Close to home - real life reality

My little sister and her partner are putting down the refundable deposit on a new 3 bed in Carlow today (it’s 230k from what she said). I firmly believe that things are on the way down and feel she is making a mistake. I have made her aware of my feelings - without being down right rude.
My father was more obvious in his opinion that she should hold off - so she “isn’t really talking to him right now” :question:

I have tried to explain rental yields and how low they are, shown her an article from Business Plus which wasn’t that negative but outlined affordability levels are the highest ever… Explained to her there will be a min of 2 IR increases and possible 4 this year - she just doesn’t want to hear…

Are there any other points I can make? How low do you genuinley think things could go in the next 12 /24 months?

I believe the bottom price where property will fo in 12-24 months is where the rental yields return to 5-6 percent. A couple of areas in Dublin 4 and south dublin as well as the best areas in the other cities will be exempt from this.

Morgan Kelly is in the top five for best economists in Ireland… … using1.pdf

or more technical … ousing.pdf

Is there any examples of prices drops in the area on our lists? Maybe you could find one yourself, that might shake her?

Only 5%? That’s very low by historical and international standards in rational housing markets. Gross yields of 8-9% (net about 7.5%) are more normal, I think. The old traditional rule-of-thumb for a value buy for professional property investors was to buy when the price was 120x monthly rent - a gross yield of 10%!

Again, when rational investment strategy re-asserts itself, why would you go through all the hassle of property investment for a 5% gross yield when you can pick up 5.5% on a high-yield deposit account right now, and that’s *before *another 0.5% rise in the ECB base rate this year!

If we assume that in the long-term, yields on hassle-free cash and near-cash liquid instruments average around 6%, then property simply does not make sense at all unless the net yield is at least 7%.

Diatom - excellent papers.

There are no examples in the price drop forum. The property is down the country so the market is slow to reveal problems. It was never unusual for houses to stay on the market for 12 months+ anyway…

If the area was to revert to a 6% GROSS rental yield the house price would be €160k - which is a big drop from €230k… 8% or 10% GROSS is terrifying…

A *refundable * deposit? For how long is it refundable? Maybe if prices fall fast enough in the timeline that they can get their deposit back, they’ll see the “error of their ways” themselves and still get out without losing any money.

At the end of the day, they’re old enough to make their own decisions.