Key Post The impact of Covid-19 on house prices

RedOnion

Frequent Poster
Messages
4,052
Things are evolving daily - they'll have a lot more information by the time that comes along
3 days ago, I didn't have a view other than wait and see how it pans out.

Now my view is this will definitely have an impact on house values. It can't not have an impact. This is my opinion, no science or data behind it, and I fully respect the views of others that have contributed to the topic.

I don't want to descend into a doom & gloom post - I'm firmly of the view that anything that can be done will be done to get the economy kick started again after this. But the reality is that the effects will be felt long term.

We're currently looking at up to 400k people being out of work. Hopefully most of that will be short term.

Yes, the majority of the 400k losing their jobs are at the lower end of the salary scale. However, particularly outside of Dublin, these are the 2nd earners of a couple.

High earners are not all insulated from this either. I know of several temp / contract people who earn over 100k that are seeing massive reductions in their hours, and risk of being let go completely. Consultancy firms can't get on-site with clients. Aer Lingus is cutting almost all pay by 50%. Bonuses will disappear across many companies. Investment / funds industry where income is based on Assets under Management will see big cuts in their income. Landlords will realise that the risks are higher than they thought and look for higher yields. Some small businesses that have closed will not reopen.

Whatever else, property prices are not going to increase over the next few months.

Personally, if I had the option to buy a house now at last month's price, I wouldn't be exercising it. If it was a '1 of a kind' dream home for life, ok, I'd tell the sellers I'm still interested, but I want to reassess in a few weeks before signing contracts. Otherwise, if I'd an option to walk away I'd be taking it.

It's going to take time before we understand the impact on either the overall economy or house prices.
 
Last edited:

Brendan Burgess

Founder
Messages
39,594
Hi folks

I think it's worth summarising both viewpoints in a new thread to save people reading through the big long thread.

Gordon - as you have been the most ardent advocate of the other side of this opinion, could you do a systematic reply to this thread.

Could the rest of you hold off replying until Gordon has replied.

Thanks

Brendan
 

Gordon Gekko

Frequent Poster
Messages
3,911
Hi Brendan,

The key point that I am making is that, like investments, it is all about the time-horizon.

My sister is actually in the process of buying a house with her husband. They both have secure jobs, notwithstanding current events. They’re buying a ‘home for life’ so their time-horizon is many decades. They have found their dream home. They could pull away from the deal. My advice to them is to proceed. Yes, house prices may weaken somewhat, but what is a €50k or even a €100k fall amortised over one’s lifetime? Especially when it’s most likely a temporary one.

Conversely, I would be very wary of overstretching to buy somewhere today if I worked in a vulnerable sector or if the property I’m buying is merely an interim home. I was caught in negative equity when I bought a ‘starter home’.

I would also be wary of buying an investment property; I was looking around for something but that’s on hold.

I hope that the above makes sense.

Gordon
 

Brendan Burgess

Founder
Messages
39,594
Thanks Gordon

The future is very uncertain. Share prices have priced this in. They may have priced this in too much. Or they may not have priced it in enough. But today's share prices reflect a balance of knowledge and fear and greed and stupidity.

But the future is very uncertain for house prices as well. But the housing market is not a market subject to the same analysis as the stock market. And one house is not the same as another whereas one Ryanair share is exactly the same as another.

If someone is thinking of buying a house today, I would say go right ahead
  • If you have at least a 30% deposit
  • You will be in this home for at least 10 years
  • Your jobs are very secure i.e. public servants
  • You can comfortably handle the repayments
If you do not meet all of these criteria, I would say wait until you see how things develop.

I can't predict how house prices will move over the next two years.

But I would be fairly sure that they have fallen by 20% or maybe more in the past month. We won't know for some time.

If I had gone sale agreed on a house a month ago at €100k, I would expect that a similar house could now be bought for €80k.

If houses rarely come up for sale on that street and that is the only street in Ireland I want to live on, then maybe I would pay the €20k premium to live on it.

Brendan
 

Sarenco

Frequent Poster
Messages
5,924
what is a €50k or even a €100k fall amortised over one’s lifetime?
The cost of credit on a €100k mortgage, at a fixed rate of 3% amortised over 30 years, is €51,777.45.

There is also an opportunity cost - that's money that could otherwise be invested.

Frankly, I think your sister would be mad to proceed on the basis of a price agreed before the current crisis.
 

Leo

Moderator
Messages
10,792
Impact is going to be very difficult to assess for some time. At the moment, there are only 25 properties with a scheduled open viewing on MyHome across the entire country. Speaking to an estate agent earlier in the week, he said most people were holding off on both buying and selling at the moment, so the second hand market in particular is likely to see low volume in the very short term until a clearer picture starts to emerge.
 

Bronte

Frequent Poster
Messages
13,726
Yes, house prices may weaken somewhat, but what is a €50k or even a €100k fall amortised over one’s lifetime? Especially when it’s most likely a temporary one.

I was looking around for something but that’s on hold.

I hope that the above makes sense.
No it makes zero sense. And I hope your sister doesn't take your advice. The above is a complete contradiction. As well. If that wasn't bad enough you think a 100K fall over a lifetime is nothing. It's a fortune.
 

Fella

Frequent Poster
Messages
495
The economic environment we are in now is vastly different from a month ago. The job losses are going to be significant , granted there will be a few hundred thousand out of work during the closures but we can expect that a lot of businesses are going to have to close for good . The whole hospitality sector is going to take a battering , the airlines may need to be privatized . Property is not a safe haven immune from this economic shock . At a macro level talking to someone who is due to buy a new car they aren't now fearful of job prospects.
I expect we will see a major slowdown in buying because of the uncertainty .

We are going to have to pay for this in extra taxes in the future as well , so your income is uncertain.

As I have said before IRES REIT has nearly halved in price , this is an indicator for me of the sentiment towards where property prices . I'm not saying property values have halved but if I was buying now I would be looking for at least a 20-30% discount. There just seems to be no upside in buying now.

I also agree that 100k extra mortgage is absolutely huge when you are paying it back with interest over time. I don't see any reason someone would want to take that chance for the sake of waiting a few months .
 

Gordon Gekko

Frequent Poster
Messages
3,911
No it makes zero sense. And I hope your sister doesn't take your advice. The above is a complete contradiction. As well. If that wasn't bad enough you think a 100K fall over a lifetime is nothing. It's a fortune.
How is it a complete contradiction? How does it make zero sense? They’ve spent a long time looking for the right place. They’ve found it. They expect to be there for 50 years. They have good jobs which are not under threat. They’re not availing of any lending exemptions. Why should they pull away? Because some people on AAM think they should? Even if you’re right, do you think the price that they pay for the house today will matter to them in 15-20 years? And I think it’s a big leap to be predicting house price collapses; I note that in another thread, for example, Sarenco has cited the example of Spanish flu where tens of millions died globally and the Dow recovered within a year. There is such thing as overlearning the mistakes of the past; everyone’s instinct is that this is ‘08 again. Remember houses (in Dublin at least) are something that there’s not enough of already and there’s more demand than supply.
 

Brendan Burgess

Founder
Messages
39,594
Even if you’re right, do you think the price that they pay for the house today will matter to them in 15-20 years?
Hi Gordon

This is a point I am not sure about.

I paid something like £IR 55,000 for my first house and people laughed out loud at me for paying such a ridiculous price. As you point out, it's completely irrelevant, over 30 years later.

Ryanair shares are €9 today. Does it matter if I pay €10 for them if I am going to hold them for the next 20 years?

I think it does.

If your sister has identified the perfect home and it's unique and she could never get it again, ok.

But if there are other dream homes, she could buy for 20% less, then it makes sense to do so.

Brendan
 

Gordon Gekko

Frequent Poster
Messages
3,911
Hi Brendan,

Well, the fact that Ryanair is a pure investment and could in theory go to zero over the period is very relevant.

My point is that if your house was the dream home, it didn’t really matter over the longer term if you paid £50k, £55k, or £60k.

My sister and her husband have spent nearly a year finding their dream home; my simple view is that, given their circa 50-60 year time-horizon, they should just get on with it.
 

gravitygirl

Frequent Poster
Messages
455
I think an issue is that a lot of sellers will also be holding off until post covid-19, therefore the market will essentially be non functioning over the next few months imo. I think the reluctance of sellers to take lower prices due to the temporary shock may persist until confidence of buyers/demand rises somewhat when things start to recover, so whilst we may see a drop, in reality the choice of property will probably be significantly reduced and the number of transactions that are actually completed will be a lot lower.
 

AlbacoreA

Frequent Poster
Messages
3,388
...I also agree that 100k extra mortgage is absolutely huge when you are paying it back with interest over time. I don't see any reason someone would want to take that chance for the sake of waiting a few months .
You might have the money and mortgage approval now. You might not in 3 months.
This will kill off any new builds. So if you think supply was poor before its going to get worse.
The ideal location comes up. At an affordable price.
 

skrooge

Frequent Poster
Messages
189
Some very crude maths on my part has an additional 400k people losing their jobs pushing the the unemployment rate above 20%. To put this into context the rate peaked in 2011Q3 at 15.9%.

That almost certainly overstates the impact on unemployment. Some of those 400k might emigrate. However, to avoid a record unemployment rate some 35% of new unemployed would have to leave.

On the other hand, given the global nature of the pandemic and potential similar shocks to other economies it's hard to see emigration acting as such a stabiliser.

That's where we're are. Unfortunately that's not the end of it.

A depressed domestic and international economy will probably lead to a second round of job losses as firms assess the realities of the new trading environment. Wage growth could slow or turn negative.

The State will be faced with financing the increase health expenditure as well as increased social welfare. Slow economic growth and increased public debt and a likely growing budget deficit might translate into investor concern about sustainability. As a result the State borrowing cost could increase.

The above coupled with lower employment base means those that are working will have to pay more tax. Public sector pay will also come back into focus.

None of these are good for house prices. The above doesn't discriminate based on ownership status. Uncertainty surrounding wages will be high for most.

The reality is most sellers are buyers as well. No point selling unless you can trade up to something better and have some certainty you can sell your existing house. but there are a lot variables there.. Finding something better, getting financing, getting a buyer. The only exception to this (based on last crises) will be properties in probate.

All this doesn't take into account a likely retrenchment by banks. Lending standards will likely tighten. This will amplify the above effects.

Unfortunately the last crises is a very good blueprint for how a covid-19 shock might play out.
 

David_Dublin

Frequent Poster
Messages
485
Interesting thread. For me, who bought in 2008, and paid 290k more than a neighbour who bought in 2012, I can certainly see both sides of the argument!

While I understand the view of 50k not being too material over the lifetime of the mortgage, the other side would be why not wait? I don't buy too much into the "dream house", or the lack of something potentially even better down the line. Pretty sure prices are not going to increase. Why not wait? Even 25k less of a mortgage now, or keeping that from the planned deposit, could mean a new kitchen. 100k could be re-wire, new windows and insulation, 150k could be an extension. Or 10 years less of paying mortgage. I just dont see the sense in telling someone to make the biggest investment of their lives, by some margin, at times of such uncertainty. Why now?

Edit...I just saw comments about maybe not having mortgage approval in 3 months, so I take that point that for the "why now". I'd still wait myself though...
 

Bronte

Frequent Poster
Messages
13,726
You might have the money and mortgage approval now. You might not in 3 months.
This will kill off any new builds. So if you think supply was poor before its going to get worse.
The ideal location comes up. At an affordable price.
Gekko said they were in very secure jobs so how will getting mortgage approval be an issue.

I think a load of the unemployed are going to head back down the country to their Mammies. Why would you stay in Dublin or Cork if you’ve no income and a high rent.
 
Last edited:
Top