Houses to nose dive to appropriate levels.

musharra

It is mainly referred to as house 'prices', but in todays market an asking 'price' is about as accurate as a
drunk surgeon with a rusty blade.

The value of a house is only what someone is willing to pay for it and in the irish property market the indications are that the value of houses are set to decrease significantly below current levels in the coming year.

The country's largest mortgage provider TSB is abolishing fixed rate homeloans which leaves any potentially new customers with no option but to go variable and be exposed to future interest rate increases.
This change will without doubt spread to other mortgage providers and depress any potential borrowings.

Who are the potential customers. With un-employment at 13.4% and a generation of educated Irish leaving the country its is hard to see any buyers in today market.

The surge in purchasing in the boom years drew in younger first time buyers who were talked into a now difficult situation.
Families hoping of trading up to a larger home will only sell their existing home by reducing their expectations.

Similarly for those wishing to trade down to smaller homes.

Another reason why house values will drop is they are still hugely overvalued. A search of daft will prove that the majority of sellers are still living in 2007 cuckoo-land.
Also NAMA feeds into the mix as indications are that it will be forced to a fire sell of blocks of houses which
will quickly draw the market down to appropriate levels.

Irelands forfeiting on the bailout will also be another
factor as the external investors who were despised for ramping up prices in the boom years will remain away from the market.

Down they must come and down they will come. Anyone considering buying now needs to consider the future value which could be a 50% reduction in 6 months! Anyone selling should drop their price and get out now.

Victor

Is that copied from somewhere else?

mikemac

Looks like an article though nice writing if it was yourself

OldPeculier

feelingstressed wrote: »

Looks like an article though nice writing if it was yourself

+1
I was looking for the source link when I had read it through

musharra

It is not a Ctrl-C job lads, I wrote it with the intention of sending it not only to boards but also into some newspapers as I found it quite frustrating during the 2001-2007 'cuckoo-land' era that the media went along with the vested interest groups by talking up the lunacy.

It is my hope that they will now write some truth and the above may help stimulate this.

Thanks for the feedback though.

A couple both on €20,000/annum could reasonably cope with a €140,000 mortgage over 30 years, deposit of €15,000/€20,000 means a realistic starter home would go for €160,000. Not too far off that at the moment. I think the house prices won't hit the floor in the way some folks reckon as quite simply sellers won't sell for too low a price.

DubDani

RoverJames wrote: »

A couple both on €20,000/annum could reasonably cope with a €140,000 mortgage over 30 years, deposit of €15,000/€20,000 means a realistic starter home would go for €160,000. Not too far off that at the moment. I think the house prices won't hit the floor in the way some folks reckon as quite simply sellers won't sell for too low a price.

A coupe that is on 20k each will very rarely (probably never) be able to get a mortgage for 140K. Usually it is 3.5 times the first Salary and then maybe 1 time the seoncd salary, which would give them 90K, at a push maybe 100K.

LK_Dave

I don’t know how far house prices will drop but in my view it is irrelevant until credit starts to flow. Mortgages will become increasingly more difficult to obtain as applicants will have to show a proven record in many years of saving plus they will require up to 20% deposit. I feel we are heading into a period where whole life renting will be the norm rather than buy, which may not be a bad thing.
I don’t know that NAMA’s strategy will be but I have to wonder what people mean when they say that NAMA will firesale and thus drive the prices down. Yes, I can see NAMA firesales but I don’t think they will initially be to individuals but rather entire blocks/estates to pension/social funds. These guys have the money and can wait the 30/40 years to get it back.

tommylimerick

ya it s a free market
but we have nama underwriting house prices
no-one was better at blowing bubbles than
that psychopath bertie

gurramok

RoverJames wrote: »

I think the house prices won't hit the floor in the way some folks reckon as quite simply sellers won't sell for too low a price.

How much time do sellers have, a generation? As buyers have the option of renting while waiting to afford a house if they can be bothered to buy, sellers will be old and grey by then

the_syco

musharra wrote: »

Another reason why house values will drop is they are still hugely overvalued. A search of daft will prove that the majority of sellers are still living in 2007 cuckoo-land.

Anything bought pre-2000 can go cheaply, but no-one who bought during the boom will be able to afford selling it off at a great loss, and will have to stay put if they can't offload it. BUT, as the latter will only sell at a high price, the former will sell at a higher price than they need to sell for, if you understand me?

IMO, how much the banks will give as mortgages will really affect the people buying, but as the banks also own some properties, it's in their own interests to allow people to apply for high mortgages.

It's a loop that won't suddenly collapse, IMO.

professore

RoverJames wrote: »

A couple both on €20,000/annum could reasonably cope with a €140,000 mortgage over 30 years, deposit of €15,000/€20,000 means a realistic starter home would go for €160,000. Not too far off that at the moment. I think the house prices won't hit the floor in the way some folks reckon as quite simply sellers won't sell for too low a price.

Do you really think 30 years is a realistic time for a mortgage to run ? What happens when they have kids ? One or both of them gets laid off ? New taxes and charges take 10 % or more of their take home pay? Can they still "reasonably cope" ?

If the sellers won't sell then they are stuck with their house and € 0 - in fact it costs them money every year they don't sell in maintenance. Simple.

professore

the_syco wrote: »

Anything bought pre-2000 can go cheaply, but no-one who bought during the boom will be able to afford selling it off at a great loss, and will have to stay put if they can't offload it. BUT, as the latter will only sell at a high price, the former will sell at a higher price than they need to sell for, if you understand me?

IMO, how much the banks will give as mortgages will really affect the people buying, but as the banks also own some properties, it's in their own interests to allow people to apply for high mortgages.

It's a loop that won't suddenly collapse, IMO.

People whose houses are repossessed will be forced to sell. That wave of the recession has yet to hit as Fianna FAIL smartly stopped the banks from doing it for a limited period. When that happens then watch house prices fall like a stone. I bought in 98 and IMHO the economy then was in much better shape than it is now. I think prices will fall to 1995 levels or thereabouts.

OMD

professore wrote: »

People whose houses are repossessed will be forced to sell.

I think that is the key here. These people will be forced to sell but no one else will. People might want to sell but unless they are forced to do so then they won't. The idea that sellers need to drop their prices doesn't really hold water. Sellers will sell for the best price they can get. Their price will be dicated by their current mortgage and by the price of the property they are moving to. In the end if they are not happy with the price they are getting they just stay put.

who_ru

look ffs the whole property market here is a mess - and all the players know it.

NAMA most certainly won't want fire sales - i read recently where somebody described NAMA as a property crash in slow motion. which of course is correct. somebody is going to have to take a hit somewhere. the banks and vendors do not want to acknowledge losses by cutting prices too much, but no one is buying at these prices, and even fewer can access credit. but there are equally very few if any repossessions. the Irish property market is a basket case.

credit is already more expensive thanks to the TSB. the other institutions, which we have bankrolled by the way, will follow suit. So all round the potential buyer is hammered. hammered by tax increases, hammered by interest rate increases, hammered by job losses, hammered by cost of living increases (fuel, health insurance etc) and hammered by morale and confidence at an all time low. and under these circumstances i cannot understand why anyone would want to buy property in ireland now.

gurramok

OMD wrote: »

I think that is the key here. These people will be forced to sell but no one else will. People might want to sell but unless they are forced to do so then they won't. The idea that sellers need to drop their prices doesn't really hold water. Sellers will sell for the best price they can get. Their price will be dicated by their current mortgage and by the price of the property they are moving to. In the end if they are not happy with the price they are getting they just stay put.

As said, how long can sellers hold out which dictates their personal circumstances? Buyers as described by who_ru are getting hammered. The money ain't there for the sellers.

If there are 70,000-100,000 mortgages in trouble, its bound to have an affect. Also, thousands die each year, I just cannot see their siblings waiting forever to get the desired price for the deceased's estate, patience will run out, they will get the best price they can in a depressed market where that best price will be below their expectations.

Oh and we have NAMA. If the current opposition get in, I just don't see them friendly to developers, it will be a boost to the prospect of firesales.

fred252

a thing that has dis-incentivised potential first time buyers like me is that before the budget i would have to pay 0% stamp duty now i have to pay 1 %.

for those who are on the fence it didn't do anything for buyer confidence.

EricPraline

fred252 wrote: »

a thing that has dis-incentivised potential first time buyers like me is that before the budget i would have to pay 0% stamp duty now i have to pay 1 %.

for those who are on the fence it didn't do anything for buyer confidence.

Considering that over 50% of buyers last year were FTBs, it was a pretty mis-guided move to make it more difficult for the majority group in the market to buy.

As for buyer confidence, Fine Gael's soundbytes at lunchtime will probably have dented your confidence further. Because future buyers are buying at "rock bottom prices", they'll lose mortgage interest relief from mid 2011. This money will be used to fund tax reliefs for those in negative equity. This will only hasten price falls.

gurramok

Ah so we know what FG are up to. Yes, another nail forcing prices down further.

http://www.rte.ie/news/2011/0204/election.html

rte wrote:

Mr Noonan, Fine Gael's finance spokesperson, said his party's Mortgage Interest Relief scheme would cost €120m and would be accounted for in its fiscal strategy, which will be published next week.

He said the scheme will be directed at those who purchased between 2004 and 2008.

Mr Noonan said Fine Gael would abolish relief for those buying houses from mid 2011 on, because given the reduction in house prices, people did not need a tax incentive to buy their first home.

quozl

'Nail' sounds like a negative, Gurramok.

They're just helping us get back to reasonable price levels, and helping improve our competitiveness by doing so.

This of course, may be completely un-intentional on their part, but at least it's better than FF's ridiculous and doomed attempts to prop up the market.

gurramok

Yes, another nail in the coffin against stabilised or rising prices

Together with the 1% stamp duty tax, income tax rises, stricter mortgage qualifying criteria, impending interest rate rises on both ECB and variable rates and potential young buyers being jobless and emigrating, there is nothing holding the market up.

Chipboard

professore wrote: »

People whose houses are repossessed will be forced to sell. That wave of the recession has yet to hit as Fianna FAIL smartly stopped the banks from doing it for a limited period. When that happens then watch house prices fall like a stone. I bought in 98 and IMHO the economy then was in much better shape than it is now. I think prices will fall to 1995 levels or thereabouts.

Professore is right and his timing is right too. The Code of Conduct on Mortgage Arrears came out last February and it gave mortgage defaulters 12 months of breathing space. The earliest defaulters will be all losing that protection in the next 4 weeks and these houses will be repossessed shortly.

People think its a buyers market at the moment buts its horrendous. We sold in early 2007 and banked our equity. We have been looking since and we have really ramped up our efforts in the last 12 months but we cannot do a deal as vendors are living in cloud cuckoo land. We are mortgage approved and can close quickly. In the last 2 years we have made the following offers (I have denoted them by the initial letter in the address);

A) Asking 390k We offered 315k Remains unsold Now seeking 350k
Asking 319k We offered 275k Remains unsold Now seeking 319k
DD) Asking 295k We offered 245k Remains unsold Now seeking 295k
L) Asking 300k We offered 240k Remains unsold Now seeking 300k
DA) Asking 280k We offered 270k Remains unsold Now seekng 280k

None of these houses are in what would be great locations (A and B are in secondary small towns and the last three are rural). They wouldn't suit everyone but due to the nature of my job they suit us fine.

We have wasted alot of time dealing with cowboy auctioneers;

We were told that House A was 3,600 sq ft but its nearer to 2,600.

Auctioneer for B seemed honest.

DD marketed the house as builders finish but when we viewed it, it had no stairs, no internal doors, architrave, skirting boards or internal doors, no paths or driveway and wasn't landscaped. We said this to the owner and they insisted that it was builders finish. All involved agree that it needs 50k to finish it so their asking price of 295k indicates a finished value of 345k - in a rural location 17km from a sh1te town - utter bullsh1t.

We were told by the auctioneer for L that it was A rated and that they had another bidder; it turned out to be B3 rated and the house remains unsold so I guess the other bidder dissappeared around the same time we did or else he was lying.

In general most of the auctioneers have tried to pack us with lies. The lies aren't hard to spot as they're fairly predictable at this stage.

Yesterday our bid of 255k on DA was rejected so we asked the auctioneer to ask them what they would accept. He came back and said 270k. We bid 270k and he was to confirm we could write the cheque for the booking deposit today. He rang today and told us that they have changed their minds.

We're totally p1ssed off with the whole thing at this stage. Auctioneers don't understand how a market works. They think that if it cost a guy 300k to build a house then its worth 300k min. Its worth what the market will pay for it, and right now that is SFA and in 6 months time it will be a lot less.

Chipboard

gurramok wrote: »

Ah so we know what FG are up to. Yes, another nail forcing prices down further.

http://www.rte.ie/news/2011/0204/election.html

Interference in the market got us into this mess, I don't think it will get us out of it.

robd

Chipboard wrote: »

We're totally p1ssed off with the whole thing at this stage. Auctioneers don't understand how a market works. They think that if it cost a guy 300k to build a house then its worth 300k min. Its worth what the market will pay for it, and right now that is SFA and in 6 months time it will be a lot less.

We gave up looking 12 months ago. Had bid on 2 houses in North Dublin at different stages over the previous 12 months at about 85% of asking price but got no where. One house came down in asking towards our offer, the 2nd sold.

Its a good account you give and I find myself agreeing with just about everything you said.

My recommendation is that you just give up for the moment and continue to save. It's pointless trying to buy now. Prices are way to high but that will change. Despite election promises taxes have to go up and spending has to come down. Less money again in peoples pockets. Despite election promises mortgage rates are going much higher. Repossessions are gearing up. The inevitable fire sales will come at some stage. It requires patience though.

who_ru

it does require patience but it must be desperately frustrating.

Idbatterim

FG say the will abolish mortgage interest relief, except for those that bought between 05 and 08. That wont help prices. Interest rates are going up, the banks and shortly the ecb will start raising them as they are worried about inflation, bear in mind as the ecb is crude with their rate rises, little countries like Ireland wont come into the equation. While exports are rising, the economic situation here seems to be getting worse. Given the amount of question marks over the economy here, the potential new government etc, buying would be mad. While prices on some properties may be very reasonable now compared to 2 or 3 years ago, it still doesnt mean they are good value by any means! let me put the madness into perspective, i know someone whos parents bought a house for 13 million around 07, its just gone up for sale, the ASKING price? 3 million!!!

Idbatterim

I want to know will people who buy now be bitching about negative equity, ignorance and expecting a bail out in a year or 2? hypothetically ofcourse, but more likely that not IMHO! I know someone who went to view a house and the estate agents were just unreal, youd swear they didnt want her to buy the house! You would wonder how long alot of sellers and estate agents can hold out for, its a war of attrition!

UDAWINNER

I have felt for years that house prices were unstainable as they were going up 10-20% per year. U had people buying 5 bed detached houses as starter houses ffs. In the early 90's, u could buy in Cork for between 30-40k in nice areas: bishopstown, douglas,montenotte, etc so it could hit the same levels as we had less unemployment then and no over supply.
Another thing that annoys me as a tax payer is that certain parties are suggesting bailing out mortgage holders who bought fancy houses that in fairness they simply should not have bought. They looked at property as sure investment as opposed to simply a place to live or rear a family.

bladebrew

http://breakingnews.ie/ireland/house-prices-may-be-bottoming-out--survey-492268.html

an article from this week, saying house prices may be bottoming out, it seems like an insane thing to report,
as people have mentioned, an increase in stamp duty (for some) and interest rates, the banks not lending as much and with stricter terms, not to mention high unemployment and emigration,

how the hell could house prices bottom out now

D1stant

Here is a cut'n'paste from another site from a hard nosed American looking to buy in Ireland to retire

The man makes a lot of sense and if anything is too generouis with his evaluations

__________________________________________________________

I have found DAFT.IE remarkably helpful, and the discussions forum outstandingly informative.
I do notice the same questions being asked, over and over again, and many times some remarkably dubious answers dutifully trotted out by the "Hope and Dream" brigade.
Folks, several other posters have already referred in detail to this approach, and I wholeheartedly endorse their views, from my own personal experience:
Basically: Pretend you are a hard bitten banker. A really, really, jaundiced, cynical, show-me-the-yield bean counter.

Step 1: it doesn’t matter what it allegedly cost to build.

Step 2: it doesn’t matter a hang what it was allegedly worth once upon a time in 2007, or 2006, or 2005.

Step 3: do a search on DAFT.IE for similar properties FOR RENT. Draw up at least six comparable properties FOR RENT. Take the rent asking price with a pinch of salt. Maybe a 15% to 20 % discount at least. AT LEAST. Calculate what you think is a reasonable market rent for that house you were thinking of buying. Let’s say you think the house you want to buy could be rented for 800 per month. Multiply by 12 months in the year gives you 9.600 euros. Deduct 5% as a figure for landlord upkeep and maintenance. 9,600 less 480 = 9,120 euros. THAT is your “annual yield” in Euro terms.

Step 4: as a cynical banker, you now have to calculate what YOU think is the “minimum yield” you would accept, if you had to foreclose and own the damn place. And then rent it out, because it’s so hard to sell.
The figure of 7% has been mentioned elsewhere, with a caveat up to 10%. We are going to work backwards now. Take that 9,120 euros calculated above, divide it by, say, 7. That gives you: 1302 euros.
Multiply that figure by 100: 130.200 euros. THAT is the max value of the house! Period!

Step 5: Realize that 7% is a medium return. On my rentals here in the sunny southern USA, I get between 9 and 10 per cent yield. Plus I have a fairly large population center, a still reasonably decent local economy, (despite that Communist Obama clown) and very little trouble finding renters. In Ireland, with emigration, political crookedness, uncertainty, over supply, doom and gloom, I would be very loath to accept 7%. Too much risk. If you run the same calculation in step 4 with different yields, you will be able to calculate for yourself how cynical you wish to be. If you want a 10 per cent yield for that house mentioned above (at a monthly rent of 800), then you cannot pay more than 91,200 euros for the same house. (9,120 divided by TEN, and multiplied by 100)

Step 6: Regardless of how much cash you have, pretend you are a landlord. Me. Ask yourself the question: if I put down a 10 % deposit, will the likely rent income straight away cover principal, interest, insurance and local taxes? In my case, almost. I always go for 15 year mortgages, and I will accept a very slight cash flow shortage every month, because I know the reduction in principal (amortization schedule) occurs very quickly, plus I know I can offset the interest against my taxes. That way I still come out on top. 30 Years? No Way! 40 Years? Are you kidding me?

Step 7: Study the various DAFT discussions in “buying and selling” and notice this “yield based method” is advocated several times, and notice also how many people totally ignore the concept. Can you recognize the auctioneers, the estate agents, and the desperate “negative equity holders” frantically trying to “talk up” the market? They will appeal to emotion. (“It’s all gonna come roaring back”) The last thing they want is a sober numerical analysis.

Step 8: Study the various DAFT discussions in “buying and selling” and notice how many contributors to DAFT point out the anomaly between alleged Irish house values and many other places around the world.
Notice how many people pour scorn on that, appearing to indicate their disregard for the value of property in Berlin, or France, or the USA. But ask yourself, why would Irish property NOT be subject to the same long term market forces that apply elsewhere in the world? And the same grubby money calculations of profit, loss and yield? Duh!

Step 9: Never (NEVER) visit a house WITHOUT first having run the calculations mentioned above! Go in armed to the teeth with numbers. Why? Because otherwise we tend to get sentimental about the small stuff. (Ooh! The curtains! Ohh! That fireplace! Oh, darling, look at the kitchen!....) (yawn) The last time I went to buy a rental house, four years ago, I had all the numbers ready. I knew how much I could afford to pay, and still hope to get a rent that would immediately cover the monthly outgoings on a 15 year mortgage with a 10% deposit. That made it easy to NOT get emotional. I learned to smile sweetly, and offer what I KNEW I COULD AFFORD IN PURE COMMERCIAL TERMS. Yes, a few people were all offended and hoity-toity, not least of which the last seller, who wanted 220,000 and got offered 140,000. We settled (to my surprise, because he was so mad with me), for 145,000. I’m very, very happy with that property. It rents no bother at 1,170 per month. And the 15 year mortgage means a rapid growth in equity. Basically, a self financing investment plus inflation hedge.

Step 10: Aha, you may say, but a 10 per cent deposit won’t get you an interview with a banker in Ireland today. True. But that doesn’t take away from the value of the method as a measurement of value. Even if you think Step 6 is silly, because you have pots of money, you should still run it as a cross check. The yield based calculation (step 5) applies regardless of how much cash you have.

Step 11: Study the various DAFT advertisements of houses for rent. Study what you think they are actually worth (if they were for sale) and what you think the rent actually represents as a “yield”.
Even allowing for landlords asking for more than they will actually bargain for, it will soon be clear to you that many houses represent a very, very poor yield. Between 3 and 4 per cent. What does this mean? It simply has to point to a housing market that is still way over priced, and still has a long way to go. Down. That’s not me “talking down the market” for ulterior motives. That’s just a numerical observation of COLD facts.
If the landlord concerned has no mortgage, that’s one thing. (still not good) But most I am sure have substantial debt. This in itself means time is limited. If you follow “Irish Househunter.com” you will frequently see “sudden capitulations” to harsh reality. 400,000 down to 275,000. 250,000 down to 160,000. But it is still possible on DAFT.IE to find comparable properties, that are simply poles apart in price. One is 150,000 and the next one is still 400,000. Somebody is still smokin’…
That paints a picture of a market STILL in an agony of correction. My heartfelt sympathies to the human victims hurting behind those statistics.

Step 12: realize how we little humans delude ourselves. “Well, I like the house, I’ve got the money, I just want a HOME, so I’m going to follow my dreams and BUY it”.
Ah…. Caution, caution. How many times have I seen that? Circumstances change. People change. Jobs change. People get divorced. Homesick. Become restless. That wonderful house that was a “must have” turns out to have a permanent horrible sewage smell wafting in the windows from that unfinished housing estate up the road. Or a bunch of drunken tinkers routinely urinating in the back alley. Etc, etc. Few of us are that rich and smart that we can ignore the underlying value of a home we buy. (apologies to the Society for the Advancement of Travelling Folk)

Step 13: do you invest in the stock market? Do you use “stop loss” automatic sell orders? Trailing stops? If you do, you have long since learned the hard way, that “when in doubt”, “go to cash”. With the turmoil in the markets recently, my position has varied from 30 percent cash to 80 percent. Plus physical silver. I’d rather NOT own stock, when it’s going DOWN. Dividends be damned. The stock often moves way more than that much vaunted 3 per cent dividends BS.
The same applies to property. It’s better NOT owning a house, just renting, than owning what is a very expensive “stock” which is very hard (impossible) to liquidate in a hurry.
When I touch foot in Holy Ireland once more, I’ll be quietly looking at houses. (after a decent pint of Guinness) I’ll be buying on MY terms, or not at all. I might even be renting beside oldmanbitter on the Ring of Kerry.
I hope this helps. Feel free to criticize my thinking. All input greatfully appreciated. In the next couple of years, I’ll be doing this for absolute real meself. I’m getting old. And ugly. T’is hard, but at least, Father, I still don’t need them funny tablets to see the holy relic stir…

Chipboard

Good post.

Banks have been valuing based on yield analysis since around Jan 2007. Before that they accepted a valuation done by any two bit chancer who called himself an Auctioneer - this in itself explains our current troubles to a large degree.

I agree with all except one part. You cannot base every valuation on yield analysis. If someone wants to live on 2 acres in a rural location and they had work convenient to that location, the house could be virtually unlettable, but that doesn't mean it's worthless.

The principal is a good one however and if you apply it to most property in Ireland you will see that that Market has yet to fall another 40 or 50%. Its shocking but when you consider that we've just had the biggest ponzi scheme the world has ever known I suppose it makes sense.

In most (small non property) ponzi schemes at least there is cash input to the scheme at each level, but when you consider that in Ireland we had a ponzi scheme which was almost entirely fuelled by bank debt (100% mortgages) then I suppose an 80% fall in the value if the underlying assets post ponzi scheme, is probably to be expected.

Rather than divide by 7 and multiply by 100 it easier to just divide by .07.