Primetime tonight on SCD bubble

rte.ie/news/primetime/2013/1 … mber-2013/

Gavras – Thanks for the heads-up will definitely watch it.

From the link above written by Robert Shortt.

“TCD economist Ronan Lyons, who analyses the Daft.ie data believes the spike in prices is a once-off phenomenon. He thinks it’s principally based on the pent up demand from a generation which through luck or circumstance did not purchase during the boom. They’re forming their own households now, starting families.”

Emphasis mine. Are those really the only two options available as to why someone didn’t buy during the ‘boom’?

I personally made a definite decision not to buy. Does that count as luck or circumstance?

Its funny I remember 2005 having a conversation with a guy in work who was eyeing up Longford as a place to commute from,he genuinely believed that if he didn’t snap up the 3 bed semi for €185k that this was him finished with ever owning a property,this was the last chance to get on the property ladder before it just simply became unaffordable for him,such was the groupthink at the time.

I remember a girl I worked with in 2003/2005 commuting from Cavan to SCD for work.

Jaysus. Hope she is ok.

The spike in house prices in Dublin (and it is happening elsewhere) is due to the fact that Ireland - uniquely in the western world - has an almost 0% foreclosure rate

The reason for this is that the Irish banks needed all their new capital for commercial losses (which are far greater then anybody expected). They have no spare capital to take hits on the residential book and their political masters have no desire to have people loosing their homes. Davys showed in their August 2012 report that 54% of the Irish mortgage book dates from 2006 to 2008 and is therefore probably 60% down (incl stamp duty) and all ECB tracker linked (ouch for the Irish banks). Even though people can’t afford to move due to deep negative equity, their mortgage payment has fallen. While such a situation is too intimating for people to do much with this spare cash, they are eating and drinking out more to meet friends to lift their spirits (why the Dublin restaurant trade is booming).

If have a 2m mortgage on a house that is worth 1m and you have lost your job then you can stay where you are. If you pay 2k per month (or 1% per annum) you won’t even get a phone call from the bank as they are getting 0% money from the EU. If you don’t pay anything they will hassle you but nothing wil really happen (you can always pay 1k per month if they go mad). It is still far cheaper then renting. People are crazy to pay their mortgages unless they are in the money on the house. If not then pick the lowest market rent for your property, divide by two, and pay that when the banks start to get tetchy. It is Drahgi who is subsidising you so take the benefit. It is the thing Honahan fears most as he knows the banks don’t have the capital to foreclose (they continue to hold the loan at full value) but they need to make money on Draghis 0% money.

If you have no house then now that Bank of Scotland are getting to the end of their exit process, there will be no more stock on the market outside of death / downsizing. There would be a lot more downsizing if our property taxes where progressive (as with most taxes in Ireland) however with interest rates at almost zero, older couples are avoiding downsizing until the last minute as whatever they get will have to last them to the end.

This is the perversity of the ECBs actions in Ireland - drown the system in 0% debt to get the Irish to carry the maximum possible a amount of principal debt as possible. If the Germans ever raise short term rates, Ireland will be kicked into an immediate recession.

I’m sure that the programme will quickly default to its real point whicn is to ally fears of people that SCD property is rising too fast. All the same economists (cheerleaders) from 2006 will put it down to Ireland’s knowledge (tax evasion) economy and point out that prices are still 50% of peak (ie keep calm and keep buying) and affordability is never better (ie lever up at even lower rates as it is all about the interest payments - never mind the capital).

Draghi wants you to try one last bubble at even lower rates and your Government is with him.

Never in a million years would I have ever imagined myself saying this, but here goes - Jim Power is talking sense.

Never thought I would say this either :slight_smile:

Balanced reporting by Prime Time

balanced allright!!!..it’ll take 4 to 5 years of double digit growth before the lads would be prepared to call this a bubble!!!

550k for a 3 bed executor sale (in need of modernisation + more) in Booterstown and they were queuing to get in the door…lovely stuff!

Didnt see the programne.
Whats the address of the property in Booterstown ?

it’s on rte+1 right now if you have it

Just from a quick scan on myhome, this looks like the property…the sitting room looks identical from what i can remember
myhome.ie/residential/brochu … in/2616120

that looks like it alright…

I think I had my own eureka moment on Irish Property when I saw people on the 6.01pm news sleeping in their calls to buy houses/apartments in some development in Dublin might have been 2005/2006. Between that, reading a lot and the Pin starting up I just felt that this was mad. I got that same feeling tonight looking at that house in Booterstown. No disrespect to the house or the area and best of luck those who buy there I hope you have done your financials and you have a great life. But there is probably €70/80k to be spent on that house allowing for the inevitable glass box extension beloved of teh Dermot Bannon school of architecture so your not gong to see change out of €700k…So the Discostu school of Mortgage lending
Deposit required € 140k
3x Principal earner say € 300 @€100k pa
1.5 times secondary earner € 150 @ €100k pa

total €590k so two people on €100k come up short by over €100k

Maybe this is me but that is the way I look at it

They fall short but that’s where their well off middle class retired parents come into play.
A lot of the gaffs I’ve looked at this year had couples in their 30’s or so giving serious attention to every nook and cranny…and they had the parents with them and I’m sure they were’nt there to pass the afternoon. Personally, I could’nt think of anything worse than bringing the folks/inlaws to house viewings with me…unless they had some ‘skin in the game’ :wink:

Jim Power proposes among others:

  • lower LTV restrictions on borrowers
  • stricter income multiples
    as a means to take the heat out of the current Dublin market.

When the majority (57% according to Savills recently) of buyers in the current market are for cash, stricter controls on the mortgage market seems to be missing the point - is he still living back in the boom? As everyone has pointed out, we’re not in a credit bubble, so why the dose of credit bubble deflationary salts? It might be a good idea Jim to try and diagnose the current market dynamics. Give up that aul snake oil.

On the demand side, Banks are religious by all accounts in their current application of max 90% LTV for mortgages up to 450k, and max 80% or lower for mortgages above 450k. This means a significant step up in the level of deposit required for borrowers on the market once the price starts heading north of 500k: the increase in deposit required is not linear with increase in house price.

The below table shows the Minimum deposit required, when applying above rules for a range of Purchase Prices, with the Total Mortgage size and implied Monthly repayment at current rates of 4.7% on a 30 year mortgage.

Price Deposit Total Monthly
400 40 360 1867
450 45 405 2100
500 50 450 2334
510 60 450 2334
550 100 450 2334
575 115 460 2385
600 120 480 2489
650 130 520 2696
700 140 560 2904
750 150 600 3112
800 160 640 3319

That means for a dodgy looking 3 bed semi in Booterstown costing 575k, the potential buyers would need a deposit of at least 115k, before any renovation costs (at least 20-50k for a standard makeover), and will, at current variable rates have a monthly mortgage bill north of €2380, interest rate depending, for the next 30 years. Don’t give me any grief as to how few houses total went for north of 500k - we’ve just seen a prime example of a very modest 3 bed semi, located, while not in Finglas West, neither on Ailesbury Road. This appears to be the going rate for a typical “dream” family home - 120 sqm (wow… not), 3 small beds and a large postage stamp of a back garden. And that’s north or south of the river in most cases. Sure there’ll be SoCoDo Mummies and Daddies happy to throw some grands the way of their offspring with a view to having their offspring’s offspring nearby, and a few endowed grannies shuffling off the mortal coil just in time, but that size of deposit must surely be considered spectacular, black swan, rather than average, in contrast to the house it’s required for. Don’t forget the generation we’re talking about looking for these family homes may be high earners in their early-mid 30s, but they’re also paying a grand a month per child for creche fees, having recently splashed out 20-30k for a wedding, and were on fairly basic trainee solicitor/accountant salaries for much of their 20s, so their ability to have saved considerable amounts per month on average for a decade is likely to be compromised.

Next interesting table is if you compare the same mortgage sizes for someone taking out a mortgage now, at 4.7% variable to someone who took a loan during the boom - average tracker mortgage according to CB is I believe results in effective interest rate of 2% (and I know of many with lower). Yes I know during the boom much higher LTVs were permitted, but let’s keep it simple for now.

Price Mortgage 4.70% 2%
400 360 1867 1330
450 405 2100 1496
500 450 2334 1663
510 450 2334 1663
550 450 2334 1663
575 460 2385 1700
600 480 2489 1774
650 520 2696 1922
700 560 2904 2069
750 600 3112 2217
800 640 3319 2365

So while the headline prices in 2013 might be lower, in terms of affordability, you’re paying more or less the same for a 575k house now as you would be paying if you bought an 800k house back in the boom.

In the Irish employment market, unlike the City of Lon, there are very few who earn significant cash sums intra-year. You’ll get the occasional Facebook early employee selling RSUs, the odd returning emigrant or seller of a business, but I posit that these are more statistical black swans. So the 57% of cash buyers out there are fundamentally hitching their wagon to the other 43% who are taking out mortgages. But while there may be a backlog of people who:
a) were lucky/wise/unable to buy during the boom
b) are buying up the drip of family homes coming on the market
the number of those able to afford such black swan deposits, and such significant monthly repayments must start to run out as prices increase (linearly) above the magic 500k.

So what of the cash buyers of family homes? People who were lucky to have sold at the peak, and rented since, who probably should have been taxed for their fortune 5 years ago, but weren’t, the odd trader upper who bought in 1990 for £35k, wants to sell today and pour his pension into a bigger house - again while I acknowledge there are large deposits on aggregate sitting in Irish banks, I can’t see why a significant % of that cash would go on family homes. Family homes typically have a different profile to investment properties.

On the supply side, any opening of green/brownfield sites in des res areas would of course be appreciated. Equally, as prices have risen for the first time in 5 years, I would expect that some people other than the recently deceased will start to sell houses. There is a pent up desire to sell in certain segments of the market as well. And all that is assuming, as I think I’m right in assuming, that there will be no material release of repossessed house. John B may be long gone, God rest him, but the spirit of the Field lives on in Irish politics, not the mention the Joe show.

In summary, I think Jim Power is talking through his proverbial when he talks about this having any potential to go on for 4 or 5 years of sustained increases. No underlying fundamentals. Plenty of clear reasons for what’s happening at the moment. But none of those reasons point towards this trend being a long term thing.

Oiche mhaith!

You are completely missing the point. If SCoDu house prices are increasing by 6 per cent a year what will be he scale of growth once lending increases again? And have no doubt that it will. Mortgage lending in terms of number of mortgages granted is down at 1971 levels. Even if lending rises to 1971 levels it will have a massive impact on the market.

In addition, regulation of loan to value ratios and income multiples like Power suggests is a good policy full stop. If it has been in place in the early 2000s our boom would not have been so boomy.

Lending can only really increase with more sales though. The problem is that there is not enough houses genuinely for sale currently.

Lending per capita is still likely to fall from here.

The aggregate amount of mortgage debt is way to high for our economy
The problem is that releasing this for new lending requires taking losses on existing mortgages
Something that the Irish banks have no capacity to do
What they need is a new bank to enter the market
The problem is that this bank needs a 0.5% deposit base which no start up bank could do
The problem for a non-Irish Euro bank is that their own balance sheet is needed in their home country
A US bank however could do it ?

€550k+ for that house is nuts. I’m glad i was raised and wanted to live on the north side. I’d never be able to afford close to that, even though we have two quite decent if unspectacular incomes.

It’s pretty easy to see why pinsters are declaring themselves out. No way i’d like to be tied to those mortgage repayments for 30 years.

Conchubhairb’s point about that being an €800k house on a tracker mortgage is excellent.