David McWilliams predicts further 50% fall in house prices

Male30something

From today's Sunday Business Post

"...in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying."

road_high

And he hasn't really been wrong so far has he? A bitter pill to swallow but everything he is aying does make sense, unfortunately..

Jimbo

If they fall 50%, won't they generally be below the basic cost of construction?
If so, would this not only be temporary until the over-supply of housing is used up?

oceanclub

Jimbo wrote: »

If they fall 50%, won't they generally be below the basic cost of construction?
If so, would this not only be temporary until the over-supply of housing is used up?

*cries, beats head against wall*

P.

Jimbo

oceanclub wrote: »

*cries, beats head against wall*

P.

Very informative post.

Care to explain?

SoupyNorman

For the people who've purchased property in the last 6years or more I hope David is being slightly sensationalist, for people like me who is waiting for the bottom to be reached before I buy I hope he is being reserved in his forecasts.

You cant help but admit that the article exudes sense and is calling a spade a spade, none of the self-absorbed property journalism is present where the writer says things like 'I believe we've reached the bottom' (with no concrete reasons to back up the statements).

The calculation of Annual rent*12-14 is amazingly simplistic but it is such a fair way to decipher what the value of a property is worth.


Viva le property crash!

homme d'affaire

Jimbo wrote: »

If they fall 50%, won't they generally be below the basic cost of construction?

No, the cost of construction has to and will probably fall too. Electricians/builders/carpenters/etc should not be earning salaries of 50k+.

Jimbo

homme d'affaire wrote: »

No, the cost of construction has to and will probably fall too. Electricians/builders/carpenters/etc should not be earning salaries of 50k+.

Maybe they were earning that in boom, but the cost of construction has plumetted in the last 12 months.

Of course labour, materials and land costs can and will fall more, but if house prices do fall another 50%, they will have to be below the cost of construction. I'm pretty sure trademen won't work for below minimum wage.

oceanclub

Jimbo wrote: »

Very informative post.

Care to explain?

No, because I and many have addressed those two questions over and over again in this forum alone.

P.

TaxiManMartin

Why is he buying up properties then?
My sister is a friend of McWilliams Mrs.
She told me the McWilliams was bidding on several properties over the last few months. I must find out if they actually bought any yet.

Jimbo

oceanclub wrote: »

No, because I and many have addressed those two questions over and over again in this forum alone.

P.

Thank you for your valued input so.

I must have forgotten to check your previous posts before asking valid questions on this thread.

SoupyNorman

TaxiManMartin wrote: »

Why is he buying up properties then?
My sister is a friend of McWilliams Mrs.
She told me the McWilliams was bidding on several properties over the last few months. I must find out if they actually bought any yet.

Where does it say he is buying up property?


To be fair,

You're a Taximan whose sister has a friend whos friends with the authors wife..


Purple-monkey dishwasher, tbh.

Bobeagleburger

I hope he's right. The more they fall the better

SoupyNorman

rarnes1 wrote: »

I hope he right. The more they fall the better

Not exactly, if property prices went to ridiculously low prices you may end up with empty/derelict houses/estates like say images we see in places like Detroit.

What should happen, what David is predicting and all I want is to buy somewhere for it's actual worth (or just below it).

ronbyrne2005

Cost of building is irrellevant when theres such an oversupply. Manufacturers of goods often charge below cost of production when there is an oversupply of their products. So prices have already halved and halve again means 75% fall peak to trough, which seems about right considering the economic collapse we've had, sure Japan dropped 75% back in 1990s and their economy was much stronger then than ours is now.

viztopia

i read another article in the business post today were the writer fo the article stated that property prices had already fallen 40% from their height. so is the sunday busniess posts and Mc Williams believe that property prices are going to fall to 10% of their former value????

mikemac

50% from here, that's 30% of what their max price was, not 10%

oceanclub

His maths is based on the current "good value" price of the house.

So 50% off the current price, yes.

As pointed out before, Irish house prices were about 325% off the "real" price (compared to 175% in the United States).

P.

oceanclub

TaxiManMartin wrote: »

Why is he buying up properties then?
My sister is a friend of McWilliams Mrs.
She told me the McWilliams was bidding on several properties over the last few months. I must find out if they actually bought any yet.

And there's a guy down the chipshop swears he's Elvis.

P.

BendiBus

My only issue with D.McW's calculation is that it's based on rental incomes. They can be just as skewed as sales values. If rents are arseways then so are the property values calculated from them.

Garbage in, Garbage out.

Are rents currently 'correct'? If not, are they too high or too low?

Photojoe

BendiBus wrote: »

My only issue with D.McW's calculation is that it's based on rental incomes. They can be just as skewed as sales values. If rents are arseways then so are the property values calculated from them.

Garbage in, Garbage out.

Are rents currently 'correct'? If not, are they too high or too low?

Rents are too high and will drop considerably.

High unemployment and taxes are here to stay for a good few years in Ireland. In 3-5 years time when interet rates are higher, banks will only be lending 3-4 times salary to securely employed. 50% is a very realistic figure.

SoupyNorman

BendiBus wrote: »

My only issue with D.McW's calculation is that it's based on rental incomes. They can be just as skewed as sales values. If rents are arseways then so are the property values calculated from them.

Garbage in, Garbage out.

Are rents currently 'correct'? If not, are they too high or too low?

Fair enough that rents are probably 'skewed' currently too but following the annual rent*12-14 model no property would even equal what the rental value multiplied by 12-14 is on that property.

It's an elementary way to calculate a property value but at least it has a foundation and a solid reason behind the calculation, not something along the lines of...'we charge what we charge for apartments because they are just off M50 slip road no.3 so access to IKEA is unparalleled'

Senna

Looking at asking prices in my area, I would say there is more than 50% to come off. It may be 50% off what houses are selling for at the moment, i.e 15-25% less than asking, but the majority of properties I see will be worth 60-70% less than asking in a few years.

I'd say we've seen some of the biggest prices drops already (in a short time) and it will be a long drawn out process to get to the bottom, its a pity really, if sellers and developers were more realistic we could have a functioning market much quicker.

spockety

Aye, still a way to go I reckon.

The bulls will tell you that houses have 'never been more affordable', and so on. However I fear they are still using 35/40 year mortgages as the basis for their calculations, and not allowing for inevitable interest rate rises over the period of that mortgage. They'll tell you that salary multiples are an archaic calculation and are no longer relevant given the way interest rates have gone.

Maybe they have a point on that, in the short term. But they probably also thought they had a point on Mortgage Interest Relief making things affordable, and that's on the way out.

But even if you take them at that, and use say a 30% of take home income as a mortgage repayment limit, and given the average house according to the flawed PTSB/ESRI index is 253k, then;

Even on a 25 year mortage at 3.5% (looks like the average current variable), that costs 1,266 a month to service. If that's 30% of your take home you would be pulling hom 4,220 a month, or 50,640 a year. Net. Now I could be wrong, but that to me suggests a gross salary of 80k or thereabouts??

So even as things stand, in order to buy an average house in Ireland, you need to be earning more than double the average wage.

Long way to go folks. Long. Way. To. Go.

p.s. As well as earning more than double an average wage, you also need to have about 25k savings for a deposit lying around.
p.p.s. It also assumes you have no other debt to service (car loan etc.)! And after the blowout of the last 10 years I'll leave it to you to think about how many debt free people there are with 25k+ in their back pockets earning 80k+ waiting to jump on the opportunity to buy an average house.

jmayo

homme d'affaire wrote: »

No, the cost of construction has to and will probably fall too. Electricians/builders/carpenters/etc should not be earning salaries of 50k+.

More than a few still have to cop on tho this fact. :rolleyes:

Jimbo wrote: »

Maybe they were earning that in boom, but the cost of construction has plumetted in the last 12 months.

Of course labour, materials and land costs can and will fall more, but if house prices do fall another 50%, they will have to be below the cost of construction. I'm pretty sure trademen won't work for below minimum wage.

Well then they won't work, will they.
BTW our minimum wage will have to fall as well.
Material prices will have to drop or imports will take over.
It's about time some people woke up to fact that the glory days of demanding certain amounts for often substandard service is well and truly over.

SoupyNorman wrote: »

Not exactly, if property prices went to ridiculously low prices you may end up with empty/derelict houses/estates like say images we see in places like Detroit.

What should happen, what David is predicting and all I want is to buy somewhere for it's actual worth (or just below it).

Ehhh we already have empty estates, half finished estates and derlict half finished houses or haven't you noticed ?

gar_29

spockety wrote: »

But even if you take them at that, and use say a 30% of take home income as a mortgage repayment limit, and given the average house according to the flawed PTSB/ESRI index is 253k, then;

Even on a 25 year mortage at 3.5% (looks like the average current variable), that costs 1,266 a month to service. If that's 30% of your take home you would be pulling hom 4,220 a month, or 50,640 a year. Net. Now I could be wrong, but that to me suggests a gross salary of 80k or thereabouts??

generally agree with what you say, but 50k nett is close to 65 gross, or at least it was before the recent budget. probably 70k now.

and i guess most young people would be happy with 35ish % of take home, which still leaves a nett take home of 3600, 43k nett a year. i guess about 58k gross? still a high salary for an average house.

The_Conductor

Jimbo wrote: »

Maybe they were earning that in boom, but the cost of construction has plumetted in the last 12 months.

Of course labour, materials and land costs can and will fall more, but if house prices do fall another 50%, they will have to be below the cost of construction. I'm pretty sure trademen won't work for below minimum wage.

Our minimum wage is the second highest in the whole world. There is precisely zero justification for it to be set at this artificially high level. It too will have to be severely chopped to reflect our changed economic circumstances.

kmick

I for one am looking forward to the day where houses in Rathgar where I live fall from 1m at the peak to 250k (i.e. the 75% drop predicted on here).

spockety

gar_29 wrote: »

generally agree with what you say, but 50k nett is close to 65 gross, or at least it was before the recent budget. probably 70k now.

and i guess most young people would be happy with 35ish % of take home, which still leaves a nett take home of 3600, 43k nett a year. i guess about 58k gross? still a high salary for an average house.

Ok I punched the numbers in here:

http://www.deloitte.ie/tc/Default.aspx

You need to go to 80k to pull home 50k a year.

67k to pull home the 43k you mention.

Given that houses in the depths of Ballymun (no offence to anyone, just an example) are still asking 300k, which is 50k more than the ESRI average, things are still.... well... very wrong.

D3PO

Male30something wrote: »

From today's Sunday Business Post

"...in a world where house price speculation is over, Irish house prices will have to fall on average by 50 per cent from where they are today to be worth buying."

the same David McWilliams that is championing Ireland to remove itself from the Euro.

I used to have high time for McWilliams as a respected Economist. Over the last 6 months or so It seems hes more interested in selling papers and sensationalism than actually looking at the economic facts

partyguinness

Man am I glad I didnt buy 2 years ago.

I put down a deposit on a brand new house for €290k. I got a 100% mortgage and was already to sign papers.

Went skiing and changed my mind...wanted to have more fun before getting a 40 yr mortgage.

The houses are now on the market for €190k only half of them got built. Thats 100k less and not to mention that in mortgage repayments over 40 yrs.

Lucky escape.:eek: