80-90% drop from peak possible for some areas?

My current thinking, given that the ECB have now, as far as I can gather, completely and utterly capitulated, (and you will note that this capitulation happened just a few weeks after a huge German bank required a bailout) property prices in Ireland could fall by 80-90% nominal.

If we are in for a deflationary period, as everyone is saying, this level of price drops is not just possible but likely.

Based on fundamentals alone, we all agree that a 30-50% drop from peak to trough was more or less inevitable, but this time two years ago or even last year, few were forecasting deflation.

Can anyone give me a good reason why this will not happen? I can’t think of any at present.

the edge,

I can only imagine some of the colorful replies your theories will get. I got taken out for mentioning a possible 70% drop from peak. I didn’t even mention nominal or real. There’s nothing hard to argue against your theory. That’s the scary part. However, most studies into property crashes talk about a 70% real fall from peak to trough. Maybe we’ll be number 1 again and beat that drop. Who knows. Would be at the extreme extreme end of things though. Given we don’t have our own currency and can’t devalue we’re very much in new economic territory. Think 90% nominal would be extreme. 70% real is very possible now.

Like robd, I don’t even dare mention what I think will be the ultimate drop from peak to family and friends. I think you may be right with 85% in real terms, but I expect the nominal to be lower at 70% (over the next three years).

As 2pack is found of saying, “it’s the empties stoopid”. The huge overhang of empties will ensure that any correction is likely to undershoot by quite a high margin. Only last year I read an article how rents were low in Berlin because they were still trying to work their way through the excess stock from a building boom a decade earlier and we built more than them. The low rents required to bring the rental market under control will depress yields even further. We’re also a small economy dependent on the whims of multinational companies but have priced ourselves out of the market recently. All the indications are that we are in for a rough ride.

In the same way that we were number 1 on the way up, expect us to “well up there” on the way down too.

not a good idea to bring this up between friends and family if. Everybody thought i was mad/stupid/insane in 2004 when i sold. Of course my timing could have been better as prices conrtinued to rise for 3 years after (damn. more free money missed :blush: )

I was speaking to a friend of mone at the weekend and he was saying thats its impossible to save a 60k deposit to buy a house. I agreed. I said the house prices would have to fall a lot more so people woiuld have that 20% deposit in their back pocket. This went down as heresay and I think he wanted to burn me at the stake :laughing: :laughing:

That’s the bit I have trouble understanding. A drop in house prices will help him but he still thinks it’s a “bad thing”.

It’s “heresy” by the way.

damn typos :smiley:

a mathematical reason perhaps …

A 3-bed semi that was worth 400k in june 06, will be nominally (and even allowing for deflation) be worth at most €60-80k in 3 years time?

or a 2m pile in Foxrock will be worth 3-400k?

hmmmm; I respectfully disagree.

2 Million wouldnt have bought much of a house in Foxrock in 2006.

7.5% yield on 400k Foxrock pile is €30,000. That’s €2,500 a month in rent. Do you think that is an outrageous figure?

If house prices were 10 times avg wage, then we’re talking about 1-2 time avg wage here… even I think that’s a bit outlandish!!!

I can see your 600k 3-bed semi, nothing special but decent area, going for 300k eventually, maybe 250k.

Equivalent national avg house price would be 100-130k in my opinion.

you can’t talk about a depression (thats what an 80-90% fall would of course require) and talk about 7.5% rental yields in the same sentence.
leaving aside another discussion on rent yields; what we’re talking ahout in this thread is that in 3 years time I’ll be moving to a 300k house that was previously 2-3million. I’m merely surmising that that won’t be the case.

Taking inflation as a ballpark of a cumulative 50% since 1995 then a typical suburban 3 bed semi which was selling for £65k in 1995 should now be approx €125k. The top of the market for these was €350k to €380k. Just to fall to the inflation adjusted price for 1995 requires a fall of 70% without any allowance for undershoot in a falling market and 1995 was well up from the bottom of the market in the mid 1980’s.

These figures are ballpark but if someone can point me to a source for the raw data for inflation and annual average house prices I will happily do the calculations.

Its a good point, but as our friends in the banks would say ‘past performance is no guarantee of future performance’. We had very high inflation since '95, touching 6% for a lot of the mid noughties. I don’t see very much inflation for the next 4-5 years. I believe deflation is even mooted.
the PTSB index tracks average house prices, and a 3-bed semi is an average house, so a 12% yoy drop in PTSB index == 12% drop in a 3-bed semi, give or take.
I don’t think we’ll see a 80 or 90% drop in the PTSB index; which is about as close to an accurate measure of what is pitched in this thread as we’ll get.

Just curious about your top of the market figures for a 3-bed semi which cost £65k (€86k) in 1995.

I bought early in 1995 for late £60’s and the top of the market in 2006 was > €600k. Did average price increases fluctuate that much?

Interests rates in the mid 90s were much higher. So the cost of the house wasn’t reflected in the price of the house back then.

Residential mortgage interest was tax deductible, though, so with high tax rates, the net cost was lower.

:question: :question:

The cost of the house was whatever it cost the builder to build it plus his profit. The price of the house was what people could afford to pay for them and also what people thought they were worth. Interest rates were only a part of the equation.

House prices will generally relate to income, except where there is scarcity. That’s it. Let’s not be talking about unfounded percentages.

Does over supply not come into the equation at all?