House price need to fall by 50%

MG

20goto10 wrote: »

Location is everything when it comes to property. Good yields should only be found in good locations otherwise we're back to square one where you can snap up a house in the arse end of Craggy Island and expect to make a nice healthy profit for yourself.

To suggest that any location in Ireland should have the same yields (albeit smaller returns) as Manhattan or London is madness.

No no no. Location impacts on value and rent, but the relationship between rent and value should remain within a reasonably fixed range over the long term.

20goto10

MG wrote: »

No no no. Location impacts on value and rent, but the relationship between rent and value should remain within a reasonably fixed range over the long term.

Yes but in saying that you are also saying a house in the middle of nowhere with no public transport, mo amenities and no sewage pipes should return the same percentage profit In rent as a Manhattan pent house suite.

MG

20goto10 wrote: »

Yes but in saying that you are also saying a house in the middle of nowhere with no public transport, mo amenities and no sewage pipes should return the same percentage profit In rent as a Manhattan pent house suite.

Yes, more or less it will. Why? Because these transport, amenities etc will reflect in the house value and the rent, not in the yield. This is the fundmental principle of the rent multiplier. Why then would anyone invest in a rural place when they could invest the same capital in a higher yield alternative in a city?

20goto10

MG wrote: »

Yes, more or less it will. Why? Because these transport, amenities etc will reflect in the house value and the rent, not in the yield. This is the fundmental principle of the rent multiplier. Why then would anyone invest in a rural place when they could invest the same capital in a higher yield alternative in a city?

you might as well be saying let's go back to the start and do it all again. It's a precursor for another bubble unless you have regulation to prevent the yield from changing. Whereas having little or no yield will do just the same.

stepbar

gurramok wrote: »

I live near Charlotte quay. The complex i'm in has all undesignated parking spaces(never full) unlike Charlotte where its designated.
Then again, the car is not important as the bus stops are outside the door and the dart is around the corner(Luas 15min walk away). Point being that transport is critically important factor when renting just like the Luas is on the doorstep in Ranelagh.

I don't think having 2 car spaces is important in the city centre with options of Luas, Dart & bus beside you. However if we were comparing maybe Blanch with Lucan, the car spaces would indeed be like gold dust!

I'm kinda referring to my suitation at present and a place I looked at in the past. Everyone's suitation is going to be different and the value I would place on 2 car park places, regardless of the transport options outside my doorstep.

My overall point is that you have umpteen gaffs for rent in around the 1k mark in various locations in the city. However, if we were to go by McWilliams they should all be the same price. It's a typical economist view.

AARRRGH

We can argue with his figures all we want, but the reality is our houses are still insanely overpriced.

20goto10

AARRRGH wrote: »

We can argue with his figures all we want, but the reality is our houses are still insanely overpriced.

It's his figures and others like it that define what is overpriced.

ZYX

MG wrote: »

There is no supposition that either prices nor rents will not rise, just that they are correlated and their relationship will be in and around 7% over the long term. (in previous writings he has made allowances for the Irish psyche by adjusting this multiplier up). The yield is based on rent and value, not equity. The fact that you have equity built up means that you are achieving a better return on your equity but the value is determined by the next buyer for whom yield is a investment decision driver.

The point is house prices and rent prices should increase with inflation over the long term. McWilliams is saying if you invest in property, this will increase by the rate of inflation and on top of that you should expect a yield of 7%. On top of that again the actual amount of money you make will also go up with inflation.

So he is saying that if you buy a property for €140,000 you should be able to rent it out for €10,000. After 10 years at 5% interest your initial investment should be worth €230,000 and should be earning €16.000 a year for you. So after your 10 years if you sell up you have €90,000 from the sale of your property and €125,000 in rent. After accounting for interest repayments and expenses based on his figures you are walking away with €100,000.

He is saying this is the average you should expect. According to him this is what the average property investor should (not could) make. And that is why he is talking total bull****.

You can talk all you want about how much prices may fall but it is false to base it on what he is saying.

ionapaul

20goto10 wrote: »

Yes but in saying that you are also saying a house in the middle of nowhere with no public transport, mo amenities and no sewage pipes should return the same percentage profit In rent as a Manhattan pent house suite.

Yes - isn't this obvious? The purchase price of the middle of nowhere hovel should be a tiny fraction of the Manhatten penthouse - but the % yield should be similar for it to be a valid investment!

ZYX

ionapaul wrote: »

Yes - isn't this obvious? The purchase price of the middle of nowhere hovel should be a tiny fraction of the Manhatten penthouse - but the % yield should be similar for it to be a valid investment!

Not to David McWilliams it's not obvious. A Manhatten Penthouse has a rental yield of 3.5%. He is saying a 3 bed semi in Newbridge should have a rental yield of 7%

BendiBus

ZYX wrote: »

Not to David McWilliams it's not obvious. A Manhatten Penthouse has a rental yield of 3.5%. He is saying a 3 bed semi in Newbridge should have a rental yield of 7%

Prime locations often have a lower yield as people will pay more of a premium to own a prime property than to rent one.

ionapaul

He is saying that currently, a Manhatten Penthouse has a yield of 3.5%, not that an investor should accept / be happy with this 3.5%! There was (and some would say still is in certain markets) a property bubble over there as well. Maybe only poor investors are investing in Manhatten Penthouses, who knows? Remember that the vast majority of people, even many of those who are wealthy, are financially illiterate and make ill-judged investment decisions. If any professional investor is happy with a yield of 3.5%, fair play to them, but since you can do better with so many other investment products, a yield of 7% is what is generally accepted as average in property investment!

20goto10

ionapaul wrote: »

Yes - isn't this obvious? The purchase price of the middle of nowhere hovel should be a tiny fraction of the Manhatten penthouse - but the % yield should be similar for it to be a valid investment!

Yes I know that is what he is saying. What I am saying is its a bad model. Its the same old same taken straight from the text book. Where is that going to get us? Encouraging investment in hovel holes is putting us right back at square one. Every man and his dog will jump on in and before you know it people are just property mad....sound familiar?

I'm making a suggestion, it may be flawed, but isn't having little or no yield a good thing as it keeps the investors at bay? Leaving the market open for home buyers only.

btw, his sums are wrong. He only takes the value of the property at the time of its highest yield. If you take the actual figures of what people have paid (which will be a wide range), then the price of the property needs to be higher in order to meet the perfect 7% yield.

shovelsfc

rent prices have to drop more and more!!

shovelsfc

im looking to share in dublin 15, clonee area and they are still looking for 450 plus a month for a double room!!! ridiclous....

ionapaul

If I thought I could get a yield of 7% from a hovel in Ballygobackwards long-term, I would have no trouble investing there! But even the hovels are overpriced by this yardstick!

Likewise with the most expensive penthouse in Dublin, 7% would be great. I wouldn't move a muscle for 3% or 4% though, I can do better with less risk and transactional expenses in plain savings accounts or AAA-rated corporate bonds.

ZYX

ionapaul wrote: »

He is saying that currently, a Manhatten Penthouse has a yield of 3.5%, not that an investor should accept / be happy with this 3.5%! There was (and some would say still is in certain markets) a property bubble over there as well. Maybe only poor investors are investing in Manhatten Penthouses, who knows? Remember that the vast majority of people, even many of those who are wealthy, are financially illiterate and make ill-judged investment decisions. If any professional investor is happy with a yield of 3.5%, fair play to them, but since you can do better with so many other investment products, a yield of 7% is what is generally accepted as average in property investment!

He is saying the yield on property investment in Newbridge should be 7% above inflation. In other words even allowing 2% for expenses he is saying it should be 5% above inflation. You say that you would do better with so many other investment products. Like what? Not, where you can possibly do better that 5% over inflation but where you should expect 5% above inflation and not invest unless you do, which is what he is saying about property in Newbridge.

shovelsfc

people are not dropping prices cos they think the resession is stable right now but they are wrong! prices are going to decrease more and more.....for next 2 years or more

ionapaul

Dublin in a funny market - there are loads of double rooms now in D4 and D6 for around the €500 mark. As a result, I would expect similar double rooms in Clonee, Blanch, Tallaght and so on to be €300 or less; I can't believe people pay almost the same amount of money to live in less desirable locations in Dublin as the most desirable, it is bizarre.

Good news for the landlords of D15 and D24 though, they are outperforming their counterparts in D6 and D4 with regard yield!

ZYX

ionapaul wrote: »

If I thought I could get a yield of 7% from a hovel in Ballygobackwards long-term, I would have no trouble investing there! But even the hovels are overpriced by this yardstick!

Of course you would. The problem is so would everyone else so it wouldn't happen. The bigger question is would the average renter continue to rent when they could buy for substantially less. Even if they sold after a year they would do better.

20goto10

shovelsfc wrote: »

people are not dropping prices cos they think the resession is stable right now but they are wrong! prices are going to decrease more and more.....for next 2 years or more

No they just don't like being ripped off.

ionapaul

I think one of the main tenets of professional investing is the ability to move in and out of investments when your yield drops! Obviously once the yield drops you move on to another investment - I am sure we've all done this in the past; even with regard moving saving accounts from one institution to another (currently there are multiple instant access accounts in Ireland with 3.50%+ rates for example, while the ECB rate is much lower!)

Again, it is possible some inexperienced investors will sit by as their yield drops and their investment makes less and less sense - as I said, most people are financial illiterates.

20goto10

ionapaul wrote: »

Again, it is possible some inexperienced investors will sit by as their yield drops and their investment makes less and less sense - as I said, most people are financial illiterates.

Most people are not investors at all.

So going by what McW says you must drop your price in order for someone else to come along and make a 7% yield. In otherwords my loss is someone elses gain. Thats called being ripped off. This is the start of it. Everyone jumps in ripping each other off left right and centre. All he is saying is lets start another bubble and there is nothing in his articles that show one ounce of ingenuity.

I think the situation we have now is just perfect. It could do with a bit more activity but the little or no yileds keeps the investors and speculators out of the equation and leaves the market as it should be - a buyers market for people looking for a home.

ZYX

ionapaul wrote: »

I think one of the main tenets of professional investing is the ability to move in and out of investments when your yield drops! Obviously once the yield drops you move on to another investment - I am sure we've all done this in the past; even with regard moving saving accounts from one institution to another (currently there are multiple instant access accounts in Ireland with 3.50%+ rates for example, while the ECB rate is much lower!)

Again, it is possible some inexperienced investors will sit by as their yield drops and their investment makes less and less sense - as I said, most people are financial illiterates.

Remember McWilliams is talking about rental yield of 7%. This is not the same as the yield on property investment. If inflation averages 5% a year then he is talking about a yield of 12% a year being the normal on property investment.

faceman

shovelsfc wrote: »

rent prices have to drop more and more!!

They should in line with inflation and levels of unemployment. However after reading this article in the paper this morning, we saw an increase in consumer prices last month, despite the recession.

http://www.breakingnews.ie/ireland/average-prices-increase-for-first-time-in-almost-a-year-425842.html

I wonder how much of it has to do with Irish culture of accepting the aul price tag for what it is?

AARRRGH

20goto10 wrote: »

It's his figures and others like it that define what is overpriced.

I define overpriced as unaffordable.

People can't afford today's prices anymore (not that they ever could, but we pretended they could), and this will only get worse.

ionapaul

ZYX wrote: »

Remember McWilliams is talking about rental yield of 7%. This is not the same as the yield on property investment. If inflation averages 5% a year then he is talking about a yield of 12% a year being the normal on property investment.

Yeah, the only yield that would be important to professional investors would be annual yield on capital (rental yield) - if property prices AND rents come down or go up in tandem, although your position with regard capital appreciation may have changed, your yield will be the same.

I think the crux of the issue raised by McW is that (according to his figures, which may be off) those considering Irish property for investment purposes would be put off, and either prices must fall or rents must rise to make investment attractive to professional investors. The market needs investors to provide a service; without investors in the market prices will fall until the potential yields attract them back. Therefore it is reasonable to assume prices will fall, or investors will be happy makes a lower yield than they could get risk-free in savings accounts (which could be possible! they were happy doing so for the past 10 years after all!)

MG

ZYX wrote: »

Remember McWilliams is talking about rental yield of 7%. This is not the same as the yield on property investment. If inflation averages 5% a year then he is talking about a yield of 12% a year being the normal on property investment.

No he's talking about a simple yield calc. Inflation is not added on to the yield. It's quite simply rent divided by value. If you want to factor inflation, then you do it on both rent and value - i.e. no impact to yield

20goto10

AARRRGH wrote: »

I define overpriced as unaffordable.

People can't afford today's prices anymore (not that they ever could, but we pretended they could), and this will only get worse.

Making a 7% yield goes beyond affordabity. I'm selling a home, I cannot afford to finance someone elses profits.There is an affordability concern by both parties.

MG

20goto10 wrote: »

So going by what McW says you must drop your price in order for someone else to come along and make a 7% yield. In otherwords my loss is someone elses gain. Thats called being ripped off. This is the start of it. Everyone jumps in ripping each other off left right and centre. All he is saying is lets start another bubble and there is nothing in his articles that show one ounce of ingenuity.

I think the situation we have now is just perfect. It could do with a bit more activity but the little or no yileds keeps the investors and speculators out of the equation and leaves the market as it should be - a buyers market for people looking for a home.

This is not a rip off, it's the normal functioning of the market. High yields attract investors in until yields fall, investors leave low yields to searh for better investments until falling dmand drives yields higher.

A situation with no yields, is not "perfect", it's impossible