices fell by 46%, the average joe on a ****e wage like me might actually be able to afford to buy a house and get my foot on the property ladder.. here hoping it all goes tits up so someone like me can own a house

Let's see where this started. The OP stated that house prices will fall by up to 46% in 2009.

Heathen: For house prices to fall by 46% in 2009 the economy would need to be in such a mess that you might not even have your "average joe" job to go to anymore. I'm sure that you'd prefer to be renting rather than being unemployed. So, on the contrary, you'd better hope that house prices don't fall by 46% in 2009:)

EnoughSaid

ForegoneReality wrote: »

I'm looking at a house in Co Cork which is currently being advertised at 209k. Three bed semi with generous garden and beside a bypass leading to the City. I've made a call to get a good look at one of these and, if I like it; will probably make an offer 30% below asking. Just to test the waters!

These houses have been on the market for quite some time and are in a beautiful location. It'll be interesting to see whether I'll be laughed out of the place or not.

Notwithstanding that now is not a good time to buy, you should also be aware that there are several "ghost" estates where only a small number of houses have been sold. You will need to find out how many of the properties in the estate have been sold. It would not be wise to buy in an estate where few have been sold because no one knows what will happen to the empties. They may have to be rented out or they may be sold or rented to the council for social housing. Either way, this could devalue any owner occupied properties.

Dob74

ForegoneReality wrote: »

I'm looking at a house in Co Cork which is currently being advertised at 209k. Three bed semi with generous garden and beside a bypass leading to the City. I've made a call to get a good look at one of these and, if I like it; will probably make an offer 30% below asking. Just to test the waters!

These houses have been on the market for quite some time and are in a beautiful location. It'll be interesting to see whether I'll be laughed out of the place or not.

Go for it! Was told by a auctioneer that any price he had advertised was not firm. To under bid the asking price. This coming from an auctioneer, they most be desperate. Personally I am going to hold off for another while before trading up. Won't get as much for my own gaff but won't cost as much to trade up. The asking prices are still to high.

JJJJNR

Just curious do people think attaining home ownership in 12 months in the current climate will be easier or harder..

Senna

As said above, people should look at what 4xmain salary and 1xsecond salary (my opinion) will get them. Wait till that buys a house you will be happy in for the next 25 years. That may be a 2/3/4/5 bed depending on yourself. But dont rush in just because you think 25% discount is a great deal and it couldn't drop much more. Remember that the house didn't sell for the first advertised price, so it's possible that it was never going to be bought for that price. Your getting 25% reduction on a price that was completely unrealistic even in 2006.

Its early days for house price drops and there is no reason prices wont continue to drop in 2010 or 2011. The economy wont be any better by the end of 2009 and what will happen in 2010 to change anything?? The average property crash takes 7 years, and the average property crash didn't have a world recession at the same time.

There may never be a bottom of the market, who is going to tell you its the bottom? For example, House prices could start to rise in one county in 2011, but continue to drop for another year in a different county (i doubt rises in 2011 myself). If you stick to a strict salary multiple, can afford the repayments (about 35% of net earnings max) and are secure in your job, that's when you should buy. The problem is we need another 35-40% drop in average prices to reach a point where average house match my salary multiple above. Average house prices also include a hell of alot of apartments and worthless semi's in the middle of no-where.

Dob74

JJJJNR wrote: »

Just curious do people think attaining home ownership in 12 months in the current climate will be easier or harder..

Prices are still to high. In the UK house prices average £168,000. We are still way above that. I am going to hold off.

spockety

krugerrand wrote: »

Let's see where this started. The OP stated that house prices will fall by up to 46% in 2009.

Heathen: For house prices to fall by 46% in 2009 the economy would need to be in such a mess that you might not even have your "average joe" job to go to anymore. I'm sure that you'd prefer to be renting rather than being unemployed. So, on the contrary, you'd better hope that house prices don't fall by 46% in 2009:)

Laughable.

House price increases during the bubble years (1998-2006) were absolutely no reflection whatsover on actual economic gains people were feeling in their pockets. Graph the increase in house prices against the increase in people's wages, and you will see two very distinct lines that seem to bear little or no relation to each other.


It was a classic property bubble, fueled by cheap credit, bad government, and a collective sense off frenzy.

The housing market returning to normal will not cause the economy to go into the sh!tter, or necessarily be as a direct result of it either, it's just unfortunate for Ireland that the end of our bubble is coinciding with a global economic meltdown, and more locally our overdependence on property development being exposed for the sham economy it always was.

By practically any accepted method of calculation, Ireland's housing market has been overvalued for a long time, and remains hideously overvalued in a lot of cases. Things have to return to normal either way.

Firetrap

We've also gotten so used to houses costing a ridiculous amount of money and their shooting up and up in value year after year that any falls in their cost is perceived to be "great value" by vested interests. In 1996, the average house cost €75,000 (source) and there was only a €10,000 price difference between Dublin and the rest of the country. It's now over €100,000! Taking inflation into account, that's still a hell of a difference.

Freddie59

The two replies above say it all really. Anyone care to venture a guess as to what house prices will 'return to? 1999 prices? 2001 prices? 2003 prices? Where indeed.

As one waiting to purchase (and I'm sure there are many others like my wife and I) I want to be really sure I'm getting the best value I can. It is a one in a lifetime opportunity.

The EAs talk it up; the media is greatly confused by it all at times; Morgan Kelly and George Lee appear to be the only ones to call/called it right; while Joe Public watches, both bemused and confused by it all.

Freddie59

ForegoneReality wrote: »

It'll be interesting to see whether I'll be laughed out of the place or not.

I don't think so. Our niece looked at a new development in Waterford (major national building firm) and the price dropped by €60k over a period of a couple of months. Needless to say she's still holding off.

Another niece of ours bought a 4-bed detached. It was on in early 08 at €420k. She bought at €385k. When she saw the fall she bartered and got it for €355k. You can now get one for around €280k.

Freddie59

Senna wrote: »

As said above, people should look at what 4xmain salary and 1xsecond salary (my opinion) will get them. Wait till that buys a house you will be happy in for the next 25 years. That may be a 2/3/4/5 bed depending on yourself. But dont rush in just because you think 25% discount is a great deal and it couldn't drop much more. Remember that the house didn't sell for the first advertised price, so it's possible that it was never going to be bought for that price. Your getting 25% reduction on a price that was completely unrealistic even in 2006.

Its early days for house price drops and there is no reason prices wont continue to drop in 2010 or 2011. The economy wont be any better by the end of 2009 and what will happen in 2010 to change anything?? The average property crash takes 7 years, and the average property crash didn't have a world recession at the same time.

There may never be a bottom of the market, who is going to tell you its the bottom? For example, House prices could start to rise in one county in 2011, but continue to drop for another year in a different county (i doubt rises in 2011 myself). If you stick to a strict salary multiple, can afford the repayments (about 35% of net earnings max) and are secure in your job, that's when you should buy. The problem is we need another 35-40% drop in average prices to reach a point where average house match my salary multiple above. Average house prices also include a hell of alot of apartments and worthless semi's in the middle of know-where.

That's about it. When we bought our last home in 1987, it cost IR£27,500 (roughly €33,000 equivalent). My gross salary at the time was IR£15,000. So the house (a modern 3-bed semi) didn't even cost twice my gross annual salary. Not so now.

The_Conductor

Freddie59 wrote: »

The two replies above say it all really. Anyone care to venture a guess as to what house prices will 'return to? 1999 prices? 2001 prices? 2003 prices? Where indeed.

As one waiting to purchase (and I'm sure there are many others like my wife and I) I want to be really sure I'm getting the best value I can. It is a one in a lifetime opportunity.

The EAs talk it up; the media is greatly confused by it all at times; Morgan Kelly and George Lee appear to be the only ones to call/called it right; while Joe Public watches, both bemused and confused by it all.

Well- according to the 2001 IMF report- we were considered to be ~20% overvalued at that point in time. Allowing for an average 4% inflation related appreciation- and then negative real inflation in 2009/10- its a reasonable assumption that 2001-2002 prices would be roughly where we'll end up.

Of course we were already in a bubble scenario at that point- so we will just have to hope that lending multiples and salary increases in the intervening years take care of that element of froth........

At the end of the day- it doesn't really matter- they are going to fall, and they are going to continue to fall...... Personally I don't think prices will fall 46% in 2009 by any means- people simply won't sell (as is currently the case), they will sit on their hands in the misplaced hope that there will be an upswing they can offload their boxes on. The overall decline may very well exceed the 46% forecast- I just disagree with the timeframe.

spockety

Freddie59 wrote: »

The two replies above say it all really. Anyone care to venture a guess as to what house prices will 'return to? 1999 prices? 2001 prices? 2003 prices? Where indeed.

Very difficult to know, as there is a lot of sentiment involved in the whole process.

But in 1998, the average wage was 22,200 a year (CSO), and the average house price in March of that year was 98,046 (ESRI).

In 2006, the average wage was 32,471, and the average house was 287,664.

So wages went up 46%, but houses went up 193% in that time.

So if houses went up a little bit above the line of increasing in wages, say 50% instead of 46% over that period, the average house price in 2006 really should have been 147,069.

So that is roughly HALF of the actual price of a house in 2006.

Those of you who think that everything is fine, property is good value now, the boom is good, house price increases are good, etc., I ask, what exactly are the fundamentals that stack your argument? What exactly is it that makes Ireland in 2008 so much different from Ireland in 1998 that justifies house prices being roughly double what they really should be based on historical norms? What are the economic principles that justify the huge deviation between economic gains in people's pockets (wage increases), and the increase in property prices? I'd love to actually hear it, because to me I haven't heard anything that gives fundamental economic sense to what happened from 1998-2006, other than cheap credit and a collective pyramid scheme type frenzy.

spockety

David McWilliams writing today:

http://www.thepost.ie/post/pages/p/story.aspx-qqqt=DAVID+McWilliams-qqqs=commentandanalysis-qqqid=38577-qqqx=1.asp

Change? Yes we can and must
Sunday, January 04, 2009 By David McWilliams
Now that even last year’s cheerleaders have accepted that the Irish boom was more or less ‘hot air’, inflated by easy credit, there is little point in going over the rights and wrongs of what happened. The case is clear: an economically challenged government, perniciously influenced by the interests of the housing lobby, blew it. The entire Irish episode will be studied internationally in years to come as an example of how not to do things.

Was it a well-orchestrated conspiracy by a few very wealthy people? Was it simply mass plutocratic hysteria or was it appalling governance at every level of the Irish state from the Financial Regulator, the planners and the Department of Finance? Maybe, it was a combination of all three, with a bit of half-assed ideology stitching the fabric together. One other thing is clear: the media -much of them now baying for blood -w ere as culpable as any other influential sector of our society. The media, which should have been critical and alert to the threats to our prosperity, caved in and believed the hype.




We are now seeing the pathetic revisionism of many who are mouthing platitudes such as: ‘‘No one could have foreseen this’’ or ‘‘Everyone knew it couldn’t last’’. Well, hold on, people did foresee it, some people did forecast the crash and warned that it would be so calamitous as to knock the country back a generation, but we were ridiculed at the time -by the political elite, the financial cabal and, more egregiously, by our sycophantic colleagues in the media who are allegedly paid to analyse.

As we head into the new year, is there anything we can do in Ireland to make sure that we are never again beguiled by a portfolio of over-valued council houses, apartments in the Algarve, blacked out Jeeps and self-congratulation?

A good place to start is with the Financial Regulator. Doubtless, the incumbent regulator is on his way out, so what should the new one do to make sure we are not entrapped by property again?

If we examine the real accelerator of the property mania, we can see that the crucial problem was the lending policies of the banks, which stood to gain enormously from property price increases.

The banks allowed their balance sheets to play tricks on them. As property prices rose, the underlying collateral, which underpinned their property lending, became progressively debased. It is this very fragility of collateral that is now hammering them. The fragile collateral, which up until the top of the cycle was driving profits, is now the hazardous waste that is driving up losses.

The crucial mistake made by the banking system was to think that the market price was an accurate reflection of value. During a bubble, this is never the case. Equally in the bust, now that prices are falling over a cliff, the plummeting market forces prices to overshoot on the downside. This price overshoot means that credit will contract further as banks rein in lending. This will cause prices to fall further and ensure that bad loans will be worse than they need to be.

Therefore, we have a systemic problem that is so obviously deleterious to any economic recovery. Are we going to do nothing and become hostage to a flaw in the system or should we make the most obvious change to lending practices that could hasten the recovery and ensure that this boom-bust carry on is consigned to history?

The problem is that picking moments in an economic cycle to gauge the value of collateral either inflates the boom or accelerates the bust. So why pick moments at all? Why not use a moving average of the value of land over a 20-year period to assess the real long-term value of collateral? By using a simple moving average against which to lend, we eliminate the lending madness that leads to a boom/ bust cycle in the first place.

If we had done something like this in Ireland over the past decade, we would never have had our housing boom. Prices would have increased gradually because lending would have increased gradually and ultimately the pace of house price inflation would have been determined by the rate of inflation and developments in the rental market.

If we were to take the long-run average price of houses as collateral as the basis for lending, the property boom would not have happened.

More interestingly, if we instigated such a lending policy now, it would mean that the extent of price falls would be significantly curtailed. As things stand, Irish property prices are likely to fall by another 50 per cent from here, with development land liable to fall by even more.

More worryingly, with the current lending system, these falls will go on for many years, contributing to higher unemployment, emigration and leading to an unprecedented explosion in government debt, with attendant higher taxation. The main reason for this, quite apart from the post-boom adjustment that has to take place in the economy, is that the collateral model that underpins lending and thus monetary policy is not right. The monetary trap has been sprung and Ireland is caught in it.

No matter how low interest rates go, we will still be trapped because deflation is making people postpone their buying decisions as they believe (rightly) that the price of everything, including houses, is falling. Why buy now when you will get the stuff cheaper next month?

Ultimately, deflation corrodes an economy and a society more than inflation ever could, and we in Ireland must avoid this at all costs. At some stage, we need to change things. We might need prices to fall another bit from here to become more competitive, but it’s time to put a stop to this. We need to call a halt.

If the new Financial Regulator has any wit, this idea would be introduced overnight. In fact, it should become part of the global solution to the financial crisis. Unfortunately, in Ireland, the new regulator is likely to be dredged from the same Central Bank/Department of Finance/ IFSR Agene pool, which does not inspire any confidence.

A little bit of hard thinking -rather than the same policies and people who got us into this mess -is what Ireland needs. A 20-year moving average of land prices as the basis for collateral is the way forward. We have no time to waste.

321654

spockety wrote: »

Very difficult to know, as there is a lot of sentiment involved in the whole process.

But in 1998, the average wage was 22,200 a year (CSO), and the average house price in March of that year was 98,046 (ESRI).

In 2006, the average wage was 32,471, and the average house was 287,664.

So wages went up 46%, but houses went up 193% in that time.

So if houses went up a little bit above the line of increasing in wages, say 50% instead of 46% over that period, the average house price in 2006 really should have been 147,069.

So that is roughly HALF of the actual price of a house in 2006.

Those of you who think that everything is fine, property is good value now, the boom is good, house price increases are good, etc., I ask, what exactly are the fundamentals that stack your argument? What exactly is it that makes Ireland in 2008 so much different from Ireland in 1998 that justifies house prices being roughly double what they really should be based on historical norms? What are the economic principles that justify the huge deviation between economic gains in people's pockets (wage increases), and the increase in property prices? I'd love to actually hear it, because to me I haven't heard anything that gives fundamental economic sense to what happened from 1998-2006, other than cheap credit and a collective pyramid scheme type frenzy.

Its not as simple as that.
Dont forget that since then it has become the norm for both halves of a couple to be working when buying a house. So spending power has doubled. And taxes were a lot lower too in 2006 than 1998.

The_Conductor

321654 wrote: »

Its not as simple as that.
Dont forget that since then it has become the norm for both halves of a couple to be working when buying a house. So spending power has doubled. And taxes were a lot lower too in 2006 than 1998.

Well- with a forecast of an increase of over 140k in unemployed figures- possibly as high as 250k unemployed by the end of 2009- the era of dual income households may very well be well and truly over. In addition- while the government has said it will try to focus on cutting services, rather than increasing taxes- its also now considered likely that significant increases in taxes are necessary (the NTMA now estimate having to borrow between 21.5 and 24 Billion in 2009- and thats before tomorrow's revised financial figures are released).

On top of all of this- with individualisation of the tax bands- a married couple where both were working and one now chooses to stay at home- cannot offset their tax from the outside worker to the stay at home parent- in the manner they could in 1996.

While the situation may not be similar to 1996 *yet*- its looking like it'll be a hell of a lot worse before long.........

spockety

321654 wrote: »

Its not as simple as that.
Dont forget that since then it has become the norm for both halves of a couple to be working when buying a house. So spending power has doubled. And taxes were a lot lower too in 2006 than 1998.

Well it has only become the 'norm' because two incomes have been NEEDED to buy a house at the inflated prices on offer. With unemployment heading up, the cost of childcare remaining ridiculously high, perhaps we will see hand in hand moves for more affordable housing for a traditional single income household with one parent having responsibility for staying at home.

That is what was normal, and should become normal again. I mean, a couple in their mid twenties needing a combined income of 100k+ to buy a 2 bedroom apartment on the outskirts of Dublin at the height of the bubble.. utter madness. What happens when they have children?

The banks were wreckless with their lending policies, and if/when things are tightened up further, why would they not go back to more traditional mortgage calculations (2.5-2.5x + 1x)?

Oh yeah, and on top of that, things were different in 1998... there were not 100% mortgages, or 40 year mortgages for that matter. Long way to go yet.

krugerrand

spockety wrote: »

Laughable.

The bias is obvious. Most people who are not property owners want house prices to fall.

It is beyond doubt that house prices will fall by in 2009; the question is by how much. All those non-property owners, hoping to buy when house prices get cheaper, better not wish that house prices fall by 46% in 2009. By all means hope that that prices fall, if that's your preference, just don't hope that they fall by 46% in 2009:)

Be careful what we wish for, we might get it.

If house prices fall by 46% in 2009 the implications in terms of the extent of the prevelance negative equity and the resultant loan defaults, will cause such a severe shock to the banking system and thus the general ecomomy that you may well be on the dole yourself.

krugerrand

Freddie59 wrote: »

That's about it. When we bought our last home in 1987, it cost IR£27,500 (roughly €33,000 equivalent). My gross salary at the time was IR£15,000. So the house (a modern 3-bed semi) didn't even cost twice my gross annual salary. Not so now.

1987. Enough said.:)

spockety

krugerrand wrote: »

The bias is obvious. Most people who are not property owners want house prices to fall.

I think most people who are not property owners want to be able to buy a home at what should be at a historically affordable price for their income level.

As for my bias, my thoughts on the market ensured a painful exit from it in 2008, so don't presume without knowing. There are a lot of property owners on here, on askaboutmoney.com, and on thepropertypin.com who are acknowledging the reality even though it is incredibly painful for them to do so.

It is beyond doubt that house prices will fall by in 2009; the question is by how much. All those non-property owners, hoping to buy when house prices get cheaper, better not wish that house prices fall by 46% in 2009. By all means hope that that prices fall, if that's your preference, just don't hope that they fall by 46% in 2009:)
Be careful what we wish for, we might get it.
If house prices fall by 46% in 2009 the implications in terms of the extent of the prevelance negative equity and the resultant loan defaults, will cause such a severe shock to the banking system and thus the general ecomomy that you may well be on the dole yourself.

Actually, the economy was already ballsed up by wreckless policies which gave us 100% mortgages, 40 year mortgages, and house prices tripling in value over 8 years with no solid economic foundation for such a scenario.

The correction of this is going to be very painful, you are right, but it is also a wholly necessary step on the path to recovery. The quicker it happens, the better in the long run.

It will be much better for the economy when more of people's income is being spent in other areas of the economy, rather than crippling mortgage repayments.

The_Conductor

krugerrand wrote: »

1987. Enough said.:)

Why?
Property prices were beginning to rise- the recession was ending.
We are entering from the other side here (and it could well be a lot worse- as in 1987 the global economy was pretty ok, it was only balls-upped here).
While it may be unreasonable to expect *house* prices to fall to twice average salaries- apartment prices could very well end up in that territory- and house prices in the 3-4 times average salary ballpark.

Freddie59

krugerrand wrote: »

1987. Enough said.:)

Explain please?

The_Conductor

Freddie59 wrote: »

Explain please?

I think he was talking about the crap time we had in the 80s here in Ireland......

krugerrand

spockety wrote: »

I think most people who are not property owners want to be able to buy a home at what should be at a historically affordable price for their income level.

Exactly ! That explains the bias in the posts of most people who are not property owners.

spockety wrote: »

The correction of this is going to be very painful, you are right, but it is also a wholly necessary step on the path to recovery. The quicker it happens, the better in the long run.

My point is that a further 46% drop house prices in 2009 would be too much of a shock for the financial system and the wider economy.

EnoughSaid

krugerrand wrote: »

Exactly ! That explains the bias in the posts of most people who are not property owners.


My point is that a further 46% drop house prices in 2009 would be too much of a shock for the financial system and the wider economy.

Yes it will be a very big shock but there is very little that can be done to prevent it now! This is what happens in a big recession and why it is better to stay clear of debt. The property bubble has burst and even the dogs in the street now know that the emporer has no clothes.

The property boom was just an asset bubble fuelled by cheap debt. Now that cheap loans are no longer available, the party is over and it is the people who took out huge mortgages to fund this bubble in order to get "on the property ladder" are the ones who are left to carry the can and pay for it all.

saf

Hi Members,
t
I have recently finalised a property in cavan.its a four bedroom property whih i got it for 170K the price came from 210K. i have given a booking deposit for the property. After reading all these reply iam confused. do you thing the value of the property will go further beyond this. even if it goes what your idea of the value at the end of this year. i have my bank loan approved. please advice me in relation to this deal. did I got a good deal.

thanks

saf

321654

saf wrote: »

Hi Members,
t
I have recently finalised a property in cavan.its a four bedroom property whih i got it for 170K the price came from 210K. i have given a booking deposit for the property. After reading all these reply iam confused. do you thing the value of the property will go further beyond this. even if it goes what your idea of the value at the end of this year. i have my bank loan approved. please advice me in relation to this deal. did I got a good deal.

thanks

saf

in all honesty, none of can pretend that we know. The best thing to do is what you think suits your own position.

krugerrand

EnoughSaid wrote: »

it is the people who took out huge mortgages to fund this bubble in order to get "on the property ladder" are the ones who are left to carry the can and pay for it all

On the contrary, if house prices drop by 46% in 2009, everybody will be carrying the can and paying for it, including you. So you'd better hope that they don't drop by 46% in 2009:)

321654

smccarrick wrote: »

Well- with a forecast of an increase of over 140k in unemployed figures- possibly as high as 250k unemployed by the end of 2009- the era of dual income households may very well be well and truly over. In addition- while the government has said it will try to focus on cutting services, rather than increasing taxes- its also now considered likely that significant increases in taxes are necessary (the NTMA now estimate having to borrow between 21.5 and 24 Billion in 2009- and thats before tomorrow's revised financial figures are released).

On top of all of this- with individualisation of the tax bands- a married couple where both were working and one now chooses to stay at home- cannot offset their tax from the outside worker to the stay at home parent- in the manner they could in 1996.

While the situation may not be similar to 1996 *yet*- its looking like it'll be a hell of a lot worse before long.........

We dont know percentage of people who will lose their jobs have mortgages, or how much the payments on that morgage are, or how many will be half of a married couple, so we cant say that "the era of dual income households may very well be well and truly over". Thats pure speculation.

Just because you quote some figures in a post, and then make completely unsupported statements in there too, doesnt hide this wild speculation.

spockety

krugerrand wrote: »

On the contrary, if house prices drop by 46% in 2009, everybody will be carrying the can and paying for it, including you. So you'd better hope that they don't drop by 46% in 2009:)

Can you explain how? Some facts?

A lot people who predict relatively large falls in house prices tend to at least roll out something to back up their argument. We see calculations like multiple of rents, potential investment yield, salary multiples, historical data, inflationary adjusted figures etc., to really give good credence to an argument that house prices still have Z% to fall, where Z is a specifically cited number.

You might say that 46% drops would be bad, but you don't say exactly why, what measures would be introduced that would affect everyone in society as a result of such a drop. It has been shown without a shadow of a doubt that it was the ridiculous inflation of the housing/property market that has caused much if not most of the trouble that Ireland now finds itself in. Instead of putting our resources and intelligence to productive use in creating a long term sustainable economic model over the last 10 years, a relatively small number of people managed to railroad the country with bad decisions that caused a fever that benefited the few, and put everyone else in a ridiculously perilous position.

Current property prices are not conducive to an economic recovery, nor are prices 10% or 20% below current levels. We need to get back to historical norms before the country can 'get better'. It is high time that investing was left to professional landlords, that the ordinary person has a good chance at affording a home for their family, and the disgusting greed that characterizes the property bubble of the last 10 years is sent to the grave.

The Irish economy needs to refocus. We need to forget about property and development, and put our not inconsiderable talents to more productive uses that will sustain us for generations.

If it takes a 46% drop in property prices and some years of extreme pain before we can get on track, then that is what we shall have to do. But be under no illusion, this was all inevitable, and the warnings were being sounded almost from the beginning of it.

JTMan

Todays Sunday Business Post has an article that says that property prices (residential and commercial) will fall by 50% from todays prices. Development land will fall by over 50% from todays prices.

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=DAVID+McWilliams-qqqs=commentandanalysis-qqqid=38577-qqqx=1.asp

We are on the verge of a full scale collapse.

Don't think about buying till the bloodbath is over.

gurramok

And a crowd called IMAF (mortgage people) are saying house prices will not recover until 2015!
http://www.tribune.ie/business/news/article/2009/jan/04/house-prices-will-not-recover-until-2015-says-mort/

krugerrand wrote:

On the contrary, if house prices drop by 46% in 2009, everybody will be carrying the can and paying for it, including you. So you'd better hope that they don't drop by 46% in 2009

Now, whether they go down by 10% or 49%, how exactly do high house prices benefit the economy?

That explains the bias in the posts of most people who are not property owners.

Another common misconcepton.

Trader uppers are also praying for cheaper prices.

Others who bought their house couldn't care less what price its valued at as they bought their house to live in for the long term.