Mortgage Repayment Burdens

The most interesting comment is where they say on page 5:

“Additionally, most assessments of the Irish housing market had by 2007 concluded that house price levels were significantly above those levels sustained by economic fundamentals, with estimates of overvaluation in the housing market typically AVERAGING IN THE 20 TO 30 PER CENT RANGE.”

@Morgan Kelly

Note the phrase: “AVERAGING IN THE 20 TO 30 PER CENT RANGE”

No one disputes that in 2007 house prices in Ireland were overvalued. The question is by how much in 2007 and by how much now in 2010? We can either try to estimate by how much in an intelligent way, comparing with long-term trends and comparing with other countries, or we can adopt the Morgan Kelly approach of simply plucking some wildly exaggerated figure out of the air and repeating it endlessly in the media in order to scare the hell out of anyone thinking of buying a house. I opt for the intelligent approach below.

Let’s err on the side of caution and say 30 per cent overvalued in 2007.

That would mean they needed to fall by 23.1 per cent from their 2007 peak level to be aligned with fundamentals. But, according to the latest ESRI/TSB house price index, by December 2009 average house prices in Ireland had allready fallen by 31.5 per cent from their 2007 peak level.

So, even allowing for some deterioration in economic fundamentals, it is clear that by end 2009 house prices in Ireland were more or less in line with those economic fundamentals. They were no longer overvalued.

This is in line with the Demographia international survey of house prices in English-speaking countries , reported in Finfacts last month (link below), which showed that even by September 2009 house prices in Ireland were the second lowest of any of the English-speaking countries as a multiple of household income (the key measure). Only in the U. States were they lower. They were much lower in Ireland than in the U. Kingdom, Australia and New Zealand and equal to those in Canada. Since September 2009, the period that the Demographia survey related to, house prices in Ireland have fallen by another 6 per cent, while rising by 3 to 4 per cent in the other English-speaking countries.

http://www.demographia.com/dhi.pdf

So, it is clear that, at current levels, house prices in Ireland are no longer overvalued. They are in line with economic fundamentals and low in comparison with other English-speaking countries. I know from my own personal experience that house prices in the Republic of Ireland are now lower than Northern Ireland, where they have bottomed out and are starting to rise again.

Under the normal operation of market forces, and allied to the fact that mortgage rates are very low, this ought to be leading to a resurgence in interest in buying houses. And, indeed, exactly that is now happening in Northern Ireland. But, in the Republic of Ireland, there has as yet been no such resurgence. Despite the fact that house prices are no longer overvalued, despite the fact that they are now lower than in comparable countries, and despite the fact that mortgage rates are extremely low, the housing market is dead. No one wants to buy. We need to ask why? Why are market forces not operating in the normal way?

The obvious answer is fear. People are scared to death to buy a house because they are being led to believe by a number of scaremongering economists that, if they do so, they will make a massive capital loss in the next few years. Look at Morgan Kelly’s forecasts, repeated every month or so in the Irish Times. He forecasts that house prices in Ireland will fall by 80 per cent from their 2007 peak. That means, and wait for this, according to his forecast, they will fall by a FURTHER 70.8 per cent from their current depressed level – NOT 70.8 per cent from their peak level, but 70.8 per cent from their current level, even though that current level is now in line with economic fundamentals, is lower than in N. Ireland, hardly the most buoyant market for new houses, and is much lower than in mainland U. Kingdom, Australia and New Zealand. No wonder no one wants to buy a house at present. Would anyone buy something that they read in the Irish Times every month is going to fall in value by 70.8 per cent in the next few years?

The best thing that the government can do to restore consumer confidence and spending in the economy is to directly challenge Morgan Kelly’s forecasts and drive home the message that house prices in Ireland are no longer overvalued, indeed are now lower than in comparable countries, even lower than in N. Ireland, and, therefore, that those purchasing a house now have no reason to fear that it will be worth a lot less in the long-term, certainly nothing remotely like the 70.8 per cent from current levels that Morgan Kelly predicts.

We have seen just in the past couple of weeks the beneficial effects to the Irish economy of a restoration of consumer confidence. Throughout 2008 and 2009, new car sales and new commercial vehicle sales in Ireland fell off a cliff. Even as recently as last autumn, they were showing y-o-y falls of 50 to 60 per cent each month. However, early in 2010 this market has started to rebound as confidence flows back. So far in February 2010, sales of new cars and new commercial vehicles are up 50 per cent on the same period in 2009 (link below). This is the first significant green shoot in the road to economic recovery. I imagine it won’t get much media publicity until the whole of February’s figures are in, but it will certainly get a lot of media publicity then. The government now needs to engineer the same sort of rebound in confidence in the housing market as is occurring in the market for new cars and commercial vehicles, by vigorously challenging the apocalyptic forecasts of Morgan Kelly and others.

http://www.motorcheck.ie/todaysstatsutm_source=twitter.com&utm_medium=twitter&utm_campaign=

I agree that this research work is important, very important. The reason being, that the Irish market is so small, and yet we want to encourage models for residential development, which are at least as good as any other good example around Europe. I think we can do that, but we just need to work harder at it, as I said, because the market is small and easily screwed up, in a multitude of ways.

The thing is, we will never achieve an even supply of housing to the (small) Irish market. There will always be the unfortunate presence of a steep ramp-up of production, followed by the inevitable cliff edge.

I took note of Philip Lane’s recent thread about Sweden, where they haven’t had a residential crash yet.

http://www.irisheconomy.ie/index.php/2010/02/09/sweden-the-property-market-and-monetary-policy/

I contributed something on that thread, which compares house building in Ireland to the economics of war time, in the allied and axis countries in WWII. My analogy works, in the sense, there is a period of non-production followed by a period of frantic over-production. Where the analogy of war time economics falls down actually, is where the Axis side built their Panzer equipment, which was engineer-ed to last a lifetime without failing. That Panzer tank, might last only a couple of weeks on the battlefield, so it was over-designed. The Russian side built a mass-produce-able tank, which was good enough to serve its purpose, and you could replace them as fast as they were destroyed.

But the war time economics, is a good analogy to get a sense of the challenge presented by having sustainable, live-able communities in Ireland, that are affordable. BOH.

I’m not sure I understand:

Is the theory that in Ireland, even in a recession, nothing can fall below the long term average value?

Usually the lowest is the minimum and the average is somewhere in between the maximum and the minimum. If it is now at the long term average, that would mean it has further to fall or?

@JohntheO
😀
You’re a funny man.

You don’t think that long-term rent to price ratio (yield), long-term earnings to price, long-term inflation adjusted are valid methods to estimate where prices should be?

The smallest overvaluation these methods show is 50%, the largest 80+%…

As someone here has pointed out, Ireland in the nineteenth century was economically sound with a growth rate that was the envy of many, yet we are to believe that fundamental strength in the economy then was uncorrelated to house prices, but suddenly now it is?

Either you are wrong about the previous strength of the Irish economy or you are wrong about how over-valued house prices are. You can’t be right about both…

@KarlWhelan

It is allready factored in. In my seventh paragraph I wrote:

“even allowing for some deterioration in economic fundamentals…”

Even if we take the upper value, ie 30 per cent, in the 20 to 30 per cent range which this report says is the amount by which houses were overvalued in 2007, then they would have needed to fall by 23.1 per cent to be in line with economic fundamentals. Allow for the 15 per cent fall in nominal GDP between 2007 and 2010. That brings the required fall by 2010 to be in line with economic fundamentals to 34.6 per cent.

The ESRI/TSB index for December 2009 showed that they had allready fallen by 31.5 per cent by then. So, almost there even in December. It is now February. Assume (reasonably) that house prices have fallen by another 2 to 3 per cent since December (the rate at which they were falling in late 2009), and it brings the fall since the peak in 2007 to as near as makes no difference to the required 34.6 per cent. If house prices continue to fall at 1 to 1.5 per cent a month, by mid 2010 the fall since their peak in 2007 will be much greater than 34.6 and house prices will be below the level indicated by economic fundamentals.

Of course, if we are going to bring GDP into it (and I agree with you that we should) most economists (e.g. ESRI, NCB) are now predicting GDP real growth of 3% to 5% from 2011 on. Plus probably inflation of 1 or 2% annually will have returned by then. So, on the basis of nominal GDP, if the economic forecasters are correct, house prices will need to rise by around 20 to 25 per cent from current levels by 2015 to stay in line with economic fundamentals.

We can nit-pick all we like about the odd 1 or 2 per cent. The bottom line is that, both on the basis of this Central bank paper and the recent Demogaphia survey, house prices in Ireland are no longer overvalued. Yet, Morgan Kelly is forecasting a FURTHER fall from current levels of around 70 per cent, the publicity given to which forecast is crippling the housing market. Since Morgan Kelly doesn’t do debate, would any of his fellow-academics be willing to say if they agree with his prediction and, if so, be willing to show why in some statistical detail on this site? Or does Morgan Kelly hold the exclusive rights in academia to pronounce on house prices?

Isn’t the problem somewhere in the middle of the JtO vs the rest squabble above, ie house prices have fallen to a point where they are very affordable relative to average incomes, the one problem being that 200,000 less people have an average income compared to this time two years ago? Ultimately the jobs market will decide on the level of home buying in this country going forward. On that matter im more in the JtO camp than the Morgan Kelly camp, in that his 20% unemployment rate forecast now seems insanely pessimistic.

@JtO:
“The best thing that the government can do to restore consumer confidence and spending in the economy is to directly challenge Morgan Kelly’s forecasts and drive home the message that house prices in Ireland are no longer overvalued […].”

Like people would believe the government?

bjg

@JtO:
“[…] house prices in Ireland are no longer overvalued.”

Wasn’t there something about supply and demand in first year economics? If supply is greater than demand, aren’t prices supposed to fall? It was a long time ago, but I vaguely remember something to that effect. There seems to be a lot of supply at the moment ….

bjg

@jto

in 2007 were the following of concern to potential buyers?

reduced bank lending?
over supply?
perception of future over supply?
unemployment ?
lack of reliable data?
fear of interest rate hikes?
fear of wage cuts?
fear of job loss and future of the irish economy ?

Oh yeah and yields still not near the Dave McWilliams 7% mark.

Perhaps the following is relevant.

I have no expertise in economics. But I want to buy a house.

In 2006-7 we wanted to move house for family reasons. We looked at houses, we looked at prices in the area to which we wanted to move. I am, as it happens, well paid. But we decided there was no sane relationship between price and value. We reluctantly stayed where we are.

Three weeks ago, assuming the dust has settled on the property market, I began checking prices in the same area. Standing outside one estate agent’s shop, reading the details, I actually burst out laughing at the asking prices. Even assuming the estate agents are lying and these prices have plenty of wiggle room, I’m just not in the game. Perhaps in a year’s time. Or, if JtO is right, perhaps not.

@Just a punter

I have interviewed a lot of people in this area over the past 3-4 months – from punters to politicians.

Did a heartbreaking interview the other day with a lady in her late 60’s who has gone into negative equity (stunning house) – she had planned on downsizing and having some change left over to see her through retirement (can you believe one bank in Ireland actually gave this lady a mortgage in her 60’s?? I’ve seen the paperwork). She is now under pressure from the bank to sell at 60% (sixty) below it’s value at peak. She now has wealthy people coming to look at it to ‘add it to their their portfolio’ (there are always ‘oppotunities’ for a small group in tough times eh) who generally make an offer a further 25-40% below the now low asking price, citing that property prices have further to fall over the next two years so they “couldn’t possibly pay the asking price.” One of those trying to snap this bargain up was the head of a well known bank in Ireland!

You are on the nail with your lists. It’s exactly how people perceive things to be – and as we all know, perception and fear always trumps data and fundamentals.

@Others

I didn’t know Morgan Kelly was prediciting 20% unemployment. What was that based on? Anyone got a link to some reading on it?

A bit off topic, but regarding 20% unemployment:

I am much more in favour of measuring employment (and looking at hours worked) than unemployment.

The unemployment figures can be massaged by puttting people into FÁS courses and returning to education.

@ sporthog

i think it is fear rather than just uncertainty we are talking about-particularily

(i) when you see 780 jobs in a bank going during the week and the prospect of more job losses to come, and

(ii) the fear in the public sector of more wage cuts to come

http://www.theatlantic.com/doc/201003/jobless-america-future

US jobless figures are various nuyt the most quoted is merely 10%. The highest official rate at the moment, is 17.5%. It is getting worse. The above article is almost msm and frankly, I could not read it. All this misery now and to come for however long it will be, was easily avoidable. The US CONgress and presidency dismantled all the safeguards. One reason or motive is greed for those who gained from the bubble and may gain from the collapse. Another is social engineering.

What are their desiderata?

Mortgages are a source of income for banks and therefore the multiplier. But these repayments are being made to entities that are zombie and cannot lend. There is no multiplier except from the government. And we have seen that they are intent on balancing the budget! As they have borrowed to prevent lowering of house prices for as long as possible, guess what that means? They may avoid an overshoot but they create a Japan style economy.

Except buyers of imports are cutting back. And they have increased the budget deficit by the need for repayments and interest thereon. Asking SPVs or John Cobley to pay them does not alter their guarantee and they ie us the taxpayer, will havce to pay up more taxation for this brave effort to command the waves not to come in. These repayments are thus a burden without a benefit. The banks, like zombies in the best Hollywood fashion, are eating our young, rather your young. We now need a good bank or maybe two and pronto. But all the government offer is NAMA.

Please re read my posts on Detroit where the houses are very affordable. And getting cheaper day by day as people flee, as seen in the Grapes of Wrath. But California has problems too. But no new jobs. Except in China. At very competitive wage levels. Brave New World!

@Sam, Justapunter, yoganmayhew and others

Nowhere did I say in any of the above posts that house prices wouldn’t fall further in the short-term. Neither did I exude any bullishness on house prices in the short-term. They may very well fall further.

My point was that they are no longer overvalued, whether measured against their long-term average or in comparison with other countries. That is different from saying they won’t fall further in the short-term, although it obviously has a bearing on the long-term outlook.

According to the ESRI/TSB monthly report, average house prices in Ireland in December were 213,183 euros nationally and 189,643 outside Dublin. At yesterday’s exchange rate, that equates to approximately £185,000 sterling nationally and £164,000 sterling outside Dublin. That was in December. Based on the rate at which they were falling in late 2009, they are probably down another £5,000 sterling now. But, in County Down, house prices are currently around £220,000 sterling and have more or less stabilised or even started to increase at that level (link below).

http://www.wheresmyproperty.com/prices/UK/CountyDown.htm

Clearly, if house prices south of the border continue to fall at their 2009 rate, within a few months they will seem dirt cheap to anyone from N. Ireland. If Morgan Kelly wants to talk house prices south of the border down to the ridiculous levels he has forecast, let him. It just means that, within a year or two, I’ll be able to sell my house near Newtownards and buy two near Dundalk for the same price.

@ Joseph

Most of us know people that are on the brink of loosing their house. Or people considering putting the keys in the letterbox and walking away. In a small economy where we all know someone who is horribly affected by the property market, how willing are we going to be to buy with all the pre-stated fear and uncertainty.

http://www.guardian.co.uk/business/2010/feb/13/work-life-balance-week-thinktank

While this says we have enough wealth and work for all, it does not address the mortgage problem: ownership. Banksters are unlikely to allow this utopia until they have been paid off. So no hope there?

@Stuart Blythman

“If Jto is right and house prices are not now overvalued but reflect
“fundamentals” then we should be seeing an increase in activity in the property market as those who sat on their hands waiting for this moment jump in.”

I would agree with this if you inserted the word ‘eventually’ between the words ‘should’ and ‘be’ on line 2. What you describe is indeed happening north of the border, but not south of the border yet.

My point is that market sentiment is affected, not just by real facts and figures, but by what media commentators say. Most people haven’t a clue about economic fundamentals or about whether house prices are in line with long-term averages, or whatever. All they know is what they read in the papers or hear on tv/radio. And what they read/hear at present is mainly the pronouncements of Davd McWilliams and Morgan Kelly, both of whom are predicting further falls of around 70 per cent from current levels (not from peak levels, but from current levels). Naturally, that makes them cautious and fearful about sustaining a massive capital loss, and this overrides any gut feeling they may have about whether they find houses currently affordable or good value, which is the normal basis on which people make purchasing decisions.

In N. Ireland, we are blessed not to have the equivalents of these two scaremongers. In fact, hardly anybody in N. Ireland has ever heard of them. Consequently, people in N. Ireland are more able to make decisions based on what their gut feeling is telling them is affordable or good value, without the extreme fear of a massive capital loss that people south of the border are obviously feeling.

@JohnTheOptimist
“It says on page 5 that estimates of the overvaluation of house prices in 2007 were “in the range 20 to 30 per cent”. That is what the CB paper says, not me. If you disagree with that, your disagreement is with the authors of the Central Bank paper.”

I will start by saying I disagree with MK’s forecast of an 80% fall in residential prices. But the reality is that house prices still have a significant way to fall.

I am not sure why you are becoming fixated on one single report by the Irish CB which is now over 2 years old.
In Dec 09 the economist estimated that Irish house prices were still overvalued by almost 30% based on long term rental yields.
http://media.economist.com/images/20100102/CFN683.gif

While this is a good starting point I think there are other factors that need to be included in any future forecast.

Firstly, rents in Ireland will continue to fall IMO.
We have had a pause somewhat in the last few weeks but I think we will see rents fall another 20%+ over 2010 & 2011.
As of today the average rent in Ireland was €800pm down from €807pm last month (-0.9%). I think we will see rents fall to the €700pm by the end of the year with a little more in 2011.
http://www.irishpropertywatch.com/index.php

So while Ireland may only be 30% overvalued now, factoring in a continuation of falling rents I think a better assessment would be an overvaluation of closer to 50% could be the reality.

Secondly and probably more importantly, oversupply!
I know there is plenty of debate around the exact figure but I think the latest research from the NIRSA is the most up to date and suggests around 300,000 vacant/semi-completed non holiday homes.

While some level of vacancy in an economy would be considered “normal”, in the Irish case we are at least 150,000 to 200,000 above this level IMO.
I would also add that what may have been normal when the economy was doing well and the property market was soaring will have been higher than what is normal when the economy and property market are doing poorly. Many of these will have been quasi-investments properties that would have been left vacant purely to gain from capital appreciation without the hassle of renting them. They may not look so good now and IMO many will return either as rental or property for sale over the next 18-24 months.

Even using the lower estimate of 150,000 units, backed up by DKM report, and assuming that the “natural” demand in the economy is around 30,000 to 40,000 and that circa 10,000 will continue to be build either from self build or NAMA completions. We are only going to reduce the overhang by 20,000 to 30,000 per annum. That will give us an excess supply of property for 5 to 7 years on the lower estimate of “normal vacant” properties and 7-10 years assuming some of the “normal vacant” properties return to the market.
This will act as a massive drag on residential property prices and rents over the next few years.

On a final point I see no reason that house prices will not fall significantly below their “long-term economic value”, had to get that in :lol:, over the next decade. So while a fall of 40%-50% from current levels may bring us to a fair value we may fall below this level for several years.

My own estimate is that property prices will fall by around 65% from peak. We have already fallen by about 40% which leaves us with another 40% to go from current levels.

Morgan Kelly may have been wrong with his 80% prediction but he may be a hell of a lot closer than many commentators who predicted a “soft landing” back in 2006-2007.

An apartment I moved out from in 2003 (Dublin city centre) was advertised out on Daft before Christmas for less than what I paid when I moved out.

There are plenty of two bedroom apartments available for less than 1,000 EUR per month in Dublin City centre. Anyone with a job can easily negotiate down the advertised rent. For those who’d consider sharing a three bed with two people then the room rent is even lower.

Most renters are willing to pay a premium for not living with their landlord. 400 eur for a single room outside of city centre while sharing with the landlord? Put out an ad and see how many replies you get.

The 250 might not be the worst case scenario, I think it might be happening already.

According to a Royal Institution of Chartered Surveyors (RICS) report, despite the Irish housing boom, Ireland still has worse housing conditions than other countries with similar living standards, with floor areas per person of around a fifth less than the western European average, even though a large number of dwellings (45%) are detached houses.

The corrupt land rezoning system has managed to make land scarce in a country that is 4% urbanised.

The average new house size in Australia and the United States is about 2,200 square feet, Canada and New Zealand 1,900 square feet and both the United Kingdom and Ireland an extraordinarily low 815 square feet and 930 square feet respectively. New British housing is now only 15% larger than the former East German slab developments, of which one million have been vacated, since the reunification of East and West Germany.

Liam Carroll’s Gas works’ apartments were selling for €400,000+ in 2007 and owners had to park bicycles on the balconies.

Not only were people taken for fools on prices but apart from some improvement on insulation, quality was also compromised.

The apartment sector will remain decimated for years. Try selling a unit without even 1 car space now when there could be several others up for sale in a block.

During the boom, international surveys suggested that Irish housing was among the most expensive in the world.

This was a survey from 2006:

Global Survey: Cost of typical management level house in Dublin, Ireland, could buy 9 similar houses in Houston, Texas, 3 in Amsterdam, 2 in Sydney and almost two in Tokyo:

http://www.finfacts.com/irishfinancenews/article_10007747.shtml

The PermanentTSB/ESRI index tracks mortgages on lower priced houses and it’s clear from looking at Daft.ie that some of the price expectations remain inflated for so-called “good” areas in Dublin.

@JohntheO
“My point is that market sentiment is affected, not just by real facts and figures, but by what media commentators say. Most people haven’t a clue about economic fundamentals or about whether house prices are in line with long-term averages, or whatever. All they know is what they read in the papers or hear on tv/radio. And what they read/hear at present is mainly the pronouncements of Davd McWilliams and Morgan Kelly, both of whom are predicting further falls of around 70 per cent from current levels (not from peak levels, but from current levels). ”

Now you’re talking bunkum.

Most of the politicians we have routinely say we are “at the bottom”, “prices can only go up”, “there’s never been a better time to buy”, “affordability is at its peak”.

In the last two years I’ve heard every one of RTEs main radio hosts parrot the same.

And where does this stuff come from? Our ‘leading economists’, estate agents, property commentators, lifestyle experts, gurus…

It’s always the right time to buy according to the rubbish that is spouted by these leading lights of the property machine. There have been a few lonely voices in the “it’ll end in tears” camp. Few believed them when they were saying it, despite the damascene “we knew it couldn’t last”, “we all lost the run of ourselves”, “nobody could have seen it coming”, eh, sorry, that last one’s part of the other meme (it’s not our fault)…

We have had one idea going in this country for the last ten years – you can’t lose on property. It has been promoted by almost everyone who was in a position to stop it and by many, many ignorant people who knew nothing of what they were talking about and rode the wave up. The wave has crashed onto the beach and the carcasses are rotting in the sun.

@Eoin.
Your rental calculations are ignoring voids, maintenance, etc.
If you assume at least one month a year void, plus maybe a grand a year at least on average maintenance, your imputed values fall quite a bit.

Other than that, there’s no shortage of rooms renting for €250 a month or less in “North County Dublin”.

Here’s the daft search.
http://www.daft.ie/searchsharing.daft?s%5Bcc_id%5D=ct1&s%5Ba_id%5D=ga4&s%5Bmnp%5D=&s%5Bmxp%5D=250&s%5Broom_type%5D=single&refine.x=6&refine.y=15&refine=Refine&search=1&s%5Bsearch_type%5D=sharing&s%5Bfurn%5D=&s%5Brefreshmap%5D=1&search_type=sharing

Rooms come up in Swords, Malahide, Balbriggan, etc..

Then, for rental income, you’d need to consider tax too. If you’re living in the house you might not need to pay tax. If you’re not resident in the house then you may well end up paying tax on the rental income too. (Personal tax is complicated, so may impact different people in different ways)

@JTO, houses in Ireland may not – on average – be terribly overvalued. I won’t argue the point for the moment. However, I do suspect that large parts of Dublin are still living in la-la land.

@Ray:
“There has to be time when people want to own their own dwelling house and not just rent it regardless of economic sentiment.”

Why? And sez who?

I understand that in Foreign Parts large numbers of citizens do not own their own dwelling houses. Here are some (admittedly old) figures: http://en.wikipedia.org/wiki/Homeownership_in_the_United_States#International_Comparison

bjg

One other thing – the Railway Procurement Agency, in charge of building out the LUAS track infrastructure in Dublin, like to use a slide at the ends of their lectures – it shows about 20 no. Danninger cranes owned by Liam Carroll, working out at the Tallaght LUAS terminus. Heck, the 1,500 resi units there, never moved off the market. But heck eh? Anyhow, the RPA, Railway Procurement Agency, being the engineers they are (instead of land economists) point to the fact – look, we build some track, and it adds value to land, and investors/developers move in. Sure I can see their point. But they are not seeing the whole entire picture either. Like I said above, LUAS was a publically funded transport infrastructure, and people shouldn’t have to pay through the nose, to afford property served by it. Heck, the taxpayer already got hit too hard to buy up ‘land’ for the RED line etc, on a low density areas. It’s complex, I know, but think about it. BOH.

Hugh Sheehy says:

“Being sad for them still doesn’t mean that I believe other aspiring families or aspiring retirees can be morally forced to pay for someone who made different decisions, in either case.”

You have definitely hit on something there Hugh. I think you are making sense, and I would like to spend more brain power, analysing it if I could. However, as regards economics, there are certain battles tailore made, for the economics input. The funding of public transport infrastructure being one case I mentioned above. Whereby, the transport infrastructure adds value. We don’t have to wait for any ‘market sentiment’ or any other assorted waffle, that ‘Irish Auctioneers and Valuers Institute’ is forced to fall back on – to be seen to say something. Water supply infrastructure, which Joe Higgins spoke about today on radio, paid for by taxpayers. That adds value to a home. Again, it is not reliant on something nebulous like ‘market sentiment’. I mean, ask anyone in a ghost estate in the midlands, who hasn’t got footpaths, lighting or sewers. Ask them, what would ‘add value’. I can guarantee it isn’t much to do with market sentiment. Rather than getting sucked into some conversation that the IAVI, Irish Auctioneer and Valuers Institute wants to have – get smart people, and especially economists. Find out what really adds value, and you will find, most of all it is infrastructure paid for by public moneys. We get efficient and smart about how we run public projects, and pay for them through taxes on land – not through train fares and such – I mean, the minute the ‘red line’ of the train route, or water main, flood prevention, or whatever it is, when it is drawn on the map – the government captures that gain in value, no someone else. And the public don’t end up paying twice. Get smart-er people. That is the way. That is how the ‘smart-er economy’ functions. It needs economists, good ones. BOH.

Karl and co.,

I know plenty of vested interests took a swipe at it (and you), but would it be possible to do a ’46 Economists – Part II” – maybe with 92 Economists this time? At least now, we have the IMF and the Banks all stating that NAMA won’t get credit flowing again, so it might get more traction from the public, media and politicians.

@ DE

on this very site he predicts 70-80% falls in house prices…

http://www.irisheconomy.ie/Crisis/KellyCrisis.pdf

http://www.daft.ie/searchsharing.daft?s%5Bcc_id%5D=c1&s%5Bmnp%5D=&s%5Bmxp%5D=250&s%5Broom_type%5D=own&refine.x=43&refine.y=22&refine=Refine&search=1&s%5Bsearch_type%5D=sharing&s%5Bfurn%5D=&s%5Brefreshmap%5D=1&search_type=sharing

Trying with the link again. Sharing in Dublin for 250 or less. And this is for your own room in a house or apartment.

Eoin,

your friend was right to move out:

http://www.daft.ie/searchsharing.daft?s%5Bcc_id%5D=c1&s%5Ba_id%5D=249&s%5Bmnp%5D=&s%5Bmxp%5D=&s%5Broom_type%5D=own&refine.x=26&refine.y=17&refine=Refine&search=1&s%5Bsearch_type%5D=sharing&s%5Bfurn%5D=&s%5Brefreshmap%5D=1&search_type=sharing

The advertised rents are lower than what the landlord was asking for.
Given the oversupply (undisputed?) then the relative negotiating strength has changed a lot since 2005. Advertised rents might end up as the agreed rent but most people renting know that they can negotiate it down.

Some examples:
A friend was living in a one bedroom apartment in Temple bar. He paid 1000 EUR rent for that in 2003. More or less the same as the asking rent is now.

Another friend got a one bedroom apartment in the centre of Dublin (across the river from Temple bar), rent he will be paying is 10% lower than advertised rent. In total it is 25% cheaper than the previously mentioned apartment. Haven’t seen it but I suspect it might not be as nice though.

I can’t remember who were using the phrase “living in ivory towers” here on irisheconomy. I’m getting the impression that the majority here are not renting, haven’t been renting for a couple of years and as such might have lost touch with what is happening on the ground.

Renters have the upper hand in negotiating rents. Advertised rents are as reliable as advertised prices for homes. Would anyone here consider paying asking price for a new home?

@Pat D
“Do Christians not have a tradition of debt forgiveness? We have the houses, we have work to be done and we can share it out. Why don’t we do that? ”

Christians also have a tradition against theft. In the modern context, where debt is not a loan from a permanently rich man to a probably poor man but is rather a loan from one “normal person” to another “normal person” (albeit a rich banker brokers this loan) debt forgiveness is largely equivalent to theft.

Person A put their savings in the bank. Person B borrowed the money to buy a house. Person C sold the house, walked away and put the money in another bank. Person B then doesn’t pay back the loan, but wants to stay in the house that they bought. Debt forgiveness would mean that Person A (in reality lots of A’s) get shafted. Person B would keep the house and Person C would keep the money – apart from the fact that they’re probably also Person A in some other deal.

These three people are all “normal people”. Person A isn’t some Rockefeller able to tolerate having their savings stolen. Now, the rich banker also deserves some criticism in this, but that doesn’t mean there’s no primary moral imperative for Person B to pay back the money or to suffer the type of consequences that debt forgiveness seeks to make Person A suffer instead.

Unfortunately, intellectualism and financial justice are not easy bedfellows. The existential question in finance is simply “Show me the money.”

As for Marx, I hope he’s sufficiently well staked to the floor of his coffin that he’s not able to spin in his grave.

Now, if you want to get all intellectual, go ahead.

Of course, if you want to talk about Kondatrieff waves it might be interesting to read van Gelderen in the original Dutch where some of the anti-Marx remarks come across more directly than in translation…not that I buy everything van Gelderen said either.

Break it down into a number cases. As I suggested above, there are many, many cases in which the negative equity problem could be relieved substantially. To a point where people were look at 50k negative equity say, rather than 100k or 150k. (Not completely eliminated, but improved to the point where it is less hope-less for mortgage holders) We do that now, by the government investing in infrastructure, projects etc which do add value to the property. It might be something basic, like a working sewer system. Or something more ambitious like public transit.

I believe, there are certain situations, where the bank should take a write-down on its mortgage loans. For instance, where a bank offered a mortgage of say €800k to buy an apartment, on a LUAS line. A sizeable portion of that loan amount, (say €1-200k for arguments sake) was based on the fact the residential unit was convenient to a public transportation network. Paid for by the taxpayer. Much property along LUAS lines was bloated up in price, because the buyers didn’t understand, they were having to pay for the same infrastructure twice – one through taxes and then through mortgages. Not fair to the mortgage holder.

Then there is another case. Liam Carroll paid in the region of €500k for the most decrepit cottages in the Dublin docklands region. For better houses, maybe a bit more. These houses were required, to assemble land together, out of the pieces to make development land, on which new building could occur. Carroll would not go to €1 million for the worst residential properties. Even though, the mortgages were available to buy homes in the docklands area, for that amount. Obviously the banks overheated the residential mortgage market in some areas.

Some entered the residential mortgage market, not for the purpose of buying a home, but to hold developers to ransom. In other words, NAMA I and NAMA II kind of property activity intersect in some points. In that case, I argue, it is not like the property beside the LUAS line. Where the bank should take the write down. In the case of ransom properties in the docklands, the mortgage holder took the risk, and should accept the consequences. BOH.

@Michael Hennigan

Why are you using the 2006 Demographia report in a debate on whether or not house prices in Ireland are overvalued? Fair play to you though for Finfacts being the only media outlet that published and analysed the recent Demographia report, which is the benchmark for comparing house prices in English-speaking countries. The mainstream media ignored it. And no mention of it in any of David McWilliams weekly newspaper columns, although analysing and comparing house prices internationally is supposed to be his forte. So, you’ll be familiar with its findings. What it found was that median house prices in 2009 Q3 as a multiple of median incomes (the key yardstick) were as follows:

Australia 6.8
N. Zealand 5.7
U. Kingdom 5.1
Canada 3.7
Ireland 3.7
U. States 2.9

So, clearly, even by 2009 Q3, house prices in Ireland were quite low compared with other English-speaking countries. In addition, house prices in Ireland have fallen by over 10 per cent since 2009 Q3, while rising in most of the other English-speaking countries. If these trends continue, heaven only know what the next Demographia report, presumably for 2010 Q3, is going to show. House prices in Ireland will probably by then be by far the lowest of any of the English-speaking countries and, quite possibly, no more than half those in the U. Kingdom.

Dublin house prices were the most expensive in Ireland. However, even these were low compared with other large cities.

Vancouver 9.3
Sydney 9.1
London 7.1
Swindon 6.3
Belfast 5.5
Edinburgh 5.3
Dublin 4.7

So, house prices in Dublin are now lower than in Belfast, and even lower than in bl**dy Swindon, a dump if ever there was one, and one-third lower than in London, and almost one-half lower than in Sydney and Vancouver. And that was in 2009 Q3. Since then house prices in Ireland have fallen another 10 per cent, while rising in almost all the other places.

@Dreaded_Estate

We are not primarily forecasting house prices in the short-term on this thread. Your forecast of a further 20 per cent fall may or may not prove accurate. You’ve a good record on this matter, so I’ll take your word for it for now.

Rather, we are simply trying to analyse whether or not house prices in Ireland are any longer overvalued. I say they are not and have given the figures from the recent Demographia report in support. The figures from The Economist that you link to seem to be from around mid 2009. Even then, many countries (Finland, Spain, Sweden, Australia) showed much greater ‘overvaluation based on rents’ than in Ireland. But, as I am sure you’d be the first to point out, house prices in Ireland have fallen by about 15 per cent since since mid 2009, while rising in most of the other countries. So, currently (ie as of Feb 2009) house prices in Ireland are clearly no longer overvalued. That doesn’t mean they can’t fall further in the short-term. If your forecast of a further 20 per cent fall proves accurate, then, by late 2020, they’ll have gone from being ‘no longer overvalued’ to ‘severely undervalued’.

The reason for quoting from the Central Bank report is because it is that report that Karl Whelan introduced the thread with.

@JtO
You are right the economist report is from approx mid 2009.
And although prices have fallen by about 15% since then, rents have fallen by a further 15%. From €934pm to €800pm
http://www.irishpropertywatch.com/viewPost.php?Post_ID=146
So the overvaluation identified by the economist back then still exists and will get worse as rents are falling as quickly as prices at the moment.

I think house prices in Ireland are still overvalued.
I am not forecasting that prices will fall by 20% in the short term to below their LTEV.
I am forecasting that prices will fall another 40% from current prices, about 30% to get to LTEV and another 10% of that due to a possible overshoot.

It is all about the over-supply/empties JtO.

@ Anyone

Daft is currently listing a total of 59,670 residential properties for sale in Republic of Ireland. It has 19,676 rentals. Some of these may be the same properties.

Where is the remainder of the 300,000?

(Genuine question btw, not expressing any opinion!)

@Garry,

That property pin thread seems to include properties for sale or rent in the NI also. First graph lists almost 85000 properties for sale on Daft at Feb 2010 – when the ROI figure, as I said above, is in fact 59000.

If the UCD report is to be accepted, then it still leaves the question of the other 240,000 properties, which are not currently listed for sale (at least not on Daft). Can they all really be in “cold storage”, waiting for NAMA?

Something smells off to me.

“Since posting on the number of under-construction ghost estates in Ireland last week, we’ve been asked how many vacant houses there are in Ireland. There is no exact figure released by any state agency, but by using Census 2006 and Dept of Environment, Local Government and Heritage, and making a couple of assumptions based on our analysis of these data, we can come up with an estimate – 302,625. This figure includes vacant houses available for sale, vacant houses available for rent, vacant houses that are not on the market, under-counted second and holiday homes, and abandoned properties, but does not include 49,798 holiday homes recorded in 2006 census. This is not a measure of availability but vacancy (some of which is available to the market now, and some of which will become available when prices rise/demand returns, some of which will not become available).”

See http://irelandafternama.wordpress.com/2010/01/18/an-estimate-of-vacant-housing-in-ireland/ and subsequent posts

bjg

http://www.independent.ie/business/irish/mortgage-lending-fell-50pc-in-fourth-quarter-2064301.html

Hmmm……. anyone ever heard of a similar fall? Clearly sensible that fewer people risk their capital in a depression. Sense at last, in fact. It should continue to fall. Is it a gross figure or net of repayments?

Not a good sign for bad debts in lending institutions nor for dividends. Commercial property may also lose some value. All to the good when considering competitiveness though….. Got to compete with those Chinese factories where the wages are less than 75 Euro a week……

So at least the economists in IBEC will be smiling! A little worried at how long it is taking. Japan is so slow, it would be a bad idea for those who have wasted capital to try to keep values high for more than say two decades.

@Dreaded_estate

“Firstly, rents in Ireland will continue to fall IMO. We have had a pause somewhat in the last few weeks but I think we will see rents fall another 20%+ over 2010 & 2011.”

Now today RTE reports: “Rents show first fise for two years.”

http://www.rte.ie/business/2010/0216/daft.html

As you know infinitely more about the housing market than I do, I will leave it to you to analyse whether this is seasonal, a freak, a blip, a pause, or whether previous forecasts will have to be revised.

@JTO,

maybe I should leave it to DE to reply, I can offer some information:

In the bad old days, the asking rent could be lower than the agreed rent as the landlord showed his solidarity to tenants by having bids and accepted the highest. The worst excesses of the boom wasn’t seen in the ads.

Now the renters are repaying the solidarity shown to them and are asking for lower rents every time the rent is up for review or when negotiating a new lease.

In addition there have been and are gifts on offer for quite some time for new tenants in the ads, these are not reflected here & asking rent is again only asking rent.

Not sure if multiple units on offer in the same ad are weighted? Or if they are not, if it would make any difference on the outcome.

With the quality of data available I wouldn’t bother with 1% change in either direction. It can be a blip, it can be a change in trend.

Those who believe it to be a trend, I’d love to hear your explanation to the rise 🙂

A couple of thoughts about the desirability of high rents:
Lower rents leads to more money available for spending. On the other hand, the landlords have less to spend. The difference would be:
Tenants spend it, thus increasing economic activity.
Increased rent paid to the landlords leads to more money going into the black holes in the economy known as insolvent banks, thus reducing economic activity. Moneyprinting is then done because there isn’t enough economic activity due to money disappearing into the black holes.

Just to be clear: Black holes are things with intense gravital pull which once caught in, nothing can escape.

High rents good or bad for the economy?

Some interesting theories there Jesper, thanks for sharing them with us. I had a sit down and read through them (printed on paper) after tea time this evening. Sometimes, I find with the longer contributions, it just doesn’t work to read them off the screen.

A good tip to all, if your printer can fit 2 no. word document pages of text onto 1 no. A4 sheet – there is a setting sometimes in the printer settings, that you can make a single word document page, an A5 size, and 2 no. A5’s per A4 – what you get in your print out, is basically, something like a paper back book page. You can fold it in half, and it works just like a book actually, that you can read on bus etc. I find, if I haven’t followed a blow-by-blow development of a thread discussion – the print out method, is the only way to get some overview of what is going on in the discussion.

It is amazing the amounts of arguments, and sub-themes, that one can identify in a thread, if one changes to printed words – stuff that you would rarely even pick up while trying to read the text off the screen, like I am doing at the moment. BOH.

Just commenting briefly on John the Optimists earlier comments, the major urban markets of Ireland are not yet “affordable” (i.e at or below 3 times gross annual earnings) but still “moderately unaffordable” overall.

The major question that needs to be asked is – what political steps are being taken by the Irish Government, to ensure housing affordability is restored and the country is not put through another planning induced housing bubble again?

The Annual Demographia Surveys ( http://www.demographia.com ) clearly illustrate that housing bubbles are unnecessary. In this years Survey, we illustrate the massive differences between Sydney and Melbourne in Australia and Atlanta and Dallas Fort Worth on the other.

Political progress is being made in New Zealand (refer writers website http://www.PerformanceUrbanPlanning.org ) to deal with these housing bubble problems. Lets hope we see the same thing happening in Ireland before long.

Hugh Pavletich
Co author – Annual Demographia Survey
http://www.PerformanceUrbanPlanning.org
Christchurch
New Zealand