1/ Mortgage interest relief disappearing at year end adding 10% - 20% to the Monthly Payment (albeit for max of 7 years)
2/ 10% increase mortgage costs (I went to BOI at start of July and was quoted 3.6% at an LTV < 80%, today on BOI website is now quoting 4.4%, seems to have been largely done on the QuieT, thinking now of holding off till late 2013)
3/ property tax reducing say an average yield of 6% by .25%, a 4% relative change.
4/ 3.5bn budget adjustment, that might knock say 3% off prices
it seems to me that property prices must be in for a savage drop, carnage to be exact, especially with the mortgage relief going.
i think it will not be fully reflected in prices until mid 2013 as sellers expectations alter relatively slowly-
any opinions on these thoughts & figures (v. rough) and the timelines to filter through to prices
Mortgage Int Relief 10% to 15%
BOI Int rates up .8% 10%
Property tax .25/6=4%
2013 Budget 3.0%
To be clear, mortgage interest relief will only last for another 5 years for someone buying today - and then on a sliding scale.
I don’t disagree with your rational rember456, however it’s not as clear cut as you suggest. Property tax, mortgage interest relief, and to a lesser extent rising (mortgage) interest rates and general taxation aren’t unknowns. Anyone buying would/should be well aware of these factors. And if they’re not the bank is and this is reflected in the mortgage approval rates and the amounts they are being approved for.
From what I can see the stampede of FTB’s looking to buy before the end of year has already happened. This was a relatively small group to start off with. They were sensible the first time around. Leaving it to the last minute and rushing to buy anything now just doesn’t reflect this segment of the population.
What I think has happened is that vendors and EAs have had their expectations raised by a, relatively, successful H1. I have viewed a lot of properties in the last few months and am sitting on some low ball bids. I got all the guff about loads of interest but having put in a bid which was summarily dismissed none have seen higher bids. All are waiting on the this FTB rush. It’s already happened. I feel October will see this realization.
I don’t expect the CSO index to be overly troubled with dead cat bounces or 27% falls. Vendors always pitch 10/20% above expected sales in recent years. It’s just they are now being a bit sticky in holding out. The reported bounce has brought more vendors to the market. However there simply isn’t the finance and/or savings to bridge the gap between asking prices and ability to pay.
At the moment the market’s eyes are too big for it’s stomach. I expect the slow grinding falls to continue till the point is reached where asking prices reflect buyers ability to pay.
Rathmichael: i think your right but will be seriously getting on by 2015
Howitzer: mortage interest relief withdrawal is not reflected at all in current prices as people buying now will still get it, but on 01/01/13 it will be zilch, zero, its a new ball game no?
regarding interest rates, there has been a massive change in policy over the last 8 weeks towards new mortage pricing, this was not expected so soon i think, but i welcome it as it shows the realistic/true cost of mortgages going forward and new buyers will now not be conned with regard to these costs.
here in the west of ireland, property that u would want to live in is still expensive, for me anyway, the monthly mortage cost for say e150,000 is nearly 1,000 a month over 20 years, too much, in fact i would be reclucant to borrow 100,000. i think its a lot of money and requires putting me out on a limb and i am lowly P.S. (if not outsourced soon by FG).
offtopic slightly a factor that has been largely uncommented on (hidden) by journalists is the 2011 census, there is a demographic cliff in the 20-30 age group, due to lower birth rates from the mid 80’s to mid 90’s.
Probably most important point anyone can make on any thread… I’ve noted this here and elsewhere but you are right…There is a huge demographic gap on the social conveyor belt compounded by the fact that say like my sister who was born late 80’s is not in the country by virtue of her emigration…
can you give more details on your calculations ? or is it finger in the air ?
Assume house price value €200k, mortgage of €160k, mortgage interest rate of 4.5% (from 3.6%) over 25 years
by my calculation (and open to correction by actuaries please)
by delaying purchase to 2013 for FTB and loosing mortgage interest relief for 7 years, the cost is approx 4%
(monthly interest = €600 * 20% relief for 7 years, present value = €7820 (discounted at 4.5%)
the increase in mortgage rate charged by bank from 3.6% to 4.5% will add €23,900 to the total repayment over the life of the mortgage, or PV = €15,900 or approx 8%
property tax rate of 0.25% over 40 years of living in the house, (assume inflation of 2% per annum over that time period) present value = €12,400 or approx 6% (IMF 0.5% is a huge 12%)
budget factor. ??
to believe that this is all factored into the current price, assumes every one has done the calculations and understands the consequences. no such thing as perfect markets.
Demographics are a funny thing. On first look 1994 was low of births in Ireland, 54k, or there about’s. So that cohort, who left school this year should have faced the lowest leaving cert points in years, but they didn’t. Why.
Because migration has had a huge impact. 10s of thousands of Irish people returned to Ireland in the years 1994 to 2005, often with foreign born but Irish, children. Throw in 400k non Irish, many with children, and we end up with a bulge.
I agree with the theme of this thread, a small rise over the last 6 months in Dublin would not have been completely in unexpected 6 months ago, but there are good reasons why they should start coming off again slowly. Very unlikely to see massive drops though, sellers are likely to be slow to adjust.
One other point that I would add to this is the mortgage arrears on BTL properties which the central bank are going to start publishing next month (numbers are going to be shocking). This is going to put that whole area of the market and I think there is very little political sympathy for these people so repossessions and resale of these properties is likely to be a factor in 2013.
Very dependent on external factors, but I think if we come off 15% over the next 8 months it might be time for me to make the plunge. One thing that I think is an important factor is that because of Spain the ECB rates are likely to remain extremely low for several years. I had always thought that Ireland would recover more slowly than the Euro area at large, but this not being the case could be quite inflationary for Ireland.
If repos dont start, this is pretty much the bottom. In Dublin anyway.
If as the OP mentions a load of new taxes are introduced it may have some effect.
I, on the other hand, know of no one in trouble on their mortgages.
(Disclaimer - no one has said to me that they were in trouble or finding it difficult)
On the contrary, (and I cant repeat this enough) one of the couples I know with multiple BTLs has negotiated reductions of some sort which allow them to retain full possession and rents. More to the point it allows them to continue a close-to-tiger lifestyle.
I know its not what people want to hear, but thats what I’m basing by opinions on.
Secondly, as prices fall money will move in from the sidelines to buy ‘cheap’ property.
There are plenty of people out there with large cash sums earning very little interest.
This is not money they ever plan on spending or need to spend in their day to day lives.
These people are looking at the longer term and are not put off by falling prices; they are looking to generate income.
This is exactly what is happening in the UK.
Prices have fallen and mortgages are hard to get.
However every 2 or 3 bedder that comes on below 150k is being bought by private investors.
The FTBs cant get a look in.
Hi, on a E150,000 over 25years at 4.5%, i think the monthly increase will have a large affect as many disregard future years payments as they hope to get promotions. wage rises etc but now in 2013 this wont happen and it is acting in the same way as those introductory mortgage offers used to, hiding the true cost.
This has been flagged in the media. Throughout the 50s, 60s and 70s there were approx 60k births a year, a birth rate of approx 21 per 1,000.
The number of births shot up to 70k plus in the 80s before falling back to low 50k throughout the 90s. Since the late 90s the birthrate has risen from 14.4 back up to 17 per 1,000 and the number of births from 53k to 75k p.a… Universities are preparing themselves for a bulge in the next 3-4 years and that’s one of their arguments for fees, they need money to expand it we want university places for those.
I can’t remember what the average FTB buyer age is but think it’s around 32 (open to correction) so in the normal course of events I would have expected that over the next few years, the numbers of FTB would start to fall. However, I suspect there is a large number of FTB that held off buying in 2007, 8, 9, 10 , 11 and 12 to supplement numbers.
Another important demographic is deaths as this will affect executor sales. The death rate per 1,000 has fallen from 11.5 throughout the 60s and 70s to 6.4 by 2009. There were 32,660 deaths in 1960 and 28,898 in 2009 despite the population in 2009 being 60% greater. Anyone expecting the supply of executor sales to satisfy demand is going to be disappointed.
Any idea what might happen if we get a debt deal and manage to flog our zombie banks?