Mental Barrier to Price Drops?

bangersandmash

bobbiw wrote: »

Its only mental, my home could be worth 2m but it means nothing because its just a home, it could be 500k but it means nothing.

It only means something when I sell it.

Does that work the other way then? If my neighbour's house sells for 350k can I arbitrarily say that my identical house should be valued at 250k?

The reason I ask is that I can imagine you trying to explain to the revenue that house prices are 'only mental' when they come to assess your property for a residential property tax.

Edit: God help us all if Bobbiw is actually serious.

southofdub

The Science of Economic Bubbles and Busts
This is a very interesting article and well worth a read.

http://www.scientificamerican.com/article.cfm?id=the-science-of-economic-bubbles

Hobo Sapiens

bobbiw wrote: »

...

Rates are at an all time low and people can lock in a decent rate for 15 years.
...

Fixed rate for 15 years? Impossible!

But please correct me if I'm wrong with details of where I could get such a rate (in Ireland, of course).

20goto10

Is there such thing as a realistic value or is it all just mental block? Most people on here seem to argue a lot based on future values. Offer them 20% less because thats all its going to be worth in 2 years time sort of thing. But surely what it is valued at now is what is important?

To elaborate, I recently made some initial enquiries about some properties as I may be looking to move soon. One place in particular has been priced at a "realistic value" according to the estate agent and I was advised I am unlikely to get much of a price drop. It has dropped 39% since it was first on sale in 2006. This is not based on the EA's advice, I know for a fact because I looked at it before It also undercuts an identical property by 20%.

MG

20goto10 wrote: »

Is there such thing as a realistic value or is it all just mental block? Most people on here seem to argue a lot based on future values. Offer them 20% less because thats all its going to be worth in 2 years time sort of thing. But surely what it is valued at now is what is important?
QUOTE]

Surely, if there is reasonable reason to believe that it will be worth 20% lower in two years time, then it's value today is the 20% lower. Expected future values always feed back to todays price.

20goto10

MG wrote: »

20goto10 wrote: »

Is there such thing as a realistic value or is it all just mental block? Most people on here seem to argue a lot based on future values. Offer them 20% less because thats all its going to be worth in 2 years time sort of thing. But surely what it is valued at now is what is important?
QUOTE]

Surely, if there is reasonable reason to believe that it will be worth 20% lower in two years time, then it's value today is the 20% lower. Expected future values always feed back to todays price.

I don't see the logic behind it. Why focus on 2 years? What about 5 years or 10 years? The future hasn't happened yet so surely its worth what its worth now. I'm not trying to con myself, I really just don't get some of the advice on here (as many will be aware). I also need to consider I need to sell my place too in order to move.

I think many people will only ever be comfortable buying when prices are rising. Saying if its worth 20% less in 2 years then thats all its worth now is the same as saying wait until prices are rising again. Because that is the only stage at which its future value will be more than what it is now.

The_Conductor

MG wrote: »

Surely, if there is reasonable reason to believe that it will be worth 20% lower in two years time, then it's value today is the 20% lower. Expected future values always feed back to todays price.

Its a reasonable assumption that market demand has priced this into the equation- but it has precisely zero bearing on whether the price of a property will rise or fall- even market sentiment has only a peripheral impact on this.

What happens when interest rates rise, or the banks start foreclosing on even more properties- just as two examples totally off the top of my head........

MG

20goto10 wrote: »

MG wrote: »

I don't see the logic behind it. Why focus on 2 years? What about 5 years or 10 years? The future hasn't happened yet so surely its worth what its worth now. I'm not trying to con myself, I really just don't get some of the advice on here (as many will be aware). I also need to consider I need to sell my place too in order to move.

I suppose my point is that, the bubble was fuelled partly by people expectations that prices would rise. This would be the same in reverse, if people expect if to fall then naturally it is priced lower today. i.e. if you were certain that a house would be 20% lower in two years, you'd be mad to buy it today except at 20% below asking price.
Of course there are no certainties, only a realisation that many asking prices have clearly not yet factored in the economic situation.

Why focus on 2 years time? Well if this is true then I suspect it is a subconcious belief that the market may bottom out in about 2 years.

MG

20goto10 wrote: »

To elaborate, I recently made some initial enquiries about some properties as I may be looking to move soon. One place in particular has been priced at a "realistic value" according to the estate agent and I was advised I am unlikely to get much of a price drop. It has dropped 39% since it was first on sale in 2006. This is not based on the EA's advice, I know for a fact because I looked at it before It also undercuts an identical property by 20%.

My advice would be to value it using 5 different methods:

1. Fall from peak (you've done this - 39% seems ok, but some have mentioned 60-70%)
2. Compare to other houses in the area (again you've done this, 20% seems ok again but we don't really know how realistic this other house is. My experience is that many houses have not yet priced falls i value.)
3. Look for the last houses sold. If recent, check if the EA responsible dropped other prices on its books soon after. (This gives an indication of actual selling price)
4. Value at approx 15 times annual rent (much debate about this multiplier number)
5. Get a price per Sq m. Assume an average house at approx 1600-1800 per sq m. Consider how far from the average (location, condition, BER etc)
this house could be justified.

This would give you a range within which the underlying value should fall. It is likely to be a reasonably big range but no harm to consider the full picture. Good luck, very hard to value at the moment.

20goto10

MG wrote: »

I suppose my point is that, the bubble was fuelled partly by people expectations that prices would rise. This would be the same in reverse, if people expect if to fall then naturally it is priced lower today. i.e. if you were certain that a house would be 20% lower in two years, you'd be mad to buy it today except at 20% below asking price.
Of course there are no certainties, only a realisation that many asking prices have clearly not yet factored in the economic situation.

Why focus on 2 years time? Well if this is true then I suspect it is a subconcious belief that the market may bottom out in about 2 years.

Well the difference between prices rising and prices falling is that people are happy to take a profit even if it means taking less of a profit than what they would get in 2 years time. But in the reverse, people are not so happy to take a loss knowing it will be more of a loss in 2 years time. But that is nonsensical because the reality is that the loss you incur happens when you sell, not when you buy.