Boom boom boom...

Mr.McLovin

now let me hear you say wayoh!

Douglas Newman Goode (DNG), have claimed that Dublin house prices rose by €20,000 since end March (€220 per day or €6,600 a month).

seen this over the weekend in the Irish Daily mail, it also claims that everyone will be out of NE by 2019 and we'll all be making money on property again come 2020...

Time to crack our heads open and feast on the goo inside!

Come 2020 those who bought in 2007 will be after paying 13 years of mortgage payments, they might than be out of neg equity but the house may well not fetch what they paid for it.

MouseTail

Mr.McLovin wrote: »

seen this over the weekend in the Irish Daily mail, it also claims that everyone will be out of NE by 2019 and we'll all be making money on property again come 2020...

the vast majority of people will be out of NE by 2019. I cant see the same conditions as happened during the bubble reoccurring though. All depends on the 2016 elections, so cant be said with certainty.

marathonic

Whilst the majority of people should be out of negative equity within 5 years through a combination of mortgage capital having been repaid and further potential price rises, I don't see prices reaching the peak levels, in real terms, for decades - if ever.

It's entirely possible that prices nationally will reach peak levels on a nominal basis over the next decade - but one has to remember that this will actually be down 30-40% in real terms.

Also, whilst getting out of negative equity will be a huge relief, those just coming out of it who currently own apartments will probably be approaching their 40's - an age where, traditionally, they'd have upsized 1-2 times already.

Tigger

But the mortgagees will have saved 13 years rent

conorhal

Augeo wrote: »

Come 2020 those who bought in 2007 will be after paying 13 years of mortgage payments, they might than be out of neg equity but the house may well not fetch what they paid for it.

Spoilsport!


/Hammers cork back into champagne bottle....

Victor

So, after 13 years, they might break even?

Eldarion

Victor wrote: »

So, after 13 years, they might break even?

Not at all if people want to be realistic and take inflation of between 1-2% per year into consideration.

Basic example of why this is not meaningless:

2020Price - (2007Price + ((2007Price * Inflation) *YearDifference))

Let's go with a €300k house in 2007 that climbs back to €300k in 2020.

300,000 - (300000 + ((300000 * 0.015) *13))

Still -€58,500 worse off. Price in 2020 would have to climb to €358,500 just to break even.

Dredd_J

Eldarion wrote: »

Not at all if people want to be realistic and take inflation of between 1-2% per year into consideration.

Basic example of why this is not meaningless:

2020Price - (2007Price + ((2007Price * Inflation) *YearDifference))

Let's go with a €300k house in 2007 that climbs back to €300k in 2020.

300,000 - (300000 + ((300000 * 0.015) *13))

Still -€58,500 worse off. Price in 2020 would have to climb to €358,500 just to break even.

So what about after 30, 40, 50 years. And take the rent paid or not paid over the time into account too, to get a more realistic figure.

I sat down a few weeks ago to work out how much rent i would have to pay over the next 30 - 50 years
It wasnt pretty.

TheDriver

But depends on where the house is and how much rent is. There are houses around here for 500 a month...

Dredd_J

TheDriver wrote: »

But depends on where the house is and how much rent is. There are houses around here for 500 a month...

Im sure if there was a house to rent for 500 a month it wouldnt cost you too much to buy either though.

TheDriver

True but 3 bed semis were still nearly 300k in boom and people paid that

marathonic

Here in Donegal, the typical rent is €500 monthly and the typical purchase price of houses of a similar standard are around €80,000. In 2007, such houses fetched €220,000.

A simple rule of thumb that I use is that, if you can purchase a property for less than 1,000 times the weekly rent, you are better off buying than long-term renting.

With €500 monthly rents, or €115 weekly, now is a very good time to buy locally (as the €80k price is significantly below the €115k max price using this rule-of-thumb).

I've just been looking at apartments in Dublin that sell for €130,000 and rent for €1,100 monthly (including €140 monthly management fees). Using the same rule-of-thumb, after deducting management fees (which you'd have to pay if you bought too), I work the max price before which long-term renting is a better idea as €220,000.

That €220,000 figure seems absolutely crazy and is merely a reflection of the rediculous rents being commanded in Dublin lately. The yields for investors are pretty good in Dublin but my main concern as a potential investor there is that, whilst I think property represents reasonable value, I think rents are overpriced and may come down in the short-medium term.

marathonic

marathonic wrote: »

A simple rule of thumb that I use is that, if you can purchase a property for less than 1,000 times the weekly rent, you are better off buying than long-term renting..

Quite a generous method

Traditionally the gross annual rent by 15 was a guide as to "value" or appropriate sale price.

marathonic

Augeo wrote: »

Quite a generous method

Traditionally the gross annual rent by 15 was a guide as to "value" or appropriate sale price.

Interesting. That's about 22% below my method.

I came up with mine using spreadsheets estimating the cost of owning the house, including mortgage interest, insurance and maintenance.

However, it didn't factor in potential rises in interest rates - instead, assuming that rents would also rise resulting in the same increase in expenditure, regardless of whether you're an owner or renter.

I imagine that the 15 times annual rent guidance probably came about when interest rates were much higher and may be the more prudent method to use, depending on your thoughts on where mortgage interest rates are going.

For what it's worth, I think that, eventually, ECB will move closer to 3-4% but the gap between ECB and mortgage rates will reduce from the current minimum of 3.7% to something closer to 2%. With that in mind, I see mortgage rates of somewhere around 5-6% over the lifetime of the mortgage.

Of course, this is all guesswork. However, homeowners buying today should have a good portion of their mortgage paid down before rates go anywhere close to 6%, meaning the impact of such rises is less profound.

Hollister11

When will people ever learn ?
I'm 18 and have learnt a lot about property from this recession. I dont know if ill be renting during college but my plan is to work and save my money while renting a house when working full time and once the recession hits again go in for a house on the cheap with cash hopefully.

There is no way ill be paying 650/700K for a 3/4bed semi.

marathonic

Hollister11 wrote: »

When will people ever learn ?
I'm 18 and have learnt a lot about property from this recession. I dont know if ill be renting during college but my plan is to work and save my money while renting a house when working full time and once the recession hits again go in for a house on the cheap with cash hopefully.

There is no way ill be paying 650/700K for a 3/4bed semi.

Learn what exactly? That a house should only be bought at the height of a recession and with cash?

Someone with that mindset who is currently saving for a deposit is likely to watch house prices rise at levels above the rate at which they are saving for years to come. A recession will come sooner or later bit when will that be? It could be 10 years or more. Are you willing to put your plans on hold for an unknown length of time?

When the recession does come, you may be out of work. Also, would you have bought in 2012 or decided that prices were going to drop further? There are plenty of people waiting on the sidelines now thinking prices will drop back again. This MAY not happen. The next recession might not even bring them back to today's levels.

As long as the interest on the mortgage, together with any costs related to home ownership is below the cost of rent, where is the problem with home ownership through mortgage? I'd even argue that a slight premium for home ownership could be considered because of the extra security you have.

If a landlord can buy a house, rent it out AND make a profit after taking into consideration the tax, allowance for void periods and expenses (some of which are higher for a landlord than they are for homeowners), then why should a potential homeowner not look to 'cut out the middleman' and purchase as soon as possible, regardless of whether that requires a mortgage or not?

RedPandaDan

marathonic wrote: »

Learn what exactly? That a house should only be bought at the height of a recession and with cash?

He is 18, its a perfectly viable strategy at his age to save up now and buy when the next downturn happens.

Worst case, he finds they never go down and he has substantial savings with which to start a new life in a more sane country.

MouseTail

And its good that he has watched and paid attention to economics 101 during the recession. Those who couldn't spend money fast enough during the bubble had no memory of, or had learned nothing from previous downturns.

TheBandicoot

marathonic wrote: »

As long as the interest on the mortgage, together with any costs related to home ownership is below the cost of rent, where is the problem with home ownership through mortgage?

Being tied to a particular property and house can be a big problem. You might need to emigrate/spend a year or two abroad for work, you might get married and need to move into a bigger house, the area could become undesirable, there could be future taxes/charges etc imposed on home ownership, you might have a period of unemployment where you can't keep paying the mortgage(but could afford to downsize to a cheaper rented place), that kind of thing. Seems to me that life today is more dynamic in that sense- people move around and change circumstances a lot more now.

marathonic

RedPandaDan wrote: »

He is 18, its a perfectly viable strategy at his age to save up now and buy when the next downturn happens.

Worst case, he finds they never go down and he has substantial savings with which to start a new life in a more sane country.

Yes, I agree that it's an option. There is the risk, as you say, that property will never come back down. That may well be a risk he is willing to take - possibly resulting in him either buying a poorer property than he could have afforded today or having to rent into retirement.

However, just because he's made the decision to take such a risk doesn't mean that he should ask "when will people ever learn?" when he realises that others are following a different approach.

The fact of the matter is that those intending to start a family in the short-medium term usually see the risk of not buying and being priced out as a much greater risk than the risk of buying now and property prices to fall further from current levels.

Only time will tell which option was the correct one and no-one should advise, or assume, that either option is the correct one. It's a personal decision that everyone must make for themselves.

You may find that the next recession occurs when you are unable to get a decent mortgage due to the maximum term a bank will offer someone of whatever age you happen to be at that time. This may force you into renting for life.

One piece of advice I would have for anyone holding off on buying property or happily renting with no intention of buying is to make sure they've got a decent pension plan in place. Having to survive solely on the state pension, whilst also renting, would be a pretty depressing prospect.

iwillhtfu

Sit back and wait till the ECB rates go up and repossession is a daily occurrence. The boom won't be looking to hot then and unfortunately social housing will be under even more strain.

NE may be on the way down but we're all still on vastly reduced wages 40% myself.

cletus van damme

RedPandaDan wrote: »

He is 18, its a perfectly viable strategy at his age to save up now and buy when the next downturn happens.

Worst case, he finds they never go down and he has substantial savings with which to start a new life in a more sane country.

He is 18.
Life was simple when i was 18. I had grand plans.


back on topic. I welcome this boom.
with open arms

listermint

marathonic wrote: »

Yes, I agree that it's an option. There is the risk, as you say, that property will never come back down. That may well be a risk he is willing to take - possibly resulting in him either buying a poorer property than he could have afforded today or having to rent into retirement.

However, just because he's made the decision to take such a risk doesn't mean that he should ask "when will people ever learn?" when he realises that others are following a different approach.

The fact of the matter is that those intending to start a family in the short-medium term usually see the risk of not buying and being priced out as a much greater risk than the risk of buying now and property prices to fall further from current levels.

Only time will tell which option was the correct one and no-one should advise, or assume, that either option is the correct one. It's a personal decision that everyone must make for themselves.

You may find that the next recession occurs when you are unable to get a decent mortgage due to the maximum term a bank will offer someone of whatever age you happen to be at that time. This may force you into renting for life.

One piece of advice I would have for anyone holding off on buying property or happily renting with no intention of buying is to make sure they've got a decent pension plan in place. Having to survive solely on the state pension, whilst also renting, would be a pretty depressing prospect.

Most of your posts feel very estate agency, do you work in that line of business ?

Just an observation.

marathonic

iwillhtfu wrote: »

Sit back and wait till the ECB rates go up and repossession is a daily occurrence. The boom won't be looking to hot then and unfortunately social housing will be under even more strain.

But ECB rates are completely detached from mortgage rates at the moment. The spread between the ECB and the cheapest mortgage rate at the moment is 3.7%. In the past, it has been as low as 0.5%. The norm would be expected to be about halfway between the two - somewhere around 2%.

What this means is that, while I expect the ECB rate to rise towards 3% in the medium term, I expect the spread to drop to 2% as the banks balance sheets improve and tracker mortgages are no longer subsidized to the current extent by standard mortgages.

If my expectations pan out, the rise in ECB from 0.15% to 3% would result in the best mortgage rates rising from 3.85% to 5%. This will add a reasonable chunk to monthly repayments but, the longer it takes before it happens, the more capital people will have paid down already on their mortgages - reducing the impact of such rises.

In my opinion, people who haven't fallen behind in repayments between 2007 and 2014 are not going to fall behind in repayments when the ECB starts to rise (for the most part).

The above holds especially true when you consider that people will have more drive to cut back on other spending when they see property prices rising and negative equity reducing. I know of a couple that were repossessed who could have afforded repayments if they cut back on luxuries like Sky and phone contracts - but where was the motivation when their house was dropping by more than their annual earnings year-on-year.


In a similar case to the above, the experts in the UK believe the the Bank of England Base Rate will start increasing long before the ECB. The expectation in the medium term is a rise of 2% and a corresponding rise in the average mortgage rate of 0.8% due to the reducing margins I mention above.

marathonic

listermint wrote: »

Most of your posts feel very estate agency, do you work in that line of business ?

Just an observation.

If you consider software development for a US life-assurance company as related to estate-agency then, yes, I work in that line of business

Victor

Are ECB-linked mortgages still being offered?

RedPandaDan

cletus van damme wrote: »

He is 18.
Life was simple when i was 18. I had grand plans.

Not paying huge sums on a home is hardly a grand plan.

cletus van damme wrote: »

back on topic. I welcome this boom.
with open arms

Morbid curiosity, but why celebrate rises in the cost of living?

marathonic

Victor wrote: »

Are ECB-linked mortgages still being offered?

Not in Ireland - my post above is more aimed toward the margin between ECB and Standard Variable Rates as opposed to Tracker Mortgages where the margin is set in stone in the contract. Obviously, the margin on a tracker mortgage wouldn't decrease as the ECB rises.

Thomas D

Since the state owned banks have written off property owners debts can the state now claw back any profits made on selling to cover the writedowns? It's only fair.

ballyharpat

TheBandicoot wrote: »

Being tied to a particular property and house can be a big problem. You might need to emigrate/spend a year or two abroad for work, you might get married and need to move into a bigger house, the area could become undesirable, there could be future taxes/charges etc imposed on home ownership, you might have a period of unemployment where you can't keep paying the mortgage(but could afford to downsize to a cheaper rented place), that kind of thing. Seems to me that life today is more dynamic in that sense- people move around and change circumstances a lot more now.

I bought a house when I was 21, rented it out for 11 years while I was in America, I wanted something with room for a garage so I bought another house and rented out the other one....I've had periods of unemployment, but fortunately always had savings to cover me for the few months, I also had mortgage protection, which would have kicked in, had I needed it. I will probably move again, next time to a bigger place in the country and I will probably rent out this house as well, hard work has been the reason I could do these things, I have done all the renovations/modernisation in both houses, had I not done that, I probably could not have accomplished what I did.