As safe as houses? Not at the moment

Moore McDowell, Economist, University College Dublin (UCD)

8th Oct 2008

Moore McDowell is our guest blogger, analysing the Quarter 3 2008 figures.

Le Corbusier, the great French architect, famously once described a house as a machine for living in, like a car is a machine for getting you from A to B. It could, of course, be expected to last a bit longer than most cars, but in the end a house is simply something that provides shelter, comfort and living space. In modern economics jargon, a house provides housing services, full stop. People view houses differently, though, and treat them as a vehicle for saving as well as a machine for living in. For most people, their house is their principal asset, what they have bought with their savings. The decision to buy a house and how much to spend on it reflects the decision on how to build up and hold wealth.

As an asset purchase decision, the decision to buy a house will be affected by its expected future value. This should reflect expected future costs of building houses, future prices for housing services and the likely price trend for other assets. The cost of borrowing while the loan is repaid is another factor. If a house is to be an asset and a savings vehicle as well as a home, we must reasonably expect its value will increase, and, to increase in real terms, its price must increase more rapidly than inflation.

By this yardstick, your house has not performed well as an asset over the last 18 months. And this quarterly report shows little reason to be optimistic about the asset function of the housing stock in the short run at least. Most commentators now agree that the price decline is likely to continue for at least another year.

In fairness, this has been largely due to foolish over-investment in housing for a decade. Foolish, that is, because it would not have happened if people had thought rationally about housing as an investment vehicle, if they had approached house purchase decisions along the lines described above. An honest and rational consideration of housing as an asset would have led to the following conclusions.

  • First, expectations of returns to housing should be realistic, i.e. in the region of 2% to 3% per annum over a thirty year period. If that sounds small, remember that at 3% the real price of a house will double in twenty four years - with 3% inlation, the nominal price will double every twelve years.
  • Second, there are risks in acquiring a house as an investment. Unlike other assets it can only be sold to someone who wants to buy that house in that location. Changes in population, incomes, accessibility and fashion all affect what a particular house will fetch. Thus while houses on average may appreciate at 2-3% a year in real terms, there will be considerable variation around that trend. The actual return on the asset is uncertain.
  • Finally, a house is not a liquid asset. It is hard and costly to sell. The return to owning a house is only realised when you actually sell it. There are no insurance or forward markets to guarantee a future price, as exist for other assets.

However, in the decade up to 2007, people's expectations for the return to housing became grossly and unrealistically inflated. The housing boom, with supply racing to catch up with demand, was the consequence of what economists call adaptive expectations. Falling interest rates from 1997 increased afordability, while rising employment and incomes per head increased demand at any price. What developed was the classic bubble: people purchasing an asset at a price based on the assumption that past rates of price increase would continue into the future, as opposed to the fundamentals (such as population, incomes, construction costs, etc.). It had to end in tears, and the only question was when.

Before looking at the latest survey igures, I want to point out that much of the current pain for house-owners, and a signiicant portion of the recent domestic banking crisis, could have been avoided, if the bubble had burst earlier. However, financial and construction sector cheer-leaders and influential individuals, including the then Taoiseach and senior cabinet members, right through to 2006 actively encouraged people to believe that there was no bubble and excoriated academic and research institute economists who said that a housing crash was coming and would be more severe the longer the boom lasted. Rather than dampen down the speculative demand for housing, fiscal policy continued to stoke the speculative fire budget after budget. These people are in no small measure responsible for what has happened in the banking sector in the past couple of weeks, as well as the pain that people who bought houses in the last stages of the bubble are starting to feel.

The latest Daft.ie figures point to a continued slide in prices overall. The key to this is that the falling prices are associated with a rising stock of houses for sale and a concurrent collapse in the number of houses being sold. The inflow to the market exceeds the outflow from it, while both are falling - a symptom of a structural malaise whereby sellers are not adjusting their asking prices suiciently to clear the market. The slow adjustment of expectations to reality is illustrated by the gap that has now emerged between asking prices for houses just put on the market and those for houses that have been on the market for a quarter or more. Adding to the market hysteresis is the rational reluctance of potential buyers to buy. On the demand side, the longer the price decline continues, the greater the incentive for a potential buyer to hold of purchasing in the hope of a further fall in prices.

The unavoidable element of riskiness in buying and holding a house as an asset is also borne out by some of the results in the survey. To see this, we can look at variance across regions and across time. The Daft.ie analysis covers 35 regions, and in this report, the change in values since the last quarter ranged from +1.2% (South County Dublin) to -7.8% (Clare). Just over one quarter of the regions (9 in total) experienced a fall of 3-4%, with a further 17 regions within 2% of that range. So location has a major impact on sellers' expectations as proxied by asking prices. Secondly, while prices are falling virtually everywhere, the rate of change in a region is volatile, bearing out the point I made about uncertainty as to likely achieved price. For example, in the previous Daft.ie report, South County Dublin recorded a fall of over 4% while in this survey it recorded a rise of over 1%, while neighbouring Dublin South City recorded a -1.4% decline the in the previous survey and -4.8% in this one.

Reviewing the contents of the survey has reinforced a view that I have long held about buying houses. This is that despite what our parents always said, they are not a safe (i.e., low risk) investment. That means your decision to buy should be based not principally on what you might get if and when you sell it, but on how it will function as a home. To the extent that you buy a house as a lifetime savings vehicle, you should bear in mind that while on average it might be expected to increase in price in real terms by around 2-3% per annum over a long period, this return is subject to a really high variance, including a non-trivial risk of a negative real return. A house is exposed to similar risks to those afecting equities, as well as being very illiquid.

Does it make as much sense to buy rather than rent, as our parents always told us? I have advised my "children" (how should you describe them when they are in their late 20s and 30s?) that from this perspective renting makes a lot of sense. You avoid virtually all the asset-specific risk associated with ownership. The tax advantages have been whittled away over the last 20 years. Special capital gains arrangements alone remain, but in present circumstances one wonders for how long, and we should remember that with the removal of inflation relief, CGT is now a variable sales tax on assets, not a true CGT.

Your rent will be determined by the price of housing services, not expected asset appreciation, in your chosen locality. And you can use any one or more of the alternative savings vehicles to accumulate your desired wealth. Save rather than repay is my advice. And the good life does not depend on owning the roof over your head: ask any Parisian, Milanese or Manhattanite. They get along fine while for the most part renting. They don't sufer from our ownership obsession, and, for me at least, living in an apartment in Paris beats the hell out of a semi with a front and back garden five miles beyond the M50.


HIGHLIGHTS:

Asking prices, residential sales
Asking prices, residential sales

Stock and flow of Properties
Stock and flow of Properties


SNAPSHOT:

Snapshot
Average Asking Prices across Ireland in Q3 2008

Discuss This Article

  • Re: The Daft Sale Report Q3 2008

    Posted By: Donal O'Brolchain Date: Wednesday October 8, 2008 @11:17AM

    I support the view that we need a radical shift in how we view housing and property development, as I set out in the following letter - published (with slight edits) in last Saturday's (4th October 2008) I Independent and Examiner.

    "The crisis in Irish financial institutions is an opportunity to end the malign influence of property development/speculation on how we are governed. This long-running source of economic and political instability has now resulted in us, citizens in a republic, being loaded with unknown liabilities that may last for years, just as we are still paying levies on insurance premia 25 years later arising from the collapse of PMPA.

    The current weakness of Irish-owned financial institutions due to lending for property development is a factor driving the Government deposit/loan guarantee scheme.

    At the same time, Government’s smug dependence on taxes arising from property transactions (eg. VAT, stamp duty, PAYE/PRSI from a bloated house-building work force, CGT) has undermined public finances with a speed that has clearly shocked the governing class.

    Low standards arising from softness on property development (eg. the Mahon tribunal, the Telecom affair, tax-breaks) pervades much else directly under the control of local and national government eg. house building standards, provision of clean water, planning primary schools.

    It is now time to change the view that we can build a common prosperity by selling land and buildings to one another. Fortunately, part of the solution has already been worked out for us. In 1971, the then Fianna Fail government appointed John Kenny, a High Court judge to consider, in the interests of the common good, possible measures for (a) controlling the price of land required for housing and other forms of development,(b) ensuring that all or a substantial part of the increase in the value of land attributable to the decisions and operations of public authorities….shall be secured for the benefit of the community….

    In the interests of the common good, let us limit the scope for excess by government and financial institutions by controlling the price of building as Judge Kenny recommended. If it needs a referendum to copper fasten the constitutionality any legislation for the measures needed, then this is just as important as a second referendum on the Lisbon Treaty.

    This is the least the governing class can do now that we, through the Government, have given huge guarantees to sectors that have over-reached their abilities. We do not deserve the hard landing that the self-satisfied networks of government, financial institutions and property development have now made for us."

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: theorb Date: Wednesday October 8, 2008 @12:11PM

    Where is paul / fafdalease now??

    No one can now dispute the facts - we had a property bubble in Ireland , which has now burst and unfortunately will ruin this country for years/generations to come .

    Shame on the people that cheerleaded this bubble such as paul / fafdalease , SHAME ON YOU.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Shark Trager Date: Wednesday October 8, 2008 @08:04PM

    Would you get a grip,blaming one poster on a property forum for the current domestic and global problems is comical in the extreme.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: stephen power Date: Wednesday October 8, 2008 @02:22PM

    How will the following affect house prices?

    Two years worth of first time buyers waiting for prices to bottom out?

    Interest rates been cut by by 0.5% and will be further cut to 2.5% at the end of 2009?

    50,000 thousand in unsold stock in houses?

    Builder not building anything in 2008 and 2009?

    400,000 public service workers getting a 6% hike at the end of 2009

    In a nutshell just like this interest rates go up and down but in the long run they go down.

    House prices go up and go down but overtime they always go up.

    For an investment the above needs to be considered.

    For a home there is only two questions to ask?

    Do I want it?
    Can I afford it?


    If the answer that is "yes" do not worry about the price as you will not think about it once your are living there.


    Regards

    Stephen

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Luis Fernandez Date: Wednesday October 8, 2008 @06:43PM

    The reality is that is worth waiting, rents are also lowering prices (I got my landlord to drop the price from 1400 to 1200 this month). If you want to enter the market and you buy now you are a fool.

    Prices will continuo to go down for at least a year, trust me only those that get money on it will tell you that in the next year is a good moment to buy. These are the very same guys that where telling us that prices will never go down and the very same guys that put new time buyers with mortgages for the rest of their lives.

    Many builders have huge assets sitting there looking at them, they want to get rid of the houses because they need the cash flow to keep operating their business.

    Buyers use your power!!!! Wait!!!! DO NOT BUY NOW!!!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: John Date: Wednesday October 29, 2008 @11:09PM

    Stephen

    That is the most illogical set of statements I have ever seen put together. I'm not sure you have any grasp of fundamentals, let alone basic macroeconomics or even the simple facts of your "argument". You are incorrect with your numbers on the current housing stock and on the numbers of houses to be built in 2008 and 2009. You are incorrect in your assumption on the number of first time buyers waiting to buy. I'm not sure if public service pay keeping pace with inflation is a major factor to consider when you are trying to establish house prices right now.

    I would suggest you would be much better served brushing up on the difference between nominal and real when it comes to house prices. In real terms, house prices do not always rise - that proposition is the stuff of estate agents ... and it is wrong. Nominal house prices do rise, just like the price of everything (in the long run!). That does not make anyone richer though! I find it hard to believe that anyone would not have understood this by this stage in a property market crash.

    Finally, I would love to know how interest rates go down in the long run! What happens when we get to zero? And exactly how long is this long run going to be.

    Sorry if I sound smart or condescending, but this posting is on the same page as very interesting observations and commentary from Moore McDowell - it should not be.

    Actually, one last point! You are advising people to buy as long as they want to buy and can afford to buy ... as they will not have to think about it once they are living there. Would it not be worth pointing out that if someone paid E50k less for a property in a year (for example), they could save E150k in repayments over the next 30 years. Would that be something the person might want to think about BEFORE they buy?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Wednesday October 8, 2008 @07:01PM

    Stephen,

    Taxes are going up in the budget. The ESRI said the economy will contract in 2008 and 2009. Real incomes are falling.
    Why buy something whose value is destined to fall by at least 10% next year?
    Also remember if the current economic difficulties in the rest of the world are solved we still have a major one.
    Net emigration of 30k next year per ESRI.
    Unemloyment increased by 70k so far this year.
    The boom is getting boomier and uglier.
    Houses may well go up in the future say 2015 or 2020 sweet fanny adams to those who bought at the top of the "morkesh".
    Stephen stop flogging a dead horse, he has expired, he is a late horse.

    Remember also the market can stay irrattional longer that your money will last.

    Jimmy The Fish

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: JB Date: Wednesday October 8, 2008 @09:38PM

    Can anyone explain how the official stats. show prices have dropped approx. 10% but experience on the ground (ie knowledge of many actual sales in South side Dublin in the last few months) show the drop from peak is closer to 30% to 40%. This difference is such a large number. Surely the economists who show approx. 10% stats. should be asking themselves how their numbers are at such odds with observations. Even taking into account the 10% figure is for the last 12 months, there is still some serious explaining to do.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: stephen power Date: Thursday October 9, 2008 @10:26AM

    Jimmy

    When will the market turn what will be the date that some one ring a bell to say that prices are going up?

    The answer is no one knows and ultimate it comes down to public setiment.

    There is negative setiment towards property at the moment
    But I bet you if you are a pension manager and you found out you portfolio is only down 12% in this current climate you would be a happy man. Considering if you invested 1000 euro in Northern Rock last year you would have 16 euro now. Or if you bought 1000 euro of BOI shares last year you would have 200 euro now. The are people retiring now only to find out that they have no pension and they are they people I feel very sorry for.

    Whereas if they invested in a property at the same time they would have a rental income and once the health deteriorated they could sell it.

    When prices crashed in the UK in 1989 by 1996 they were higher then ever so I think 2015-2020 may be a bit conservative in predicting a recovery for the Irish market.

    As regards rent in Dublin 50,000 units flooded on to the market this year and I am amazed they are only down 10% considering that the volume on the market has practically double.

    Which leads me to believe that there is an awful lot of people waiting to buy and are currently renting. Therefore I will be putting my money where my mout is and buying next spring.

    If you speculate in any commodity you risk loosing your shirt. However if you invest for the long run you will alway make money.


    Regards

    Stephen

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Sunday October 12, 2008 @04:30PM

    Stephen, your assumptions are only relevant to previous decades which is usually a good place to look when forecasting only the game has changed. It is unrealistic to presume that wage inflation can keep up in a globalised economy where jobs can uproot and head to Asia or Latin America. The average industrial wage in 8 years time will not be 80,000+ euros which would be required to maintain house price inflation. The fact of the matter is that we are facing wage stagnation and/or deflation for the forseeable future along with higher interest rates and high inflation for basic commodities. There may be two years worth of first time buyers out there but many face emigration while the rest will take more than a few years to save the deposits required to buy a house and even then only if they are currently debt free. If you want to judge what our property prices should be, take a look at the prices in any other euro currency economy apart from Belgium, Malta and the Netherlands which are stuck for land. Then consider the fact that they too are facing a property downturn and that we are on the economic periphery and politically irrelevant. If house prices were halved throughout Ireland they would still be bad value. Anyone looking at buying a house should consider their job security, the abundance of equivalent positions in their area relevant to their qualifications and then budget for a house that costs no more than 3 times their gross annual wage. Don't mind second incomes unless you are ruling out having a family.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: James Date: Monday October 13, 2008 @10:58AM

    Most people who buy shares do so on a monthly basis. This means that they buy at both the highs and the lows, they get the benefit of both. In a FTSE fund adjustments take place every quarter so that the likes of Northern Rock wash out in a short time.

    The problem with a house is that if you bought at the peak with a 35 year mortgage, you are in a situation where you are paying to buy an asset which has lost 25% of value and will be doing so as long as it takes to reach its original purchase price.

    It is also an extremely illiquid asset with a high transaction cost. If you think that house prices have dropped by 12% then you are deluded.

    There are houses built in this country which will not ever be sold cos there is no one to buy them.

    I think enough of the sheeple have had their eyes opened to realise that the road to Heaven is not paved with buy to let investments. Renting is a wonderful option at the moment and with 6% interest in the banks with at least another 10% price fall to come offers a potential upside of 16% to those prepared to wait.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: George Date: Thursday October 9, 2008 @11:42AM

    These are asking prices, the ESRI index is only based on professional valuations, nothing's measuring actual prices (except for the Revenue's records, which no-one outside them has access to).

    If you see asking prices fall 10% in a year, and houses had sold for 5% more than asking prices at the peak and now are selling for 10% below, there's your 25%.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Damian Date: Thursday October 9, 2008 @07:47PM

    I have just returned from Australia after 2 years away. I can't beleive the drop in house prices here but having lived in Dublin duing the Celtic Tiger years any idiot could predict what was going to happen. I stayed away from property in Ireland but many of my friends didn't and are now stuck with properties they can't sell. Greed has ruined this country. I hope we learn from this.

    The same thing is now going to happen in Australia. The whole property boom/bust cycle has put me off buying a home unless i have to. Renting is the way to go.

    • Reply to this message
  • Can Anyone ever beat my comment?

    Posted By: Realistic one Date: Thursday October 9, 2008 @09:04PM

    Ok folks, the eternal question has always been to buy or not to buy, to rent or not to rent?
    Well, let me tell you that, even if you have bought that 2bed apartment, 2 years ago, at the peak of the boom, for 470K, you will ALWAYS MAKE MONEY ON PROPERTY...WHY? Lets be very pessimistic: Imagine that you now have the average 20 to 25 year mortgage right? That apartment will in reality cost you between 750K to 800K over that term, assuming that rates will not go down, which they will have to, and have in fact started to. Imagine now that, you sell it in 20 to 25 years time for 470K, Oh but thats the same price:(, im very pessimistic in deed:)!! well you lost 800K-470K=330K. BUT, you have lost in fact 1100euro per month over those 25years, which is the average 1bed rent in Dublin! Only that you have lived in a 2bed and have prob rented the spare room, so you have made money RIGHT?
    Now Imagine i was an optimistic?:)

    • Reply to this message
  • Re: Can Anyone ever beat my comment?

    Posted By: justpassingby Date: Friday October 10, 2008 @04:37PM

    What about INFLATION?

    • Reply to this message
  • Re: Can Anyone ever beat my comment?

    Posted By: Aztec Date: Saturday October 11, 2008 @03:12PM

    I wouldn’t discourage anyone from buying a family home. Apartments on the other hand , especially some of the cr@p I’ve seen in suburban Dublin will be worth significantly less in 3 years time. If its worth 400K now. Who knows it’ll probably be only worth 200K a few years down the line. For short or medium term accommodation you’re better off renting than having to cough up the difference when it comes to selling.
    If you’re into betting and speculating I suggest you get your a$$ down to the local bookies, the frenzied property market is dead in Ireland. People need to innovate and look for new ways to make money. If you’re already working full time why not start a new business on the side or provide a service. I wouldn’t waste my time waiting for the property market to recover anytime soon.

    • Reply to this message
  • Re: Can Anyone ever beat my comment?

    Posted By: Anonymous Poster Date: Thursday October 23, 2008 @03:45PM

    What you forget is that (using your figures), the home owner is paying EUR 2666 per month and the tennant is only paying EUR 1100 per month. If the wise tennant saves the difference (1566 per month) then he will have at least EUR 470,000 compared to the home owners EUR 350,000 profit. So, the tennant is at least EUR 120,000 better off. Now, over 25 years the home owner will have had to pay for routine maintenance, repairs, replacement of white goods, buildings insurance etc which will reduce his profit further.

    • Reply to this message
  • Re: Can Anyone ever beat my comment?

    Posted By: Realistic one Date: Friday October 24, 2008 @01:21AM

    Anonimous, and do you really think that he will buy anything with 470K in 20 years from now? and do you think his rent will not increase from 1100pm over those 20 years? the mortgage repayment will decrease for sure, what about mortgage interest relief? its nearly 400pm you get from the state

    • Reply to this message
  • Re: Can Anyone ever beat my comment? - Consider it done!

    Posted By: Badgeman Date: Tuesday October 28, 2008 @03:06PM

    Unrealistic One,

    Your argument while apparently logical, is in fact rather simplistic. Aside from the lazy assumptions regarding future interest rate levels and prices, there are a number of other variables that you fail to consider and apply to your revolutionary economics model.

    For a start, what happens if you're forced to sell your apartment before you pay off the mortgage? If that happens, which is quite likely for any number of reasons, then your whole theory falls apart, as you probably will take a major hit selling your property.

    Secondly, when comparing mortgage repayments to rent, you claim rent is a waste of money. Well, if it's a choice between paying a mortgage and being chained to a shoebox flat in the prairies of Dublin 15 for 30 years, or paying rent and having the freedom to move and live wherever and whenever you like, I know which option I'd take.

    Spending decades stuck in an edge of town shoebox just to avoid paying rent and get "on the ladder" is what I consider a real waste - of your life.

    Sure in the long term, property prices generally go up, but as Keynes once said, in the the long term, we're all dead.

    P.s. You're not Paul in disguise, are you?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Realistic one Date: Friday October 10, 2008 @06:12PM

    Inflation?? You are hepling me even more, the rent in Dublin will have gone up in time from 1100 per month to only God knows how much in 20 to 25 years, specially cos Dublin will double its population in that period, the mortgage repayment is realtively constant depending only on interest rates which go up and down but by small amounts.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Bob Date: Sunday October 12, 2008 @09:32AM

    Due to unforeseen international events, of a type and on a scale not been seen for 80 yrs, few people are buying now and, budget changes aside, this will continue into 2009.

    The overall need for accommodation has not decreased in the interim, especially in and near large cities and most individuals, including those posting messages here, will try to buy a home at some stage. The key question is when.

    Househunters are putting off buying on the basis of poor economic conditions and the underlying fears of falling property values, possible job losses, interest rate undertainties and questions as to overall inflation (etc).

    A time will come when such unfavourable conditions will wain, individually or collectively and then, buyers will simultaneously re-enter the market. Due to the pent-up demand for housing and the lack of acccommodation being built, the sheer number of purchasers seeking to buy homes will certainly result in a new wave of price increases.

    I don't know why househunters are waiting for this to happen when buying now, whilst in a position of strong bargaining power, would avoid this. Many who bought in 2000 are sorry that they didnt buy in 1999 and those who made their purchase in 2004 regret not buying in 2003.

    Dont make the same mistake and ignore the cyclical nature of property prices merely because it is inconvenient or think you know better than those who went before you!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Aztec Date: Monday October 13, 2008 @12:14PM

    Bob people are not buying because they are smart. I have my doubts that property prices will return to the levels at the height of the boom for a very long time. Amongst other things, what we are seeing now is the market calling into question the mortgage business as a whole. The level of leverage and mortgage lending (often at 5 times income) was only sustainable in a rising market . Obviously in a falling market with people losing their jobs, not spending, not investing this model is completely unsustainable. The market has recognised this and thats why we are seeing banks being taken over by governments and share prices are at rock bottom. Banks have completely over lent and will see more and more defaults on asset bank mortgages (where the asset itself is dropping in price. ouch!) as the recession sets in.


    Given the political and social fallout we will see from this and the fact that banks are now in the hands of the tax payer, lending will continue to be dramatically curbed and will probably fall back to the levels of the 1980s. Perhaps 2/3 times income with a hefty deposit. The average professional with an income of 50K a year who was once able to secure a loan worth 250K will probably be lucky to get one worth 150 in the future. Unless salaries rise dramatically demand is unlikely to meet current property prices. I agree that there is a large supply of houses and equally a large demand for them but after the fall out from this crises people will naturally be more risk averse going forward and their purchasing power will be significantly eroded.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Realistic one Date: Monday October 13, 2008 @06:51PM

    Even so, read my comment from october 9th and you will change your mind for sure!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Niall Date: Tuesday October 14, 2008 @10:56AM

    Wait at least 2 years before buying. Even if property begins to rise again, its never going to reach anywhere near the absurd levels it was at in 2007. More realistically what we'll see is that when property prices finally bottom out, prices will stay in real terms more or less at that level with the odd incrememntal increase.
    The idea of people buying properties here for investment purposes has well and truelly gone. Gone are the days where people could buy a property and sell it 2 years later for a huge profit. Anyone on this site telling you otherwise has vested interests.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Realistic one Date: Thursday October 16, 2008 @07:25PM

    Ye right, great advice, wait 2 years and pay rent instead!
    He is not an investor, he wants a place to live so buying is always better than renting, long term

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: apache Date: Tuesday October 21, 2008 @01:32PM

    I would invite Realistic one to take a look at japanese hosing bubble 1986-1990. With so much money readily available for investment, SPECULATION was inevitable. Speculation is the key word in this ecuation. If speculation proves to be the highest percentage in the Irish housing bubble, we most likely will see something similar to Japan (they needed 10 years to reach there). The time to reach the bottom is directly dependent of the degree of speculation which nobody knows, therfore I wouldn't jump to conclusions unless I would have vested interests. Housing bottom will most likely not be a touch and go option, therefore as a buyer you'll be rewarded if you give market time to bottom and study the fundamentals, don't be fooled by desperate speculators trying to get out of the market.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Realistic one Date: Friday October 24, 2008 @01:13AM

    Apache, im certainly not a builder nor speculator, i have bought my place, all i want is someone to prove me wrong with numbers, not words, and so far no one here has.
    If you do the maths over 20 years like i have done in my first post here, at worst, im gonna break even, but im still expecting a very good profit, and remember what goes down must go up as well!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: apache Date: Saturday October 25, 2008 @12:11PM

    I couldn't agree with you more that buying is better on the long run, my only argument is about timing, studying the fundamentals of this market and making sense of the value of what you buying. If you bought before the start of the bubble around 2000-2001 you will probably break even.
    Now let's see the numbers and study the fundamentals. This bubble has been created by cheap and easy credit. While at the peak in 2007 any middle income family let's say with a disposable income of 70K per annum could have secure a 100% morgage of sometime 6 or 7 times more than their anual income that won't be the case anymore, when the credit market will stabilise the same family would probably be able to secure 2-3 times their anual disposable income with at least 20-30% deposit. In other words what one bought in 2006-2007 with 420K-490K should bottom in the area of 170K-200K in best case scenario, but cosidering the markets tend to overcorrect, I would say even lower than that, time will tell. From then on a healthy and steady growth will be around 3-4% anualy unless another bubble will be created although at this stage I don't see another one comming in the next 20 years.
    Moreover considering the gravity of this credit crunch I'd say the era of cheap credit has come to an end. Once the credit crisis has past and a severe depression has been averted, the interest rates will go up and stay there for a very long time.
    My point here is that the timing and a sense of value is paramount when making such an important decision and it makes perfect sense to rent and wait until fundamentals improve and the market bottoms.
    Now let's say I would rent and I pay 1200 a month and you have a 470K mortgage, the interest you pay now is the same as my rent and probably it will come down even more on the short term, but as I said this will change and you'll still be stuck with the 470K to pay interest while me, the patient buyer who buys the same property at 270K let's say, will offset the rent paid in the first years of my mortgage. After 20 years of steady and healthy growth we both sell with 550K, but the cost of your mortgage would bring you in the area of 800K best case scenario while mine would be in the area of 450K plus the rent I paid I'd say I would be comfortable breaking even because I paid the fair value for that property.
    You have a perfectly valid point when you say buying is best on the long run, but only when you pay a fair price, not an inflated one. If you have the posibility to study the global housing market you'll find out that over the last 100 years the average growth was 3-4% anually. Anything double than that or more is suspicios. The free market always adjusts the price bringing it down to the fair value if some entity deliberately inflated it. If we feel that the price of an asset is overvalued we probably right and nobody should convince us otherwise. If we have the feeling that a price is inflated just find the culprit and act the same as they act in order to make an honest buck. If you want to find out what I'm saying just check who sold their properties at the peak and they just reside comfortably in the same property paying rent until things improve and market bottoms. Paying attention of what is going around will reward you, loosing the focus and falling prey to the greed will wreak you.
    This is my point and I'm not asking anyone to concur. I apologise if I offended anybody!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Bob Date: Friday October 24, 2008 @08:25AM

    Sorry, but I disagree, on the basis that you make three fundamentally flawed assumptions.

    Firstly, whilst your first paragraph discusses the state of the market, you don't seem to give any thought to the possibility that things will, at some stage, swing upwards.

    Secondly, whilst you forecast increasing repossessions, there is no evidence that this will be a future factor (other than headline grabbing stories about the relatively small numbers of purchasers affected in this way).

    Thirdly and most basically, you believe that given recent state activity 'banks are now in the hands of the tax payer' which is not so. Unlike other countries such as the UK (where the government is purchasing an interest in some banks), our government is merely 'selling' a guarantee and this will provide only artificial controls over the sector and will not result in the banks passing into the hands of the taxpayer.

    Indeed, as many of these powers have already existed for years (eg. Central Bank controls over mortgage lending), it is difficult to see how the purchase of the state guarantee will affect house-buyers, especially as the same banks are seriously indebited to the developers and their interest will lie in recouping such funds, rather than helping individuals to get on, or up, the property ladder.

    • Reply to this message
  • Re: T Nhe Daft Sale Report Q3 2008

    Posted By: pat Date: Tuesday October 14, 2008 @02:39PM

    Right on Niall.The party is over.The law of supply and demand wins again.Governments + Banks +Builders=Property crash-no surprise there!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Holger Date: Sunday October 26, 2008 @02:42PM

    @Cee

    Are you still around? Congratulations to your very precise earlier postings. Do you have a job for me?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Cee Date: Sunday October 26, 2008 @04:29PM

    House prices usually start to recover about 6 months following the end of the recession that drove them down in the first place. Ireland is heading into a very painful and prolonged recession that can end only when our international competiveness is restored to its level of 10 years ago.

    Energy costs will be key to this. Take gas for example. The wholesale cost of gas is currently 90c per therm or 3c per KWH. The industry standard is a markup of one thrid yielding a retail price of 4c per KWH. Yet, the average of the Tier 1 and Tier 2 tariffs charged by BGE is just over 5c per KWH (plus VAT) and they are now looking for another increase of 8%. Similarly, the ESB are also flagging another increase even though oil is back to its price level of 2 years ago - $64.

    Of course, the reason for these exorbitant charges is that both these companies are bloated state monopolies where wage costs are a huge and disproportionate part of the final bil. The average wage in the ESB is €110,000. This is simply unsustainable.

    We need a radical overhaul of our entire cost base before we can restore our competitiveness. The recession will not end until this happens. In the meantime, property prices will continue to fall.

    Cee

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Bob Date: Wednesday October 29, 2008 @07:57AM

    Energy cost is only one element in a complex equation and it is simplistic to attribute future property patterns to just one factor especially as many other items, which contributed to the fall in values, have begun to reverse including interest rates, oil prices and mortgage interest benefits for first time buyers. At the same time, demand, albeit latent, is continuing to grow whilst the supply of housing is literally stagnant. Its only a matter of time folks (and not necessarily in the distant future).

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Wednesday October 29, 2008 @12:57PM

    Bob, energy costs (along with corporation taxes) are of massive importance and dwarf the other factors you mentioned. Without jobs those houses have no value, utility perhaps but there wont be any money chasing them and dont mind politicians waffle about 'services, knowledge based economy etc etc etc'. Without manufacturing there is no money to be spent on services. Irish house prices are not going to recover because wages are not going to keep pace with inflation, particulary unfortunate given the amount of money that is being printed at the moment but the playing pitch between the developing and developed world is being levelled and jobs will move rather than accomodate the irish housing market and this will also mean a greater portion of income will be spent on basic commodoties i.e food and fuel. 3-bed semis in Ireland will not cost 800,000 euro in the next 20 years never mind apartments, therefore mortgages on 350,000 euro homes are a bad buy once interest is factored in. Banks will not be lending to the extent that they were even after re-capitalisation and a return to economic profit so even if the average industrial wage is renominated as €80,000 in a currency debased future, the lending ratio will be lower which means our long term growth trend both in Ireland and internationally has significantly shallowed. Stock prices will not grow as they did previously either as the baby boomers are about to start drawing down their hammered pensions forcing hedge funds to liquidate assets. Who will take their place? the over-mortgaged credit card debt ridden generation of the recent lending binge?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Bob Date: Friday October 31, 2008 @08:05AM

    Your approach is based largely on the premise that 'Without manufacturing there is no money to be spent on services', a view which has repeatedly been rejected as incorrect.

    Historically, service functions were seen as ancillary to manufacturing, on the basis of one service job per four factory workers. However, especially with increased automation, this became progressively redundant. Look at the City of London, where there is a reputed one million office workers, but nothing is actually made there.

    Regarding your claim that 'wages are not going to keep pace with inflation' I'd love to know where you get your data from, as would many participants in the ongoing pay talks. I don't know if you are aware that the ECB expects declining inflation rates, as acknowledged in the recent interest rate reduction and as forecast by the Bank of Ireland for December and on into 2009. You may also wish to reconsider your opinion in the light of, not only the union's stance in these pay talks, but also the future benchmarking rises for 250,000 public servants!

    Thirdly, whilst some firms engaged in labour-intensive activities have relocated elsewhere (as unduly highlighted in the media), higher value services together with research and development projects are still being attracted to Ireland so that, even the worst projections only anticipate 7 per cent unemployment next year.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Badgeman Date: Monday November 3, 2008 @02:57PM

    "even the worst projections only anticipate 7 per cent unemployment next year."

    You been reading fairy stories again, Bob? The only way unemployment will be as low as 7% by the end of next year, is if we start to experience 1950's levels of emigration!

    The fact is, unemployment here is already approaching 7%, it's only politically contrived delays in processing dole claims (2 months' backlog at the moment)that are hiding the real figure.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Monday November 3, 2008 @05:16PM

    Two points. First, a whopping 2,230,000 people work in Ireland, with another 400 new jobs coming to Carlow and Cork. Maybe emigration forecasts are highly exaggerated.

    Second, unemployment levels fell in September 2008 as compared with August and one must not become unduly influenced by the media, which focuses on bad news.

    This is a great country - lets not allow the doomsayers to drag it down!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Badgeman Date: Wednesday November 5, 2008 @11:51AM

    Bob,

    The unemployment figures for October have just been released by the CSO. The official unemployment rate is now 6.7%.

    Still reckon it will only be 7% next year?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Bob Date: Saturday November 8, 2008 @10:09AM

    Wait and see (and hey, as 6 per cent is 'full employment', even if it steps up to 8 per cent, I'm not worried).

    The dramatic increase in property prices over the decade to 2006 occurred because ALL relevant economic factors were favourable and the actual pace of the downturn stemmed from the fact that, not one or two, but ALL of these factors did a 180 degree turn.

    However, the tide has begun to turn, with falling interest rates, clear prospects for continuing falls in the cost of mortgages, reducing dollar-euro value, declining oil prices, increasing latent demand for accommodation, static output of new houses, increasing affordability and a new charismatic US president.

    Dont get left on the sidelines whilst typing messages of doom and gloom.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: stuart Date: Monday November 10, 2008 @02:12PM

    I have been reading with interest the views of the bulls and bears when it comes to what will happen to property. The answer will be somewhere in between but it is a brave person who will stake their reputation on it.
    If you're already in your home and paying it off then stay put. Lower interest rates will certainly help. The only major knock will be if there are 2 income earners and one loses their job. But no point in worrying about that until it happens and for most it won't, even with unemployment going back to 10% (which is reasonably likely). If it does then talk to your bank.
    If you're thinking of buying the question is do you think the market has hit bottom. If yes, away you go, you'll be able to haggle some desperate builder/seller down. If no then you are better off waiting particularly if you think prices will fall by more than 10%. I see some property developers are coming up with the novel idea of renting with an option to buy in 2 years and setting the rent off the purchase price. Might be a half way house for some.
    If you own an empty unlet unit then maybe you should drop your rent demands and rent short term. At least you'll be getting some cash in.
    I have no vested interest in this - I own my own home, don't have investment properties, have no intention of moving. I do wonder about some of the other contributors who are pushing their views rather vociferously.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Tuesday November 11, 2008 @05:00PM

    "Don't get left on the sidelines whilst typing messages of doom and gloom".

    Bob,

    We are staring into the abyss of deep recession, as house prices continue to inexorably slide downwards and people are losing their jobs all over the country on a daily basis.

    Yet you're still urging people to go out and buy property, instead of being cautious. You've been advocating this nonsense repeatedly over the last year or so, even though property prices are obviously decreasing with no end in sight.

    Have you no sense of shame?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: ste Date: Friday October 31, 2008 @12:18AM

    In Ireland there are many people who rent and these people are always willing to move around for a nicer place. The reason why the stock of places on daft is on the increase is due in part to the fact that a realisation has still yet to hit the landlords. They need to reduce prices and they will then find great tenants. It is crazy to expect, in this climate, that there are people willing to rent a small box for 1300 (www.daft.ie/2613852). This landlord attitude is in keeping with people who also believe that house prices won't drop too far. If it can happen to other countries who are more stable then it can surely happen to us and it is. http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/26/Japan-Urban-Land-Index.html
    Thinking with your heart and not your head has mean't there is a tough few years ahead for landlords and property investors. Renters will dictate the prices for the next few years.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Damian Date: Friday October 31, 2008 @12:55PM

    What we need is a 'real' economy whose foundations are based on productivity.........not speculation.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Thursday November 6, 2008 @01:00PM

    Considering the level of prices in Ireland, no matter is the market (renting or to sale), and even if there have been several steps of decrease in recent months, there's absolutely no recession in Ireland.
    You still need to be very rich to afford a 1 bedroom alone in the city center, otherwise, nothing possible but sharing... even if you are a young professional earning 30 or 40K€/y (and you don't want to sacrifice 50% of your salary for the rent).
    No no no, absolutely no recession at all, no crisis, no problem... :-)
    Landlords still increase their rent, or keep it very high, there're still a LOT of foreigners coming in Ireland to spend their money in Manhatan prices level renting property.
    Just look at daft, how much for a 1 bed apartment in D1 or D2, even other district (3, 5, 8, 6, 6W...)?

    But... don't know why, have the feeling there's a bit change, something different in the air, from a landlord point of view... something like a fear... worry? Anxiety? Let see the next few months how it "change"... :-)

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: jimmy123 Date: Friday November 7, 2008 @01:47PM

    Landlords are in denial that rent is dropping - I am aware of it in lucan (the Sticks), Lucan Village, Christ Church, Patrick Street, Harolds X and Drumcondra. I know where landlords have advertised and have had no propert views.

    Also, I know of people who have haggled the landlord down or just moved to another property that is cheaper. I have even heard of some landlords poaching tenants to try to fill their properties...

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: sarah80 Date: Friday November 7, 2008 @05:45PM

    At the end of the day, the long term prospects for landlords are good. We mustn't lose sight of the fact that property always goes up in the long term. Even now, property owners will benefit far more from falling rates, with significant monthly savings being made on mortgage payments. Central banks and governments tend to look after land owners in times of crisis and will do until the good times return. And I for one am delighted to be on the ladder!

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Ste - StatusIreland.com Date: Tuesday November 11, 2008 @11:06AM

    Saying that property is always a long term gain is the trap that caused this property balloon in the first place. Ask a Japanese property owner what he thinks of that statement and even if property always went up over time it has to be considered that you may not see that investment growth yourself in your lifetime, while other investment vehicles are much stronger performers over shorter periods and are much more liquid. Property in Ireland has another 20% or 30% drop to go yet (at least) and if I owned a few houses I wouldn't be looking forward to the next few years of looking for good tenants or a quick sale. Some property in Ireland will be un-rentable and un-sellable over the next 2 or 3 years.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Niall Date: Sunday November 16, 2008 @03:17PM

    Demand- There will always be demand for a roof over your head. Either as a renter or house purchaser

    If you are not renting or if you do not own your home then you are probably living with your parents longer than you should be( It's not healthy living with your parents in your 30's), living on the streets or in an institution.

    If less people are buying then they're renting.

    You have to have a roof over you head so are you buying or renting?

    If you are renting then that's good for the landlord. If you are buying that's good for the house seller.yOU HAVE TO BE DOING ONE OR THE OTHER.

    It's only a problem to a landlord/house owner if they're a motivated seller that has no choice but to sell.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Anonymous Poster Date: Sunday November 16, 2008 @06:42PM

    Demand is irrelevant to price which is dependant on the money supply so whats your point?

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Niall Date: Monday November 17, 2008 @01:24PM

    You are referring to Anecdotal evidence from that the money supply for residential mortgages has dried up. This is not the case in reality. Banks are lending to people that approach them for a mortgage.

    The actual evidence suggests that first time buyers are coming back into the market as the affordability levels has improved.

    There has been 90,000 new mortgages issued to date in 2008.
    Hardly what you would call a drying up in the supply of money

    http://www.fxcentre.com/news.asp?2345413

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Badgeman Date: Monday November 17, 2008 @04:02PM

    Another property market cheerleader still in denial.

    The level of demand is not constant. As migrant workers return home and Irish people start to emigrate in search of work, then obviously the demand level drops. People are always either renting or buying, yes - but not necessarily in Ireland!

    The other half of the demand equation that you convieniently omitted is the supply level. There is currently an over supply of housing units in many parts of the country outside of the big cities (the ghost estates phenomenon)- and plenty of empty units within the major urban areas as well.

    Banks have significantly tightened up on the amount of money they're giving out in mortgages - to maintain otherwise is delusional.

    And we're going to see a lot more "motivated sellers" as the recession deepens.

    • Reply to this message
  • Re: The Daft Sale Report Q3 2008

    Posted By: Gerard Date: Monday November 17, 2008 @12:05PM

    Good article and lots of interesting posts. I bought my first house in 1989, and watched as rates went to 13%. This is real negative equity. Unless you really did overpay in 07, in a bad area, present negative equity is not too bad, with money being so cheap. The arguments for and against buying/renting/saving miss out totally on the issue of leverage. If you buy a house and it rises, you benefit from the rise in ALL the value, your 10% plus the banks 90%, so happy days. You don't get this up-side by sticking your 600 a month into the bank/pension etc. Obviously if you buy at the wrong time/place etc.....<br><br>
    House prices do rise over medium to long periods. I think it is silly to only treat or consideryour house as an investment, but to ignore the longterm investment value is also . I don't agree that houses are a dangerous investment, if only because while I am sanguine about peak oil, I absolutely believe in peak land.

    • Reply to this message

Respond to Article

Your Name: (Optional)

Subject:

Message:

We ask you to keep your comments on-topic and suitable for a general audience. The article you are commenting on is entitled: The Daft Sale Report Q3 2008

Please Note: Your message will not be displayed on the website until its contents have been checked by a member of staff.