Future Shock - RTE last night

[dubnut]

Why don't you sell it now (at the top) and then rent for a while and then buy back another similar property after the correction that is very likely going to come?

In a nutshell is the particular house and the particular views I like.
A similar property just wouldnt cut it for me unfortunately.
Otherwise you could be on to something.

[brokencrossbar1]

I think the term Crash is misleading in many ways.  A crash suggest that there will be wholesale panic and people being turfed out of their houses left, right and centre.  While the market will inevitably slow down, as it has to , and in areas that houses have been overvalued there will be a decrease in their values, I do not think there will be a doomsday crash that is being predicted.

For this to happen there are far too many variables that would need to come into place, and while some of them are near at hand they are not close enough that people will lose out dramatically.  The people who will be hit most are the investors and the people who have bought in recent times with high loan to value mortgages or will buy in the next year.  What you are likely to see is a decrease in value of property for many people but the majority of people buy houses for their own use.  If mortgage rates do not shoot up too high people can adjust their own living requirements to suit their financial standing.  It is a good time for people who own property that they live in to steady their ships as it were and perhaps go on a decent fixed rate mortgage for a few years, max 5, and ride out the current storm.

The main worry I believe will not be the value of peoples houses but the cost of living out side of their mortgage repyments.  The cost of oil, increasing living expenses and the "requirement" for so many people to have the best means that payments on utilities and unsecured borrowings, coupled with the cost of things like child care will put more people under pressure than the roof over their heads.  A time for many people to look at a life re-adjustment rather than worrying about how many thousand Euros their house has increased per annum since they bought it.  It will test our intellectual abilities too as what conversation pieces will we have in the pub if we can't talk about how much we have made on our house!

[muppet]

Now I'll put my cards on the table first - I'm a long standing property bear. I would have been in a position to buy in 2003 if I wanted to (with a 95% mortgage of course, but that's what all the cool kids were doing at the time!!  ) and I looked at the market and decided that it was overvalued. Obviously we all know how it went since then, and I haven't changed my opinion.

However that said, up to now the tone of the debate in the media was always the same. On the negative side, we had an economist, usually an academic, who expressed grave concern in a measured fashion, while on the other side we had a vested interest, usually either a mortgage lender or an estate agent who talked up this famous "soft landing" - a phenomenon as yet unheard of in any world asset market anywhere.

All that said, even I was taken back by the stark negativity of this programme. The facts do speak for themselves, but I thought the tone, the music, the camera shots of desolate housing estates, the reference to that guy in England who died of a tumour a month after his house was repossessed - it was all very biased, but even so I imagine it will have scared a lot of people. Maybe I'm wrong, but I thought that maybe if the same facts were presented without the doomsday music and "what if" stuff it mightn't have been as harrowing viewing.

That said, they didn't touch on the oversupply in the market, which was a rather large omission. I read an interesting article last week about how they were talking about 3.5 million unoccupied units in the US for a population of 250 million, and how this number is a recipe for disaster. I wonder what they'd make of Ireland's 200,000 units for 4 million people?

Loan Shark for someone who can post an educated piece on this subject I am amazed to read that you have been waiting since 2003 to buy. You would need a correction of circa 45% just to get back to 2003 levels. A 45% drop in house prices would be an economic catastrophe for the country. We would have a massive jump in unemployment and the necessary tax hikes to pay for it. This would stop consumer spending ( if it already hadn't ceased ) with the inevitable downturn and followed by more layoffs. In a nutshell it can't happen or we are all doomed.

The empty units are a bit overstated by the bears. I read recently that a huge amount of houses in Donegal lie empty. This was presented as further evidence of an impending crash. The thing is after a boom the building/purchase of holidays homes is normal and it is also normal for these properties to lie empty for a lot of the year. All it really indicates is that there is weallth somewhere nearby.

As for repossessions I think we will see some new FTB who can't cope with rising interst rates being hit. But the Government have given 10% pay rise to the social partners with more to come if the current disputes yield anything. That should ease the burden of rates rises.

As for the job losses in the construction industry it will not be quite what the pessimists think. Certainly the housing construction sector will lose jobs but with office space at a premium in Dublin and the huge Government infrastructure projects ( such as Terminal 2 at Dublin Airport and the various road upgrades ) on the way most of those jobs losses will be absorbed. That is the ideal scenario and while I'm certain there will be some headline nervy moments I'm also pretty certain that we will look back and say what was all the fuss about.

Final stat:

The London property crash of the lates 1980's saw only 7% of homeowners in real financial trouble. While that is too many it still means the other 93% avoided serious bother.

Most people enter the market for the long term. New entrants and short term speculators are at risk but the others, if prudent, are in for the long haul.

The other thing about a crash you can only say for definite it has happened. You can't say for sure it will happen or even that it is happening. We may be in the middile of a crash now but it will only become obvious when it has already happened.

Here is a graph of London prices for the last 30 years:    

[ExiledGael]

Right judging by all this I need advice quick.
Just last week I agreed on a sale in Donegal, very reasonable price, £100,000 sterling cheaper than a similar house just the other side of the border, am I in trouble?
Was told by some that the expected slowdown shouldn't have such an effect in the Northwest as property hasn't boomed there to the extent it has elsewhere, especially given the rate at which Letterkenny is currently growing.

[resdubwhite]

Would imagine with the planned work on derry city airport that this area will increase in value.

Michael Martin is trying to use the airport as a carrot to entice foreign investment into the area.

Whether this bears fruition is anyones guess.

[Donagh]

Would imagine with the planned work on derry city airport that this area will increase in value.

Michael Martin is trying to use the airport as a carrot to entice foreign investment into the area.

Whether this bears fruition is anyones guess.

The 'west Tyrone' side of Donegal still seems to be full of bargains. The bro got a 4bed semi with garage in Raphoe in November for a ridiculously low price.

[ExiledGael]

Your bro must be gonna be holed up near me, I'm in the same area, mines a 4 bedroom detatched and also a ridiculously good price. So have I reason to be worried about my investment or not?

[Donagh]

Your bro must be gonna be holed up near me, I'm in the same area, mines a 4 bedroom detatched and also a ridiculously good price. So have I reason to be worried about my investment or not?

I'm no expert but I'd say not. Those areas of Donegal not on the coast didn't experience anywhere near the same kind of house price inflation as the rest of the country, so any 'correction' will be negligible. The prices in and around Letterkenny (and Stranorlar/Ballybofey to a lesser extent) took off a few years with many people now taking the option of the likes of Raphoe. With the further expansion of the college in Letterkenny I can't see any letup in demand there, so I'd reckon your investment is sound.

[ExiledGael]

Good good, thanks for the advice.
That's what I had bben told and thought about the area, but the whole thing is very hard to be sure about

[the Deel Rover]

Hello exiled Gael did you by it as an investment or to live in, i myself bought a  4 bedroom semi not a million miles away from raphoe in October 2006 , i have rented it out since no problem ,quality of the finish was top class and everthing was included in the purchase price. I could not believe the price, if i was to buy the same house in mayo it would have cost me another €80 to €90k.   

[Lone Shark]

Now I'll put my cards on the table first - I'm a long standing property bear. I would have been in a position to buy in 2003 if I wanted to (with a 95% mortgage of course, but that's what all the cool kids were doing at the time!!  ) and I looked at the market and decided that it was overvalued. Obviously we all know how it went since then, and I haven't changed my opinion.

However that said, up to now the tone of the debate in the media was always the same. On the negative side, we had an economist, usually an academic, who expressed grave concern in a measured fashion, while on the other side we had a vested interest, usually either a mortgage lender or an estate agent who talked up this famous "soft landing" - a phenomenon as yet unheard of in any world asset market anywhere.

All that said, even I was taken back by the stark negativity of this programme. The facts do speak for themselves, but I thought the tone, the music, the camera shots of desolate housing estates, the reference to that guy in England who died of a tumour a month after his house was repossessed - it was all very biased, but even so I imagine it will have scared a lot of people. Maybe I'm wrong, but I thought that maybe if the same facts were presented without the doomsday music and "what if" stuff it mightn't have been as harrowing viewing.

That said, they didn't touch on the oversupply in the market, which was a rather large omission. I read an interesting article last week about how they were talking about 3.5 million unoccupied units in the US for a population of 250 million, and how this number is a recipe for disaster. I wonder what they'd make of Ireland's 200,000 units for 4 million people?

Loan Shark for someone who can post an educated piece on this subject I am amazed to read that you have been waiting since 2003 to buy. You would need a correction of circa 45% just to get back to 2003 levels. A 45% drop in house prices would be an economic catastrophe for the country. We would have a massive jump in unemployment and the necessary tax hikes to pay for it. This would stop consumer spending ( if it already hadn't ceased ) with the inevitable downturn and followed by more layoffs. In a nutshell it can't happen or we are all doomed.

The empty units are a bit overstated by the bears. I read recently that a huge amount of houses in Donegal lie empty. This was presented as further evidence of an impending crash. The thing is after a boom the building/purchase of holidays homes is normal and it is also normal for these properties to lie empty for a lot of the year. All it really indicates is that there is weallth somewhere nearby.

As for repossessions I think we will see some new FTB who can't cope with rising interst rates being hit. But the Government have given 10% pay rise to the social partners with more to come if the current disputes yield anything. That should ease the burden of rates rises.

As for the job losses in the construction industry it will not be quite what the pessimists think. Certainly the housing construction sector will lose jobs but with office space at a premium in Dublin and the huge Government infrastructure projects ( such as Terminal 2 at Dublin Airport and the various road upgrades ) on the way most of those jobs losses will be absorbed. That is the ideal scenario and while I'm certain there will be some headline nervy moments I'm also pretty certain that we will look back and say what was all the fuss about.

Final stat:

The London property crash of the lates 1980's saw only 7% of homeowners in real financial trouble. While that is too many it still means the other 93% avoided serious bother.

Most people enter the market for the long term. New entrants and short term speculators are at risk but the others, if prudent, are in for the long haul.

The other thing about a crash you can only say for definite it has happened. You can't say for sure it will happen or even that it is happening. We may be in the middile of a crash now but it will only become obvious when it has already happened.

Here is a graph of London prices for the last 30 years:    

I would need a correction of 45% in order to get back to the same nominal prices. Around 30% to get back to the same real prices. And yes, I do think that what was a slightly overvalued situation back then is much worse now.

I will accept this - part of the situation was that back then, as a young buck of turning 25, I had the means to buy for the first time since I started work, but was not really interested in buyingin Dublin since it was my place of employment, but not where I would see myself living. I was medium term at best. Buy-to-let yields were bad (nowhere near as bad as they are now mind) so I would have had to commit to living there long term if I wasn't to get involved in property speculation, which was never my aim. Bearing in mind that I have since lived in Offaly, London and now Galway there was some practical sides to it too. Let's not forget as well the costs involved in buying, both in executing the sale and in stamp duty - you have to gain a serious amount of equity just to cover that. 

However you say that it would be a catastrophe for prices to fall that far - I've no idea how they landed at 30%, but here's the unpleasant bit - that was seriously conservative. Japan fell 60%. Finland 46%. Holland 42%. The UK 35%. Florida and San Diego are ongoing, but there is no way they'll fall short of 30% either.

As for the unoccupied units, I'm afraid holiday homes only go so far to explaining it. The days of buying off the plans are long gone, most estates have free units. For the love of God, people were buying houses without even planning on renting them - just capital appreciation alone? Even allowing for 100,000 holiday homes, which to me seems bizarrely huge, we still have 150,000 left, which pro-rate is still more than the US have in total including holiday homes, a number that their leading economists are all calling a serious predictor of doom.


I hope you're right with the construction sector - however it remains to be seen if all this construction will be completed. Capital expenditure may look a bit more foolish in the coming years when belt-tightening is going on all round. Oil prices go up another bit just to compound the damage, and then suddenly all these things grind to a halt.

I agree that we're fecked - it's just a question of to what degree. It adds to the irritation somewhat that I believe FF, who caused all this by refusing to do anything to take the heat out of the market for their developer mates, will probably lose this election, the poo will hit the fan in 2008 in a big way, and the opposition will be blamed by the electorate. But that's another matter.

I'd love to believe that we can get away with maybe a 10% drop in nominal prices over 5 years, compounding to a real fall of around 30%, which would be sustainable - however that will take good management. Something I'm loathe to believe our current government is capable of.

[ExiledGael]

A bit of both to be honest, I'm exactly the same everything in, great finish and shocking low price, especially compared to the north where I'm coming from. Will be living there for the foreseeable future but probably selling again in 5/6 years

[Norf Tyrone]

Where are you living exiled? Out of interest?

[ExiledGael]

Convoy to be precise, serious number of housing developments in the area the last few years. I'm new to the area, what's the verdict?

[J70]

Convoy to be precise, serious number of housing developments in the area the last few years. I'm new to the area, what's the verdict?

On Convoy, or on the wisdom of buying a home there?