Future price of Irish properties

[CCOVICH]

As to the orignal question in this thread, what about the future price of Irish property prices? I really don't know and I don't think anyone does. I happen to believe that prices in Dublin (I can only speak for Dublin as I do not know the market outside of Dublin) are overvalued and I base this on the rents currently achievable. It indicates that there is a lot of waht I would call speculation and gambling going on.

Please do not introduce emotion into your responses, this should be a civil debate about the issue at hand, don't you think?

Indeed. Most of what has been posted in this thread lately seems to have little (if any) relevance to the topic at hand. It would be preferable to see these issues duscussed in separate threads-we would rather see that than tangents appearing in what has already become quite an unwieldy thread.

By all means, discuss the property market here and elsewhere-this isn't an attempt to stifle views that are expressed for one direction or another-but please try and keep threads reaonably on topic and easy for others to follow.

Thanks.

 

[Neffa]

So back OT, then

Has anyone seen any figures on the age and size (value) of Irish mortgages? I've seen some stats from the UK and from the US on the average number of loans and their size in the last few years (very alarming for the US where many large mortgages are less than 3 years old).

It seems to me that one of the critical factors in how the owners (not investors) will react to interest rate rises is basically linked to loan age - assuming older loans are lower and are at a lower ltv than newer loans. Newer loans will have a much more marked affordability change as interest rates rise.

I'm not including investors as it seems to me from earlier analysis in this thread that many people who bought with IO mortgages to cover rent in the last few years are going to face a tough time in Ireland as interest rates rise in the coming quarters. I'm trying to work out if this effect extends to owners as well.

BTW, a house in our street- where we rent - has just come up for sale. It is pretty much identical to our rented property. The repayment mortgage we'd pay to own it is just under twice the rental we currently pay (it is 96% higher than our rent) .

 

[walk2dewater]

So back OT, then

Has anyone seen any figures on the age and size (value) of Irish mortgages? I've seen some stats from the UK and from the US on the average number of loans and their size in the last few years (very alarming for the US where many large mortgages are less than 3 years old).

It seems to me that one of the critical factors in how the owners (not investors) will react to interest rate rises is basically linked to loan age - assuming older loans are lower and are at a lower ltv than newer loans. Newer loans will have a much more marked affordability change as interest rates rise.

I'm not including investors as it seems to me from earlier analysis in this thread that many people who bought with IO mortgages to cover rent in the last few years are going to face a tough time in Ireland as interest rates rise in the coming quarters. I'm trying to work out if this effect extends to owners as well.

BTW, a house in our street- where we rent - has just come up for sale. It is pretty much identical to our rented property. The repayment mortgage we'd pay to own it is just under twice the rental we currently pay (it is 96% higher than our rent) .

But ah sure you're throwing money away renting --- LOL (tongue firmly in cheek)

True story: 2yrs ago I asked colleague if I rented a 500sqft, 1-bed apartment in city centre for one euro a month or bought it with mortgage for €X millions, which would make more financial sense. After a little pause, person said "buying it, renting is ALWAYS dead money". I rest my case.

 

[Calina]

BTW, a house in our street- where we rent - has just come up for sale. It is pretty much identical to our rented property. The repayment mortgage we'd pay to own it is just under twice the rental we currently pay (it is 96% higher than our rent) .

I assume that's based on the asking price? If you bear in mind it will probably go for 10-15% higher than that again...you're probably looking at more than double. I did these maths a couple of weeks ago too.

 

[soma]

More bear-ish talk creeping it's way into the media:

Davy raises concerns about Dublin house prices
By Cathal Hanley Last updated: 29-03-06, 11:37

Davy stockbrokers has added its voice to the siren calls that Dublin house prices are now fully detached from reality by claiming that prices are heading for 100 times their rental income.

According to research conducted by Davy economist Roassa White, since April 2001 house prices are up 52 per cent on average nationwide but rents are down 2 per cent. As a result, yields have been driven down to unprecedented depths.

"Something does not feel right" Mr White writes.

"A line frequently trotted out by estate agents is that 'buy-to-let investors are not worried about rental yield; they are in it for the long haul of capital appreciation'. That is fundamentally unsound investment advice," according to Mr White.

"In the long run, the value of any asset is dependent on the income it provides. In the property market, capital appreciation is theoretically a function of rental return."

The Irish property market has heated up significantly in recent months. In the Dublin market, prices are now rising at an annualised 20 per cent lick, up from only 3 per cent less than a year ago.

Mr White adds that persistently low rents refute the theory that supply shortages are leading to rocketing prices in "desirable areas" of Dublin. "If that was the case, residential rents would be rising rapidly, but they are not," he says.

"The proposition that scarcity of land close to the city-centre makes residential property a low-risk investment is not supported by evidence from other countries. Moreover, property is a risky asset, like equities, corporate bonds and commodities. Net yields of 1.5 per cent, which are commonplace in Dublin, look ridiculous compared with a risk-free rate of 3.5 per cent on ten-year gilts," according to Mr White.

"It is better to compare residential property to a similar risky asset like the ISEQ index, which has an earnings yield of 7 per cent. Not only that, but Irish listed companies' profits are growing three times as quickly as rents in Dublin" he adds.

"To us, this looks like boundless optimism," the report concludes.

The report warns that as supply in Dublin remains plentiful in the near term and rents remain under pressure the fundamentals suggest that it will be an

adjustment in prices, rather than rents, that will eventually bring valuations down to more realistic levels.

© 2006 ireland.com

 

[bearishbull]

you see the "rent is dead money" brigade cant see that the interest on your mortgage is rent for the use of the money. if your rent is less than or equal to the interest element on an interest only mortgage then it makes sense to rent in the short to medium term untill renting becomes more expensive. interest rates are going much higher over next 18 months which makes renting even more attractive relative to the landlords rent(or mortgage interest as they call it).

 

[Neffa]

I assume that's based on the asking price? If you bear in mind it will probably go for 10-15% higher than that again...you're probably looking at more than double. I did these maths a couple of weeks ago too.

Yep, I factored a 15% uplift in, but mind you it could be much higher. Really seems crazy to me that such a gap could exist between renting and buying. Something is going to have to give - either rental prices have to go up or selling prices have to go down. I know which one I'm betting on

 

[bearishbull]

Yep, I factored a 15% uplift in, but mind you it could be much higher. Really seems crazy to me that such a gap could exist between renting and buying. Something is going to have to give - either rental prices have to go up or selling prices have to go down. I know which one I'm betting on

if supply keeps growing by 80k units a year i dont think rents are gonna rise much

 

[Glenbhoy]

you see the "rent is dead money" brigade cant see that the interest on your mortgage is rent for the use of the money. if your rent is less than or equal to the interest element on an interest only mortgage then it makes sense to rent in the short to medium term untill renting becomes more expensive. interest rates are going much higher over next 18 months which makes renting even more attractive relative to the landlords rent(or mortgage interest as they call it).

That's an excellent explanation - must print it out and distribute it as a flyer in the city centre!!

 

[tiger]

you see the "rent is dead money" brigade cant see that the interest on your mortgage is rent for the use of the money. if your rent is less than or equal to the interest element on an interest only mortgage then it makes sense to rent in the short to medium term untill renting becomes more expensive. interest rates are going much higher over next 18 months which makes renting even more attractive relative to the landlords rent(or mortgage interest as they call it).

Good point.
In addition you don't have as much costs around insurance, maintenance and so on. You also have more flexibility about moving if your circumstances change, but this is offset by lack of security of tenure (I've heard of people buying because they were sick of moving every year they had been renting).

 

[walk2dewater]

3 points, which I've made before, but hey, why not again:

1/
I reckon there's a certain element of the population that simply cannot/will not (take your pick) accept that property investments can go against them, and I mean badly against them. No amount of rational analysis will ever diminish their convictions. I'd say these people will have to face real losses, and real financial hardship before they will challenge their beliefs. Even then, the gap between belief and reality might be so much they still won't accept it even as the baliff prizes the front door keys of their buy-to-let from their hands... ("the long-term, the long-term... arrraghhh"). Belief that property is a one-way bet is on a religious scale here. I have seen the anger and psychosis of people when you question the "religion"; you are nothing but a heretic, a "begrudger", "doom-monger" etc, because you too don't believe in the "truth" about property. Scarey.

2/
Normally speculation is not an issue, I make a fair bit of my income from speculating, it's a fact of life in the free market and more power to anyone who does well. But property IS special and should have special regulation like other essentials. We deny speculation on water, food, petrol etc. why not shelter? Property speculation affects us all far more than share or bonds or commodity prices. We as a society have not controlled the speculation in this vital necessity of life with the result that prices are x3, approaching x4, what they were not 9yrs ago. We're talking about SHELTER here, not pieces of paper or electrons on your pc monitor. I believe that quality, low-cost, safe, well-serviced accommodation, should be a basic right in a developed country, not something vunerable to mania

3/
The transfer of wealth from young to old via the property market over the last 10-15yrs is shameful, and rather than bragging about their luck, some of todays 50yr olds could do with being a little more circumspect about their nouveau wealth.

ALL IN MY OPINION of course....

 

[smree]

you see the "rent is dead money" brigade cant see that the interest on your mortgage is rent for the use of the money. if your rent is less than or equal to the interest element on an interest only mortgage then it makes sense to rent in the short to medium term untill renting becomes more expensive. interest rates are going much higher over next 18 months which makes renting even more attractive relative to the landlords rent(or mortgage interest as they call it).

The flaw with this argument is that interest on a mortgage will come to an end when the mortgage is paid and you then own the property whereas if you're renting you don't stop paying rent after 20/30 yrs and the property is never yours.

There is no right or wrong with the buy or rent argument because it's not as simple as that and individual circumstances and wants need to be looked at. In the area where I'm living rents and mortgage repayments are still very similar. In my case it made more financial sense for me to buy a couple of years ago as I'd rented with other people for 10 yrs and had hit the stage where I wanted a place for myself. I looked around at 1 bed apartments to rent and the rent I would be paying at the time was more then the mortgage I'm paying for a 2 bed apartment at the moment. I had also began to think about my long term future and what would suit me when I retired and I didn't want to be still renting I wanted to have my own home that I could do whatever I wanted with.

Others of you might be happier sharing and renting with other people and investing any money saved in other areas which will provide for your future.

I think whether to rent or buy is very much down to the individual and none of us can predict what exactly is going to happen with the property market and when.

 

[Theo]

you see the "rent is dead money" brigade cant see that the interest on your mortgage is rent for the use of the money. if your rent is less than or equal to the interest element on an interest only mortgage then it makes sense to rent in the short to medium term untill renting becomes more expensive. interest rates are going much higher over next 18 months which makes renting even more attractive relative to the landlords rent(or mortgage interest as they call it).

I can underatand why you may thinks so, Bearishbull, but you should also note that generally when interest rates go up, so too does rent (charged to tenants, that is). And Smree is also correct to point out that at the end of it all, there is an asset to show for it (unless of course, you believe that property is something that mankind doesn't need anymore). Surely that cannot be ignored?

 

[conor_mc]

you see the "rent is dead money" brigade cant see that the interest on your mortgage is rent for the use of the money. if your rent is less than or equal to the interest element on an interest only mortgage then it makes sense to rent in the short to medium term untill renting becomes more expensive. interest rates are going much higher over next 18 months which makes renting even more attractive relative to the landlords rent(or mortgage interest as they call it).

There definitely is a flaw in that argument, and that is that it only deals with the here-and-now.

Rough example, I have a 200k approx mortgage. With a theoretical 5% interest rate over its entire lifetime and not accounting for mortage interest relief, interest over the 35 year term would be about €200k (I'd consider that to be conservative enough). That's 420 monthly repayments.

If I were to rent for the next 35 years instead of buying when I did, I'd have to do so at an average rent of 200k/420 = €475 per month for it to be more worthwhile than buying my own home.

The key flaw in your theory, I believe, is this part - "if your rent is less than or equal to the interest element on an interest only mortgage ". I'd argue that, as someone looking for a home to live in as opposed to investing, the rent would need to be less than or equal to the average interest repayment on an annuity mortgage over its full lifetime.

Oh, and I also get to live in my house after the mortgage is paid off. That's gotta be worth another 10-25 years rent.... at least I hope so!!!! Not to mention the monetary value to my offspring when the house is sold after I've shuffled off this mortal coil....

 

[walk2dewater]

The emotional arguments, "but I want to paint the walls polka dot" etc. etc. are valid. If you are willing to pay through the nose to buy via mortgage, take on the enormous asset risk, and you derive massive enjoyment from the 'ownership' factor, then fine, who am I to disagree. It's your neck.

But don't justify a financial argument using today's figures. They don't add up, not remotely.

What if I could predict the future and tell you house prices will fall generally 50% peak (say 2008) to trough (say 2012) from where there are today? How would your desire to own be then? Oh, right, but THAT couldnt happen?

It always seems to come back to the same place: people religiously believe that property prices cannot fall in any material way in Ireland. House prices are not 5%, 10%, 20% over-valued, they are MASSIVELY overvalued

 

[bearishbull]

The flaw with this argument is that interest on a mortgage will come to an end when the mortgage is paid and you then own the property whereas if you're renting you don't stop paying rent after 20/30 yrs and the property is never yours.

falw with your argument is that if the differentials continued to exist from now on for rest of your life the renter would be saving money every month for rest of his life and if he invested this saved money and left it for say 50 years or longer it would be worth more than a house due to compound returns based on long term historical returns.
for comparing renting to buying you should ignore the capital repayments and just look at interest element,the capital repayment is equivalent to savings which the homeowner has decide to invest in bricks ,as the capital amount decreases obviously the interest decreases but the decreases only occur due to other payments(capital repayment) which renters dont face.
the mortgage interest comes to an end because you repaid the capital amount which added to interest element is double current rents,if in theory you continued renting and renting was still cheaper than the interest element of a house you would save money every month for beyond the 20/30 term of a mortgage in same way people save on mortgage repayments when their mortgage is paid. if interest on an interest only mortgage on a particular house costs 25k a year and you can rent for 17k a year you save 8k a year on the interest alone (there are houses near me with these figures). if you saved the money you didnt have to pay on a mortgage and invested it over the period of a normal mortgage in a diversified portfolio you would have a similar sum to the value of the house the buyer owns but you have less risk due to diversification .obviously most people want to own at some stage and thats possible when prices are more reasonable.

 

[conor_mc]

The emotional arguments, "but I want to paint the walls polka dot" etc. etc. are valid. If you are willing to pay through the nose to buy via mortgage, take on the enormous asset risk, and you derive massive enjoyment from the 'ownership' factor, then fine, who am I to disagree. It's your neck.

But don't justify a financial argument using today's figures. They don't add up, not remotely.

What if I could predict the future and tell you house prices will fall generally 50% peak (say 2008) to trough (say 2012) from where there are today? How would your desire to own be then? Oh, right, but THAT couldnt happen?

It always seems to come back to the same place: 99% of people religiously believe that property prices cannot fall in any material way in Ireland. House prices are not 5%, 10%, 20% over-valued, they are MASSIVELY overvalued

I'm not sure how my previous post reflected the point of view you're dismissing there w2dw, I do believe I was dealing in simple facts which stand on their own relating to monthly costs, before I even mentioned less tangible benefits once the mortgage has been paid.

And the simple fact is that a house owned (i.e mortgage paid up) is an asset, having to pay rent (ie no home owned so no other alternative) is a liability. I don't think that the value of the house comes into it at all. Even if the house was worth €1 in 35 years time, I fail to see how renting can work out cheaper over the length of a mortgage and on into our twilight years.

I do agree that house prices are way over-valued, don't get me wrong, but then I bought my house two years ago. My point is that I can't see how renting long-term beats mortgaging over the long-term?

 

[bearishbull]

There definitely is a flaw in that argument, and that is that it only deals with the here-and-now.

Rough example, I have a 200k approx mortgage. With a theoretical 5% interest rate over its entire lifetime and not accounting for mortage interest relief, interest over the 35 year term would be about €200k (I'd consider that to be conservative enough). That's 420 monthly repayments.

If I were to rent for the next 35 years instead of buying when I did, I'd have to do so at an average rent of 200k/420 = €475 per month for it to be more worthwhile than buying my own home.

The key flaw in your theory, I believe, is this part - "if your rent is less than or equal to the interest element on an interest only mortgage ". I'd argue that, as someone looking for a home to live in as opposed to investing, the rent would need to be less than or equal to the average interest repayment on an annuity mortgage over its full lifetime.

Oh, and I also get to live in my house after the mortgage is paid off. That's gotta be worth another 10-25 years rent.... at least I hope so!!!! Not to mention the monetary value to my offspring when the house is sold after I've shuffled off this mortal coil...

im sure if a house was 200k as in your example based on todays rent to price ratios you would get a house for 475 a month or less but you wouldnt have the risk that your asset falls in price.
if a person rented for 35 year as you said and the savings per month on buying remained the same and that person saved the money they didnt have to spend on mortgage in something else with less risk they would have a large sum in assets too! equivalent to or greater than your house value.

yes you get to live in your house after the mortgage is paid off but you paid for that house during the lifetime of mortgage through extra repayment in the form of interest repayment higher than rent and capital repayment that you could have invested elsewhere with less risk! the person who rented for the same period still saves money on what it would have cost to buy (assuming ratio of cost of buying to rent stays same) after the mortgage period of the buyer is up and has a large investment in assets(if they saved and didnt spend it on a more enjoyable lifestyle in their young years rather than sacrificing things for a home to own when they're old and grey and boring)

you seem to forget that over a period of 30 years using current figures on the savings on renting the renter will have significant extra disposable income every month to invest elsewhere and create assets equal to or exceeding value of a house and not have the expenses of buying /owning a house such as maintenance insurance stamp duty etc.

 

[bearishbull]

I'm not sure how my previous post reflected the point of view you're dismissing there w2dw, I do believe I was dealing in simple facts which stand on their own relating to monthly costs, before I even mentioned less tangible benefits once the mortgage has been paid.

And the simple fact is that a house owned (i.e mortgage paid up) is an asset, having to pay rent (ie no home owned so no other alternative) is a liability. I don't think that the value of the house comes into it at all. Even if the house was worth €1 in 35 years time, I fail to see how renting can work out cheaper over the length of a mortgage and on into our twilight years.

I do agree that house prices are way over-valued, don't get me wrong, but then I bought my house two years ago. My point is that I can't see how renting long-term beats mortgaging over the long-term?

conor your not living in finacial reality given the current figures on rent investment returns elsewhere etc. your just assuming a house is a good investment in todays climate.

 

[bearishbull]

a house is a form of forced saving ,you have to pay your mortgage or you get repossesed.if the renter can adopt a similar attitude to saving as a mortgage payer and use tax effiecnt ways to invest the mony he saves by renting he too can accumulate a large asset but not in form or bricks and morter which are currently overvalued as even you say!

yes if you find the interest paid on a 30 year mortgage plus stamp duty and other costs of owning(insurance maintenence etc) is less than the rent for same period then buy but your asset can still devalue especially in todays environment. the value of the home at the end of that 30 year period is simply accumulated savings/assets which the renter could also chose to accumulate through other asset classes or spend more on his lifestyle travelling haveing fun etc!!