Why are people buying houses when prices are on the way down?

The_Conductor

Gurgle wrote: »

Your repayments have dropped too, with lower interest rates. No, they aren't going to stay low forever, the recession isn't going to last forever.

Eurostat officially declared the European recession over last week (though growth rates remain nominal), and have forecast an end to the UK recession for Q3. The ECB have indicated imminent interest rate rises. Even in Ireland- inflation rates re-entered positive territory in August (mostly as a result of higher fuel costs). Interest rates are going to rise significantly- and a lot sooner than is suitable for the Irish economy.

Gurgle wrote: »

Your house may only be worth €400k now - Does it matter?
Only if you were planning to sell it.

The big problem is that significant numbers of people who purchased over the past 15 years were almost goaded into purchasing, and did so, with the express intention of 'trading up' to suitable accommodation at a future point. You now have possibly as many as 150-200k home owners in wholly unsuitable accommodation- who are going to have to make do somehow- with zero hope of ever owning a suitable property.

mrgaa1

So if we refer back to the title of the thread are we now experiencing the bottom of the market given the vote of confidence being given by the government to the property market via NAMA, and the fact that it would appear that other economies are now technically out of recession and will see some signs of very small growth - stock markets are riding high and oil is rising?

SkepticOne

mrgaa1 wrote: »

are we now experiencing the bottom of the market

I think someone on the propertypin noted that we seem to be seeing a lot of "bottoms" lately. It was suggested that it might be related to Warren Buffet's "only when the tide's gone out you can see who's swimming naked" quote.

Oliver1985

So its not just time yet to run out and buy?

eman66

smccarrick wrote: »

...

The ECB have indicated imminent interest rate rises.

...

Not according to information in this thread. Though the newspaper clipping linked to here appears contradictory to me

The_Conductor

eman66 wrote: »

Not according to information in this thread. Though the newspaper clipping linked to here appears contradictory to me

Doesn't seem contradictory to me tbh.
Thats a journalists take on the ECB statement (they issue a statement after each monthly meeting- you can read them in the ECB pressroom on their website). If you read over the previous statements-

ECB overnight lending rate is currently 1%
The ECB considers 'normalisation' of interest rates to be an increase in its overnight rate to 4.5%
This is a massive increase- but it is to 'normal' levels.
Normalisation is expected to occur over ~ 3 year period, and is dependent on economic conditions improving (which they are).
Normalisation of rates is considered necessary to maintain a target 2% inflation rate (there was a threat of deflation- which is why they lowered the rate to 1% in the first instance- not because everyone was loosing their jobs- they are looking at the rate of inflation- thats it).

Irish lenders have wafer thin mortgage margins compared to their international peers, and it is expected that once they transfer their liabilities to NAMA that they will increase their margins to levels comparable with current international norms. This is considered necessary if they are to be an attractive investment opportunity for international bond holders- and Bank of Ireland and AIB expect to have to raise 12-14 billion in fresh capital by next April to regain Teir 1 capital ratings. For the average mortgage holder- this represents a possible increase of .7-.8% in mortgage interest rates, wholly outside of any actions on the part of the ECB.

S.

Amhran Nua

smccarrick wrote: »

Irish lenders have wafer thin mortgage margins compared to their international peers, and it is expected that once they transfer their liabilities to NAMA that they will increase their margins to levels comparable with current international norms.

To give a political perspective on this, and property is political in Ireland, there is a group which I'm sure most people are aware of called the Irish People's Union, who formed a 10,000 strong facebook group and organised the march last Saturday. Regardless of the financial neccessities the banks are facing, pushing up interest rates in the absence of the ECB doing so by a significant amount could very well have immediate political consequences which might ultimately lead to nationalisation.

In any case the global recovery is based on fairly flimsy foundations in my opinion, there are no guarantees ECB rates will be increasing by next year.

The_Conductor

Amhran Nua wrote: »

To give a political perspective on this, and property is political in Ireland, there is a group which I'm sure most people are aware of called the Irish People's Union, who formed a 10,000 strong facebook group and organised the march last Saturday. Regardless of the financial neccessities the banks are facing, pushing up interest rates in the absence of the ECB doing so by a significant amount could very well have immediate political consequences which might ultimately lead to nationalisation.

In any case the global recovery is based on fairly flimsy foundations in my opinion, there are no guarantees ECB rates will be increasing by next year.

The inverse of this- is by not increasing the margins to international norms- Ireland is in breach of state aid rules (and the Netherlands and Belgium are both being prosecuted for this at present). Also pertinent to the NAMA debate is the Commission investigation of the manner the Dutch government priced the US mortgage assets it acquired when it nationalised ING last January (roughly 22 billion versus our 54 billion)- as ING is now seen to be an unfair competitive advantage versus other EU lenders.

Its two seperate issues- but they both boil down to the Irish government putting the Irish financial institutions at an unfair competitive advantage versus their international peers (why would a foreign competitor act here- when there is no margin to do so?)

What I really hope we see happen is the roll-out of financial products that are considered the norm on the continent- 20-25-30 year fixed products @ reasonable rates (say 6%). It really is quite unusual that we have never been offered these type products here.

Regardless of whether increasing interest rates has political consequences- the main banks are going to need additional funding from the government to rebuild their capital ratios after their NAMA disposals- current projections are that the government will be a majority shareholder in AIB and the largest minority shareholder in BOI after this recapitalisation occurs.

See the bank shares this morning folks? AIB up 36%, Bank of Ireland up 27% to 3.45 and 3.43 respectively. Nice return for anyone who took a punt on them overnight........

beeno67

Amhran Nua wrote: »

To give a political perspective on this, and property is political in Ireland, there is a group which I'm sure most people are aware of called the Irish People's Union, who formed a 10,000 strong facebook group and organised the march last Saturday. Regardless of the financial neccessities the banks are facing, pushing up interest rates in the absence of the ECB doing so by a significant amount could very well have immediate political consequences which might ultimately lead to nationalisation.
.

Why do you think that would happen. Only a relatively small number of people in this country would be affected if banks increase their margins ie those with variable rate mortgages. All those on trackers or fixed rates would no be affected. Those who bought over 10 years ago would not really be affected either as their mortgages are relatively low. Those without mortgages would not be affected at all. There are far more important things going on in this country at present than whether some banks increase their profit margins.

By the way I have never heard of the Irish People's Union

eman66

smccarrick wrote: »

Doesn't seem contradictory to me tbh.
Thats a journalists take on the ECB statement (they issue a statement after each monthly meeting- you can read them in the ECB pressroom on their website). ...

Among other things, the article says:

...interest rates are to stay the same for the next year.

The European Central Bank said the rate would remain at just one per cent until September 2010...

The decision shouldn't be taken as signalling a commitment that the ECB won't raise rates before September 2010...

That sounds contradictory to me.

There is nothing in the press release about 2010 or any 12 month period.

Amhran Nua

beeno67 wrote: »

Why do you think that would happen. Only a relatively small number of people in this country would be affected if banks increase their margins ie those with variable rate mortgages.

So there will be very minor consequences if Irish banks put their rates up? By the way I'm not defending the IPU, just putting the discussion in a wider context.

beeno67

Amhran Nua wrote: »

So there will be very minor consequences if Irish banks put their rates up? By the way I'm not defending the IPU, just putting the discussion in a wider context.

I think that banks have put up their rates and there have been very minor consequences. For example Ulster Bank charge 0.5% more than AIB or BoI and no one cares. Permanent TSB went about it all wrong and caused a news story that has now passed.

20goto10

Amhran Nua wrote: »

So there will be very minor consequences if Irish banks put their rates up? By the way I'm not defending the IPU, just putting the discussion in a wider context.

Part of the term of Nama us the banks must raise the extra capital by private investment or face nationalization.

Just a point on prices falling further, Lenihan has said Dublin city rental yields are the biggest in the EU and as such prices have most likely reached a trough. Is this true? Where did he get this statistic?

20goto10

Amhran Nua wrote: »

So there will be very minor consequences if Irish banks put their rates up? By the way I'm not defending the IPU, just putting the discussion in a wider context.

Part of the terms of Nama is the banks must raise the extra capital by private investment or face nationalization.

Just a point on prices falling further, Lenihan has said Dublin city rental yields are the biggest in the EU and as such prices have most likely reached a trough. Is this true? Where did he get this statistic?

One other question, if 2/3 of the bad assets are Irish then how does the goverment expect to make a profit? I mean they will be selling the assets to mostly Irish taxpayers so in actual fact it's a lose lose situation for us. Does anyone know if they have specified how they plan on selling the assets and at the same time protect the tax payer? Because the only possible way as I can see it is to sell the assets outside of the state which makes no sense.

Amhran Nua

20goto10 wrote: »

Part of the term of Nama us the banks must raise the extra capital by private investment or face nationalization.

So let them sell off their retail mortgage books, BoI got €1.5 billion the last day by doing just that.

20goto10 wrote: »

Just a point on prices falling further, Lenihan has said Dublin city rental yields are the biggest in the EU and as such prices have most likely reached a trough. Is this true? Where did he get this statistic?

He's playing statistics and getting it wrong as usual. Given that property prices are falling faster than rental prices, it appears that rental returns are rising. However both are still falling.

20goto10 wrote: »

One other question, if 2/3 of the bad assets are Irish then how does the goverment expect to make a profit? I mean they will be selling the assets to mostly Irish taxpayers so in actual fact it's a lose lose situation for us.

The fact that we're getting anything at all is a bit of a fig leaf. The aim is to recapitalise the banks, fill their coffers with funding so that lending will start again. Lending aimed directly at the construction industry and restarting the property bubble of course. There are no guarantees at all that they will start lending again though, indeed in the US lending has been falling 1% a month despite stimulus packages.

20goto10

But a rental yield is a yield no matter how you look at it. Does Dublin city really have the highest rental yield in the EU?

SLUSK

jetski wrote: »

So if your renting while watching prices slide why are you on here saying your thinking your better off buying now?

you had a similar thread on here a while back with the same rub**sh.

what are you talking about people paying more for houses than there really worth? what qualifies you to put a value on a house? Go look at house prices in major citys on the continent.

I can find two bedroom aparments in Berlin for roughly 100k, at the same time they are trying to sell off 2 bedroom apartments in Ballymun for 200k. Clearly apartments are still overvalued in Dublin.

spockety

20goto10 wrote: »

But a rental yield is a yield no matter how you look at it. Does Dublin city really have the highest rental yield in the EU?

I think Lenihan is basing it off commercial rents which legally cannot be reviewed down.. so there are loads of places out there where the property value has fallen off a cliff, but leases were signed in 2005/2006 that lump a shop with 10 year plus rents at (presently) outrageous prices.

The_Conductor

spockety wrote: »

I think Lenihan is basing it off commercial rents which legally cannot be reviewed down.. so there are loads of places out there where the property value has fallen off a cliff, but leases were signed in 2005/2006 that lump a shop with 10 year plus rents at (presently) outrageous prices.

There are loads of leases with upwards only reviews built into them- but they're essentially meaningless- if the tenants are insolvent (as is increasingly the case in the retail sector). Look at the number of vacancies in out of town developments- even look at the vacancies in such high profile locations as the Stephen's Green shopping centre- by my count it has 14 vacant units........

Whether Lenihan realises it or not- commercial rents are in freefall. Any sane landlord is negotiating with his/her tenants- its far preferable to have a good tenant paying 50% of legally binding rent and 1% of gross turnover, than it is to have a unit vacant.

Where all this begins to fall apart- is a lot of the out-of-town developments have been wholly funded with bank debt, based on legally binding upwards only rent reviews sold by the developers to onward investors- and funded wholly by debt at every stage in the process. Some investors have total turkeys that are incapable of performing- tenants who can't pay their rent, legally binding agreements with the developers who are insolvent, and banks who are demanding every red cent to their name.......

A lot of people really don't realise just how vunerable the whole system is- it really is balanced like a house of cards- and has no basis in reality whatsoever.

Anyone who has a private pension- is at least a partial owner of at very least one retail development....... (Irish Life own Stephens' Green and the ILAC Centre for example)

ronbyrne2005

spockety wrote: »

I think Lenihan is basing it off commercial rents which legally cannot be reviewed down.. so there are loads of places out there where the property value has fallen off a cliff, but leases were signed in 2005/2006 that lump a shop with 10 year plus rents at (presently) outrageous prices.

For a new lease rent will be much lower in this environment so yields much lower. Commercial rents overall are only going one way over next decade dragging projected yields even lower.
The Tommy Hillfigher building on grafton street sold for 25 million euro last week. That includes a rent agreed at peak a year or two ago. If a new tenant had to be found tomorrow the yields would be much lower.

di2772

SLUSK wrote: »

I can find two bedroom aparments in Berlin for roughly 100k, at the same time they are trying to sell off 2 bedroom apartments in Ballymun for 200k. Clearly apartments are still overvalued in Dublin.

To be fair now you're unlikely to be commuting from Berlin to your job here

ronbyrne2005

di2772 wrote: »

To be fair now you're unlikely to be commuting from Berlin to your job here

Germany is the biggest exporting economy on earth with great social and physical infrastructure and a great quality of life. Ireland is a recently booming and now busting country. An apartment here should be no more than and equivalent one in a major German city.

di2772

ronbyrne2005 wrote: »

Germany is the biggest exporting economy on earth with great social and physical infrastructure and a great quality of life. Ireland is a recently booming and now busting country. An apartment here should be no more than and equivalent one in a major German city.

Ireland has only one city of any significant size. Germany has how many?

Look how concentrated the jobs are in Ireland. Heavily weighted to Dublin. Its where most people need to live, in order to work.
Plenty more choice in Germany of where you want to live.

No point comparing Apples and Oranges at all.

Another mistake people are making when wondering why people might be starting to buy now, is that its the difference between what they buy for and the bottom of the market which people will be worried about. Not the difference between peak and trough. Some people dont believe that there is much further to fall, or are prepared to take the risk now, given that we are down 50% or so already.

Only time will tell if they are right.

ei.sdraob

A yes

the difference is were Irish

arguments



have I heard that one before

di2772

ei.sdraob wrote: »

A yes

the difference is were Irish

arguments



have I heard that one before

Thats a bit of a stupid comment tbh.

I was making the point that Ireland not Germany, so you dont compare to Berlin. Find a more suitable comparison or dont bother.

The_Conductor

di2772 wrote: »

Thats a bit of a stupid comment tbh.

I was making the point that Ireland not Germany, so you dont compare to Berlin. Find a more suitable comparison or dont bother.

It is a reasonable comparison- we are a tiny little country in the European Union- we may as well be a German backwater....... If we try to imagine otherwise- we are deluding ourselves.

As for it being a stupid comment, sarcasm doesn't translate very well on the net......

di2772

smccarrick wrote: »

It is a reasonable comparison- we are a tiny little country in the European Union- we may as well be a German backwater....... If we try to imagine otherwise- we are deluding ourselves.

LOL. Good one.

ei.sdraob

di2772 wrote: »

Thats a bit of a stupid comment tbh.

I was making the point that Ireland not Germany, so you dont compare to Berlin. Find a more suitable comparison or dont bother.

i wasnt the one that made the Germany comparison in first place

the whole "The difference is we're Irish" speech is one of the many drivel arguments that have got this country into this mess imho and needs to be put to death



but if you want a comparison

how is this for one




source: http://www.ronanlyons.com/2009/04/08/lopping-the-top-half-off-irelands-property-market/

oceanclub

Hands up those using the "Ireland is better than Germany" argument predicted a 50% price drop?

Quite.

P.

di2772

ei.sdraob wrote: »

i wasnt the one that made the Germany comparison in first place

the whole "The difference is we're Irish" speech is one of the many drivel arguments that have got this country into this mess imho and needs to be put to death



but if you want a comparison

how is this for one




source: http://www.ronanlyons.com/2009/04/08/lopping-the-top-half-off-irelands-property-market/

But you were the one who used the, "I've heard the Ireland is different argument before", to try to say that someone else was saying just that, and yet you ovelooked that the comment was more "Ireland is not like Germany at all".

It was a poor effort on your part.