Property prices are on the way back up!

Piriz

I think it is interesting that daft and myhome.ie are recording a slow down in the decline of Dublin asking prices and a 0.2% rise in certain parts. However the following is my hypothesis of the situation:
A tiny spike in house purchases may be occurring at the moment due to:

the deadline for mortgage interest relief looming forcing those who have been waiting for the right time to jump in leading to increased competition for good homes..
&
the declining property market has been ongoing for about 5 years now meaning many people have been waiting a long time and have sufficient cash and a % of those are fed up and want a home so decide to purchase one..

The above could amount to a dead cat bounce as those willing buyers jump in before the interest relief deadline and those who are fed up waiting for the bottom jump in at the same time leading to a spike rather than a recovery..

I think a spike in prices will eventually fall further than we are now in a year or so due to more stringent borrowing criteria, increasing unemployment (particularly youth unemployment), emigration further reducing demand, people locked into negative equity, bankruptcy laws leading to banks having more defunct mortgages / homes to sell, continuing austerity and increasing taxes and charges.

These factors and variables in my opinion do not set a stable foundation for a stabilisation or growth in the property market. I predict a small spike and a further fall for a number of years..

Thanks for reading.. I welcome discussion

Duggys Housemate

Also a lot of retired public servants got lump sums too. Yes. Good analysis.

daltonmd

Duggys Housemate wrote: »

Also a lot of retired public servants got lump sums too. Yes. Good analysis.

Yes, and a lot of them got into trouble during the boom. These are the people who did buy a lot of investment properties and may now have to use their retirement lump sums to pay off these mortgages rather than buy investment properties.

Piriz

Duggys Housemate wrote: »

Also a lot of retired public servants got lump sums too. Yes. Good analysis.

That is a great point... thanks

StillWaters

Piriz wrote: »

I think it is interesting that daft and myhome.ie are recording a slow down in the decline of Dublin asking prices and a 0.2% rise in certain parts. However the following is my hypothesis of the situation:
A tiny spike in house purchases may be occurring at the moment due to:

the deadline for mortgage interest relief looming forcing those who have been waiting for the right time to jump in leading to increased competition for good homes..
&
the declining property market has been ongoing for about 5 years now meaning many people have been waiting a long time and have sufficient cash and a % of those are fed up and want a home so decide to purchase one..

The above could amount to a dead cat bounce as those willing buyers jump in before the interest relief deadline and those who are fed up waiting for the bottom jump in at the same time leading to a spike rather than a recovery..

I think a spike in prices will eventually fall further than we are now in a year or so due to more stringent borrowing criteria, increasing unemployment (particularly youth unemployment), emigration further reducing demand, people locked into negative equity, bankruptcy laws leading to banks having more defunct mortgages / homes to sell, continuing austerity and increasing taxes and charges.

These factors and variables in my opinion do not set a stable foundation for a stabilisation or growth in the property market. I predict a small spike and a further fall for a number of years..

Thanks for reading.. I welcome discussion

Good points, here is my counter hypothesis.

I am optimistic as there is a lot of pent up demand out there. Young people who were prudent, saved hard and are now sick of renting. They have been sitting and watching the Market for years, and are getting out there now, only to find very limited supply. I'm talking houses here, quality built ones,near good infrastructure.

I believe the age of austerity is over, a tiny open economy like ours is really at the mercy of global forces, and almost all indications are a pick up there, with inflation being the next enemy to be faced! Merkel is badly bruised, and I think her days are numbered.

Unemployment has levelled off, certainly male unemployment. 85% of people are working, and there are still high salaries and security in many sectors, eg pharma and high end IT. Our trade surplus is really healthy. We are going to remain the only English speaking country in the eurozone.

The bankruptcy law proved to be a damp squib, and wont have any real effect on repossessions.

I also don't think those in NE effect the Market too much, and almost certainly in any case when liquidity returns banks will come up with creative solutions to get them off those trackers.

I don't think anyone really believes we are a long way off the bottom, well except the extreme. It's just a case of how near we are or have we gone past it.

It's intersting that this forum remains one of the last bastions of doom. They've gone all upbeat over on the pin!

Monty Burnz

StillWaters wrote: »

Good points, here is my counter hypothesis.

I am optimistic as there is a lot of pent up demand out there. Young people who were prudent, saved hard and are now sick of renting.

I wonder how many of these there are compared to the numbers who torpedoed themselves by buying one and two-bed apartments that are now in 100k+ of negative equity? I seem to remember being a very lonely figure at work as everyone else ran out and bought. No, actually come to think of it there was one other guy in the office of my age who didn't buy either.

StillWaters wrote: »

I believe the age of austerity is over, a tiny open economy like ours is really at the mercy of global forces, and almost all indications are a pick up there, with inflation being the next enemy to be faced! Merkel is badly bruised, and I think her days are numbered.

There are no indications of a pick-up. In fact, China is slowing down markedly as is India. Even if you were right and there was a miracle 'pick-up' with inflation being the problem, we would then see interest rates rising very rapidly from their current historic lows. Higher interest rates would mean that people have less to spend in general, and people would be able to borrow less (putting further downward pressure on property).

StillWaters wrote: »

Unemployment has levelled off, certainly male unemployment. 85% of people are working, and there are still high salaries and security in many sectors, eg pharma and high end IT. Our trade surplus is really healthy. We are going to remain the only English speaking country in the eurozone.

Unemployment was up again this month from 14.7 to 14.9%. 85% of people are NOT working. 85% of people who have not emigrated, stayed at home to raise children, got themselves a disability cert, or are in further education or training are working. If you don't count pensioners and children.

Pharma is coming under pressure as blockbuster drugs come out of patent protection (nearly 200 went in Cork at Pfizer alone in June). Our trade surplus is healthy because of transfer pricing which routes international profits through Irish subsidiaries - an accounting trick that will work as long as we hold onto our corporation tax rate. Tax harmonisation is being pushed by powerful elements in the EU.

StillWaters wrote: »

The bankruptcy law proved to be a damp squib, and wont have any real effect on repossessions.

I think it's rather early days to be making predictions about the effects of legislation that hasn't even been debated in the Dáil yet.

StillWaters wrote: »

I also don't think those in NE effect the Market too much, and almost certainly in any case when liquidity returns banks will come up with creative solutions to get them off those trackers.

I think they will have a huge effect as they are in no position to compete for expensive houses with a huge debt already hanging around their necks. Tracker mortgages won't always be a problem for banks if and when their cost of funds returns to long-term norms.

StillWaters wrote: »

I don't think anyone really believes we are a long way off the bottom, well except the extreme. It's just a case of how near we are or have we gone past it.

I don't know how far we are off the bottom. I just know that there's no logical reason for a bottom to be found at current price levels.

whubee

Still, in the same way that theres a time to cut your losses, theres also a time to cut your winnings....eh so to speak.
I mean personally if I was on an average or low/average wage and looking to buy I'd go into the market now.

Sure, it may not yet be the technically lowest possible point at which you can get the absolute best value possible, but why gamble.
Given a low to average wage ...(granted in this economy you may lose your job)...you're still getting pretty good value overall.

Buy now, call it a win, sure your neighbour may ..possibly.. gloat in 4 years time about how he saved 20K more than you.
But in the meantime you're still firmly in the 'win' category as far as things go for wage vs value.
Its only going to go into some aul mulshie farmers pocket as rent anyway.

Keep your moneys value in your name.

*(so long as you're pretty certain you wont need to move away soon, and have v good job security and/or good savings)

Duggys Housemate

whubee wrote: »

Still, in the same way that theres a time to cut your losses, theres also a time to cut your winnings....eh so to speak.
I mean personally if I was on an average or low/average wage and looking to buy I'd go into the market now.

Sure, it may not yet be the technically lowest possible point at which you can get the absolute best value possible, but why gamble.
Given a low to average wage ...(granted in this economy you may lose your job)...you're still getting pretty good value overall.

Buy now, call it a win, sure your neighbour may ..possibly.. gloat in 4 years time about how he saved 20K more than you.
But in the meantime you're still firmly in the 'win' category as far as things go for wage vs value.
Its only going to go into some aul mulshie farmers pocket as rent anyway.

Keep your moneys value in your name.

*(so long as you're pretty certain you wont need to move away soon, and have v good job security and/or good savings)

20K is worth waiting a year or two and paying rent.

golden lane

buying a house is a big step for most people...

best time to buy, is when prices are rising.....less chance of getting into negative equity...

but if you can afford it.....negative equity is irrevelant....as you will be living in a house, with an outlay that you can afford.....

buying is a great investment for your childrens future......renting is a great investment for other peoples children....

be prepared for increases in interest rates....yes, they will go up at sometime......

best of luck to all who buy........

Duggys Housemate

yeah future increases in interest rates are a worry for sure.

Monty Burnz

golden lane wrote: »

best of luck to all who buy........

...cos you're probably going to need it!

StillWaters

Duggys Housemate wrote: »

yeah future increases in interest rates are a worry for sure.

They are, but if they do, remember you have wage inflation, so more money to pay your higher mortgage. But that's the inflation I fret about, and just hope for more prudent fiscal policy than we had in the past to manage it.

Rents will rise in line with this, so it is going to cost you more to house yourself in any case.

golden lane

Monty Burnz wrote: »

...cos you're probably going to need it!

i bought a house during a uk recession.......interest rates were 14 percent......the futurte looked bleak........

many have made lots...some haven't.....but you wont know if you don't try........

Monty Burnz

golden lane wrote: »

i bought a house during a uk recession.......interest rates were 14 percent......the futurte looked bleak........

many have made lots...some haven't.....but you wont know if you don't try........

Hopefully people have learned it's not about making money, it's about settling down somewhere. But they probably haven't.

The_Conductor

whubee wrote: »

Still, in the same way that theres a time to cut your losses, theres also a time to cut your winnings....eh so to speak.
I mean personally if I was on an average or low/average wage and looking to buy I'd go into the market now.

While I understand the sentiment- the issue with this- is that someone on an average or low wage is unlikely to be able to secure mortgage approval in the current climate (even public sector jobs are not considered to be the secure employment they once were).

Certainly there is value in certain segments of the market- however the inverse of this is how to determine what a fair market price is for property- short of reverting to quoting Publilius Syrus, we don't have any yardstick we can use.

Even Dublin 4 is awash in largely unsaleable apartments- however most of the capital is starved of ye semi with a garden, very few of which were built since 1994.

Determining the 2013 property tax on a valuation basis is going to be fraught with difficulty- my 3 bed townhouse had a peak valuation north of 500k- whereas it would now be difficult to shift even at 150k- and I'm in a good location. I'm one of those who bought long before children were on the horizon- and who would love a house with a garden in a middling neighbourhood- however I can't sell at any price- and even if I could- I'll never again get mortgage approval like I did previously.

There are people out there waiting for a good time to pounce on a nice house in a nice enough location- however even this posse of potential buyers are limited in number.

Personally- if I didn't own the house and have a reasonable job- I'd not be hanging around for the right time to purchase- much as I hate to say it- I'd be getting the hell out of here. We've sat down and discussed this theoretically- somewhere European would be our preferred option- to be reasonably close to elderly and frail parents- but thats the extent of it.

Its only when you sit down and evaluate the situation that you really begin to see how renting means you're not tied to a particular area, or a particular job- and how its keeping options open that a lot of us have had to close on......

Many people who bought even in the last 20 years, never mind the boom- are jealous as hell of those who rented, and continue to rent.......

daltonmd

The difference with buying now as opposed to "after" other recessions is that the costs associated with buying a home were not there.

Take the 90's as a good example.

We entered a phase of falling interest rates, falling unemployments rates, a real rise in manufacturing (as opposed to the boom), rising wages, cheap credit, easliy accesible credit.

It was generally recognised that the longer you had your home then the costs decreased as your income increased.

This time I really don't see that happening.

If someone buys a home today for 180k (assume 20k deposit) then the repayment is about 720pm.

Let's say for example that in 5 years that same mortgage is now 140k, but the interest rate has increased to 7% - the repayment could be close to 1000 pm.

Now before anyone says - rates wont go that high. In a normal healthy market, interest rates are about 5 or 6%, so given the state of our banks and how they need to claw back some of their losses I dont see 7% as an outrageous figure.

Now add on property tax and water charges (yes applicable to renters, but used as an extra cost for housing).

Add (or take away) higher taxes, falling disposable income.

Wages may not rise enough to offset these extra repayments.
Then say you may want to move up for a bigger family.

Will you sell that house for 180k plus the costs?

The questions people really need to ask themselves is:

Will I be earning about 450 euro per month, every month extra in 5 years time? (To take into account 1000 euro property tax, 500 water charges and falls in disposable income, just an example) that's over 5k extra net - just to be where you are today.

Will I stay in this house for 10 or more years?



Now this is just an example, the figures can be tweaked to your liking, but the general principle remains.

The cost of housing should decrease, not increase.

I see people saying - well wages will rise, NE isn't a problem.

Mortgages are for 30 years, some maybe 25 years. But they are not short term, this is not a blip, this is not the end.

House prices are only one part of the puzzle, the rest I have laid out.

Snakeblood

golden lane wrote: »

i bought a house during a uk recession.......interest rates were 14 percent......the futurte looked bleak........

many have made lots...some haven't.....but you wont know if you don't try........

You actually will, y'know. You write down what you would have invested in, then keep an eye on the market, and you'll see what you would have made or lost if the house sells again, or if the market recovers.

Piriz

Prime time will discuss this subject at 9.30 tonight..

The_Conductor

StillWaters wrote: »

They are, but if they do, remember you have wage inflation, so more money to pay your higher mortgage.

Wage inflation?
What sector are you- that you have an expectation of wage inflation?
My NET pay was almost 20% higher than it is now- 10 years ago...... I have salary slips going back to 2001- they are a real eye opener.........

In the current climate- it looks more like- increased taxation, increased costs of ownership, increased contributions to all sorts of weird 'social' funds- and damn all back in return for all our hard won taxes.

The big difference between the recession here in the early 80s and now- is while the country was bankrupt in the early 80s- people on a personal level actually owed very little. We had very little- but we also owed very little. Now- the government are spending 15 billion a year more than they're getting in- aside from bank recapitalisations etc- all the while personal debt levels are at a sky high level. The reform of the personal bankruptcy legislation is barely even tossing a bone to hard-pressed people- who wants to willingly put themselves into a situation that declaring themselves bankrupt is the only option?

Tax and spend doesn't work- we've proven that- so why are we pigheadedly going full throttle down this path, yet again.......

Duggys Housemate

@smccarrick

you must be unusual, there was a large increase in take-home pay in the 2000s

Theboinkmaster

daltonmd wrote: »

The difference with buying now as opposed to "after" other recessions is that the costs associated with buying a home were not there.

Take the 90's as a good example.

We entered a phase of falling interest rates, falling unemployments rates, a real rise in manufacturing (as opposed to the boom), rising wages, cheap credit, easliy accesible credit.

It was generally recognised that the longer you had your home then the costs decreased as your income increased.

This time I really don't see that happening.

If someone buys a home today for 180k (assume 20k deposit) then the repayment is about 720pm.

Let's say for example that in 5 years that same mortgage is now 140k, but the interest rate has increased to 7% - the repayment could be close to 1000 pm.

Now before anyone says - rates wont go that high. In a normal healthy market, interest rates are about 5 or 6%, so given the state of our banks and how they need to claw back some of their losses I dont see 7% as an outrageous figure.

Now add on property tax and water charges (yes applicable to renters, but used as an extra cost for housing).

Add (or take away) higher taxes, falling disposable income.

Wages may not rise enough to offset these extra repayments.
Then say you may want to move up for a bigger family.

Will you sell that house for 180k plus the costs?

The questions people really need to ask themselves is:

Will I be earning about 450 euro per month, every month extra in 5 years time? (To take into account 1000 euro property tax, 500 water charges and falls in disposable income, just an example) that's over 5k extra net - just to be where you are today.

Will I stay in this house for 10 or more years?



Now this is just an example, the figures can be tweaked to your liking, but the general principle remains.

The cost of housing should decrease, not increase.

I see people saying - well wages will rise, NE isn't a problem.

Mortgages are for 30 years, some maybe 25 years. But they are not short term, this is not a blip, this is not the end.

House prices are only one part of the puzzle, the rest I have laid out.

Yourself and smccarrick have scared away goodie2shoes with all this sensible sound economic reasoning

The_Conductor

Duggys Housemate wrote: »

@smccarrick

you must be unusual, there was a large increase in take-home pay in the 2000s

I had a large increase over the course of several years- and a subsequent massive fall....... I did say NET.......

MysticalRain

Duggys Housemate wrote: »

@smccarrick

you must be unusual, there was a large increase in take-home pay in the 2000s

and large decreases as well. Betting that wages will continue to rise was a fatal assumption for many people during the boom years. Wages are likely to remain stagnant or falling for many sectors of the economy for many years to come.

StillWaters

smccarrick wrote: »

Wage inflation?
What sector are you- that you have an expectation of wage inflation?

I mentioned wage inflation in the context of people mentioning interest rates of 7% or more. If ECB rates go that high, its because the economy is growing too fast, and it needs to be cooled. Economic growth is almost always coupled with wage growth and falling unemployment.

ECB rates are an economic tool, see today how the cut is being used to stimulate growth and get the money markets lending to each other.

StillWaters

Piriz wrote: »

Prime time will discuss this subject at 9.30 tonight..

I missed this, anyone care to give a synopsis?

daltonmd

StillWaters wrote: »

I mentioned wage inflation in the context of people mentioning interest rates of 7% or more. If ECB rates go that high, its because the economy is growing too fast, and it needs to be cooled. Economic growth is almost always coupled with wage growth and falling unemployment.

ECB rates are an economic tool, see today how the cut is being used to stimulate growth and get the money markets lending to each other.

I want to clarify something if you don't mind.

When I say interest rates will rise, I am not talking about the ECB rate. Banks are not bound by the ECB rate (except for trackers which are not available for buyers anymore) I am talking about the banks themselves raising the rates.

If you buy now at a rate of 3.5% fixed for 3 or 5 years then do you think that in 3/5 years regardless of what the ECB rate is, that when your term expires that they banks will lower that rate? I don't think so.

Actually if you wanted to take a mortgage of 160k (using my example above) fixed for 5 years then your interest rate is 5.15%.

That is not too far from 7%.

StillWaters

I see, I took it as ECB.

Point stands though, for an Irish Bank to offer SVR 7%, ECB would be at about 3%? Not in stellar growth territory, but substantially higher growth than now nevertheless.

God a fixed rate of 5.1% is crazy!

daltonmd

StillWaters wrote: »

I see, I took it as ECB.

Point stands though, for an Irish Bank to offer SVR 7%, ECB would be at about 3%? Not in stellar growth territory, but substantially higher growth than now nevertheless.

God a fixed rate of 5.1% is crazy!

But at 7% you agree? Now you take people halfway through a 5 year fixed at 2.5% or 3.5% - now whether or not the ECB rate goes up (and I'm not sure that they will), people could still be looking at 6% or 7% in 2 years. So the cost of servicing the mortgage is increasing.

They will more than likely be in NE so they won't be able to switch (not at the moment anyway), they won't be able to sell - it really is a problem that many people are facing.

daltonmd

StillWaters wrote: »

I missed this, anyone care to give a synopsis?

Taped it earlier. A decent piece on what is happening. Ronan Lyons explaining that various agencies like Daft, Myhome, Esri all use different sources of information but when they all say the same thing it makes a good argument that *maybe* property prices in Dublin are stabilising and in some areas rising.

Nationwide it was a different story.

He said that the real information was in the register.

Now, he explained that 3 months in a row is a good sign, but it would really have to be for about 12 months before we could really say that the Dublin market was "recovering".

Alain McQuaid (stockbroker firm) was a bit more cautious, citing unemploymnet rates, the situation in Europe and the lack of growth as to why he can see more fallls.

Interestingly enough RL mentioned interest rates. He said that buyers now should be prepared for the next ten years, he said if they think they will have 3% rates then this will not happen, he reckons that the average rate will be 6%.

All in all I found it a very balanced, cautious, but realistic view of the market.

goodie2shoes

Monty Burnz wrote: »

Hopefully people have learned it's not about making money, it's about settling down somewhere. But they probably haven't.

LOL:D