David McWilliams predicts further 50% fall in house prices

D3PO

gurramok wrote: »

Growing population, now that is laughable. IBEC recently said that 100,000 left the country!

.

I didnt know IBEC took over from the CSO wow how did I miss that :rolleyes: I mean they cant even get the number of members they have right says it all really.

EKRIUQ

smccarrick wrote: »

Ps- if it accidentally burns down- regardless of what you have it insured for- the maximum you will be allowed to claim is the cost of reconstruction of the unit (providing you are not underinsured).

Not totally accurate,

The insurance costs should be calculated on a total loss situation ie. the house has been totally destroyed and has to be demolished and totally rebuilt. In addition to demolition and reconstruction, the costs also allow for building Surveyors, architects ,quantity surveyors fees and for VAT at the correct rates.

Who ever values your house should know this, and now we have the situation where the insurance value could be €100,000 more than the house.

gurramok

D3PO wrote: »

I didnt know IBEC took over from the CSO wow how did I miss that :rolleyes: I mean they cant even get the number of members they have right says it all really.

Do the CSO have population updates since the pre-recession census of 2006?

D3PO

gurramok wrote: »

Do the CSO have population updates since the pre-recession census of 2006?

No but with a projected to increase from 4.2 to 6.7 million in the next 40 years its fair to say the 100k of people emigrating would be sucked up quite quickly.

Fighting Irish

hell no

SoupyNorman wrote: »

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.

bangersandmash

D3PO wrote: »

No but with a projected to increase from 4.2 to 6.7 million in the next 40 years its fair to say the 100k of people emigrating would be sucked up quite quickly.

I think you're forgetting that the projected increase would have included not only those 100k, but their children and grand-children.

The 6.7 million figure was mooted by an EU study published last summer, based on boom-time population trends. It will be interesting to see whether that prediction will hold true now that inward migration has almost come to a stand-still and emigration is beginning to become a feature of Irish life again.

Borzoi

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."

As an economist, then the only sensible thing for McWilliams to do is sell his current abode, rent and wait for house prices to fall to his predicted level.......

D3PO

good point banger.

like I said I could be wrong nobody knows what will happen for sure. Ive just tried to outline my thought process behind my comments.

I still believe the fact we have already seen a 50% drop from the peak, combined with the cost to build, irish peoples thirst to own rather than rent and so on and so forth will prevent a further 50% reduction.

75% reduction from the peak I just cant see it. lets wait and see though.

AARRRGH

McWilliams is probably to stay in his current home. Not everything has to be about making as much money as possible or doing exactly the right thing.

He is just pointing out the crash has a long way to go.

Anyone who disagrees with him is living in fantasy land really...

ntlbell

D3PO wrote: »

good point banger.

like I said I could be wrong nobody knows what will happen for sure. Ive just tried to outline my thought process behind my comments.

I still believe the fact we have already seen a 50% drop from the peak, combined with the cost to build, irish peoples thirst to own rather than rent and so on and so forth will prevent a further 50% reduction.

75% reduction from the peak I just cant see it. lets wait and see though.

based on other housing busts wasn't 70% the average drop from peak?

why is 75% so hard to believe?

is it because "ireland's different" ?

faceman

McWilliams doing what he does best and has been doing since 2000. Lots of soundbytes but not alot of meat behind it.

I dont now how he came to the conclusion it would be 50% really. Who's to say its not going to be 70% or 20%? Its no secret that prices are coming down.

You cant compare mortgage prices side by side with rental values in a market with massive rising unemployment.

If the level of employment was to improve in 3 years time and unemployment started to fall, would we still see a cut of upto 50%? Well its hard to say really, there are other factors to consider. Taxes and relief, CGT.

My fear is more when the market does bottom out and the "time is right" *crystal ball* and there is a rush to buy property because its so cheap causing a race to snap it out over a short to medium term, artificially inflating prices similar to what we saw in 2006.

Price of property is only an issue for homeowners if they want or need to sell. Investors are a different kettle of fish.

spockety

Borzoi wrote: »

As an economist, then the only sensible thing for McWilliams to do is sell his current abode, rent and wait for house prices to fall to his predicted level.......

No, what you mean is;

"As an economist, McWilliams should understand that from a financial point of view, the only sensible thing for him to do is sell his current abode, rent and wait for house prices to fall to his predicted level. But it's more than just a financial decision."

Surely?

D3PO

oh heres another counter argument as to why I think Mcwilliams is talking drivel

"So, let’s see where Irish houses will end up. Take a typical house in a commuter town. On daft.ie there are hundreds of them. For example, in Newbridge, Co Kildare, you can buy a new three-bed house for €335,000.This is a steal, according to the ad. A bank will finance this for €9 95 per month.

According to the same website, the average rent for a three-bed in Newbridge is between €950 and €1,000 a month. This house, if it can be rented, will yield €11,400 a year. This implies that, applying the US valuation to the asset, the house should be valued at €159,600.However, in Ireland, we are expecting the house to sell at €335,000."

Conveniently hes not mentioned the annual property tax you pay in the US. Add that up over your lifetime and that bridges the delta significantly.

Mugatu

Borzoi wrote: »

As an economist, then the only sensible thing for McWilliams to do is sell his current abode, rent and wait for house prices to fall to his predicted level.......

Or just maybe he could make sensationalist comments about houses falling another 50% without saying what type of house, what location, not taking into account of current price cuts. Thus stirring up boards like this and pushing McWilliams into the spot light. I wonder if he has another book on the way.

chillywilly

smccarrick wrote: »

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.

one justification is that the price of living is still ridiculously high here, so imo if the minimum wage was cut now alot of people would not be able to survive. Then again, what comes first the chicken or the egg?

D3PO

ntlbell wrote: »

based on other housing busts wasn't 70% the average drop from peak?

why is 75% so hard to believe?

is it because "ireland's different" ?

nothing to do with Ireland being different but that being said each economy has its own nuances which have to be attributed for. Also I think the average boom to bust is about 65% but Ive have to do some digging on that.

D3PO

Mugatu wrote: »

Or just maybe he could make sensationalist comments about houses falling another 50% without saying what type of house, what location, not taking into account of current price cuts. Thus stirring up boards like this and pushing McWilliams into the spot light. I wonder if he has another book on the way.

I was thinking more along the line hes looking at an opportunity to head the Central Bank but I like your thought process

spockety

D3PO wrote: »

oh heres another counter argument as to why I think Mcwilliams is talking drivel

"So, let’s see where Irish houses will end up. Take a typical house in a commuter town. On daft.ie there are hundreds of them. For example, in Newbridge, Co Kildare, you can buy a new three-bed house for €335,000.This is a steal, according to the ad. A bank will finance this for €9 95 per month.

According to the same website, the average rent for a three-bed in Newbridge is between €950 and €1,000 a month. This house, if it can be rented, will yield €11,400 a year. This implies that, applying the US valuation to the asset, the house should be valued at €159,600.However, in Ireland, we are expecting the house to sell at €335,000."

Conveniently hes not mentioned the annual property tax you pay in the US. Add that up over your lifetime and that bridges the delta significantly.

Don't worry, our own property tax is on the way (loads of media plants already happened to soften us up for it). Should have an interesting impact on the property market. Particularly for landlords of properties they are having a hard time filling.

thewing

What fuels house price increases? Rising employment and population

Whilst I don't have figures for population, it is well documented where employment is going.

So as long as this trend continues, house prices will follow in the same direction - down.

And where is the next boom coming from? Who the hell knows.....

D3PO

some good argument and counter argument in this thread I must say.

I dont know how many on here have a background in economics (I certainly dont) but it is a well constructed and well informed bunch of people posting.

seriously we should all run for the Dail Im sure we could do a better job than FF

bangersandmash

D3PO wrote: »

Conveniently hes not mentioned the annual property tax you pay in the US. Add that up over your lifetime and that bridges the delta significantly.

True but it's not unlikely that we'll see some form of annual residential property tax in Ireland in the very near future. Any party that attempts to introduce it will probably face mass unrest, so it'll presumably take the guise of a green/stealth levy. Window tax anyone?

Mugatu

bangersandmash wrote: »

True but it's not unlikely that we'll see some form of annual residential property tax in Ireland in the very near future. Any party that attempts to introduce it will probably face mass unrest, so it'll presumably take the guise of a green/stealth levy. Window tax anyone?

Brilliant. I can just imagine all the windows being boarded up around the country.;)

The scary thing is that it’s not completely unbelievable that this shower we have in government might dream up such a scheme.:D Of course to do a complete u-turn 3 months after implementing it.

D3PO

bangersandmash wrote: »

True but it's not unlikely that we'll see some form of annual residential property tax in Ireland in the very near future. Any party that attempts to introduce it will probably face mass unrest, so it'll presumably take the guise of a green/stealth levy. Window tax anyone?

Is most likely coming alright but personally I think BIFFO & Lenihan are bottlers so it wont count on it till I see it.

Regarding massive unrest what do they expect. They have made a complete hash of the countries finances, and they are going against all the economic principles and are trying to tax their way out of a recession.

thats what you get when you have a laywer in charge of the countries finances.

latenia

Well, McWilliams did want to sell his house in Killiney a few years ago at the peak of things and publicly stated so. Unfortunately, his wife was having none of it. He doesn't mention property taxes in the US but he also doesn't mention their lower rates of income tax which would more than cancel out any difference there.

Small Change

The rental yield arguement is a well founded one.
One of the key factors in any housing market is the level of investor activity and for anyone to invest in property, the return on the investment needs to be sufficiently greater than the return on deposits to compensate for the risk and costs involved

If you take a return of say 7% per annum, this would mean that each year your rent should equal 7% of the purchase price

Flip the equation around and you get a price level of about 14 X Rent

D3PO

latenia wrote: »

Well, McWilliams did want to sell his house in Killiney a few years ago at the peak of things and publicly stated so. Unfortunately, his wife was having none of it. He doesn't mention property taxes in the US but he also doesn't mention their lower rates of income tax which would more than cancel out any difference there.

I dont see how income tax comes into his argument. hes basing the house price fall on US rental yield principles. Tax has no bearing on your rental yield.

spockety

D3PO wrote: »

Is most likely coming alright but personally I think BIFFO & Lenihan are bottlers so it wont count on it till I see it.

There will be sleight of hand done on it.

Someone like, oh.. "We have taken steps to shore up the property market by abolishing Stamp Duty for all transactions.... *whisper* and we're replacing it with an annual property tax".

D3PO

Small Change wrote: »

The rental yield arguement is a well founded one.
One of the key factors in any housing market is the level of investor activity and for anyone to invest in property, the return on the investment needs to be sufficiently greater than the return on deposits to compensate for the risk and costs involved

If you take a return of say 7% per annum, this would mean that each year your rent should equal 7% of the purchase price

Flip the equation around and you get a price level of about 14 X Rent

so what your saying is every landlord should double their rent

lol


:D:D

ionapaul

MG wrote: »

The P/E model has a very intuitive and robust logic underpinning it so I think it is possible - though shocking in it's repercussions.

Yes, it is shocking - but for many of us it is one of the best 'rules-of-thumb' to use and a way to uncover the fundamental value. Obviously people can attach more worth to a 'dream house' - but there are so many houses out there that achievable rent is one of the only factors we can use to determine the value of any given property.

MG

ionapaul wrote: »

Yes, it is shocking - but for many of us it is one of the best 'rules-of-thumb' to use and a way to uncover the fundamental value. Obviously people can attach more worth to a 'dream house' - but there are so many houses out there that achievable rent is one of the only factors we can use to determine the value of any given property.

Absolutely. Jill Kerby made an almost identical point in the Times on Sunday as well by the way. Indeed both McWilliams and Kerby have made this point numerous times in the past. I think people are more willing to accept these as potential realities than they were even a few short months ago.

I wonder does anyone have rental stats comparable to the PTSB/ESRI index from say 96 to 01 to see if the P/E ratio holds there.

Only flaw to this at the moment that I can see is that rents are falling so we haven't a fix on that part of the formula. Falling rents mean an even lower house price using the formula. Delighted