Property Market 2015

Greyian

Total value of (residential) property sold in 2014: €9,319,884,515.80
Total number of (residential) units sold in 2014: 42149
Average value of 2014 sold unit: €221,117.57

Total value of (residential) property sold in 2015 (to date): €4,926,973,144.49
Total number of (residential) units sold in 2015 (to date): 22607
Average value of 2015 (to date) sold unit: €217,940.16

11% drop required in the next 5-6 months you say?

johnp001

This has gone way off topic but there is a fundamental misunderstanding of moving averages at the heart of this problem.

I have recreated the CSO spreadsheet using hypothetical flatlining 0% change month on month for the last 6 months of the year so that it can be seen how a moving average works.



As can be seen from these figures if no further changes happen this year then at the end of the year the index is +0.4% for the 12 months. The frame of the 12 month average makes the +10.7% as of June largely irrelevant.

Michael D Not Higgins

koheim wrote: »

For those hoping for a "correction" and prediction a drop. Have you taken these factors in to account, and what effect this could have ?

The economy is growing!

More people employed, salaries are up for people in permanent employment. Most people are working and have good, secure jobs. There is no point looking at average household income, look at how many household make 70K+, how many make 100K+ and how many make 150K+

Income taxes can only be reduced in the next few budgets

Look for reduction in interest rates. Ireland has the highest rates in Europe. This will have to be reduced and there is no point in stress testing at 6% for the foreseeable future. We will not see ECB rates above 2% in at least 10 years, my 4.5% interest rate can only be reduced. To borrow new money will become cheaper.

Based on these points buying power will have to increase in the next few years, but there is indeed very little value in the Irish property market..
I predict flat growth for a couple of years, but rents will continue to increase.

Consider a couple with income of €70,000. They used to be able to borrow 4 times their income with an 8% deposit. This allows buying a house around 305k.

Now consider they must have 3.5 LTI and 10% up to 220k and 20% above. Without any increase in their earnings they would have had to save 35k in the last year to afford the same priced house (pretty much not doable), or they could have increased their salary by 6k and deposit by 14.5k (maybe more likely but still pushing it). In the end the credit is restricted and house prices go down, even with economic growth.

Maybe a more realistic figure is 5% growth in salary and 1k savings per month, which would get them 294k house price. Their capacity to buy a house has dropped several percent despite increasing their income and savings.

alastair

Greyian wrote: »

Total value of (residential) property sold in 2014: €9,319,884,515.80
Total number of (residential) units sold in 2014: 42149
Average value of 2014 sold unit: €221,117.57

Total value of (residential) property sold in 2015 (to date): €4,926,973,144.49
Total number of (residential) units sold in 2015 (to date): 22607
Average value of 2015 (to date) sold unit: €217,940.16

11% drop required in the next 5-6 months you say?

The average value of a sold property doesn't equate to how the price index is measured - you also need to factor in like-for-like sales. So, while I'm off on my percentage maths - your stats don't really tell us anything. The CSO figures are what counts on determining if prices are going up or down.

alastair

Michael D Not Higgins wrote: »

Consider a couple with income of €70,000. They used to be able to borrow 4 times their income with an 8% deposit. This allows buying a house around 305k.

Now consider they must have 3.5 LTI and 10% up to 220k and 20% above. Without any increase in their earnings they would have had to save 35k in the last year to afford the same priced house (pretty much not doable), or they could have increased their salary by 6k and deposit by 14.5k (maybe more likely but still pushing it). In the end the credit is restricted and house prices go down, even with economic growth.

This of course, presupposes that they're first time buyers without any property sale equity to bring to the purchase, and that they hadn't saved anything beyond the 8% in the previous scenario, that they only give themselves a year to save a deposit, and that they have absolutely no access to a generous relative prepared to lend them deposit money. Which could all be true, but hardly typical.

Greyian

alastair wrote: »

presupposes that they're first time buyers without any property sale equity to bring to the purchase

So their purchasing power would be higher this year than under his example...but so would their 2014 purchase power, so that's a wash.
Still lower purchase power in 2015 than 2014.

alastair wrote: »

and that they hadn't saved anything beyond the 8% in the previous scenario

If they had a higher deposit, their purchasing power in 2014 would also have been higher, so that's a wash again. Still have access to more credit in 2014 than they do now in 2015.

alastair wrote: »

that they only give themselves a year to save a deposit

Again, if suddenly you're suggesting they have a three, or five, year deposit, they also would have had a bigger deposit in 2014 than under Michael's example.

alastair wrote: »

and that they have absolutely no access to a generous relative prepared to lend them deposit money.

Is this some amazing 1 year old baby relative, who made millions since being born in 2014? Or did they already exist in 2014, so they don't help the people in this example boost their purchasing power.


All of your counterpoints, while increasing 2015's purchasing power, would have also done the exact same in 2014, so the people in the example are still limited by:
A) Needing a larger deposit
Only being able to get 3.5* salary as a mortgage.

alastair

Greyian wrote: »

So their purchasing power would be higher this year than under his example...but so would their 2014 purchase power, so that's a wash.
Still lower purchase power in 2015 than 2014.



If they had a higher deposit, their purchasing power in 2014 would also have been higher, so that's a wash again. Still have access to more credit in 2014 than they do now in 2015.



Again, if suddenly you're suggesting they have a three, or five, year deposit, they also would have had a bigger deposit in 2014 than under Michael's example.




Is this some amazing 1 year old baby relative, who made millions since being born in 2014? Or did they already exist in 2014, so they don't help the people in this example boost their purchasing power.


All of your counterpoints, while increasing 2015's purchasing power, would have also done the exact same in 2014, so the people in the example are still limited by:
A) Needing a larger deposit
Only being able to get 3.5* salary as a mortgage.

I'm not commenting on their comparative borrowing power however - which is reduced in a context of a smaller borrowing requirement in any case. They've less access to credit for sure. What I am commenting on the notion that a 305K house is no longer affordable to this a notional 70K income couple. It is in a fairly skewed scenario, that doesn't really reflect reality.

Michael D Not Higgins

alastair wrote: »

This of course, presupposes that they're first time buyers without any property sale equity to bring to the purchase, and that they hadn't saved anything beyond the 8% in the previous scenario, that they only give themselves a year to save a deposit, and that they have absolutely no access to a generous relative prepared to lend them deposit money. Which could all be true, but hardly typical.

It was a hypothetical scenario to show increases in the economy are more than compensated for by the tightening of credit. The numbers themselves aren't important, merely the trend.

gaius c

koheim wrote: »

For those hoping for a "correction" and prediction a drop. Have you taken these factors in to account, and what effect this could have ?

The economy is growing!

More people employed, salaries are up for people in permanent employment. Most people are working and have good, secure jobs. There is no point looking at average household income, look at how many household make 70K+, how many make 100K+ and how many make 150K+

Income taxes can only be reduced in the next few budgets

Look for reduction in interest rates. Ireland has the highest rates in Europe. This will have to be reduced and there is no point in stress testing at 6% for the foreseeable future. We will not see ECB rates above 2% in at least 10 years, my 4.5% interest rate can only be reduced. To borrow new money will become cheaper.

Based on these points buying power will have to increase in the next few years, but there is indeed very little value in the Irish property market..
I predict flat growth for a couple of years, but rents will continue to increase.

Excellent question and some ballpark figures are indicated below:

33% of households have a gross income of less than €30,000;
56% of households have a gross income of less than €50,000;
62% of households have a gross income below the mean household income;
The top 20% of households have a gross income of more than €80,000 per annum;
14% of household have a gross income above €100,000 per annum; and
2% of households have gross incomes above €200,000 per annum.

http://www.nerinstitute.net/research/quarterly-economic-observer-january-2013/

Somewhere around 5% of the households in the country pull in €150k, which makes you wonder why there are so many €600k plus houses...

gosplan

The_Conductor wrote: »

250 properties over the last week (since the 23rd of July) in Dublin? Something seems a bit odd? 250 properties new to the market in Dublin in a week seems a bit improbably high to me? Its the end of July- but even at peak selling- it would still seem a bit improbable.

If there are 250 new properties in a week, and the ones I've looked at seem aggressively priced, then is it a safe bet to say that EA's have a fair impression of what the next few months will bring?

alastair

Michael D Not Higgins wrote: »

It was a hypothetical scenario to show increases in the economy are more than compensated for by the tightening of credit. The numbers themselves aren't important, merely the trend.

The trend is the improving economic conditions, and potentially, the increase in rental costs. The changed CB rules aren't a trend - they're an immediate re-adjustment in the balance of savings to borrowings. Overall, the indicators for the midterm would suggest price rises over a fall. Countering this would be the pressure of increased stock, which will constrain price hikes to some extent.

alastair

gaius c wrote: »

Somewhere around 5% of the households in the country pull in €150k, which makes you wonder why there are so many €600k plus houses...

At least partially - because many buyers are trading up, with equity from house sales.

NinjaTruncs

gosplan wrote: »

If there are 250 new properties in a week, and the ones I've looked at seem aggressively priced, then is it a safe bet to say that EA's have a fair impression of what the next few months will bring?

Possibly however estate agents don't dictate when a property comes onto the market, that is the vendor when they decide to sell, I doubt anyone gose to an ea and asked when is the best time to list a property. That said 250 in a week is a lot.

Michael D Not Higgins

alastair wrote: »

The trend is the improving economic conditions, and potentially, the increase in rental costs. The changed CB rules aren't a trend - they're an immediate re-adjustment in the balance of savings to borrowings. Overall, the indicators for the midterm would suggest price rises over a fall. Countering this would be the pressure of increased stock, which will constrain price hikes to some extent.

I didn't say the CB rules were a trend, the amount people can afford due to the rules means the trend is downward from last year, despite taking improving circumstances into account.

alastair

Michael D Not Higgins wrote: »

I didn't say the CB rules were a trend, the amount people can afford due to the rules means the trend is downward from last year, despite taking improving circumstances into account.

You see a trend, I see see a revised reality of having to shift the balance between savings and borrowings - a cultural shift that actually makes property more affordable in the long run, even if prices continue to rise.

johnp001

The CSO figures don't show any meaningful increase in earnings
Average weekly earnings up 0.5% in year to Q1 2015 but down -0.9% in quarter

If the sums don't work out for someone with 5% income growth as Michael D. has shown then they certainly don't work out for the average citizen.

gosplan

alastair wrote: »

You see a trend, I see see a revised reality of having to shift the balance between savings and borrowings - a cultural shift that actually makes property more affordable in the long run, even if prices continue to rise.

I think you're ignoring the lag that saving adds. It's all a lot more sensible and secure but it takes a lot longer.

I mean at the minimum we should see a lag of a year or more while people go to ground and save the extra 40k or so they need.

Long term it should be the same but for now the number of people that can buy upwards of 400k is drastically reduced while the stock is coming on in increasing numbers.

The price of those houses can only go one way in the short term.

All of this if course doesn't affect the 220k houses except maybe to even drive up interest.

gaius c

alastair wrote: »

At least partially - because many buyers are trading up, with equity from house sales.

And people who bought during the 00's are swimming in positive equity?

alastair

gaius c wrote: »

And people who bought during the 00's are swimming in positive equity?

Lots are. We bought in '99 and never went anywhere near negative equity. Even only 50% of 2007 buyers are in negative equity. The ERSI reckons there's less than 160,000 of 760,000 mortgages left in negative equity nationally.

gaius c

Originally Posted by gaius c View Post
Somewhere around 5% of the households in the country pull in €150k, which makes you wonder why there are so many €600k plus houses...

Originally Posted by alastair View Post
At least partially - because many buyers are trading up, with equity from house sales.

And people who bought during the 00's are swimming in positive equity?

alastair wrote: »

Lots are. We bought in '99 and never went anywhere near negative equity. Even only 50% of 2007 buyers are in negative equity. The ERSI reckons there's less than 160,000 of 760,000 mortgages left in negative equity nationally.

So over 20% of the mortgaged market have lower than 0 equity?
And more with equity but not enough to meet 20% deposit requirements (they need €120k after all expenses are done & dusted). That's a pretty significant bite out of the folks who would previously have been looking to trade up to the €600k+ houses.

The_Conductor

alastair wrote: »

Indeed. From a current position of +10.7% - so a requirement for an 11% drop.

That's the nature of a 12 month change alright. There's still not any reasonable expectation that theres an 11% drop in the remaining positive 2014 months and whatever the rest of 2015 brings.

You're not really grasping what was being said.
Aka- if there are no increases between now and the end of the year- we will be in negative territory for the year.

Look at the CSO statistics for the last 12 months.


From the CSO

Residential Price Index- Ireland National

Column #

1 2 3 4


May 2014 71.7 2.3% 10.6%
Jun 2014 73.8 2.9% 12.5%
Jul 2014 75.3 2.0% 13.4%
Aug 2014 77.0 2.3% 14.9%
Sep 2014 78.4 1.8% 15.0%
Oct 2014 80.7 2.9% 16.3%
Nov 2014 81.1 0.5% 16.2%
Dec 2014 81.4 0.4% 16.3%
Jan 2015 80.3 -1.4% 15.5%
Feb 2015 80.0 -0.4% 14.9%
Mar 2015 80.7 0.9% 16.8%
Apr 2015 81.2 0.6% 15.8%
May 2015 81.6 0.5% 13.8%
Jun 2015 81.7 0.1% 10.7%

Extrapolating from this-

July 2015 81.7 0% 8.7%
Aug 2015 81.7 0% 6.4%
Sep 2015 81.7 0% 4.6%
Oct 2015 81.7 0% 1.7%
Nov 2015 81.7 0% 1.2%
Dec 2015 81.7 0% 0.8%

I.e.- if there are no changes in price whatsoever between now and the end of the year- the year on year change in prices will be less than an increase of 1%- and any drops at all will eat into this 1%

alastair

The_Conductor wrote: »

You're not really grasping what was being said.
Aka- if there are no increases between now and the end of the year- we will be in negative territory for the year.

No we wouldn't - as you've already pointed out. It'll take additional drops over the next 5 months to push us into 12 month negative territory. Just no increases leaves us in positive territory. As it stands, the cumulative requirement of the 5 remaining 2014 months, and the remaining 5 2015 months would have to combine to cancel out that 10.7% growth.

The_Conductor

alastair wrote: »

No we wouldn't - as you've already pointed out. It'll take additional drops over the next 5 months to push us into 12 month negative territory. Just no increases leaves us in positive territory. As it stands, the cumulative requirement of the 5 remaining 2014 months, and the remaining 5 2015 months would have to combine to cancel out that 10.7% growth.

We don't have long to wait for the July figures.
You are utterly unconvinced- I guess there is no point in my labouring the statistics- you're going to take from them what you will- regardless of what I or other posters say.
Lets wait and see how they pan out.

Glas2016

Conductor, you are completely correct in terms of your mathematical analysis.

Back to the big picture. Some on here focus on individual examples to illustrate their point of view i.e. J Bloggs used to be able to borrow x, now can only borrow x-y due to CB rules therefore prices must drop. This is a classic pitfall of those without a background in economics and fails to recognise the dynamic nature of all economies and the fact that economies are an aggregate of all j bloggs. As some on here have alluded to there are a multitude of factors that feed into house prices in any market ( I don't need to rehash them all here but economic growth,credit,supply,demographics to name a few). The key point is this, just because every J blogs in the country can now borrow less than last year is not necessarily decisive in determining prices. With the economy growing at 3-5%,tax cuts and wage increases on the way and people already at various stages in terms of gathering their deposits, there are plenty of factors pushing the other way that at least match impact of CB rules. Put simply there are now more j blogs "on the pitch" - 100,000 more in employment + the multiplier effect. The aggregate + here more than matches the -, even though an analysis on an individual basis could suggest otherwise. A little nuanced for some maybe.

I think there is a lot of hope on here from prospective buyers hoping for a big crash. Most people don't get involved in forums or discussions, they just play the game in front of them.

Villa05

gaius c wrote: »

So over 20% of the mortgaged market have lower than 0 equity?
And more with equity but not enough to meet 20% deposit requirements (they need €120k after all expenses are done & dusted). That's a pretty significant bite out of the folks who would previously have been looking to trade up to the €600k+ houses.

One would guess that these are the people that have the need to trade up but are locked out of the market. Add in the FTB's that are locked out due to affordability issues

The pyramid is starting to look a bit shaky when alot of the blocks at the bottom are removed

alastair

Villa05 wrote: »

One would guess that these are the people that have the need to trade up but are locked out of the market. Add in the FTB's that are locked out due to affordability issues

The pyramid is starting to look a bit shaky when alot of the blocks at the bottom are removed

First time buyers aren't locked out on the back of the CB changes. They just have a different balance between what they need to save and borrow. And in a scenario where 80% (and growing) of mortgage holders have equity in their property, you're pretty far from locking down the 'trading up' market.

alastair

The_Conductor wrote: »

We don't have long to wait for the July figures.
You are utterly unconvinced- I guess there is no point in my labouring the statistics- you're going to take from them what you will- regardless of what I or other posters say.
Lets wait and see how they pan out.

Perhaps if your statistics didn't contradict the claim you made, you might be more convincing?

As you say, we'll just have to wait and see where we get to by end of year.

Villa05

alastair wrote:

First time buyers aren't locked out on the back of the CB changes. They just have a different balance between what they need to save and borrow. And in a scenario where 80% (and growing) of mortgage holders have equity in their property, you're pretty far from locking down the 'trading up' market.

I think you are missing or ignoring the point. The 20% are far more likely to be the people who have a requirement to trade up, therefore their negative equity may lock them out

FTB have more to save and more rent to pay. Rent is at a level where saving is impossible for the majority

As stated earlier the objective of the property market is to extract the maximum out of people's income ie inflict maximum pain. This leaves very little/no savings.

Property is like parasite that wipes out its food source. When the food source is gone it goes dormant waiting for the next crop. Hence the boom bust cycles

Michael D Not Higgins

alastair wrote: »

Perhaps if your statistics didn't contradict the claim you made, you might be more convincing?.

alastair wrote: »

Nope - it's correct. Current status is 10.7% increase on 12 months. That leaves a need to lose 11% over the next five months to end in negative territory by end of Dec. Unless you're quibbling about the .2% wriggle room?

You don't seem to grasp the stats anyway.

athtrasna

This is turning into quite the squabble. If you want to continue to argue about these figures please consider pm as a more appropriate place.