house prices in the next 10 years

Good articel in the indo, for once!

independent.ie/business/prop … 80550.html

*A question I’m often asked is when are we going to see the property market ‘pick up’? Some who ask this mean, ‘when will we see property prices at levels anything like 2007?’

But we need to remember that the price level is not the indicator of a healthy market – in fact, rapidly rising prices are a tell-tale sign that the property market is in an unhealthy bubble.

It is instead a sustained increase in the level of transactions that will mean the market has “picked up”. Back in 2005, there were almost 40,000 first-time buyer mortgages given out – I think we all agree now that this was an unhealthily high level of transactions.

However, we have now gone to the other extreme. In 2011, there were only 6,300 first-time buyers, in a country that generates probably between 25,000 and 30,000 new households every year.

Recovery will be seeing that number of transactions roughly treble over coming years. And that’s about credit and confidence.

But even if the number of new mortgages does treble, we should not necessarily expect any big increase in house prices.

In fact, we should hope prices don’t increase. If there’s one clear lesson from economic history, it’s that in healthy markets house prices do little more than match inflation.

This is a hugely important message for people holding off on putting their property on to the market at the moment. The average house in Ireland has fallen in value from €375,000 at the peak to roughly €150,000 now.

There appears to be an attitude on the part of some would-be sellers that ‘if I wait a few years, my property will be back up at €200,000 or €250,000’.

This forgets that what may seem like a small difference on the way down is a big difference on the way back up. If house prices increase by 2pc a year on average once they’ve stopped falling, €200,000 is 15 years down the line from €150,000.

A return to peak prices is a full five decades away – we should forget about what things were worth ‘back in the day’ and start thinking in terms of our new reality.

What is that new reality? Well, whether one couple can afford a house is determined by how their mortgage repayment compares to their disposable income.

With an average mortgage rate of 6pc over the coming generation, a 90pc 30-year mortgage on a property worth €150,000 would translate into a mortgage repayment of €800, which seems sustainable for a couple earning €55,000 a year – or just over €3,000 in disposable income a month.

Ultimately, though, the value to society of a house is not determined by what one couple can pay for it. The fundamental value of property is determined by the value of the services it offers to residents. To see these amenities, we can look at rents.

The multiple of a house price over the annual rent is an easy way to see how overheated a market is. Aggressive buyers look to pay 10 times annual rent, while families are often happy to pay 15 or even 20 times rent.

In the boom years, though, people were paying 50 times the annual rent to buy a house.

Getting people thinking in terms of rental multiples when bidding is probably the single biggest step towards thinking in terms of our new reality – and also the best possible precaution against negative equity and future bubbles.*

Do you guys think that after we reach the bottom of the market that prices will only rise by about 2% a year as the article suggests?
Assuming that this is the norm in a healthy housing market what factors would result in prices rising quicker?

I can only guess that they are basing the 2% figure on the fact that the Euro is targeted towards inflation at 2%. Fed also recently took this figure as their goal too.

NAMA is also very long winded but the writing is on the wall and let them all fuck off for ever.

Who wrote this article? I didn’t see a byline after a quick skim.

Read like a Ronan Lyons piece to me, but I’ve no proof.

It was a very good article, and I suspect the author brought it into the office on a USB stick with a hoodie covering his face, in case the rest of the Indo staff found out someone was talking sense about property prices in the wounded Celtic tiger.

Clearly printing this in the indo was a mistake, it could not possibly have been intentional.

To add my 2c,

As the population grows (faster than in most OECD countries) , will that not increase demand/prices faster than five decades, the writer seems to only focus on inflation as a benchmark, Ireland is not Germany and will probably never be)?
On the other hand, peoples income took a massive hit in recent years and it looks grim for those of us who are not in IT, Finance and etc (not that it looks much better for any PRSI worker).

I think long term equilibrium is determined by different factors than short term. 10 years is long term. in that time frame we can talk demography and the slope of GDP etc etc . the problem in ireland is that the short term is so volatile. no-one really knows whats gonna happen. there are titanic shifts happening in the eurozone in real time. we simply don’t know what the base for the long term discussion is…is the base for long term at px minus 20% (or worse) or at current px? and in which currency, matters a lot

This was a justification constantly used for bubble era prices.
Ireland is a sparsely populated country with enough land zoned for decades of strong population growth, there is very little real constraint on potential supply.

In fact some estimates on this site have parts of the country with 45 years supply of housing.

+1

The only real constraint at the moment is that it is cheaper to buy a house than to build it even assuming zero site cost and no county council levies.

Ample excess supply of apartments, but not houses.

To be fair there is also an over supply of sites

I know that rating agencies outlooks are not so well regarded …so don’t shoot the messenger! Notwithstanding that, as of today, fitch ratings are estimating a house price drop of 60% (from the '07 peak) and possibly a mortgage default rate as high as 20%.

LINK

What will be the outcome of some or all of the following in the context of house prices?

  1. Personal Insolvency Legislation
    What’s the current expectation on the enactment of Personal Insolvency legislation? What’s the likely effect of this on house prices?

  2. House Price Register
    What is the current expectation with regard to the implementation of a house price register? How well implemented is this likely to be? I’m not sure if this was nailed down - but I recall instances of this being ‘fiddled’ in the UK (remember it being featured on watchdog (or similar) in relation to properties in the London docklands where the property register figures were inflated - to encourage sales of other apartments).

  3. Property Tax
    How much of an impact is the upcoming property tax likely to have on house prices? Furthermore, what is the current expectation as regards when we can anticipate enforcement of same?

  4. The scrappage of Mortgage Interest Relief
    Assuming they don’t extend it - and it no longer applies after 31st Dec. 2012 - what impact with this have on prices?

  5. A euro exit
    If we were to go back to the punt tomorrow, what would be the effect on house prices?

  6. The NAMA Property Portfolio
    Surely this will have to be released onto the market at some stage??

I know there are variables with all of these - but most if not all of them are negative are they not? I know all of this has to be taken into account alongside the state of the economy as we progress - but nonetheless, does it not suggest a negative outlook??

Not many decent sites in SCD except the back of people’s gardens masquerading as a site…

The rather large on on Grand Canal St is now sold I see…

Good post.

I would see MIR, property taxes, register and insolvency legislation having very little effect at the mid to upper end. The insolvency legislation does not allow people to “walk away”. Banks are not aggressively enforcing anyway. The register isn’t that different from the old auction results from the Indo. MIR and property taxes are a drag but not so that a 500k house becomes worth less as a result.

The macro questions have made us weary. If you’re young and nervous you can wait. If you want to own a home you go ahead and take your chances. Trying to guess a negative effect for those factors is hard. It’s there but probably as a brake on bank lending more than spending. There are also arguments why bricks an mortar is better than cash in a euro breakup.

Personal views. Most people would be more pessimistic.

I’ve talked to a number of builders over the last few months who see a good opportunity to build quality family homes and to sell them at these prices.

House price are reforming themselves as predicted. No news there and nothing you can bother doing other than plot your course according to your wants and needs.

House designs in 10 years time

Planning reforms in 10 years time

Population trends in 10 years time

Energy stability in 10 years time

Food stability in 10 years time

The resistance to reform and openness is a premeditated disaster.How then can you cope with the random reforms the world throws at us all.

If the greater story was a simple as house prices we’d all be millionaires living in millon dollar gaffs right!!? :confused: