Average house prices could still be overvalued by up to 30%

irishtimes.com/newspaper/opi … 08815.html

Excellent article.

Yes indeed, I’ve been thinking that they have been overvalued by about 25-30% myself.

I know we’ve had Nyberg and the other reports but this gets to the bottom of where the real problem is:

"The third Bacon report in June 2000, when discussing changes in the model used for indentifying drivers of house prices, noted: “. . . the very dramatic change in the effect that the previous period’s price is having on the current period price level”. This is the essence of a bubble – a cycle of buying driven by expectations of further price increases unrelated to any increase in fundamental value.

The fear of a property crash permeated the Bacon reports and the limited policy recommendations emerging from the reports reflected this. In any event, the actions taken as a result of the three Bacon reports were reversed under concerted pressure from vested interests. In retrospect, how lucky we would have been if we had experienced a property crash in 1998, when the first Bacon report was issued, rather than 10 years later."

Ie we knew about the bubble for a long time before the crash and that actions taken becuase of Bacon were then reversed because of political pressure.

This is a key observation and is at the heart of the paralysis of official policy:

I believe it is an absolute requirement that attempts to draw lines in the sand stop. Until they do, enough will recognise the game as still rigged (i.e. those in a position to part-fund their purchase and to make continuing payments on it).

We are still borrowing €20 billion more than we are earning and pumping it into the economy, this will not continue much longer.Where will these cuts come ???. Can the landlords dole be maintained in this enviroment ??? What does this mean for house prices and competitivness if this continued market prop is maintained at the expense of everybody else in the country ???

Unless we have a large open fire sale so all the people waiting on the sidelines see real value and decide to buy, i predict falling prices for the next 5 years with people on the sidelines simply sitting there. I’m one myself, i will buy in the morning if i see sustainable value, only a mass firesale will show everybody the true value of property in ireland today and really put a floor on the market.

Then we have the whole asking prices farce, some are there , some are getting there but many many sellers are still looking for bananas money with maybe 15% drops since 2006, the “experts” are telling us 50% a mass fire sale would at least bring all these people into the reality of 2011 and the irish property bust.

So the long-term average price ratio for houses in Dublin is 5.3?

Folks on here looking to pay no more than 2.5 times earnings will be sorely disappointed.

And the author, not a dry academic is he??

"Martin Walsh was head of lending at the Education Building Society from 1988 to 2003 "

I cannot see house prices finding support at 5.3 times wages, presumably that would require both a healthy property market and economy, neither of which we have.

Even if property prices dropped enough to make our wages competitive, we’re still saddled with the debt burden of the last bubble so in reality, there is no way our wages can become competitive with Germany, big thanks to FF and all the other cronies.

Why is he working off a 5% yield?
Shouldn’t it be higher than that? (Closer to 10%) There are well located apartments etc. already yielding 10% now.

is he not saying the 5:3 is a ratio rather than a multiple?

No, I think he is saying multiple, but remember this is a price multiple, not a mortgage multiple. If you take 20% off for deposit, you get 4.24 for a mortgage multiple.

You also need to remember the skew that high priced houses give to an average. While low-priced properties might be closer to 3x, higher priced ones will be closer to 7x or 8x because they are bought with a larger cash element (outside bubbles).

I think we are going to be a bit disappointed with our house price index as we will find it hard to match incomes to prices and mortgages to incomes and mortgages to prices - unless we end up astonished and this information is collected.

Also, 5 or so is a long term multiple in other western countries the US etc.

I remember chatting with a guy from dept of finance on way to airport in May '09, and he reckoned house prices would drop 80% from peak. Still a way to go then, say, 25 - 30%?

One thing that has tickled me in recent years is how several different valuation methods all cross-corroborate each other:

Income multiples for mortgages
Disposable income for repayments
Yield analysis
Long term trend
Price per sq. ft. v. international comparisons
Qualitative comparisons with property in other comparable countries

I’ll bet you could pick any property in Dublin* and try all these valuation methods and they’ll all give you very similar results, or at least a fairly tight range of prices. And in turn that range will say pretty much the same as the IT article: we’re still 30%+/- from the bottom.

  • With the possible exception of city centre 1-bed apartments, which are nearer the bottom than most IMO.

Because they are near life expired :frowning:

Why do I find this particularly funny ? :laughing: :laughing:

Interesting analysis. I’m looking forward to his views on the next bubble.

I think all this focus of “the bottom” is actually a bubble mindset. It’s almost implying that this is when the bargains will be had and the only way is up and people will start piling in for the next bubble.

Some people on the Pin are of the alternate opinion that there will be no bounce and it will just dribble along at the bottom for many years. i.e. a stable market that fluctuates with average industrial earnings.

So it might be healthier to rechristen “the bottom” as instead “long term economically viable norm”

There may be a bottom feeders jackpot for careful pinsters who have saved up the price of their Ranelagh dream home. For everyone else it’ll just be really difficult to borrow money.

European or African?

If you are an investor (towards a pension or otherswise)
Does it not make a lot more sense to invest in a portfolio of stocks yielding an average of 5% with growth potential than getting completely leveraged up on property and investing in an asset that is more likely than not to drop at 20 - 30%?

Even for an inner city apartment yielding 10%, you still need to look after the place - tenants, damage, calls in the middle of the night, replacement furniture. Seems like a lot of hassle even for a decent yield.

But… but… but… the best is yet to come, no?