Collapsing house prices? We ain't seen nothing yet

mathie · 18-08-2010 9:23am #1

http://www.independent.ie/opinion/analysis/collapsing-house-prices-we-aint-seen-nothing-yet-2301078.html

THE most comprehensive report on the Irish property market is out and it evidences the total destruction of wealth of a certain generation. According to the wonderfully detailed work done by Ronan Lyons at Daft.ie, asking prices countrywide fell by just over 4pc in the second three months of the year -- a slightly larger fall than in the first quarter.

The yield is the main thing for me now.
I'm looking at buying at the momnet but my latest yield calculation on a property was just under 3.5%.

Slydice · 18-08-2010 11:24am

McWilliams pretty much laying out some blame there:

So for Ireland to recover, there will have to be a 'lost generation' who will be largely shut out of whatever economic future this country experiences.

This generation trap is the poisonous legacy of the Ahern-Cowen years.

"A lot done, a lot more to do."

Yeah, right.

whippet · 18-08-2010 11:42am

well I am jumping ship now, about 10k in negative equity. Sell the gaf, pay back the bank .. hardball some poor unfortunate who is trying to rent their own negative equity 'investment' to a low low monthly rental price.

Stay debt free for a couple of years and hoard a bit more cash.

Then when things get a little more settled I may think about buying again.

rugbyman · 18-08-2010 11:50am

whippet wrote: »

well I am jumping ship now, about 10k in negative equity. Sell the gaf, pay back the bank .. hardball some poor unfortunate who is trying to rent their own negative equity 'investment' to a low low monthly rental price.

Stay debt free for a couple of years and hoard a bit more cash.

Then when things get a little more settled I may think about buying again.

I think this is good thinking, but there are several factors to be taken into account, location of house(sellability), total fall in value, time into mortgage and perhaps most important, whether or not you will be able to get a mortgage again.

regards, rugbyman

HardyEustace · 18-08-2010 11:55am

rugbyman wrote: »

I think this is good thinking, but there are several factors to be taken into account, location of house(sellability), total fall in value, time into mortgage and perhaps most important, whether or not you will be able to get a mortgage again.

regards, rugbyman

Also whether or not you have a tracker.

jetski · 18-08-2010 12:00pm

"The suggestion here is that prices in Dublin -- having fallen by 50pc in the city centre since the peak -- are not at the bottom yet but might be getting close"

"In order to make a 7pc yield at the present average rent, the average price of houses would have to fall to €135,620. This suggests a huge further drop in average house prices here."

Thats a contradiction by my books....

whippet · 18-08-2010 12:23pm

in fairness a future mortgage shouldn't be a problem, we really didn't draw down anything close to what we were offered a few years ago and have savings along with no other personal debt. Plus we are probably in a much better financial position job wise over the last 12 months.

the plan could be to buy a site for cash and then mortgage only the new build.

I am so glad I didn't over extend myself back when I did buy. Keeping it modest as the time was a bit of a saviour.

The_Conductor · 18-08-2010 12:26pm

mathie wrote: »

The yield is the main thing for me now. I'm looking at buying at the momnet but my latest yield calculation on a property was just under 3.5%.

I'd be looking for a yield of at very least double this- to take into account impending interest rate rises, and the volatile Irish economy. At the end of the day though- yield is only one measure of the desirability of any given property.

whippet · 18-08-2010 2:27pm

smccarrick wrote: »

I'd be looking for a yield of at very least double this- to take into account impending interest rate rises, and the volatile Irish economy. At the end of the day though- yield is only one measure of the desirability of any given property.

my next property purchase will be a 'home' and I won't give a monkey's about yields or future prices. I will take out a mortgage based on what I want to spend on my home and then make the builders fight over who can provide me with the best possible house for that price.

dan_d · 18-08-2010 4:04pm

HardyEustace wrote: »

Also whether or not you have a tracker.

Mortgages existed before the tracker, and will do again.

Fair play to whippet - at some point you have to bite the bullet if your'e struggling.(not you personally, just a general you)

HardyEustace · 18-08-2010 4:27pm

dan_d wrote: »

Mortgages existed before the tracker, and will do again.

ABsolutely, and not disagreeing with you there!

They are a nice thing to have though!

whippet · 18-08-2010 4:37pm

dan_d wrote: »

Mortgages existed before the tracker, and will do again.

Fair play to whippet - at some point you have to bite the bullet if your'e struggling.(not you personally, just a general you)

fortunatly enough I am not struggling but I want out of suburbia and am more focused on the real important things in life! At the moment I know I can buy my way out of the current lifestyle for 10K and rather than see it as a painful cost I am looking at it costing three or four times that in 12 months which would turn in to a trap.

It does blow the idea of that new motor I was looking at !!

SamG · 18-08-2010 5:43pm

"The suggestion here is that prices in Dublin -- having fallen by 50pc in the city centre since the peak -- are not at the bottom yet but might be getting close"

"In order to make a 7pc yield at the present average rent, the average price of houses would have to fall to €135,620. This suggests a huge further drop in average house prices here."

Thats a contradiction by my books....

You're misinterpreting what he says...

He is saying that other people are suggesting we're near the bottom. He then goes on to rubbish this vested interest speak in the rest of the article.

Treehouse72 · 18-08-2010 6:16pm

whippet wrote: »

my next property purchase will be a 'home' and I won't give a monkey's about yields or future prices. I will take out a mortgage based on what I want to spend on my home and then make the builders fight over who can provide me with the best possible house for that price.

You do see the irony of the fact you are saying this whilst €10k NE and about to liquidate the biggest asset you will ever own in the middle of the biggest asset crash in world history? My point: perhaps you should give a monkeys about yield. Indeed, perhaps if you had done so first time around you wouldn't be in NE today! And maybe if more people in your position had thought about things like yield (and other such tedious trivialities) taxpayers like me wouldn't be paying back debt that people like you took on.

What pisses me off so much, and leads me to be so curt, is that the lessons are now there for us to see. And yet people still refuse to learn those lessons. "My next property..." you say, wishing 2006 back again. "Make the builders fight...." you say, Canny words if ever I heard them. "Yields don't matter" you say, despite all we have learnt about the property market. And despite the fact you know to your own financial cost just why it is yields matter. I dunno, sorry to pick a fight, but something just really bugs me about your post to be honest.

And some practical advise. If you are €10k in NE, it is probably safe to assume that is an optimistic figure, since people tend to be optimistic in these scenarios. And if that €10k figure is any older than a month, it is already out of date. We also know that property is falling in price by up to 3% per month in some areas and that it will take you some time to get your property on the market. It is also fair to assume that unless you price it competitively (ie way below the competition) it probably won't sell. Or, if it gets offers that those offers will be significantly below your €10k notional loss. Bottom line, I think your €10k figure will need adjusting upwards before it all shakes down and you should price that in now rather than taking several months to find out what you should already know.

Merch · 18-08-2010 6:33pm

Treehouse72 wrote: »

You do see the irony of the fact you are saying this whilst €10k NE and about to liquidate the biggest asset you will ever own in the middle of the biggest asset crash in world history? My point: perhaps you should give a monkeys about yield. Indeed, perhaps if you had done so first time around you wouldn't be in NE today! And maybe if more people in your position had thought about things like yield (and other such tedious trivialities) taxpayers like me wouldn't be paying back debt that people like you took on.

What pisses me off so much, and leads me to be so curt, is that the lessons are now there for us to see. And yet people still refuse to learn those lessons. "My next property..." you say, wishing 2006 back again. "Make the builders fight...." you say, Canny words if ever I heard them. "Yields don't matter" you say, despite all we have learnt about the property market. And despite the fact you know to your own financial cost just why it is yields matter. I dunno, sorry to pick a fight, but something just really bugs me about your post to be honest.

And some practical advise. If you are €10k in NE, it is probably safe to assume that is an optimistic figure, since people tend to be optimistic in these scenarios. And if that €10k figure is any older than a month, it is already out of date. We also know that property is falling in price by up to 3% per month in some areas and that it will take you some time to get your property on the market. It is also fair to assume that unless you price it competitively (ie way below the competition) it probably won't sell. Or, if it gets offers that those offers will be significantly below your €10k notional loss. Bottom line, I think your €10k figure will need adjusting upwards before it all shakes down and you should price that in now rather than taking several months to find out what you should already know.

Excuse my ignorance, but can you explain yield simply or in detail, what we (people/prospective buyers) should be looking at when buying property

whippet · 18-08-2010 7:42pm

Treehouse72 wrote: »

You do see the irony of the fact you are saying this whilst €10k NE and about to liquidate the biggest asset you will ever own in the middle of the biggest asset crash in world history? My point: perhaps you should give a monkeys about yield. Indeed, perhaps if you had done so first time around you wouldn't be in NE today! And maybe if more people in your position had thought about things like yield (and other such tedious trivialities) taxpayers like me wouldn't be paying back debt that people like you took on.

You sound like one of them pompous gits from Thepropertypin. YOU will not be paying a penny back due to me. I am currently 10k in NE and covering the shortfall from my own back pocket. So be careful you don't fall off that high horse just yet.

Treehouse72 wrote: »

What pisses me off so much, and leads me to be so curt, is that the lessons are now there for us to see. And yet people still refuse to learn those lessons. "My next property..." you say, wishing 2006 back again. "Make the builders fight...." you say, Canny words if ever I heard them. "Yields don't matter" you say, despite all we have learnt about the property market. And despite the fact you know to your own financial cost just why it is yields matter. I dunno, sorry to pick a fight, but something just really bugs me about your post to be honest.

I know exactly what I am getting in to. I am getting debt free, sitting tight for a couple of years with the intention of building a house which intend to live out my remaining days with my family, pets, classic cars, family close by.

In building a house, I will be in control of costs, budget and what the final price will be ... once I am happy in what I am paying out each month for the following 15/20 years I don't see what the problem is.

The future value of a house only matters if you intend to sell it. While I got burned buying the starter home at close to the peak ... lesson learned and my own financial security will bail myself out.

Treehouse72 wrote: »

And some practical advise. If you are €10k in NE, it is probably safe to assume that is an optimistic figure, since people tend to be optimistic in these scenarios.

Actually its based on an offer.

Treehouse72 wrote: »

And if that €10k figure is any older than a month, it is already out of date. We also know that property is falling in price by up to 3% per month in some areas and that it will take you some time to get your property on the market.

Offer is about 4 days old

Treehouse72 wrote: »

It is also fair to assume that unless you price it competitively (ie way below the competition) it probably won't sell. Or, if it gets offers that those offers will be significantly below your €10k notional loss. Bottom line, I think your €10k figure will need adjusting upwards before it all shakes down and you should price that in now rather than taking several months to find out what you should already know.

you know what they say about assumptions.

All in all, I am not an investor of property, nor do I intend to. I value quality of life above the daily worry of what the market is doing.

The insecurity of property investors and people who can't see a house as a home is so far from my world I can't really fathom it.

I make my money from other investments which have been quite good for me over the last number of years ... hence I can actually stomach the NE that I am currently in.

MuffinsDa · 19-08-2010 10:18am

whippet wrote: »

You sound like one of them pompous gits from Thepropertypin. YOU will not be paying a penny back due to me. I am currently 10k in NE and covering the shortfall from my own back pocket. So be careful you don't fall off that high horse just yet.
[/QOUTE]

+1 ! That is so arrogant and ignorant from Treehouse72, especially after you explained your financial situation and intentions so clearly.
Don't fall of that high horse indeed, and reserve your judgment for yourself!!!

mathie · 19-08-2010 12:22pm

Merch wrote: »

Excuse my ignorance, but can you explain yield simply or in detail, what we (people/prospective buyers) should be looking at when buying property

1. Take the annual rent that you'd get for the property. Some people say to only count 11 months of the year for this value as the propperty will rarely be let 100% of the time.
2. Divide the value in (1) by the price of the property
3. Multiply by 100.

So say for example a house rents for 1K.
Annual rent = 11K.
Say it's priced to sell for 350K.
11K / 350K * 100 = 3.14%

Now McWilliams says investors should be looking at a yield of at least 5%.
So this house would be 'worth' 220K... allegedly.

The_Conductor · 19-08-2010 12:58pm

whippet wrote: »

You sound like one of them pompous gits from Thepropertypin. YOU will not be paying a penny back due to me. I am currently 10k in NE and covering the shortfall from my own back pocket. So be careful you don't fall off that high horse just yet.

Whippet- Warning- we do not permit personal abuse on this forum. If you disagree with what someone else posts- refute it factually- do not get personal. This warning goes to everyone else too, and is the only warning I'm going to post here. Any more personal attacks- and the protagonist will have a holiday from posting in this forum.

Regards,

SMcCarrick

MuffinsDa · 19-08-2010 2:44pm

Treehouse72 wrote: »

You do see the irony of the fact you are saying this whilst €10k NE and about to liquidate the biggest asset you will ever own in the middle of the biggest asset crash in world history? My point: perhaps you should give a monkeys about yield. Indeed, perhaps if you had done so first time around you wouldn't be in NE today! And maybe if more people in your position had thought about things like yield (and other such tedious trivialities) taxpayers like me wouldn't be paying back debt that people like you took on.

SMMccarrick, disappointed to see your biased warning to Whippet, when you have completely ignored the above paragraph from Treehouse which is a more cynical form of personal attack. But clearly since his views are close to yours that doesn't matter to you!!

Feel free to give me a holiday for raising my voice about your double-standards by the way, fairness to me is more important than silly arguments on boards. and a sentence like " taxpayers like me wouldn't be paying back debt that people like you took on. " is an unfair personal attack no matter how you'd like to dress it.

btw I have no connection to whippet and have never come across him/her here or elsewhere...

The_Conductor · 19-08-2010 2:52pm

MuffinsDa wrote: »

SMMccarrick, disappointed to see your biased warning to Whippet, when you have completely ignored the above paragraph from Treehouse which is a more cynical form of personal attack. But clearly since his views are close to yours that doesn't matter to you!!

Feel free to give me a holiday for raising my voice about your double-standards by the way, fairness to me is more important than silly arguments on boards. and a sentence like " taxpayers like me wouldn't be paying back debt that people like you took on. " is an unfair personal attack no matter how you'd like to dress it.

btw I have no connection to whippet and have never come across him/her here or elsewhere...

My warning is to all posters.
You really have no idea of what my point of view is- most of the regular posters will be only too happy to attest to my relatively neutral views on most matters.

If you have an issue with a particular post- report it- listing your reasons for reporting it, and I will look at it. There were several people who chose to report Whippet's post for instance- however people preferred to bitch here about Treehouse and his/her point of view- than report their post- no-one reported their post......

I do not have the time to go and read through every single post in all the fora I moderate- I rely heavily on those who frequent the fora reporting any misbehaviour or abuse they encounter.

Regards,

SMcCarrick

whippet · 19-08-2010 3:42pm

smccarrick wrote: »

Whippet- Warning- we do not permit personal abuse on this forum. If you disagree with what someone else posts- refute it factually- do not get personal. This warning goes to everyone else too, and is the only warning I'm going to post here. Any more personal attacks- and the protagonist will have a holiday from posting in this forum.

Regards,

SMcCarrick

no problem !

MuffinsDa · 19-08-2010 3:46pm

fine!
reported, Let's see who's relatively neutral then :-)

oflahero · 19-08-2010 3:50pm

MuffinsDa wrote: »

fine!
reported, Let's see who's relatively neutral then :-)

Shed the thin skin man. I wouldn't have phrased it the way Treehouse did, true, and it might've come across as a bit arrogant, but there was no personal abuse there.

Merch · 19-08-2010 3:53pm

mathie wrote: »

1. Take the annual rent that you'd get for the property. Some people say to only count 11 months of the year for this value as the propperty will rarely be let 100% of the time.
2. Divide the value in (1) by the price of the property
3. Multiply by 100.

So say for example a house rents for 1K.
Annual rent = 11K.
Say it's priced to sell for 350K.
11K / 350K * 100 = 3.14%

Now McWilliams says investors should be looking at a yield of at least 5%.
So this house would be 'worth' 220K... allegedly.

I thought it was something to do with rents versus price but wasnt certain how exactly it was worked out, so where is the supposed sweet spot for yield 5%?
am I mistaken or does that mean if rents fall prices have to fall accordingly to become attractive? also in the good (so called) times rents and property prices were both higher but the yields might still have looked good? no?
But now its down to the rent you can achieve coupled with a price that corresponds to approx 5%?

whippet · 19-08-2010 3:58pm

actually that yield calculation seems not to take in to consideration finance costs. taking a yield of 5% over 15 / 20 years.

The actual cost of purchasing would be dependent on the mortgage size and interest rate over the life of the mortgage. It would be fair enough for a cash buyer.

quozl · 19-08-2010 4:04pm

Merch, during the height of the bubble yields were down as low as 2 to 3% because while rents were somewhat higher, sale prices were much higher.

A yield of 7% would be more the sweetspot you refer to. I think McWilliams is deliberately under-stating his case so as to avoid spurious arguments over the exact yield to be used.

Merch · 19-08-2010 4:37pm

so either rents have to go up or prices come down (either by a good amount)
and if they dont rise or fall dramatically, should people wait to get on the ladder?
Now that prices have dropped a good bit I'd thought its better to get on but I'm inclined to think there is more to go.
Having said that, even if you lose money on a property to live in after say 5 years, lets say 50%, then you still have the other 50% even if you owe more (assuming you can afford to pay it and its where you are happy to live)
But if you rented in that time you'd have nothing.
I'm sure plenty will dissagree

The_Conductor · 19-08-2010 4:53pm

MuffinsDa wrote: »

fine!
reported, Let's see who's relatively neutral then :-)

Ok- you've reported the post.
If you could clarify the issue you have with the post, I'd be grateful.

Whippet advised he intends to jump ship- is roughly 10k in negative equity, but intends to rent and save money and re-enter the property market when things calm down. Fair enough. He is unhappy with his current lifestyle and views 10k as a reasonable price to pay to exit his current situation and move elsewhere. Also fair enough.

Treehouse72 came back with how he as a taxpayer (as are all of us) are paying for people not giving a fig about yields- and how this resulted in property prices that were wholly unsustainable.

Treehouse72- should not have personalised his/her post- however given the manner in which Whippet responded (which was also very personal in nature)- they were more than capable of defending themselves.

I could go on an editting and deleting spree on this thread- deleting the posts of both Treehouse72 and Whippet. Both were personal in nature and taking snipes at each other- however both posters defended themselves and made valid points towards each other.

I have issued warnings to all posters regarding personalising their responses- this applies to both Whippet and also Treehouse72. If you disagree with what another poster posts- you should refute it factually, without resorting to personalising your post. However- if you put personal information into the public domain- and someone then comments or offers an observation on it- its a grey and unhappy area.

No bans or posting suspensions issued to any posters in this thread- though several people are skating on thin ice.

Ps- if you are reporting a post- which you should do with any post you have an issue with- please detail why you're reporting it.........

S.

Treehouse72 · 19-08-2010 7:16pm

whippet wrote: »

You sound like one of them pompous gits from Thepropertypin. YOU will not be paying a penny back due to me. I am currently 10k in NE and covering the shortfall from my own back pocket. So be careful you don't fall off that high horse just yet.

First whippet, let me quote some of my post back to you:

Treehouse72 wrote: »

What pisses me off so much, and leads me to be so curt, is....

.....I dunno, sorry to pick a fight, but something just really bugs me about your post to be honest.

And some practical advise....

What that amounts to is an acknowledgement that I am being harsh in advance of anyone telling me as much. If I was simply interested in attacking you I would have called you a "smug git" or whatnot. But I didn't. I went out of my way to almost apologise that I was being so short. You could return the magnanimity by not frothing so much and calling me names.

On the substance of your complaint, read what I said again (my emphasis):

And maybe if more people in your position had thought about things like yield (and other such tedious trivialities) taxpayers like me wouldn't be paying back debt that people like you took on.

I do not say I am paying your NE. When posting I was going to say I didn't mean you because it was clear in your post you were carrying the €10k. But I didn't because we're not children so I hoped you would see what I meant. Unfortunately you didn't. If you think I'm dancing on the head of a pin here, ask yourself why I used the language I did rather than simply saying "I'm paying your NE". I didn't say that because that's not what I meant.

I know exactly what I am getting in to. I am getting debt free, sitting tight for a couple of years with the intention of building a house which intend to live out my remaining days with my family, pets, classic cars, family close by.

Cool. My advice was simply that you wait for yields to tell you when to buy so that you don't end up forking out another €10k next time around. On it's own terms, this is very good advice.

But more importantly, your criteria for judging when the right time to buy is will in all likelihood very closely correspond to what's happening to yields whether you realise it or not. You will recognise that moment as "I can afford this now"...in fact though, this will almost undoubtedly also be at the moment when yields make sense. I am simply codifying your gut feeling.

The future value of a house only matters if you intend to sell it. While I got burned buying the starter home at close to the peak ... lesson learned and my own financial security will bail myself out.

You bought near peak and today have an offer in €10k below that price? Wow. I am genuinely stunned to hear that, given almost every house in the country is down 30%+ since peak and prices across the board are back to 2001 or 2002 levels. But I take you at your word and congratulate you for not being in a worse position, because you very easily could have been.

And I agree the value of a house only matters if you want to sell. But the price you buy it for matters right away. Every penny more you pay than it's neutral "value" deprives your family of expendable income and thus quality of life. The blitheness with which people dismiss €10k here and €20k there is frightening, considering the compound cost of these sums over the lifetime of a mortgage. They amount to adding years to your working life!! As an investor you more than anyone should know about these small margins and how important they can be. So when you say this:

All in all, I am not an investor of property, nor do I intend to. I value quality of life above the daily worry of what the market is doing.

...you are getting it all wrong when you dismiss the stuff I'm talking about. Because ALL IT IS ABOUT is the quality of your family's life. I couldn't give a rat's arse about property values or investment. I care that people do bloody stupid things that risk their families' happiness and that underpins everything I say.

Finally, I admit that I sometimes forget there are people in distress behind these posts and will try to be less confrontational where possible.

Damie · 19-08-2010 7:21pm

Merch wrote: »

so either rents have to go up or prices come down (either by a good amount)
and if they dont rise or fall dramatically, should people wait to get on the ladder?
Now that prices have dropped a good bit I'd thought its better to get on but I'm inclined to think there is more to go.
Having said that, even if you lose money on a property to live in after say 5 years, lets say 50%, then you still have the other 50% even if you owe more (assuming you can afford to pay it and its where you are happy to live)
But if you rented in that time you'd have nothing.
I'm sure plenty will dissagree

PersonsA rents for 5 years at 8000* per year, therefore 40,000 down.
PersonsB buys for 300,000* after 5 years is 50% less therefore 150000 down.

PersonsA then can buy for 150000, so therefore after 5 years, has a total of 190000 spent on rent and mortgage.
PersonsB after 5 years has a mortgage of 300000, but its worth 150000.

Add in that PersonsA is 'free' for 5 years while PersonsB has a pretty heavy noose around the auld neck...

Is this what you mean?:D

*figures are taken at random from my head - but still not far off!

Collapsing house prices? We ain't seen nothing yet

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