How cheap or expensive should a house be?

All this talk of boom and bust, but what, exactly constitutes a fair price?
(Excluding “the market value”?)

Is It a multiple of your annual wage/income?
is it a ratio of rent/mortgage repayment?

It can be seen that house prices are high at the moment, but can anybody explain what “high” is? :question:

A reasonable return on investment for property would be deposit account rates plus at least 2%, more like 3%. So today, you should be talking about a net rental yield of 7% or so.

I know of houses renting for €1500 per month - 11*1500 = €16500 per annum. Even a 6% yield would see that house priced at €275k. Similar properties are currently for sale at between 520k and 560k.

Alternatively, average house prices are 10 times average industrial wage, when historically they have been closer to 4/5 times average wage.

ditto for the stupid rents.
In our estate, two identical houses are on the market (4bed semiD)
for sale =€400k
rent= €1000pm

Nuts :unamused:

Bottom line is prices need to fall by 50%.Rents can’t be allowed to increase otherwise you’re straight back on the inflationary merry go-round again.
With more economists expecting numerous interest rate rises you are looking at rental yields heading for 10% otherwise the money is safer in the bank due to less risk.
Get the picture?

Net rental yield= ???
Anybody care to give a lesson to this idiot?(me)

is that = ((net monthly rental income*11)/house price)*100%

and what are its implications?

THats almost about the size of it except that a house is inherently a depreciating asset so you need to put aside money for renovation etc.

Also for a lot of new builds there will be service charges of typically 1 month rent (that is not a rule it is just coincidence that at the mo they appear to be about 1 months rent)

So it would be closer to 9 or 10 months rent as net income.

Thats it alright.

I was intentionally being conservative with the figures just to illustrate how far out house prices are. In reality, StoppedClock could well be right allowing 2 months rather than 1 month for maintenance. Likewise for Gatelodge, I was being conservative with a 6-7% yield.

That 520k house I mentioned could conceivably be worth less than 200k, although given its location I think vacant periods are less of a risk once the rent is priced appropiately. In that sense, there is less risk therefore a slightly lower yield could be justified.

That said, it shouldn’t have an asking price of over €300k in a sane market where one would expect to negotiate down rather than up, as has been the case in Ireland in recent times.

16 times the annual rent is the fair price.

Hope that helps :laughing:

Great question…something which I’ve touched on in other posts.

A house is worth whatever you can afford to pay for it, taking into account the quality of life you want to have. So you could probably get a €500,000 house if you never socialized and walked everywhere for the next 50 years.

There will not be a crash in house (excluding apartments) prices. There is just too much demand. The financial arguments put above are excellent I’m sure, but how many people seriously say “a house is inherently a depreciating asset” or other such financial arguments? Unless you’re an investor, people are more akin to this guy thepropertypin.com/forum/viewtopic.php?t=1522 when buying.

So a house may fall from €500,000 to €400,000. Some (couples) will have the financial clout to buy at that “bargain” price (thus slowing the ‘crash’), wheras others (singles) will just have to realize they’ll never be able to outbid a couple.

Good question, and something I’ve wondered about a lot when thinking through if/when to buy…Not sure I’ve a specific answer…but the problem with all the 12/20 rules and income multipliers to “prove” overvaluation is that they were set when interest rates were generally higher and usually there was only one salary in many houses.

So while I do accept that house prices are very high (we’ve seen 20%+ falls in Sth Co. Dublin this year in some houses we’ve looked at) and that the correction we are seeing is long overdue, the structural changes in society (fewer kids, more dual-income couples) mean the some of these “rules of thumb” should be adjusted upwards, surely?

How much of that structural change is led by 15 years of increasing house prices though?

On the one hand, couples are put to the pin of their collar to afford to buy a house on a single salary, and “affordability” means they are less likely to adjust to a single salary within the years after purchasing where many would have historically begun families. Could that be contributing to the trend of couples having less children, and later in life as well.

On the other hand, construction has soaked up such a huge proportion of male employment (1 in 4 apparetnly) that record numbers of women are participating in the workforce. Again, this may be down to social progress, but if house prices were to crash with a resultant fall in employment, will women find themselves “out on their ear” while men revert to other sectors of the economy, thereby reducing female participation with a resultant reverse in family demographics?

It’s a chicken-and-egg situation really - I’m just putting forward the other side of the coin.

Even with fewer kids and more dual-income couples we have had to push the lengths of mortgages out and the salary multipliers up. If it was down to people having more money then we would still be on 3.5 X over 25 years.

I think the most succint answer to the question of how much a property is worth is “How much will the bank lend you?” I am in no doubt that if the banks would/could lend people 10% more this year than last then houses would be “worth” 10% more.

Ok,
So the PRICE of a house is meaningless, and its VALUE is based on market sentiment. that leaves us with one remaing factor=Debt.

So, it can be argued that house debt is the real term we are looking for.

4 years ago. i went into €200k debt for my house, Today, i would need to go into near €400k debt to buy the same house, yet my relative income has stayed the same (changed from contract eng’ to staff)
and my costs have increased (inflation, intrest rates)
So what the hell is going on?

(the subject of house debt could fill another forum i suspect)

For people to accept dept, there has to be a return,
The return for housing is either an increase in value, or a reduction of debt/house value ratio. (ie after x years you own it) plus, you get to live in it whilst servicing the debt.

people will measure the worth of this debt against a fixed point (the only one-rentals)
Now, Rentals provide the anchor for housing. and people will (or should) look to the equivelent rents as to the wisdom of going into debt to live somewhere. because if it costs 5c pcm to live in the next house on the street. and it costs you €1000 pcm to service a depreciating asset/debt(your house) then it obvious which people would chose to live in.

moving on…

If rental prices are therefore the (remote) foundation of the housing market, the actual price of a house is set against this “foundation”
But rental prices are not (as far as know) set in stone and they usually a relative to the cost of the investment, ie the cost of the house to buy.

a self perpetuating circle.

which my friends, is fed and fulled by the goverments mismanagement of the economy and the inabillity to restrict credit. which is in effect tranfering wealth from the lower classes (you and me) to the higher classes (landowners/bertie/bankers)
And i know of no limit to capatilist greed.

to close this waffle,

when i bought my house, it’s cost was relative to 3.5 times my wages.
nowadays it requires 6/7/8 times my wage.

so what is the limit?
how much debt CAN people get into to own a house???

generation mortgages anybody??

  1. No, the return could be simply having a place to raise a family.
    There doesn’t always have to be a monetary return. That’s just an added bonus.
  1. No they won’t - except perhaps investors. See point #1.

I still think 275K is an extremely high price for anything but a truly palatial bit of property.

275K will buy 17 kilos of solid gold, remember.

What is a house? Raw materials cost no more than 25K on the international open wholesale market. Circa 40K of skilled labour to turn it into a house.

So where does the extra 205K come from in a reasonable world? Oh yeah, I forgot that you need to give your pound of flesh to some middlemen in order to get permission to build your shelter.

So once again, it’s the “we’re different” sentiment. Our bubble is a special one - so there! I’m sure quite few people had similar ideas before the crashes in Japan, Boston, UK, Finland, Holland, etc, etc…

Apologies for the error re previous post.

Yes but demand for how many? One home per 1.1 extra of population? That’s the current rate of building, no matter what way you do the maths on what the country needs you come out at little over than half the current output without the speccuvestors the slack will swamp the market and depress prices, hence 260k vaccent and thousands of new homes comming on to the market every month and not selling.

corkrenter>

…yes, “apartment” homes, not “3-bed semi” homes, and these apartments will be the focus of the crash. The “demand” whatever it is, will soak up houses, starting with the “best” locations. No question. Those out in the sticks will fare less better, but a crash on the scale of what is/will happen to apartments won’t occur. Irish are umbilically linked to owning a house. Renting will always be seens as a stop-gap measure.

Pill>

Ummm…not really. It’s always what is in plentifully supply will feel the pinch first, i.e. apartments and badly located houses.

Remember that the UK has just undergone a crash/slowdown, and you don’t see anyone jumping out of tall buildings just yet. House prices have either stablized or rising. Research the recent UK slowdown: that will be replicated here over the coming months/years.

I agree entirely crashandburn.