David McWilliams predicts further 50% fall in house prices

partyguinness

I think its about 10 years too late for a property tax.

I have been working in a property related service industry for the lat 7 years. Most of the people I had buying 2/3/4 houses were not developers of speculators but ordinary folk releasing equity and trying to get on some easy money.

Now they had it planned that they would rent to our nice eastern workers and then sell off in 10yrs for a nice retirement nest egg. Now these people are in big trouble

1. Buying beyond their means;
2. Now no rental income coming in.
3. They are in serious serious trouble and with families etc

A property tax will be the end of them and TBH the Gov will not be able to collect it as people just will not have it to pay.

Steviemak

spockety wrote: »

I have never, ever, EVER seen someone who argues against the likelihood of various price drops back up their argument with any logical reasoning whatsoever.

Is that right??

I think his reasoning is sound and clear - See below from his column today

A house is just a simple investment and should be valued according to some financial benchmark. In America, where they have had booms and busts in every generation, the long-term price of a house is equal to 14 times the annual rent the place can generate. Using this valuation, where could Irish prices go?

So, let's pick a typical ghost estate area such as Oranmore in Galway. If you go on Daft.ie you will find all the answers. If you want to buy a three-bed semi in Oranmore, it will set you back €335,000. However, you can rent the same place for €800 a month. What's more, there are 75 vacant three-bed semis in Oranmore advertised on Daft.ie alone.

Using the American valuation method, it implies that the house generates rent for the owner of €9,600. The house is worth 14 times that which gives us a value of €134,400. Yet the seller expects to get €335,000 for it!

The_Conductor

whizzbang wrote: »

Really? Anything formally proposed or just rumour? I'm sure they are soarly tempted!

Rumour. The story is that they didn't do it in the supplementary budget- as they wanted the local and EU elections, along with the 2nd vote on the Lisbon treaty out of the way first, and they were worried that politically it would be suicide before then. The proposal for a further supplementary budget in September was nuked on the basis that it would further erode what little international faith there is in Irish treasury notes. Btw- there is another 8 billion in short term notes due to be issued tomorrow (all at under 90 days- 4 different redemption dates). We are consistently trading at 2-2.5% above German rates- showing the lack of faith in the Irish Government by international investors- and the credibility problem posed by having to revisit the market so frequently.

The bank guarantee is almost worse than anything else- and is a millstone around the NTMA's neck. Whatever about NAMA- if they renew/extend the guarantee- we are screwed.

The_Conductor

Steviemak wrote: »

Is that right??

I think his reasoning is sound and clear - See below from his column today

A house is just a simple investment and should be valued according to some financial benchmark. In America, where they have had booms and busts in every generation, the long-term price of a house is equal to 14 times the annual rent the place can generate. Using this valuation, where could Irish prices go?

So, let's pick a typical ghost estate area such as Oranmore in Galway. If you go on Daft.ie you will find all the answers. If you want to buy a three-bed semi in Oranmore, it will set you back €335,000. However, you can rent the same place for €800 a month. What's more, there are 75 vacant three-bed semis in Oranmore advertised on Daft.ie alone.

Using the American valuation method, it implies that the house generates rent for the owner of €9,600. The house is worth 14 times that which gives us a value of €134,400. Yet the seller expects to get €335,000 for it!

Your calculation is accurate. The going rate for a long term investment is between 7 and 8% (adjusted for risk). This implies a maximum 14 times annual rent (and more realistically- closer to 12 times) for a property- which internationally is actually on the high side if anything......

S.

spockety

Steviemak wrote: »

Is that right??

I think his reasoning is sound and clear - See below from his column today

I think you misread my post. I said that I have never seen a reasoned or logical argument from people who say that prices are NOT going to drop any further or to the same kind of degree that is suggested.

markpb

partyguinness wrote: »

I have been working in a property related service industry for the lat 7 years. Most of the people I had buying 2/3/4 houses were not developers of speculators but ordinary folk releasing equity and trying to get on some easy money.

I wish we could stop using this phrase and just call it what it is: borrowing money.

partyguinness

markpb wrote: »

I wish we could stop using this phrase and just call it what it is: borrowing money.

Well yes of course it was borrowing money what else would it be..against their family home i.e. getting a top up mortgage to buy elsewhere. Dont see what difference it makes which expression is used.

I was never happy about it.

whizzbang

markpb wrote: »

I wish we could stop using this phrase and just call it what it is: borrowing money.

No! It's vital to release all that money building up in the house, otherwise it will start bursting out of the plug sockets and taps!


ermm, ok, yeah, it is just borrowing money.

whizzbang

partyguinness wrote: »

I think its about 10 years too late for a property tax.

I have been working in a property related service industry for the lat 7 years. Most of the people I had buying 2/3/4 houses were not developers of speculators but ordinary folk releasing equity and trying to get on some easy money.

Now they had it planned that they would rent to our nice eastern workers and then sell off in 10yrs for a nice retirement nest egg. Now these people are in big trouble

1. Buying beyond their means;
2. Now no rental income coming in.
3. They are in serious serious trouble and with families etc

A property tax will be the end of them and TBH the Gov will not be able to collect it as people just will not have it to pay.

i would say they will get more property tax from 1000 people owning 3 properties than from 3 developers each owning 1000 properties. Spread the risk of non-payment. I'm sure they are planning on pushing these property owners as close to breaking point as they can.

Rics

Haven't read the whole thread but I hope the prediction is correct.
Houses here have been hugely over-valued for years.
Plus I need to think about buying one in the coming years so it is also for selfish reasons!

The_Conductor

Its irrelevant- pretty much the bulk of the population under the age of 40 are in a negative equity situation they are unlikely to ever extricate themselves from...... In most cases- its primarily a factor if/when they have to sell- as in the case of ye mini-property kingpin with his/her 6-7 properties- the 'having to sell' will be determined in time by the financial institutions.

The transfer of wealth from the younger generations in Ireland to the older generations- is wholly without precedent in the developed world.....

The_Conductor

Rics wrote: »

Haven't read the whole thread but I hope the prediction is correct.
Houses here have been hugely over-valued for years.
Plus I need to think about buying one in the coming years so it is also for selfish reasons!

By the same reasoning McWilliams is applying to his logic- the average industrial wage is going to take a similar tumble- so from an affordability perspective, you are standing still.......

Small Change

markpb wrote: »

I wish we could stop using this phrase and just call it what it is: borrowing money.

I hear you!!
Here are a few other phrases we could do without aswell,
Credit Crunch, Green Shoots, Bail Out, Property Ladder

All these buzzwords actually stifle proper debate IMO

Small Change

smccarrick wrote: »

Its irrelevant- pretty much the bulk of the population under the age of 40 are in a negative equity situation they are unlikely to ever extricate themselves from...... In most cases- its primarily a factor if/when they have to sell- as in the case of ye mini-property kingpin with his/her 6-7 properties- the 'having to sell' will be determined in time by the financial institutions.

The transfer of wealth from the younger generations in Ireland to the older generations- is wholly without precedent in the developed world.....

I've no data readily to hand, but surely this is overstating it a bit?

The_Conductor

Small Change wrote: »

I hear you!!
Here are a few other phrases we could do without aswell,
Credit Crunch, Green Shoots, Bail Out, Property Ladder

All these buzzwords actually stifle proper debate IMO

'Rent-is-dead-money' is another one that comes to mind (blood slowly beginning to boil)........

ki

HI Rics

I'm looking at buying at the moment as well, It is difficult to know when is the right time...

SoupyNorman

ki wrote: »

HI Rics

I'm looking at buying at the moment as well, It is difficult to know when is the right time...

Well it is pretty clear that now is not so just sit back, relax and rent away. Thats what I'm doing, it's no great science currently.

The_Conductor

Small Change wrote: »

I've no data readily to hand, but surely this is overstating it a bit?

I don't think so to be honest. The younger generations were brainwashed with the 'rent-is-dead-money' argument and actively encouraged at every possible stage to 'get-on-the-property-ladder'. The lack of property was seen as a manner of ridiculing someone (or pitying them, depending on the way one felt towards them). We have had 14 years of this- which equates with 2 or possibly even 3 generations (depending on how you define a generation).

I have precisely zero sympathy for the property magnets who bragged about retiring at 40 with their property portfolios- screw them. Its the average person who was brainwashed by the politicians, media and the older generations- into buying into this madness- who deserve some sort of recognition.

How many people between the ages of 25 and 40 do you know who do not own their own little shoebox somewhere? Not very many, I'll wager. Its not difficult to predict the decimation in price of these shoeboxes...... Sure there are some nice shoeboxes out there- but they're still shoeboxes, you know.......

SkepticOne

faceman wrote: »

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.

As well some people fearing that I suspect there's an even greater number hoping for it.

sneakyST

smccarrick wrote: »

I don't think so to be honest. The younger generations were brainwashed with the 'rent-is-dead-money' argument and actively encouraged at every possible stage to 'get-on-the-property-ladder'. The lack of property was seen as a manner of ridiculing someone (or pitying them, depending on the way one felt towards them). We have had 14 years of this- which equates with 2 or possibly even 3 generations (depending on how you define a generation).

I have precisely zero sympathy for the property magnets who bragged about retiring at 40 with their property portfolios- screw them. Its the average person who was brainwashed by the politicians, media and the older generations- into buying into this madness- who deserve some sort of recognition.

How many people between the ages of 25 and 40 do you know who do not own their own little shoebox somewhere? Not very many, I'll wager. Its not difficult to predict the decimation in price of these shoeboxes...... Sure there are some nice shoeboxes out there- but they're still shoeboxes, you know.......

We are not all foobarred dont you know. I would say there are a fair few of us who arent too bad - granted we didnt buy shoe boxes at high prices but bought house we thought was a good price.I have no regrets in buying.
Just a question for people who rent - are you going to rent into your 50's/60's? I've never really thought about long term renting.........

partyguinness

sneakyST wrote: »

We are not all foobarred dont you know. I would say there are a fair few of us who arent too bad - granted we didnt buy shoe boxes at high prices but bought house we thought was a good price.I have no regrets in buying.
Just a question for people who rent - are you going to rent into your 50's/60's? I've never really thought about long term renting.........

Plenty of people rent into their 60s/70s...my g/uncles did..even into their 80s...admittedly they never married so that was a factor also they were too mean fisted...:o..but when they died they each had over 200k in cash sitting in the bank with no debts whatsoever....cash was king to their generation..no credit...no loans.

Another aspect to the Irish property obsession is the obsession of passing on inheritance which is directly linked to the craze.

There is nothing wrong with people wanting to buy a house as a h ome to live in..but this obsession with having 4-5 houses was obscene and just greedy.

sneakyST

partyguinness wrote: »

Plenty of people rent into their 60s/70s...my g/uncles did..even into their 80s....

wow so when I clear my mortagage at 45 - thats 25 odd years rent I'm saving.......not so bad so......

partyguinness

sneakyST wrote: »

wow so when I clear my mortagage at 45 - thats 25 odd years rent I'm saving.......not so bad so......

What exactly is the point of your sarcasm?

I simply made a point that people do rent into old age and its not the end of the world...jesus:rolleyes:

sneakyST

partyguinness wrote: »

What exactly is the point of your sarcasm?

I simply made a point that people do rent into old age and its not the end of the world...jesus:rolleyes:

Wasnt getting at you PG.....trying to make the point that not all buyers are screwed and I dont like the way buyers are cannon fodder at the moment. There are good and bad on both sides of the fence.

gurramok

sneakyST wrote: »

wow so when I clear my mortagage at 45 - thats 25 odd years rent I'm saving.......not so bad so......

Or 25yrs of financial freedom as renting is generally cheaper than buying. (has been for the recent past)

Of course, the shoe is on the other foot for a property when buying is cheaper than renting for that property and it would make sense to buy at that stage, all down to the individual.

sneakyST

gurramok wrote: »

Or 25yrs of financial freedom as renting is generally cheaper than buying. (has been for the recent past)

Not sure I get this tbh. Your are not financially free as you still have to pay rent.... which is probably more than what the mortgage is.....what am I missing

partyguinness

If you buy a house to live in raise a family etc..it doesnt really matter what the value is or if it gone into negative equity. As long as you can comfortably make the payments and you plan on having it as your hoome for the next 30-40 years then valuations are irrelevant in the grand scheme of things. It's your home.

Buying to sale in the short term is whole different ball game and yes you are screwed if you bought ove the last 2-3 years.

eoinshan

SoupyNorman wrote: »

Well it is pretty clear that now is not so just sit back, relax and rent away. Thats what I'm doing, it's no great science currently.

Another option is to just act if you think the market is going to drive prices further down. If you're worried about prices falling more, why not just offer what you think/fear it might be worth when prices do reach the bottom? The worst that can happen is rejection.

ntlbell

sneakyST wrote: »

Not sure I get this tbh. Your are not financially free as you still have to pay rent.... which is probably more than what the mortgage is.....what am I missing

paying a mortgae for 25 years.

renting for 25 years.

one you state gives you 25 years financial freedom

if you use the money you saved and didn't give to the bank in interest and earned interes on it you could buy your own home in cash after 25 years

which will leave you with financial freedom also

one you pay the bank a lot of money

one depending on the circumstances will pay a landlord a lot less and EARN money on your savings.

you can argue till the cows come home what's best but at the end of the day whatever is best for you and depending on the "climate" will be the best regardless.

spockety

gurramok wrote: »

Or 25yrs of financial freedom as renting is generally cheaper than buying. (has been for the recent past)

The monthly cost of renting increases over the years in line with inflation (or booms and busts )

The monthly cost of a mortgage is relatively fixed, so by the end of a 25 year term the monthly repayments should be relative pittance compared with the cost of renting the same property for a month.

This is not something that people seem to take into account when they say "renting is cheaper than buying". It might be, if you compare monthly repayments in the first year of the mortgage/lease.

The above assumes normal economic conditions and historic levels of inflation