Are we mad?

So, a bit like Calina, Mrs. WFTD and I are well and truly fed up with renting.

Current house (rented for more than 4 years now) has lots of minor problems with heating and electrics and the landlord is dragging his feet to resolve. Of course we can threaten to move but honestly it is a real hassle as every time we have looked we’ve been really disappointed with rental alternatives. And we’ll spend real cash - probably lose our deposit, removal fees and so on. I’d rather do that only once!

So, we have now seen a couple of places which we believe we could get for about 40% of peak prices (we factually know exactly what someone paid for a very similar house to one we are looking at, they bought in summer 2006, and we’d be paying about 40% of that in nominal terms/less in real terms.) We have cash set aside for both deposit and repair work. Mortgage would be 2.25x my income (Mrs. WFTD is stay at home mum). No other borrowings. Both places would happily suit us and kids for next 20 years.

I’m now (gulp) in mid-forties, so starting to run out of time for decent length mortgage. Stamp duty change has saved us serious money.

Should we wait? Should we go for it?

WFTD

Whatever you decide to do - continue renting, or buy a place, you are still wildly overpaying for what you get in return, and your loss is someone else’s gain.

For example, look at this so called average house in Drogheda which is on Daft.ie’s First-Time-Buyer Spotlight. The price they are looking for it is 6.25 times what the *average * worker gets paid in a whole year! daft.ie/searchsale.daft?id=471841

Compare and contrast to what you would get for the same money in comparable towns across the world.

Now, people on this site have always been convinced that the mechanism of the free market would eventually bring property down to ‘what it is worth’. But, this has not happened. At least, people are tiring of waiting for the mechanism to do its job. Why? Because there remains a plethora of interferences in the market to prevent this happening. These stem from NAMA, to the national media, to estate agents being less than honest, to ‘canny’ small landlords finding that they have tacit political suppport to not take ‘less than what it is worth’, to banks dictating the kind of money they will lend on particular properties, and what have you…

There needs to be a political impetus to claim the power from property vested interests, to exert an adequate will that says something along the lines of, ‘we are not going to allow you to live off of us anymore; we will pay a competent builder a fair profit for building the house; we refuse to pay inflated prices for building materials; and the price we pay for the right to the land the property is built on should be fair - anyway, that price consideration should not go to enriching select individuals, as it is true that all the people of this country have some claim to the land of their national home… Interest charges should be fair, and the armies of middle men and other so called professionals who live off slices of this property pie (enabled to do so by the national legislation) should find other, more honest ways to make their livelihoods.’

The high property prices and high rental prices, for very little in return, is a result of prevailing political assumptions and consequent state of affairs in this country. If people want to change these prevailing political assumptions to new ones that say no one has the right to live off the back of another through the mechanisms of land dealings etc, then people are going to have to work to change those assumptions. Certainly, there has not been much done about them so far, and it seems that rather than do anything about them, they are just going to let things slide along as usual. Pretty pathetic really.

Anyway OP. you’re not mad, you’re just going with the flow. That seems to be all anyone does in this country, and they usually are better off for it, in general.

You know in the war movies when they hold fire until the last possible second…steady, steady.

I think there is value out there. Nothing wrong with owning. I bought in 2005 and am now 1/3 through the mortgage and looking at my MFD (mortgage free day). Not all doom and gloom. It focussed me to save and I am proud of the work I have done to it.

HOWEVER, the IMF are reporting in 2 months, the banks have no capital, most houses have been on the market for ages, insolvencies and job losses continuing apace.

Just give it five more months. Prices are not going up!

Thanks for such a detailed reply!

I get the example of the average price and average wage. But what %age is that of the take-home pay of that person? Is it still madly unaffordable then?

The thing we’ve been wondering is how over-priced things now really are. You can see 2000sq ft redbricks in D6 now at 800K; this is much, much cheaper than an equivalent price in a nice part of London and also comparable (if not a little cheaper) than Manchester/Edinburgh (which I feel are far better references than London).

Now, I still think things will go down from here, I just wonder are pinsters maybe thinking too negatively about this.

Logically, I can make an argument to say “just hold on, buy for cash in 2-3 years”. Our target house would need to fall a further 30% from our offer price (which is 25% below asking at present - so in other words the asking price would have to drop by 50%). And this would then be a 75% fall from peak value. Do I really think that will happen? Do you? Hmmm.

Personally I am convinced we will see drops of 70% from peak, problem is the timeline. The interference in the market alluded to earlier to stretching it all out and I fully understand the frustration. I would sit tight for a min of 6 months and then re-assess. The prospect of a substantially reduced mortgage is something that should keep the spirits up.

As I said, it’s in the politics of the thing. If you look below at house prices over the last forty years or so (adjusted for inflation, you can get an idea of where prices for the average home might be (I note though that the average home has decreased in size and quality, and modern technology and practices means that further savings are made in the building of it).

Note too that where that graph starts in 1970 or so, the price of building land had already jumped so extraordinarily that the Kenny report was commissioned (and subsequently squashed) - which reported in its findings a number of political and cultural aspects and practices responsible for driving this kind of speculation exponentially (link to Kenny report here).

Reading some of the repsonses to the original post has got me thinking about people’s rational with regards to property prices.

The overwhelming feedback from this site is generally that Property is more a commodity than anything else and has a ‘set’ real value based on ‘set’ economic factors, namely average industrial wages.

Now, what this got me to thinking about is the thread about investing in Gold. Gold is a commodity and is somewhat elastic to market conditions, however, how does the same rational on ‘pricing’ a 3 Bed Semi not work with Gold? Why does Gold not have a ‘set’ price based on a set economic factor? In essence Gold does not change it is always the same product but again it means different things to different people.

The miner will have one price he is willing to pay for it, the commodity market will have another price, the goldsmith would have another price, a highend cable manufacture would have another, while the blushing bride to be will pay anything to get the one she wants. Fair enough at each stage the product is in a different state and processed to an extent giving value-add.

In the property market, a 3-Bed semi will have a different value depending on who you are; a developer, investor, family man, single man, charity, retired couple etc … so how can one ‘set’ a price and come to the conclusion that any other price is either under valued or over valued?

The basic economic theory of supply and demand will have a direct effect on commodities and likewise the housing market. We have an over supply here in ireland (not in question) but this over supply is in certain areas … not all. So going by the rational of using average industrial wages and rental formulae to value a house, can this be depended upon?

Take this notional situation, a house comes on the market in a small cul de sac with say 10 houses. In the area there isn’t a problem with over supply and it’s the first house of the cul de sac to come to market in 15 years. The other 9 houses are owner occupied. The house is a fair sized 4-bed semi in reasonable condition. How can anyone give an actual valuation which would be accurate? An interested purchaser who really wants to buy the house as their parents live in the cul de sac will have one value, while the retired couple will have another and an investor will have another.

Really what I am getting to is that there isn’t a simple broad stroke that can be painted to cover the entire housing market and people who are either calling the bottom at the moment or saying sit tight are really only speaking about a specific sector of the market.

In my given example if there was two purchasers looking to buy this house in the cul de sac, market forces would dictate that the highest bidder would win (I know demand isn’t really there at the moment in the main stream but for specific properties there is) … thus meaning that the market might rise from the asking price.

The value is what someone is willing to pay, investment value is a totally different ball game. Going back to the gold comparison, a blushing bride would have no interest in paying $2000 for an ounce of gold but will pay close to that for a fraction of the weight made in to a band … giving two different values for the same piece of metal.

That Eur200 sq/ft redbrick in Rathmines has been used a few times now when supporting arguments that houseprices are returning to normal. As far as I can see that house is the exception rather than the norm, particularly in that area. WFTD, At 2.5 times your income its certainly miles way from a ‘mad’ decision. How does affordability look based on other criteria? % of net income spent on your mortgage etc? To be honest peak prices were so ridiculous in places that % drop from that level is academic to some extent in my opinion. I’d prefer to assess it relative to a saner period of late 90s if possible.

Hi WFTD

If it hadn’t been for the password issue I would have been your first reply!!! And my tuppence worth would have been as now, even though you now have lots of good advice from other posters, if this is a house you really like and it ticks all the boxes for you and your wife and you can afford it with all your stress tests then you should go for it.

That said, I would try an fix a mortgage rate if I were you. We are in the same boat, long term renters with children and it is not easy. If your offer on the house is accepted and you are delighted then you know it is right. If you feel sick then perhaps you should pull out of it. Remember, the ball is in your court so you have time to deliberate.

We are looking in a very specific area and were underbidders last year. Even though the IMF etc has happened and I am very cautious (read pessimistic) about the future, we still know we would have been happy to-day to have gotten that house at our top bid . Sometimes you have to weigh up peace of mind. And as you get older and family gets involved, it sometimes outweighs pure economics.
Also, like a previous poster, I think it will take years for all this to bottom out and many of us will run out of patience before then if the right place comes along.

Good luck with whatever choice you make, I hope it brings you all happiness.

Most definitively you are mad.

Buy and watch the price drop by a further 50 per cent value is already below that…

No I don’t think you are mad.
I really sympatise about the problems with the rented house. We are also renting with kids. We love the area but the condition of the property leaves a lot to be desired - and yes I’m talking about heating and electrics. I can live with the magnolia walls but massive heating bills and concerns for fire safety are less acceptable. I have managed to get the critical items fixed (although it takes a while) but getting a landlord to perform any kind of ongoing / preventative maintenance is futile. This is the main frustration of renting for me, although I still appreciate the financial benefits.

So I would say you are not crazy to proceed - with extreme caution. We’ve made a few low-ball offers which have not been accepted, and those homes have been sold. We’ve kept the head and moved on - prices are still going down so patience will pay off eventually. Try not to get too attached to any one house - like the 46A there will be another one along in a while!

We missed the peak of the market a bit when selling (market peaked in 06, we sold in 07), so I fully expect to miss the actual bottom when buying again. You can’t have everything! Best of luck.

Have you any more blinding flashes of the obvious for us?

Have you any more stunningly unfunny uninformative quips of a sarcastic nature for us?

No but if you whistle it I can hum along… :stuck_out_tongue:

How does rent compare to mortgage payment?

So, let me work through this. We are looking in SCD. The houses we are looking at (like I said) are now down 60% (this is peak to current sale price, not asking price). Your view is that they will drop 50% from now.

As an example, this would see the semis in places like Mapas Rd in Dalkey - established estate with 1300 sq ft 3-4 beds, sold for a jaw-dropping 1.1-1.2m at the top, now fetching ~500K. You think that this will drop to 250K EUR. I do - in all honesty - find this hard to comprehend. OK, the houses may not be amazing in terms of architecture, but the location would generally considered to be one of the best in the country and if that is hitting that kind of level, average house prices will surely head to 100K EUR. Even in our current mess, that would seem too steep.

Well, since our LTV would be <50%, and if I take examples of what these kind of houses can rent for, our new mortgage payment post-purchase would be ~60% of the rental value of the house. (i.e. mortgage much lower than rent). Of course, we will lose the income on the capital we currently have too as that would go into the deposit, repair work and fees.

I think if you find somewhere which ticks all the boxes then I’d go for it. I’m assuming your job is pretty solid and you would not have to relocate in the next ten years. I think a lot of the price drops are in, there will be more but then there will also be a rise in rates/ lack of full FTB TRS but one thing about now is that there is an absense of buyers. House prices will fall but good houses in good areas will fall a lot slower. My point is if you want to buy a Eurobox which is 20km outside Dublin then hold off. There is no shortage of supply and people who wish to purchase these are having trouble getting mortgages. If however you want to live in an established area with good schools, transport, maybe close to family, then I wouldn’t hang around too much. There are plenty of people who work for multinationals who haven’t been hit with paycuts and or redundancy. The VIs go on about pent up demand. In general this is bull, but in the more attractive areas I believe it applies.
Best of luck with your decision and remember its not all about the cash. You could be waiting an a long time for the types of drops suggested on the pin materialise. I could be wrong if repossessions begin but I certainly don’t think you are mad to consider taking the plunge now.

What does influence the price of this particular house to all concerned is what else is available within a certain distance.

If somebody steps up with a wad of cash burning a hole in their pocket and are willing to pay up then fine, let them. While there might not be another house available in this cosy cul de sac, you can bet there’s a compromise somewhere else that’s better priced, easier negotiated on, etc.

The days of paying over the odds no matter what are gone.

In the OP’s case… if they feel its right, go for it.

But rest assured, prices will drop further. I nearly shat myself when I saw my first 2011 pay slip. The cuts will have a serious influence on peoples buying power.

Following on from this I think the key point is how you would feel if in 3 years time the house that you buy is worth 50% less than what you pay for it? BTW I am convinced that they will fall by another 50% and so are many of the people who called the crash correctly. If you believe that a fall of this magnitude won’t bother you a huge amount, I would say go for it. However if on the other hand you are prepared to put up with the hassles of renting for another couple of years, then wait it out. It all depends on the nature of your personality.