Irish property market bound for recovery

Calina

beeno67 wrote: »

Surely you mean FTB house should be 4 times mortgage as others would have equity built up from sale of an existing house. PTSB/ESRI puts average FTB home at about €190k. So a 15-20% drop would see this figure being reached

The property profile has changed which means the average FTB is no longer an at least 2 bedroomed house but potentially a 1 bedroomed apartment. It's the ladder mentality which is gone crazy.

I don't mean FTB house should be 4 times mortgage. I mean average house price versus average salary. You seem to forget that it need not and previously often wasn't necessary to trade up.

beeno67

Calina wrote: »

The property profile has changed which means the average FTB is no longer an at least 2 bedroomed house but potentially a 1 bedroomed apartment. It's the ladder mentality which is gone crazy.

I don't mean FTB house should be 4 times mortgage. I mean average house price versus average salary. You seem to forget that it need not and previously often wasn't necessary to trade up.

Why 4 times? Why not 3 times or 5 times?

If it is due to historic reasons I doubt they still hold up. eg in 1980s many people paid tax at over 60%. Even basic rate was 35% with rates in between. Average household now much smaller than 20 years ago but want more sapce. Less children means more disposable income, etc

The_Conductor

beeno67 wrote: »

in 1980s many people paid tax at over 60%.

My marginal rate is already over 60% when you factor all the levies etc into the equation. For every Euro over the threshold I earn- I get a net 38c in take home pay. I'm not on a great salary either........

Calina

beeno67 wrote: »

Why 4 times? Why not 3 times or 5 times?

If it is due to historic reasons I doubt they still hold up. eg in 1980s many people paid tax at over 60%. Even basic rate was 35% with rates in between. Average household now much smaller than 20 years ago but want more sapce. Less children means more disposable income, etc

You might also want to remember that interest rates were historically significantly higher and people are already spending that more disposable income on stuff not deemed so essential 20 years ago like a) childcare b) mobile phones c) cable television. d) broadband connections e) PlayStations f) Nintendo Wiis g) laptops h) DVDs.

The profile of what we spend our money on has changed. In an ideal world, we spend as little as we can get away with on stuff, not, unfortunately, as much as we can get away with, resulting in people being borrowed up to the max and then some.

I chose four as a nice round figure that was a) payable and b) less than 8 times and c) possible to pay off for most people if interest rates tripled which is not impossible given how low they are now.

There's no point in assuming that the ECB rate will remain where it is now and historically, the DM rate was around 6% on average. Also, I don't know about you but I'd prefer to be spending the money on stuff rather than on interest to the bank.

But that's just me. The problem is, property prices are still too high for most people and not only that, the property you'd be paying for does not necessarily compare well to what you'd have bought for proportionally the same amount of moey 20 years ago. 20 years ago 3 bedroomed house versus now 1 bedroomed groundfloor apartment.

I think it's worth thinking about all the same.

oflahero

Kipperhell wrote: »

O f course the same can be said in reverse from the nay sayers.

House prices have gone as high as they can go the burst is around the corner. etc...

Price will eventfully recover as they were eventually going to burst. Broken clock and all that. How many experts were precisely correct and not just repeating inevitability.

There's precious little vested interest in a long period of ridiculously low house prices Kipperhell. True, I'd been boring people telling them 'the bust is just round the corner' since 2001, but unlike the yay-sayers, who seem to believe that high and rising house prices are a Good Thing in themselves, now that the economy is in the toilet and prices are coming down, I don't believe in "lower-is-better" as an end in itself. I just wanted a return to sanity and stability.

As Calina so eloquently points out (top post, Calina), stable and low house prices represent a situation where capital is being usefully allocated into productive areas such as new start-up business and investment, rather than into a feelgood-factor of "Oi'm rich bejaysus, me house is wurt loads", with the accompanying pointless 40-year debt-slavery that goes with it. Lunacy.

It is quite apparent some people want lower house prices out of jealousy/ begrudgery and just love the idea of people involved to be punished.

Oh, for f*ck's sake...

beeno67

smccarrick wrote: »

My marginal rate is already over 60% when you factor all the levies etc into the equation. For every Euro over the threshold I earn- I get a net 38c in take home pay. I'm not on a great salary either........

But in the 80s people still paid levies (health levy, employment levy if I remember correctly) and PRSI. On top of that the top rate of tax was 60%. The thresholds were also a lot lower so a lot more people paid tax at the higher rate. Even if you were not the lower rate was 35% which is just about as high as the upper rate now. Basically in the 80s you would have paid a far higher proportion of your income back to the government than now. A worker now has far higher disposable income than a worker 20-25 years ago. To use historic gross salary as a means for house prices will not work.

beeno67

Calina wrote: »

You might also want to remember that interest rates were historically significantly higher and people are already spending that more disposable income on stuff not deemed so essential 20 years ago like a) childcare b) mobile phones c) cable television. d) broadband connections e) PlayStations f) Nintendo Wiis g) laptops h) DVDs.

Well a TV & video player 25 years ago would have cost a greater proportion of your salary than these.

Calina wrote: »

There's no point in assuming that the ECB rate will remain where it is now and historically, the DM rate was around 6% on average. Also, I don't know about you but I'd prefer to be spending the money on stuff rather than on interest to the bank.

But I am not. I am assuming interest rates will average much the same as they did 25 years ago. Which is a lot higher than now.

Calina wrote: »

But that's just me. The problem is, property prices are still too high for most people and not only that, the property you'd be paying for does not necessarily compare well to what you'd have bought for proportionally the same amount of moey 20 years ago. 20 years ago 3 bedroomed house versus now 1 bedroomed groundfloor apartment.

I think it's worth thinking about all the same.

Well a 3 bed semi is now costing about 240k. I bought my first house in early 90s. Standard mortgage used to be 90% of purchase price. Mortgage amount given would be 3.5 times one income plus 1.5 times second. The average 3 bed semi is now as much in reach of the average buyer (who traditionally earned above average wage) as it was 20 years ago especially when you consider the extra disposable income we have these days. I am not saying that means prices will not fall further.

gurramok

beeno67 wrote: »

Well a 3 bed semi is now costing about 240k. I bought my first house in early 90s. Standard mortgage used to be 90% of purchase price. Mortgage amount given would be 3.5 times one income plus 1.5 times second. The average 3 bed semi is now as much in reach of the average buyer (who traditionally earned above average wage) as it was 20 years ago especially when you consider the extra disposable income we have these days. I am not saying that means prices will not fall further.

Where? Certainly not in the cities.

mrgaa1

Also people who are looking to purchase will have to pull their horns in and be more realistic about what they can get and where they want to live. This may mean having to move further out and travel further to get what people want. I used to live in England and I travelled 2 hours one way, 2 hours every day for work by car because thats the way it was. I wanted to live in one place but work was elsewhere.
The main issue is negative equity and the current repayments for people. As the economy shrinks substantially over the next few years mortgage holders will have large repayments as well as those who were investors.
I think the buy-to-let market will become HUGE as people move into rental places as they can not afford to live where they are so those with cash will be able to purchase good places at auction in the next year or so.

asdasd

mrgaa1 is still in the middle of a boom.

beeno67

gurramok wrote: »

Where? Certainly not in the cities.

PTSB/ESRI survey put the average price of a 3 bed semi at €267k in Dec 08. I think an estimate of 10% fall in last 12 months would be fair. Hence €240K. The reality is the price is probably a lot lower than this. Most people here seem to think the PTSB/ESRI survey overestimates house prices.

quozl

mrgaa1 wrote: »

Also people who are looking to purchase will have to pull their horns in and be more realistic about what they can get and where they want to live.

So dropping house prices means people will find it harder to purchase?
I thought you were describing the bubble years there for a second.

Even the VIs are telling us that affordability has doubled. They're f*cktards deliberately ignoring historically low interest rates, and the fact that what you can afford is not necessarily what something is worth.

At least there's some (disingenuos) logic to their statements though.

asdasd

affordabilty was always a bull**** argument. It's like owing the local loan shark a few thousand, and not being able to pay it back at 500 a month for 2 years. He sends the thugs around to break your knees, but there is anther offer.

400 a month for 5 years. Thats an increase in affordability the baseball wielding thug might say, if he had the audacity of a banker.

Not surprisingly when the default mortgage moved from 25 to 35 years affordability increased during the boom, along with historically low interest rates ( the exact wrong time to buy and get the biggest mortgage you can get).

quozl

I totally agree, but I'm highly doubtful of mrgaa1's suggestion that people are having to move FURTHER out nowadays in order to be able to buy a place.

It's the opposite imo.

asdasd

sure I agree with you. Said it first, in fact. Look at my previous comment to the last one.

gurramok

beeno67 wrote: »

PTSB/ESRI survey put the average price of a 3 bed semi at €267k in Dec 08. I think an estimate of 10% fall in last 12 months would be fair. Hence €240K. The reality is the price is probably a lot lower than this. Most people here seem to think the PTSB/ESRI survey overestimates house prices.

Where? Give us locations to back up the following:

beeno67 wrote:

The average 3 bed semi is now as much in reach of the average buyer

beeno67

gurramok wrote: »

Where? Give us locations to back up the following:

Well it is the average price.

I was responding to Calina on relation between property price & average wage. 20 years ago mortgages were given based on 90% mortgage, 3.5 times one income plus 1.5 times the second.

However due to tax changes someone paying that type of mortgage now would find it much easier to pay than 20 years ago (even if you ignore current interest rates)

Treehouse72

beeno67 wrote: »

Well it is the average price.

I was responding to Calina on relation between property price & average wage. 20 years ago mortgages were given based on 90% mortgage, 3.5 times one income plus 1.5 times the second.

However due to tax changes someone paying that type of mortgage now would find it much easier to pay than 20 years ago (even if you ignore current interest rates)

Beeno, this week we found out that only 10% of tax payers are paying the top rate, implying that 90% of the working population earn under €40k. We also found out that 50% of people earn so little that they pay no tax at all and that another 420,000 people are unemployed.

This all means that average house prices are still 10x the salary level of the top 10% of people in the country.

You are living in 2006. Just because €267k appears reasonable compared to bubble prices does not mean it is a realistic or sustainable price level. The crash is only getting started and all that is holding it back is the fact that there are so many people like you who are totally incapable of internalising and processing the truth. That's why sellers are holding out and holding out - they are too traumatised to realise 2006 is gone for decades. They missed out but it will take years for them to accept that.

beeno67

Treehouse72 wrote: »

Beeno, this week we found out that only 10% of tax payers are paying the top rate,

That is my point. 20 years ago far more people paid the top rate of tax. You would be surprised to meet anyone just paying basic rate of tax. Even the lowest rate of tax was 35%. There was a middle rate of 48% and then a top rate of 60%. In the mean time wages have gone up about 50% more than inflation. In other words people pay a lot less income tax and have much more disposable income.

Treehouse72 wrote: »

You are living in 2006. Just because €267k appears reasonable compared to bubble prices does not mean it is a realistic or sustainable price level.

I never said it was reasonable. Anyway it was €240K. Average income of a house buyer is over 40K a year. (house buyers now and 20 years ago earn more than those who do not buy houses). So like I said following the criteria of 20 years ago, 90% mortgage, 3.5 times one income and 1.5 times the second income, an average couple could buy the average 3 bed semi. If they did buy it they would find it a lot easier to afford than a couple doing the same thing 20 years ago (even if you ignore interest rates)

Treehouse72 wrote: »

The crash is only getting started and all that is holding it back is the fact that there are so many people like you who are totally incapable of internalising and processing the truth. That's why sellers are holding out and holding out - they are too traumatised to realise 2006 is gone for decades. They missed out but it will take years for them to accept that.

That is just a rant that has nothing to do with what I was talking about.

_Kooli_

beeno67 wrote: »

That is my point. 20 years ago far more people paid the top rate of tax. You would be surprised to meet anyone just paying basic rate of tax. Even the lowest rate of tax was 35%. There was a middle rate of 48% and then a top rate of 60%. In the mean time wages have gone up about 50% more than inflation. In other words people pay a lot less income tax and have much more disposable income.

Only 10 years ago when i was only making £22K i was on the top rate of tax.
I dont know too many people nowadays who are not on the top rate either. The only people i know not on it are either very young or are unskilled.

I think the only way to ensure there is no property bubble repeat is to increase income tax. For that matter, the only way to fix the deficit is the same. Put everyone in the tax net, even if they are minimum wage or on the dole.

Or what about taxing any second job at a rate of 60%. Make it uneconomical for someone to hold up 2 or more jobs. Might get more people off the dole and contributing to the economy if those taking more than one job are made give those second jobs to others.

Property prices are low enough now that people can afford the average house very easily now. Not much difference between rent and buying anymore.

All thats missing from the equation now is confidence. Once people are no longer afraid for their jobs, watch the bubble inflate again. When confidence returns though, is another question. My guess is a year or two. Once the world economy starts to move again. The cycle will be repeated.

robd

_Kooli_ wrote: »

Property prices are low enough now that people can afford the average house very easily now. Not much difference between rent and buying anymore.

That's just not the case. It only seems people can afford them because the ECB rates are so low at the moment. That's not to say the bank will actually lend to them though. Rates are going to increase significantly over the next 24 months.

Rent. Again only because rates are so low. In reality yields are 3.5% on most residential properties for sale that there is a comparable property for rent. This would indicate a 50% premium now for buying verus long term economic value of the properties.

Rent levels are a good indicator of salary levels available for housing as they move much quicker than house prices.

_Kooli_

robd wrote: »

That's just not the case. It only seems people can afford them because the ECB rates are so low at the moment. That's not to say the bank will actually lend to them though. Rates are going to increase significantly over the next 24 months.

Rent. Again only because rates are so low. In reality yields are 3.5% on most residential properties for sale that there is a comparable property for rent. This would indicate a 50% premium now for buying verus long term economic value of the properties.

Rent levels are a good indicator of salary levels available for housing as they move much quicker than house prices.

It doesn not only seem like you can afford them.
Either you can or you cant.
You can fix if it suits you too.

And banks will lend too when confidence returns.
Whenever the turn comes - Watch the first few banks start and then the rest looking for some of the action too before they get left behind.

Rubbish about rents being a good indicator of salary too. Think about it and think about the present situation.

This whole thing is a cycle.
Its just the way the world works.
We were at a high before. We are at or near a low now.
When we come out of it, we'll just repeat the whole process over and over.

Fighting Irish

i think prices will still be falling by 2012

asdasd

When we come out of it, we'll just repeat the whole process over and over.

I would hope our plicy makers dont take that advice. Property swings yes, but it doesnt have to bubble. In any case I think that the prices of Irish property will not return to their nominal highs for more than a decade, and their real highs ever.

Amhran Nua

Calina wrote: »

We need jobs. We need people to come in and see that doing business in Ireland is a good and viable thing.

I've never cheered at reading a post on the internet before, good shot sir.

The_Conductor

_Kooli_ wrote: »

And banks will lend too when confidence returns.
Whenever the turn comes - Watch the first few banks start and then the rest looking for some of the action too before they get left behind.

At the press conference yesterday- the ECB indicated that next months (December's) fund operation will be the final one. They are not raising interest rates at the moment- they are however commencing removing what they consider to be excess liquidity from the Eurozone money markets.

The limitless overnight lending facility for retail banks is closing.

This will have a massive impact on the ability of retail banks, particularly those who are trying to rebuild their teir 1 capitalisations, to further lend, without finding alternate funding arrangements. AIB pulled off a bond issue during the week- at 5.68% for a 3 year bond, Bank of Ireland has officially shelved its fund raising until the new year, when the intentions of the EU Commission to its business plan become clearer.

If the Irish retail banks are *now* paying 5.68 for 3 year funds- despite the ECB overnight rate only being officially 1% (though with no further liquidity available from this source)- surely it spells out exactly what is going to happen to retail customers of Irish banks.

A normal lending margin is considered in international terms to be 1.2%- add this to the current funding cost of 5.68% and you are looking at a lending rate of 6.89%........ If rates get to this level- we're all screwed.

Fighting Irish

Treehouse72 wrote: »

The crash is only getting started and all that is holding it back is the fact that there are so many people like you who are totally incapable of internalising and processing the truth. That's why sellers are holding out and holding out - they are too traumatised to realise 2006 is gone for decades. They missed out but it will take years for them to accept that.

DAWT

gurramok

beeno67 wrote: »

Well it is the average price.

Where?

been067 wrote:

I never said it was reasonable. Anyway it was €240K. Average income of a house buyer is over 40K a year. (house buyers now and 20 years ago earn more than those who do not buy houses). So like I said following the criteria of 20 years ago, 90% mortgage, 3.5 times one income and 1.5 times the second income, an average couple could buy the average 3 bed semi. If they did buy it they would find it a lot easier to afford than a couple doing the same thing 20 years ago (even if you ignore interest rates)

Where did you get that 40k from?

Also, are you basing your whole argument on a couple rather than a singleton as most people who bought 20yrs ago were single buyers.

Are singeltons leppers?

Treehouse72

beeno67 wrote: »

That is my point. 20 years ago far more people paid the top rate of tax. You would be surprised to meet anyone just paying basic rate of tax. Even the lowest rate of tax was 35%. There was a middle rate of 48% and then a top rate of 60%. In the mean time wages have gone up about 50% more than inflation. In other words people pay a lot less income tax and have much more disposable income.

Now I've heard it all. You're saying that because so few people are earning enough to be in the top tax rate, that proves that people have more money? Insanity.

To me, it proves the exact opposite: a massive percentage of taxpayers are earning under €40k and in that context house prices are still overvalued by no less than 40%.

bangersandmash

beeno67 wrote: »

That is my point. 20 years ago far more people paid the top rate of tax. You would be surprised to meet anyone just paying basic rate of tax. Even the lowest rate of tax was 35%. There was a middle rate of 48% and then a top rate of 60%. In the mean time wages have gone up about 50% more than inflation. In other words people pay a lot less income tax and have much more disposable income.

Putting aside that you don't provide any statistics ("meeting" or "knowing" people and their tax rates doesn't cut it), as Treehouse72 pointed out, your argument doesn't prove anything about property affordability.

Applying the same argument to the October exchequer figures, you could deduce that people are in a much better position to buy property this year than they were in 2008

One of the most shocking things about the income tax figures is that just 10pc of taxpayers are paying the top rate of tax this year, less than half of the 21pc who paid it in 2008.