Collapse in house prices will be good for economy

Gurgle

MG wrote: »

Oversupply means that you don't need to build a house - there is already one there.

Not everyone wants to live in a shoe-box with a postage stamp garden forever.

nesf

MG wrote: »

Oversupply means that you don't need to build a house - there is already one there.

No it doesn't:

1) The housing market is heterogeneous, a house in the middle of the country, is not the same as a house in the middle of the city. Just because there are vacant houses in one part of the country doesn't mean there doesn't need to be new builds elsewhere.

2) Housing standards and building materials improve over time. A house built now has the potential to be far more energy efficient and comfortable than one built a decade or more ago.

Dob74

TaxiManMartin wrote: »

Now THAT is a selective post if ever i saw one

Im sure you know what they've been since then alright.

I do, warning it may hurt to read this.

95' 7.69%
96' 7.58%
97' 7.52%
98' 6.97%
99' 7.14%

from 79 to 85 they did drop below 10%.

(american figures taken from ,federal housing finance board monthly interest survey)
loan to price ratio stayed constant between 73to79%

Dob74

nesf wrote: »

No it doesn't:

1) The housing market is heterogeneous, a house in the middle of the country, is not the same as a house in the middle of the city. Just because there are vacant houses in one part of the country doesn't mean there doesn't need to be new builds elsewhere.

2) Housing standards and building materials improve over time. A house built now has the potential to be far more energy efficient and comfortable than one built a decade or more ago.

+1

There still needs to be houses built around urban areas.

Daithinski

MG wrote: »

The reason the 14x model is so appealing is that it focuses on return on investment,

But people bought houses in Ireland not for "proper" investments.

They were bought by...

a) Owner occupiers who are looking for somewhere to live themselves.
b) Speculators - People who were looking to flip properties to make a quick buck.
c) Landlords who thought they couldn't go wrong ie rent it out to pay the full mortgage and sure it'll go up in value by 10% every year.

I don't think many people bought houses thinking that their return would be as a multiple of the annual rent. That wasn't the mindset in Ireland.

I think the only people buying them now are people intending to live in them.

The landlords and speculators will jump back in again when they feel that b) & c) above are true again. Until then they won't be interested. They definitely won't be interested in long term investments with returns such as the 14x model.

Not many people would be interested in the 14x model as a way of a return on investment so why therefore should it determine the price of houses

MG

nesf wrote: »

No it doesn't:

1) The housing market is heterogeneous, a house in the middle of the country, is not the same as a house in the middle of the city. Just because there are vacant houses in one part of the country doesn't mean there doesn't need to be new builds elsewhere.

2) Housing standards and building materials improve over time. A house built now has the potential to be far more energy efficient and comfortable than one built a decade or more ago.

On an individual basis there is some truth but not on a general basis. Most people live in housing estate or other homogenous type houses and there is a huge oversupply of them. This drags down the relative price of all properties.

Also, the myth of oversupply in Roscommon but undersupply in Dublin is just that - a myth. There is general oversupply.

MG

Daithinski wrote: »

But people bought houses in Ireland not for "proper" investments.

They were bought by...

a) Owner occupiers who are looking for somewhere to live themselves.
b) Speculators - People who were looking to flip properties to make a quick buck.
c) Landlords who thought they couldn't go wrong ie rent it out to pay the full mortgage and sure it'll go up in value by 10% every year.

I don't think many people bought houses thinking that their return would be as a multiple of the annual rent. That wasn't the mindset in Ireland.

I think the only people buying them now are people intending to live in them.

The landlords and speculators will jump back in again when they feel that b) & c) above are true again. Until then they won't be interested. They definitely won't be interested in long term investments with returns such as the 14x model.

Well if they didn't buy them with one eye on investment they were very foolish.

Daithinski wrote: »

Not many people would be interested in the 14x model as a way of a return on investment so why therefore should it determine the price of houses

No one interested in a 7% ROI???? The Pensions Board calculator uses a 5% return as its assumption for investment return.
Try going into your bank and asking for a 7% deposit account

ionix5891

MG wrote: »

Well if they didn't buy them with one eye on investment they were very foolish.




No one interested in a 7% ROI???? The Pensions Board calculator uses a 5% return as its assumption for investment return.
Try going into your bank and asking for a 7% deposit account

please show me an investment in property in Ireland that will be guaranteed to make 7% over next 14 years

MG

ionix5891 wrote: »

please show me an investment in property in Ireland that will be guaranteed to make 7% over next 14 years

I can't, thus proving that property is overvalued.

I'm not going to invest in a long term investment for a 2% return so until it goes to at least the 5-7% range, no rational investor would invest unless there was a good change of capital appreciation. Price would have to fall to get back to the acceptable 5-7% return range.

TaxiManMartin

MG wrote: »

I can't, thus proving that property is overvalued.

I'm not going to invest in a long term investment for a 2% return so until it goes to at least the 5-7% range, no rational investor would invest unless there was a good change of capital appreciation. Price would have to fall to get back to the acceptable 5-7% return range.

Show me any investment at all which will garauntee 7% a year for the next 14 years.

ionix5891

MG wrote: »

I can't, thus proving that property is overvalued.

I'm not going to invest in a long term investment for a 2% return so until it goes to at least the 5-7% range, no rational investor would invest unless there was a good change of capital appreciation. Price would have to fall to get back to the acceptable 5-7% return range.

yep right now theres so much uncertainty and all investments (savings,stocks,commodities etc) are yielding very very ****ty returns, and the low interest rates dont help

if there was any property in ireland with that sort of investment potential, people with money would jump on it

but you are right property is hugely overvalued, investing into is pissing money down drain

TaxiManMartin

Dob74 wrote: »

I do, warning it may hurt to read this.

95' 7.69%
96' 7.58%
97' 7.52%
98' 6.97%
99' 7.14%

from 79 to 85 they did drop below 10%.

(american figures taken from ,federal housing finance board monthly interest survey)
loan to price ratio stayed constant between 73to79%

Any particular reason why you dont want to post Irish/Euro rates for the last 10 - 15 years?

They've been a hell of a lot lower than those you posted there havent they?

nesf

MG wrote: »

On an individual basis there is some truth but not on a general basis. Most people live in housing estate or other homogenous type houses and there is a huge oversupply of them. This drags down the relative price of all properties.

Also, the myth of oversupply in Roscommon but undersupply in Dublin is just that - a myth. There is general oversupply.

You can't look at the housing market as if it was a market for nails or screws. You can generally treat most houses in a particular estate as being of common value if they haven't been modified etc, but that still doesn't allow you to treat different estates as being equivalent.

The housing market is incredibly localised (you can't even consider somewhere the size of Dublin as a single market without distorting things badly). It doesn't matter if there's a dozen houses of the type the buyer wants in a location that doesn't suit the buyer. House prices will fall, and estates out in the middle of nowhere will be hit hardest of all. But the idea that we don't need any new builds because we have a general oversupply is nonsense, especially if you consider things like major renovations to existing property and similar projects.

Sponge Bob

Never let the facts interfere with a Taxi Driver ....was that Virgil or Ovid ??:)

Mortgage rates in Ireland were broadly the same as or higher than those US rates in 95 96 and 97 .

Mortgage Rates in Ireland then dropped sub 6% for the first time since Parnell died ( or some time in the 1950s) in mid to late 1998 but were no lower than about 5% at any time in that 95-99 reference period . They went to around 4.5% in 2000 IIRC and back up to 5% in 2001 , again IIRC .

Then along came 9/11

Have a feed of US data for yourself for punishment

In half of all Irish counties 20% + of the Housing stock is empty , in the rest that figure is 10%+ of the Housing stock and in London England it is 3%.

We have an enormously massive shortage of housing like Nesf said and we must start building like cnuts if we are to ever solve it .

MG

nesf wrote: »

But the idea that we don't need any new builds because we have a general oversupply is nonsense/QUOTE]

I never said that. The oversupply means that you have a wide choice of cheaper houses than individual/one off new builds to choose from, which is bound to depress the new build market.

TaxiManMartin

Sponge Bob wrote: »

Never let the facts interfere with a Taxi Driver ....was that Virgil or Ovid ??:)

Mortgage rates in Ireland were broadly the same as or higher than those US rates in 95 96 and 97 .

Mortgage Rates in Ireland then dropped sub 6% for the first time since Parnell died ( or some time in the 1950s) in mid to late 1998 but were no lower than about 5% at any time in that 95-99 reference period . They went to around 4.5% in 2000 IIRC and back up to 5% in 2001 , again IIRC .

Then along came 9/11

Have a feed of US data for yourself for punishment

In half of all Irish counties 20% + of the Housing stock is empty , in the rest that figure is 10%+ of the Housing stock and in London England it is 3%.

We have an enormously massive shortage of housing like Nesf said and we must start building like cnuts if we are to ever solve it .

Dont let the fact that we belong to the Euro now get in your way there either. Ireland isnt part of the USA as some seem to think it is.

If you are going to talk about average interest rates in Ireland over the last 10 - 15 years you dont substitute Irish rates with US rates.

Sponge Bob

It is prudent and safe to assume that the average Euro Zone Mortgage Rate will be around 6-7% over the next 25 years and of course sometimes lower and sometimes higher.

It is now around 2.7%-3% off more or less the lowest base rate in history .

I am not going to bother proving that simply because I know nobody can prove otherwise . Load up yeer spreadsheets @ 7% .

The key variables thereafter are

1. How much interest relief will you get , it was unlimited and is now capped at 7 years .
2. Will PPRs be taxed and will charges like water/sewage/bins increase

nesf

MG wrote: »

I never said that.

You pretty much did to be honest:

Oversupply means that you don't need to build a house - there is already one there.

I agree that oversupply with depress house prices but it won't make the new build market disappear. Also an unfortunate amount of that oversupply are estates in the middle of nowhere spread throughout the country.

MG

nesf wrote: »

You pretty much did to be honest:



I agree that oversupply with depress house prices but it won't make the new build market disappear. Also an unfortunate amount of that oversupply are estates in the middle of nowhere spread throughout the country.

You've misinterpreted me entirely. The fact that there is no need to build a new house means that the price of a new build is entirely irrelevant to the general price of housing. (by "no need" I mean there is generally a choice to buy rather than build because of the oversupply)

That doesn't mean that there won't be new house builds, only that the oversupply of existing housing stock means that build cost will not be a factor in house valuation at the moment.

By way of example, if I built a house for 300k, the value of this is not 300k but rather (more or less) more likely to be the value of the last similar house
sold on the street/neighbourhood. If the last house was built 10 years ago for 100k and sold for 200k, then the value of my house is likely to be 200k, despite my 300k outlay.

nesf

MG wrote: »

You've misinterpreted me entirely. The fact that there is no need to build a new house means that the price of a new build is entirely irrelevant to the general price of housing. (by "no need" I mean there is generally a choice to buy rather than build because of the oversupply)

Ah, ok I misinterpreted you. Apologies.

MG wrote: »

By way of example, if I built a house for 300k, the value of this is not 300k but rather (more or less) more likely to be the value of the last similar house
sold on the street/neighbourhood. If the last house was built 10 years ago for 100k and sold for 200k, then the value of my house is likely to be 200k, despite my 300k outlay.

Agreed entirely though more factors than just location are in question. Building regulations alone would mean that the new house would be more energy/heat efficient than the ten year old one if everything was done above board.

MG

nesf wrote: »

Ah, ok I misinterpreted you. Apologies.



Agreed entirely though more factors than just location are in question. Building regulations alone would mean that the new house would be more energy/heat efficient than the ten year old one if everything was done above board.

No bother, I know you have an economists brain so I was just a little surprised that you would disagree on this point.

Agree that actual "similar" houses often differ in terms of quality, energy efficiency etc but the quality differences are not always easy to communicate or well communicated to potential buyers (although the BER should help).

nesf

MG wrote: »

No bother, I know you have an economists brain so I was just a little surprised that you would disagree on this point.

It's more that seeing the housing market being treated in the same way as a homogeneous market in the media has me reading too much into people's points. Discussion of total vacancies etc, while interesting, are of limited use if not broken down by region.

Sponge Bob

Sponge Bob wrote: »

In half of all Irish counties 20% + of the Housing stock is empty , in the rest that figure is 10%+ of the Housing stock and in London England it is 3%.

I told you what the numbers are Nesf . At least 10% absolutely everywhere . London is 3% .

I covered this issue nearly 3 years ago since which the situation has worsened with over 150,000 units built and with 1.93m housing units in the state, today, for 4.42m persons . This translates into one house for every 2.29 persons .

The last census told us that we tend to live in households of 2.8 persons meaning that we 'need' 1.58m homes to house them all @ 2.8 per household .

We therefore have a crude surplus of around 0.35m homes nationally before we start subtracting holiday homes and hovels from the overall stock .

Click here and read the next 10 or so posts as the links are in there .

nesf

Sponge Bob wrote: »

I told you what the numbers are Nesf . At least 10% absolutely everywhere . London is 3% .

I covered this issue nearly 3 years ago since which the situation has worsened with over 150,000 units built and with 1.93m housing units in the state, today, for 4.42m persons . This translates into one house for every 2.29 persons .

The last census told us that we tend to live in households of 2.8 persons meaning that we 'need' 1.58m homes to house them all @ 2.8 per household .

We therefore have a crude surplus of around 0.35m homes nationally before we start subtracting holiday homes and hovels from the overall stock .

Click here and read the next 10 or so posts as the links are in there .

Sorry, I didn't see the part of your post aimed at me. I nowhere argued that we have an undersupply of housing in general and my above post was not aimed at you but at general discussions in the media which make no effort to look at the problem on an area-by-area level. Christ, I just need to look around me when driving to see the vast tracts of empty estates both in urban and rural areas.

Sponge Bob

You may take it that the vacancy rate is 20% on the west coast and probably the midlands too . 10% in the Cities and in the Pale . Micro details like 30%+ in Leitrim do not matter .

The number of vacant properties increased dramatically between 2002 and 2006 as you can see in the links I added to this post and the 10 following posts .

What is really remarkable is that there was a greater marginal propensity in recent years to leave property empty in the areas of highest demand , the 5 biggest cities . The growth in vacant properties was greater in Dublin / Galway / Cork / Limerick / Waterford over the 2002 - 2006 period than it was nationally .

During the Celtic Tiger years the growth could have been explained by the affluent buying holiday homes in Roundstone and like whatnots . Post Celtic Tiger the period 2002 - 2006 was a massive speculative bubble and that was all . You made more money leaving a house empty than you would by renting it m , only if you sold in time of course 8)

gurramok

I live in the Docklands in Dublin. I can give a free tour to anyone who wishes to see those countless empties

DCC themselves have literally hundreds down here they cannot sell hence been empty. Mind you, the issue is the asking price been too high as well as things like build quality and service charges.

SkepticOne

Public policy mainly has the effect of dragging out the necessary correction.

1. So called affordable housing schemes. Here the developers sell unsold properties to local authorities on a cost+reasonable profit basis. The authorities then discount them and try to sell them to the public.

The problem with this is that, even assuming total honesty on the part of the developers, costs include the inflated price of building land at the height of the boom which are irrelevant to buyers today. These schemes encourage developers to keep their book prices high in order to maximise what they get from the tax payer.

2. The "Home Choice" loan. Here local authorities lend in excess of what the banks are willing to lend for people to purchase from developers.

3. NAMA. Under normal circumstances, in conditions of enormous oversupply such as we have in Ireland, we would expect developers to go bust and their assets would be sold off cheaply. However NAMA is designed to avoid firesales that would depress the cost of building land and unsold properties. Some developers, however, are worried that NAMA won't be established quickly enough.

nesf

Sponge Bob wrote: »

You may take it that the vacancy rate is 20% on the west coast and probably the midlands too . 10% in the Cities and in the Pale . Micro details like 30%+ in Leitrim do not matter .

The number of vacant properties increased dramatically between 2002 and 2006 as you can see in the links I added to this post and the 10 following posts .

What is really remarkable is that there was a greater marginal propensity in recent years to leave property empty in the areas of highest demand , the 5 biggest cities . The growth in vacant properties was greater in Dublin / Galway / Cork / Limerick / Waterford over the 2002 - 2006 period than it was nationally .

During the Celtic Tiger years the growth could have been explained by the affluent buying holiday homes in Roundstone and like whatnots . Post Celtic Tiger the period 2002 - 2006 was a massive speculative bubble and that was all . You made more money leaving a house empty than you would by renting it m , only if you sold in time of course 8)

gurramok wrote: »

Mind you, the issue is the asking price been too high as well as things like build quality and service charges.

This is partially my point in this. If you take 10% vacancy in Dublin, but also take into account some of the appalling build quality that is represented in many of the developments from the past decade you get a more complex picture. There are plenty of unoccupied lots that are distinctly unappealing which would only sell well in the lunatic sellers' market of the boom years. What's the supply of high quality, energy efficient homes like etc? We're not going to see anything close to the levels of new building completions that we say in 2006, which is a good thing, but I'd imagine there is still room in the market for better quality new homes, not right now but in the medium term. Also, labour right now is a lot cheaper than labour in 2006, as anyone who's got any quotes recently will tell you.

Sponge Bob

You can take some NAMA developer cack and demolish it to reduce oversupply but only where it is evidently not compliant with building regulations or where new regulations shall make it non compliant in the near term future .

Like Sceptic said land is a bigger problem , especially in Dublin . Look at that Glass bottle site in Ringsend . €425m for 25 acres , now worth €100m and that is central enough by Dublin standards not out in Meath somewhere .

The net loss so far has been €325m or €13m an acre. Even by building up an average 10 floors you would not have gotten vastly more than around 40 units an acre on it which means the loss so far is €325k a putative unit and you will be lucky to get €325k for a unit once you actually go to the trouble of building it properly.

Had someone like Liam Carroll built his usual plasterboard and 2 be 2 rubbish on a site like that the loss could approach €425k a unit once you demolished it ....with rebuilding costs on top to come.

Finally , having rebuilt to proper standards everyone who bought typical Dublin plasterboard and 2 be 2 rubbish would be left with a massive loss on it because these decent units would set the standard .

Hasschu

Governments are using low mortgage rates to prop up house prices. In Canada variable rate mortgages are 2.7%, 5 year 3.6%, 10 year 4.8% down from 5.25 last month. House prices are stable to a slight downwards bias even though GDP is declining and unemployment is rising. Low interest rates are saving the Irish housing market from a serious collapse. We should be down on our knees thanking Trichet for his offer of assistance to the beleaguered Irish Banks and the low ECB interest rates. I am concerned about what will happen if interest rates rise before the housing excess is used up. There is plenty of risk on the horizon.