I don’t know if it’s as special a case as you think.
It might be at the extreme end of this kind of case, but I think the phenomenon is fairly widespread.
A lot of houses sold on 2004 to 2006. I would say every single one of them was over priced. Most people buying in that period would have been putting down somewhere between 0 and 10% deposit.
Quite a few of the investment property variety would have been interest only. That arrangement can’t last forever either.
There are two psychological barriers that people who bought in those years will have to overcome in order to sell.
They have to be willing to accept less than they paid. This is going to be a tough one. Years of hearing their friends, family and the media talk about property riches will make it hard for them to accept that their house isn’t worth what they paid.
And this is the really tricky one.
Some people will have to accept less than they still owe. The very idea that you can buy property, pay a mortgage, and still owe more than it’s worth. Being upsidedown on a loan is part of the american lingo, from cars to houses they get the concept. Irish people don’t.
Selling and renting will leave them paying rent AND the balance of their mortgage. For some this might actually be the sensible thing to do, but when you’re faced with that kind of scenario sense goes out the window. I don’t know if I’d be rational.
There was a piece in the Examiner property supplement about a place in West Cork that had a go at an “unrealistic” 3.75 million in Sep 2007 before coming back onto the market recently for 2 million. That’s nearly a 50% drop.
At the other end of the scale, the Rochestown Park hotel in Cork was bought a few years back for 1 million, let fall into ruin and is now on the market for 3 million. The agent is an old classmate of mine and he could charm the birds from the trees but he has his work cut out for this one. Why the owners expect 200% profit on a place that they’ve let fall into ruin is beyond me!
Had a young couple in with me arranging a mortgage for a place (lets just say in the northwest). A year ago the houses were selling for 270k and the builder wanted same price now. Having talked to the couple about falling prices etc etc they still decided they wanted to buy.
So I arranged valuation and the valuer came back with a a value of (now wait for it) 230k and I informed young couple of same and forwarded a copy for them to show the builder and tell him to get real.
Later the next day they called me to say they contacted the builder and he huffed and puffed etc but eventually said he would accept 235k (Jes** they have some neck), the couple asked me what they should do to which I posed the question do you NEED to buy? They replied no so I advised them to keep renting as I believe the market will come to them over the next year or two.
That was a couple of months ago, I wonder would the builder accept 230k today (because I have watched the property and its still for sale).
We sold last year and had set a price that we wanted to achieve to make it worth our while to endure the hassle of selling and building again.
As our LTV was under 20% we were under no pressure to sell and were quite happy to stay put if we didn’t.
As it was, we struck gold and when the dust settles we will build a passive house and won’t worry too much about the direction of the price of heating oil or interest rates.
I know of a number of people who have their house on the market with similar stories. These houses will not drop their asking prices substantially and as the market drops they will be withdrawn (some already have been) if they don’t get lucky.
I’d say that most of those taking a punt at selling will be off the market by the year end at the latest (my guess).
It’s only when the market is reduced to those who have to sell that we will see an end to the stickiness of prices.
I’ve had the same experience with friends who bought at the wrong time (despite my advice) they were struggling to afford the mortgage at the start but were giving it loads about how great it was to be on the property ladder. Now I’ve found out that they are having to sell because they can’t afford the mortgage and of course the other non-mortgage debt that went with Celtic Tiger ‘affluence’. They are telling all that they have decided to move because they want to live closer to their parents, an extra 25 miles to their jobs every morning. The saddest thing about it is they still refuse to lower the price below what they paid.
That is ultimately what drives prices down and the cohort that must sell is increasing day by day as the recession bites deeper and deeper.
Looking at one previous property bust, the UK early 90s bust, the biggest falls started roughly 1 year after their recession started (roughly 2 years after their price peak). Assuming our recession started in the final quarter of last year, then one would expect the price falls to start accelerating towards the end of this year/beginning of next, this would of course be preceded by increasing inventories.
Indeed, but there has been a significant acceleration in the past couple of months after a ‘relative’ lull which started towards the end of last year. There would be a lag between this and the accelerated price falls.
As someone who was laughed out of the planning office recently, I really hope you’re right. Relaxed just a little bit, or a free for all? Will the new guidelines affect site prices do you think? Would you risk buying first and hope to get planning when/if the rules are relaxed?