Can the current housing price increases be sustained?

stiofan85

Hi folks,

Reading the news lately "they" are predicting a grim future for the prices of houses. If the average cost of a 3 bed semi in Dublin is ~€400k...compounding 10% YoY growth for 5 years would have that at nearly €650k. Adjust up or down based on North Dublin, South Dublin etc... the compound growth % is the same.

If the average industrial wage is €40k (I'm unsure of that one, it may be higher or lower), a couple would be bringing in €80k per year. Using the CB rules of 3.5 for Loan to Income, that's €280k of a mortgage. Even if the couple was earning €50k each it's still only €350k.

To get to a €500k mortgage both would need €70k gross income and a hefty deposit, which I would suspect is not too common due to cost of renting, unless parents are helping.

I just don't see how the market can get to those sorts of prices with the limits on lending (which is their purpose). At the same time, simple supply/demand economics dictates that the lack of supply will enable getting to those prices.

So I'm just wondering what people's opinions are on how this will go? I have no interest in house prices increasing, in fact I would prefer it to go the other way as we are in a small house and had originally hoped to move to a bigger place down the line, but if those growth rates were realised we'd have to rethink those plans!

Thanks!

Claw Hammer

House prices are also volatile. What goes up, comes down every so often. When interest rates rise or when supply is increased or both, prices will fall. A point will come when it will be economic to build and money will be poured into building. The result will be oversupply and falling prices and rents. That will lead to repossessions, ghost building sites and another freeze on building. Sure as night follows day. All this "prices can only go one way" and "the fundamentals are sound" malarkey is what causes this cycle.

OP, maybe you simply can't afford to live in Dublin. Or you can afford to live in the parts of Dublin where the houses are only €200k.

Why does every person think they must live in Dundrum?

PhoenixParker

stiofan85 wrote: »

Hi folks,

Reading the news lately "they" are predicting a grim future for the prices of houses. If the average cost of a 3 bed semi in Dublin is ~€400k...compounding 10% YoY growth for 5 years would have that at nearly €650k. Adjust up or down based on North Dublin, South Dublin etc... the compound growth % is the same.

If the average industrial wage is €40k (I'm unsure of that one, it may be higher or lower), a couple would be bringing in €80k per year. Using the CB rules of 3.5 for Loan to Income, that's €280k of a mortgage. Even if the couple was earning €50k each it's still only €350k.

To get to a €500k mortgage both would need €70k gross income and a hefty deposit, which I would suspect is not too common due to cost of renting, unless parents are helping.

I just don't see how the market can get to those sorts of prices with the limits on lending (which is their purpose). At the same time, simple supply/demand economics dictates that the lack of supply will enable getting to those prices.

So I'm just wondering what people's opinions are on how this will go? I have no interest in house prices increasing, in fact I would prefer it to go the other way as we are in a small house and had originally hoped to move to a bigger place down the line, but if those growth rates were realised we'd have to rethink those plans!

Thanks!

I always find calculations like this based on average salaries to be misleading in the extreme. (Not specifically you, i see it regularly). With mortgages what you're looking at is the average of those looking to buy a house, generally looked at as either first time buyers and mover uppers. The average population of house buyers is very different to the average population of workers.

First time buyers are typically a couple, full time & employed. Usually 5-15 years into their careers so a good bit above entry level salaries. The lower waged can apply for social housing so in general they're not in this group. (Some will be, but proportionally lower). Salaries in Dublin are higher. Ireland is not an industrialised country, the average industrial wage represents a very small segment of workers. In terms of the ftb population looking to buy a house in Dublin a household income around €100k is not unrealistic as an average for tgis group I'd estimate. Many will have more.

Mover uppers will typically be further in their careers and have a chunk of equity built up. They may be affected by thinhs like childcare costs or part time working but the equity is a huge factor. Essentially many will have multiple 100k deposits.

stiofan85

@lorenzo that's not the question I asked. I can afford to live in Dublin quite comfortably.

What I'm asking is about the medium to long term economics of the market and are these predictions in various reports feasible?

fret_wimp2

Why do we always show averages? Why not include the Mean? its often a much more accurate figure and certainly helps to give a more realistic view of the average.

IMO, any answer is speculation as it always is with property.
Facts are the prices are rising quickly. This can only happen if:

- People are paying the prices
- People are not managing to get the high selling price but are happy to sit on the property and leave it on daft at a high price for a long time.

Either way, it means there is money in the market, either money to buy property or money to afford to sit on property.
When either (or both) of these things change, houses will come down in price to a level where they move.

Im sure there are more dynamics to the situation, but if prices keep going up, it means theres money somewhere to support this.

Yes it means many wont be able to afford to live where they want to but thats life. I would love to live in D4/D6/D16, but its well outside of my means, so i live somewhere thats within my means. I know people who say they cant afford to buy in dublin, which is a lie, the real answer is they cant afford a 150sqm semi-d with two parking spaces and a garrage in Dundrum. Thing is not many can.
Its the capital, its going to be expensive to live, people need to get over that.

TLDR:
Theres money to support property owners to sit on property that is too expensive to sell, or theres money to support people buying houses that are increasing in price. Most of the country needs to assess what they can afford.


This post is probably better suited to the Property market 2017 thread, where this type of thing is discussed and debated at length

stiofan85

PhoenixParker wrote: »

I always find calculations like this based on average salaries to be misleading in the extreme. (Not specifically you, i see it regularly). With mortgages what you're looking at is the average of those looking to buy a house, generally looked at as either first time buyers and mover uppers. The average population of house buyers is very different to the average population of workers.

First time buyers are typically a couple, full time & employed. Usually 5-15 years into their careers so a good bit above entry level salaries. The lower waged can apply for social housing so in general they're not in this group. (Some will be, but proportionally lower). Salaries in Dublin are higher. Ireland is not an industrialised country, the average industrial wage represents a very small segment of workers. In terms of the ftb population looking to buy a house in Dublin a household income around €100k is not unrealistic as an average for tgis group I'd estimate. Many will have more.

Mover uppers will typically be further in their careers and have a chunk of equity built up. They may be affected by thinhs like childcare costs or part time working but the equity is a huge factor. Essentially many will have multiple 100k deposits.

Thanks, much of what you say are things I've thought about.

I guess this supports the forecasts for 2020+

stiofan85

fret_wimp2 wrote: »

Why do we always show averages? Why not include the Mean? its often a much more accurate figure and certainly helps to give a more realistic view of the average.

IMO, any answer is speculation as it always is with property.
Facts are the prices are rising quickly. This can only happen if:

- People are paying the prices
- People are not managing to get the high selling price but are happy to sit on the property and leave it on daft at a high price for a long time.

Either way, it means there is money in the market, either money to buy property or money to afford to sit on property.
When either (or both) of these things change, houses will come down in price to a level where they move.

Im sure there are more dynamics to the situation, but if prices keep going up, it means theres money somewhere to support this.

Yes it means many wont be able to afford to live where they want to but thats life. I would love to live in D4/D6/D16, but its well outside of my means, so i live somewhere thats within my means. I know people who say they cant afford to buy in dublin, which is a lie, the real answer is they cant afford a 150sqm semi-d with two parking spaces and a garrage in Dundrum. Thing is not many can.
Its the capital, its going to be expensive to live, people need to get over that.

TLDR:
Theres money to support property owners to sit on property that is too expensive to sell, or theres money to support people buying houses that are increasing in price. Most of the country needs to assess what they can afford.


This post is probably better suited to the Property market 2017 thread, where this type of thing is discussed and debated at length

Thanks for the link!

pxdf9i5cmoavkz

Deleted User wrote: »

OP, maybe you simply can't afford to live in Dublin. Or you can afford to live in the parts of Dublin where the houses are only €200k.

Why does every person think they must live in Dundrum?

Because anything outside of Dundrum is the wild west. Uncivilized and untamed. Marred by poor infrastructure and track suit wearing miscreants.

PhoenixParker wrote: »

Essentially many will have multiple 100k deposits.

1. Looks at savings bank account.
2. Sees 5 digits :eek:
3. Notices period after the 3rd number.
4. Becomes depressed.

fret_wimp2

Evie Ashy Sandwich wrote: »

Because anything outside of Dundrum is the wild west. Uncivilized and untamed. Marred by poor infrastructure and track suit wearing miscreants.

Such a ridiculous comment that has to be satirical comment! its probably not worth the argument, its such a crazy generalization but here goes.

Lets say Dundrum makes up 5% of the population of Dublin. And lets be unrealistically dramatic and say that 20% of the population are miscreants.
Are you saying that 75% of the population of dublin lives in fear in a place they hate?

The vast majority of areas are perfectly fine places to live. Even those areas designated as bad areas have good people living there.

Look at the crime stats (2016).

http://dublindashboard.ie/pages/AiroCrime

Terenure & Malahide, supposedly "good" area's are higher than places like Cabra. Dundrum is in the top 25 percentile for crime! Even Finglas, supposedly not great area has less crime than Dundrum!
This list inst broken down by type of crime which would be useful, but it shows the delusions many people have about different areas.

Fact is most of dublin is perfectly safe, and any postcode thats not an even number is not bad.

Statements like your last post is a significant cause of the housing crisis. There are plenty of houses, just disregarded because people make a postcode judgement.

As most of these people cant afford D6, 8, 16, they will be stuck in the rental system for a long time.

PhoenixParker

Evie Ashy Sandwich wrote: »

1. Looks at savings bank account.
2. Sees 5 digits :eek:
3. Notices period after the 3rd number.
4. Becomes depressed.

In fairness many of these people don't have it in their bank either, they have a valuable house and a mortgage that's nearing completion.

Zenify

fret_wimp2 wrote: »

Such a ridiculous comment that has to be satirical comment! its probably not worth the argument, its such a crazy generalization but here goes.

Lets say Dundrum makes up 5% of the population of Dublin. And lets be unrealistically dramatic and say that 20% of the population are miscreants.
Are you saying that 75% of the population of dublin lives in fear in a place they hate?

The vast majority of areas are perfectly fine places to live. Even those areas designated as bad areas have good people living there.

Look at the crime stats (2016).

http://dublindashboard.ie/pages/AiroCrime

Terenure & Malahide, supposedly "good" area's are higher than places like Cabra. Dundrum is in the top 25 percentile for crime! Even Finglas, supposedly not great area has less crime than Dundrum!

Thanks because the people in Finglas know all the money is in Malahide and go there to commit crime. The tallaght people go to terenure.

server down

PhoenixParker wrote: »

I always find calculations like this based on average salaries to be misleading in the extreme. (Not specifically you, i see it regularly). With mortgages what you're looking at is the average of those looking to buy a house, generally looked at as either first time buyers and mover uppers. The average population of house buyers is very different to the average population of workers.

First time buyers are typically a couple, full time & employed. Usually 5-15 years into their careers so a good bit above entry level salaries. The lower waged can apply for social housing so in general they're not in this group. (Some will be, but proportionally lower). Salaries in Dublin are higher. Ireland is not an industrialised country, the average industrial wage represents a very small segment of workers. In terms of the ftb population looking to buy a house in Dublin a household income around €100k is not unrealistic as an average for tgis group I'd estimate. Many will have more.

Mover uppers will typically be further in their careers and have a chunk of equity built up. They may be affected by thinhs like childcare costs or part time working but the equity is a huge factor. Essentially many will have multiple 100k deposits.

The average industrial wage is in fact higher than the average wage. People in industry earn more than retail workers. And an average is a hopeless statistic anyway. The median is much more useful. And lower.

Of course if the houses cost about 350+ then the couples buying are earning 100k+. If we want > 50% of couples buying houses (and historically house ownership has been as high as 80%) then prices need to fall.

server down

PhoenixParker wrote: »

In fairness many of these people don't have it in their bank either, they have a valuable house and a mortgage that's nearing completion.

You’re making fairly big assumptions there too. Ireland does not have a functioning market where people who bought a decade ago are now moving up with lots of equity. Until a few years ago most of that group were in negative equity.

FTBs are older than you think too. 35 was the last average I saw. People with loads of equity in their house are older and have no need for a bigger house. Of course there are a lot of people with money to invest in the older generations. That group was the largest buyers for years.

Fanny Wank

Claw Hammer wrote: »

That will lead to repossessions.

In Ireland?

flashforward

stiofan85 wrote: »

@lorenzo that's not the question I asked. I can afford to live in Dublin quite comfortably.

What I'm asking is about the medium to long term economics of the market and are these predictions in various reports feasible?

If the central bank does not lax its LTI limit then I cannot see how a YOY rise of 10% is sustainable.... I would love to see data on the specifics of awarded mortgages e.g. the % of mortgages where buyers maxed out their LTI at 3.5x or higher with exemption. I would imagine over the past couple of years this has been significant % of buyers.

Unless there's a 10% YOY avg/mean salary increase then how can this be sustainable?
FTB's and any buyer without significant deposit/equity simply will not be able to compete in that market, this alone will keep a cap on pricing.

Part of me believes there is an element of propaganda to all of this generalisation - its pushed by those who have vested interests, creating this air of fear among all buyers.
Dublin has a problem, but the medias reporting is causing people in the rest of the country to panic and prices are closing in on the crazy levels of the mid 2000's....

I genuinely hope the central bank stay strong and maintain 3.5x LTI...

screamer

Of course they can and they've a way to go before they get back to boom time peaks. So like a helium balloon the only way is up.

Claw Hammer

Fanny **** wrote: »

In Ireland?

There have been, and will continue to be, lots of repossessions in Ireland. There are receiver auctions every week of the year. There are many houses surrendered or put on agreed sale. This is outside of the more visible court proceedings which are taking place around the country.

Graham

Claw Hammer wrote: »

There have been, and will continue to be, lots of repossessions in Ireland. There are receiver auctions every week of the year.

Auction does not equal repossession.
Surrender does not equal repossession.
Receiver does not equal repossession.

You don't have to dig too hard to find many examples of people who are only now coming to Court multiple years after their last mortgage payment were made.

The_Conductor

Zenify wrote: »

Thanks because the people in Finglas know all the money is in Malahide and go there to commit crime. The tallaght people go to terenure.

I seriously doubt this is the case- its more that if people in Malahide are the victims of crime- they are far more likely to report it to An Garda Síochána and insist it is recorded in Pulse. Once you go to Tallaght, Clondalkin, Neilstown, Clonburris, Adamstown, Lucan, Blanchardstown, Finglas - people just don't tend to bother calling the guards anymore. The Gardaí recognise this- and are making strong cases for significant numbers of new community Gardaí for these areas to try and rebuild a relationship with the areas in general.

This is also recognised by the CSO- who have advised they are not publishing any more crime statistics on the basis of data supplied by An Garda Síochána.

We are actually at this point in our policing.

Claw Hammer

Graham wrote: »

Auction does not equal repossession.
Surrender does not equal repossession.
Receiver does not equal repossession.

You don't have to dig too hard to find many examples of people who are only now coming to Court multiple years after their last mortgage payment were made.

A receiver means repossession. The receiver takes possession of the property on behalf of the bank. He markets it on behalf of the bank. Surrender means the banks takes possession. Just because it did not lead to repossession proceedings in the courts does not mean there was not a repossession. A person buys a property using a mortgage, the bank takes over the property. That is a repossession, whether it is by order of a court or not. The effect is the same except that people who go to court are landed with a bill for legal costs on top of their debt. There are people gaming the system, playing for time but they all get caught in the end.

homerjay2005

flashforward wrote: »

I genuinely hope the central bank stay strong and maintain 3.5x LTI...

you not think people who are paying rent that is great than what their > X3.5 repayments would be, deserve to have greater than 3.5?

Zenify

homerjay2005 wrote: »

you not think people who are paying rent that is great than what their > X3.5 repayments would be, deserve to have greater than 3.5?

so that they are then competing we others who get the same extra allowance? Giving buyers more money because there aren't enough homes does not house more people.

homerjay2005

Zenify wrote: »

so that they are then competing we others who get the same extra allowance? Giving buyers more money because there aren't enough homes does not house more people.

sure a proven ability to pay superceeds everything else?

OwlsZat

flashforward wrote: »

I genuinely hope the central bank stay strong and maintain 3.5x LTI...

It does feel like the only thing preventing another credit bubble. We have learned nothing. The pressure to raise it is already there!!

Interested Observer

OwlsZat wrote: »

It does feel like the only thing preventing another credit bubble. We have learned nothing. The pressure to raise it is already there!!

Settle down there. There is no credit bubble at the moment. The fact the central bank brought in these pretty stringent rules, along with the deposit requirement, would suggest we have learned something.

Giblet

homerjay2005 wrote: »

you not think people who are paying rent that is great than what their > X3.5 repayments would be, deserve to have greater than 3.5?

They couldn't give a flying f about that.

I've been paying the guts of 2k on rent (on my own, wife is at home with son) for the last few years, and really, I'm better off getting a loan of a deposit and getting my mortgage, I'd be better off by a good bit.

Graham

homerjay2005 wrote: »

you not think people who are paying rent that is great than what their > X3.5 repayments would be, deserve to have greater than 3.5?

Absolutely not. As recent history has demonstrated, if left uncontrolled people will borrow more than they should and banks will lend the same.

Todays affordable payments could be tomorrows millstone if interest rates move in the wrong direction.

That's not to say that those people shouldn't have a reasonable expectation they'd be able to buy a home.

The Student

Graham wrote: »

Absolutely not. As recent history has demonstrated, if left uncontrolled people will borrow more than they should and banks will lend the same.

Todays affordable payments could be tomorrows millstone if interest rates move in the wrong direction.

That's not to say that those people shouldn't have a reasonable expectation they'd be able to buy a home.

Completely agree. Income multiples should be kept.

Interest rates will go up in the short term. IBEC made an announcement that 60% of its members are planning on giving a pay rise. Also, consumer sentiment is up which may lead to inflation.

We need to keep inflation in check otherwise we become uncompetitive (especially with Brexit etc). Expect interest rates to increase to take some "heat" out of inflation.