The Property market has reached the bottom!

MANY HAVE hinted at it over the last couple of weeks, but I’m just going to say it: THE PROPERTY MARKET HAS REACHED THE BOTTOM!

Great stuff. I'm off to buy a gaff so before they are all snapped up.

The property market has not yet even reached equilibrium for profit/loss let alone bottomed out. The price of a mortgage is not supposed to take up more than 30% of gross monthly income of any buyers, and the full price of a house should not exceed 125% of the combined yearly incomes of all buyers. If it does, the ratio of property value to actual employment and income value in the area starts to become unsustainable.

Ireland has a horrible problem with this: if you make 29 grand at the local medical widget factory, and your husband makes 35 grand at his car sales job, that means your house should sustainably cost no more than 80,000. But a house which is 80,000 anywhere else with a decent economy, is 160,000 plus even now in Ireland's foreign-investment-dependent economy, and the foreign investors are pulling out to provide jobs in their own countries or close due to loss of sales. It is absolutely certain that if sellers don't start adjusting now, there will be a shakedown of horrible proportions.

The price of property in Ireland is massively inflated even now because everyone is still sitting on their sales property waiting for a six-figure sell, and everyone looking to buy is still sitting on their behinds waiting for a five-figure buy. Right now it's a battle of wills, and in the meantime, the continued job losses in Ireland due to the recession will continue to lower the mean income of residents until desperation finally takes hold and foreclosure looms for many properties.

And, the horribly inflated six-figure mortgages bought two years ago have already started going into foreclosure as many people who bought are realising that they lose far less money if they foreclose, lose the current equity, file bankruptcy and wait to buy again, than if they continue to pay on the original sale price.

An acre of property in a sustainable and employable rural area of the United States currently cost, during the bubble and before the recession, in the neighbourhood of 35,000 dollars. In a suburban area that price would be for about a third of an acre. Then the cost of building a modest 3-bedroom home (and not a McMansion) on that property would be in the neighborhood of 50,000 dollars. This is for direct buyers paying for the land and getting a building contractor, so we're looking at about 85,000 for a decent middle income home on a third acre. If the home were built by a developer, the land would have been bought far cheaper and in large lots, and the contractor would have bid a far lower price due to cuts in cost for a large number of homes being built. So that 80-85 grand would still have about a $40K profit for the developer. Any estate developer should not get more than 50% profit per property with all costs figured in as a sustainable maximum.

But here in Ireland, property sellers and developers got unbelievably greedy. Sellers were asking six figures for a single acre and developers were looking for up to 200% profit on builds. And they still uphold that model now even though the bottom is dropping out, resulting in whole new-build estates around the country which are 90% uninhabited. Talk about stupidity.

Add into the fact that land in Ireland is often covered with rushes and marshy, the infrastructure of water and sewage service is questionable at best, and it's a hinky prospect for any semi-rural homebuyer with half a brain. The problem is, if you combine the Irish greed to get on the property bandwagon (not ladder) with the necessity to preserve landscape, culture and heritage, who want to offset the expense and greed of city sellers and builders, the strictness of land inspectors often creates an artificial sense of demand and pressure which drives the artificially inflated value of permitable land even higher. Time to stop, step back, and breathe.

The greed here in Ireland regarding land is a cultural stumbling block and not a practical investment. The Tiger got people who were poor for 800 years and then living in council estates between 1922 and the 1990s, buying houses at horrible prices after the Tiger finally got them a decent middle income. The rationale was that they finally got property of their own and they were willing to pay any price for it, and acreage sellers and developers jumped on it. But the problem is, you need a sustainable middle income property market, not what you have now.

And the reason that I know what I'm talking about is a) my income is in US holdings and development and b) I used to work at Bord Pleanála. The insanity and greed in Ireland that I saw the inspectors butting head to head, would make any good old American profit motive look like volunteering for the Red Cross.

It's no wonder the Travellers have turned their rejection of the Irish desire for property into a virtual religion. Personally, I don't need to, because I know what's unsustainable when I see it.

lox.

assuming daft has around 70% of the countries properties on its site (figure pulled from space to make calculations easier )
that means that there could be around 100k properties for sale in ireland.
an 80% drop suggests that around 500k houses were listed with EAs in 2006.

Just like you gotta blame the State and failure to regulate for the extent of the crisis we're in, you gotta blame Isabel's editor in the property supplement and Madam herself for letting this kind of nonsense into the paper. Not only can her point be shown to be patently false (our weekly analysis of the market is still showing significant falls practically every week), the way she makes it is sadly lacking in clear thinking and logical expression. If the Times publishes that kind of rubbish, they might as well publish THIS kind of rubbish!

Loxosceles wrote: »

The property market has not yet even reached equilibrium for profit/loss let alone bottomed out. The price of a mortgage is not supposed to take up more than 30% of gross monthly income of any buyers, and the full price of a house should not exceed 125% of the combined yearly incomes of all buyers. If it does, the ratio of property value to actual employment and income value in the area starts to become unsustainable.

Your figures don't add up here Loxosceles. Paying 30% of your income for a house that costs 125% means you are paying off a 100% mortgage in less than 5 years. This cannot be the maximum sustainable figure.
Whatever about the ridiculous 5 or 6 times a salary that people were getting this is going in the other direction. Where do you get your metric of "sustainable"?

And you are being disingenuous with regard to the US market, you wouldn't buy much for $85K where I am.

Straight-talking, Karl Deeter, of Irish Mortgage Brokers wrote about bottoms from a slightly broader perspective earlier in the week. He points out that there is a lot of intervention (stimulus packages etc) going on so the general recession may not last as long as historical collapses. In terms of property, intervention is a bad idea, but once the economy itself is stabilised it may well bring some steadiness into property prices instead of the relentless fall we've been recording week on week for the past year (Dublin 2-bed apartments down from 331k last week to 322k this week). When we see two months of weekly price stability we'll call it, but of course because our calculations are based on advertised prices for a time it may only reflect agents' confidence as viewings go up and offers come in. If sales don't follow we may well see another period of further price cuts before the true bottom is reached.

She's probably writing what she's been told to write :rolleyes:

Basically, the only FTB's left are mostly those who are 'stingy'. They want values out of their purchases and are in no hurry to fork out over the odds for their gaff.

bravestarr082 wrote: »

I fit snugly into that category, although 'sensible' is a more appropriate adjective then 'stingy'.

True. Stingy in the eyes of the vendors.

I think overall, the market has run out of the 'don't care what the consequences are, want to get on the ladder at all costs' FTB's

So yes, ye are sensible and too right to be.