hi guys, i’m a long-time lurker (well, not that long, first came across the board july 08), first-time poster.
introduction: i’m 30, still employed, renting.
the reason i’m posting is that i’ve just got off the phone to my mother, who tells me my little sister wants to buy a house with her boyfriend in the next couple of months.
i screamed in horror and told my mother: no, no! she must be stopped!
she said, but surely house prices have to recover some time. i told her i think they still have a long way to fall and when they eventually stop falling, there’ll be plenty of time to buy before they start rising quickly again.
my mother works in a bank and she says, well, people are still coming in looking for mortgages, no matter how bad things get people will still be trying to buy houses, start families etc. because it’s just what people do.
i argued back
irish house prices reached such outrageous levels largely because of the easy availability of cheap credit, which is finished for the foreseeable future.
there is already a massive oversupply of houses - look at all the empties
if masses of people are getting laid off and/or emigrating, where is the demand?
so while the drop in prices we’ve seen since early to mid-2007 seems enormous compared to the expectations surrounding house prices that grew up over the previous ten years, prices might actually have a lot further to fall and she will probably save a lot of money by renting a while longer.
my mother seemed convinced - but she was dubious about the idea anyway. but my sister is gripped by an inchoate yearning to have a place of her own to share with her future husband. she will take more persuading that it’s madness.
the pin hive mind has been teaching me how to argue this issue every day for the last nine months, but now that the moment of truth is upon me i am panicking and my mind is a blank. i need to explain to someone who doesn’t make a lot of money but may be prey to the delusion that all they need is love why it is a really, really bad idea to buy a house now. please help me save my sister.
Presumably she is old enough to make her own decisions/mistakes, however I know what you are going through. I have been in the same situation in my family and I just wasn’t listened to. they listen to me now though. i don’t really know what to say to you except give her your advice and then leave it.
edit: PS: welcome to the PIN as a contributor.
I had a similar issue a few months ago, well over a year ago now, and we eventually agreed that if there were two consecutive months of price increases she could go ahead with her purchase and we would figure out the difference of what she may have lost (price wise) by holding out and I’d pay her it.
We reviewed the numbers a few months later and I showed her how much of what would have been her total mortgage repayment had been saved - it was astronomic - and compared it to numbers of months rent… We haven’t talked about it recently because, frankly, I think the urge was fleeting, sadly - it was almost something to do!
A fine rational sunday afternnon solution. Best I’ve seen suggested yet (not sure I’d do the full money bit may a fraction of it )
Maybe we could make it into a PIN Emergency House Buying Attack Pack, with two pencils and a little note pad. We could have little OW & TUG figureens or masks. The possibilites are endless There could be a spellchecker quiz where you get to be TUG instigating random guerilla spelling tests form behind the sitting room couch or hiding in the under stairs storage closet. You could have a OW Paint by numbers where there aren’t any numbers and you get to make up your own anyway and paint what you like becasue its your life kinda game
Good job there wasn’t a sucker’s rally/dead cat bounce.
Regarding OW’s emergency pack, I’d be keen to see educational visual aids provided by WGU too. Pictures worth a thousand words and all that. Maybe he could create a powerpoint presentation for the pack?
You can try to persuade but you’re probably as well off staying out of it. They’ll probably go ahead anyway and you won’t be thanked when you turn out to be right (and I say that from personal experience with my own sister).
Your first problem OP is that your are dealing with a woman in nesting mode so your logic needs to be water tight and you need to hold out the prospect of a larger nest to her. Perhaps try the tactic of convincing her that if she waits she can have a 4 or 5 bed detatched instead of a 3 bed semi for the same money? However I fear walktothewater and Galway Skeptic may be right.
It’s not necessarily a bad idea to buy.
She might find a house priced well ahead of the market where it would make sense to buy.
I would talk her through the financial theories.
Renting is dead money - yes but so is the interest on a mortgage.
Get her to work out the euro/sq ft on houses she’s considering.
Get her to look at equivalent nearby properties for rent and compare the money she’d save.
Introduce her to the idea of return on investment, ie annual rent as a proportion of the house price.
Make sure she has property bee installed so she can see just how much houses have dropped in price.
Then basically sit back and take the “well if you’re sure it’s the right thing to do” attitude with appropriate levels of doubt and skepticism in your voice.
I entirely agree with you that house prices are outrageously priced and that the bubble has got to burst eventually. But…
Is this really true? Is credit really difficult to obtain to buy houses? I haven’t seen any numbers, but there is at least anectdotal evidence that banks are still providing easy credit in the form of mortgages of five or six times salary. This is clearly reckless lending, and the banks are likely to lose a bunch of money doing it. But the banks have already figured out that the taxpayer will cover any losses and nobody at the banks will lose their job. The banks’ shareholders got wiped out some time ago, so they have almost nothing left to lose from further reckless lending, and they have little control over the management of the banks anyway.
I understand that the amounts of new mortgages are way down. But the banks claim that this is because people have finally found sense and are refusing their money, rather than the banks suddenly switching to prudent lending policies. It’s difficult to know which explanation is true.
As for credit being cheap, nominal interest rates are very low at the moment, and the banks are even offering teaser rates to first time buyers that revert after a couple of years. It’s almost like they are copying all the things that the US banks did to create the property bubble there.
So there is at least some case to be made for saying that cheap and easy credit is still available.
There is a massive oversupply of houses in the sense that there are lots of empties. But those empties are only any good to anyone if their owners are willing to sell them at a price that the market will bear.
Most owners of these empties are sitting tight and refusing to sell at market clearing prices. The anecdotal evidence is that the banks are helping them do this by rolling up interest on their loans rather than foreclosing and making them sell. These people are sitting tight despite the fact that they could sell them at the outrageously high bubble prices that we are currently experiencing. So all the indications are that they are in for the long haul, and are happy to sit on empties until kingdom come. If they won’t sell at bubble prices, are they really likely to sell if the bubble bursts?
There may very well be some trigger that eventually forces these empties onto the market, but I don’t see it in the immediate future. Unfortunately all the empties in the world don’t do much to reduce house prices if their owners refuse to sell them.
agree with you there. the best illustrator of the current imbalance between renting and buying is a projection of the total cost. this might help jeacle.ie/mortgage/ie/
regarding the OPs mother in the bank, ask her if she agrees that interest is the rent you pay to borrow money and if annual interest repayments are higher than annual rent on a house then would it make more sense to rent.
i also agree that to capture her imagination with the notion that a house that she would love but currently dismiss because of price might actually become attainable is a great tactic; diplomacy is the art of letting other people have your way.
my last thought would be the words of St Francis of Assisi:
“Lord grant me the serenity to accept the things I cannot change,
the courage to change the things I can, and
the wisdom to know the difference.”
even if you fail and in the long run she can’t look you in the eye, she’ll always know that you cared enough to try.
There’s virtually no upside for you in talking them out of it (that won’t be remembered, even if they
decide not to buy). There’s a lot of downside if they ever get it into their head that they lost
the house of their dreams because of you.
Also, right now buying could be the right decision for some people, as long as they know what’s
likely to happen with prices.
Also, resist the “I told you so urge, it’ll make Christmas awkward forever.”
It depends entirely on how old she is or how mature the relationship is. What is likely to happen (based on cohabiting stats) is that she and her boyfriend will break up (60-70% chance) within the next 5 years.
So, instead of her looking at a home, she needs instead to focus on actually getting her boyfriend to become her husband. They are much less likely to break up and need to sell the house then.
It also depends on location and work. Is this purchase to start a family, an investment or simply to both shag each other for a while not in the homes of the parents. I suspect it is the third, as that is what most cohabiting couples do and why eventually, when it becomes mundane, they break up.
For sure, it’s simply that unmarried cohabiting couples are much more likely to have a relationship breakdown than a married cohabiting couple. That is why the maturity/age of his sister and her man are important; a 22yo buying a place with her 23yo boyfriend is not a good idea, entirely different if they are late 20s/30s and looking to settle for a reason other than indulgence (i.e., family).
If they buy, it will be for 25-30 years; I don’t think that there will be a “recovery” to boom prices, and they should not expect to sell this side of 15 years. furthermore, their interest front-loaded mortgage will see minimal written off the capital for the early years, i.e., it’s a long haul purchase.
“or simply to both shag each other for a while not in the homes of the parents. I suspect it is the third, as that is what most cohabiting couples do and why eventually, when it becomes mundane, they break up”
Ha, OT but do you remember those mortgage provider ads 'Please don’t let them be up…Please don’t let them be up"…with the guy and girl snogging in the taxi on the way home where each of them was living with the parents. Obviously the only alternative to riding on the other side of the wall from your Ma was to get into debt for 35 years for a 400k apartment in Tyrellstown!