Buying houses

Ken writes:

We’re starting to look for a house. It is mostly Dot’s idea. I would rather put our meagre savings into starting a business. I’ve taken a couple of start your own businesses courses and think this will be my only way back into employment (speaking frankly, I don’t think Irish people will give jobs to a Kiwi while there are so many Irish out of work). This basic disagreement is a routine cause of marital tension, but we work at these things and I’m sure it will be possible to meet in the middle somehow. I also quite enjoy looking at property websites.

I’m quite bearish on the housing market. I think we can afford to take it slow because there are a lot of properties on the market and prices are likely to continue to fall for a week while yet.

I read a lot of opinions on this matter:

  • Here‘s the forecast for 2011 from Irish Mortgage Brokers who we’re using to find a mortgage.
  • Then there are discussions such as this one on the Daft.ie website. There are some very pessimistic commentators out there.

    Here‘s another pessimistic discussion that started in 2009 on the Property Pin forum concerning the ‘long term economic value’ of Irish property (“long term economic value” was introduced into Irish public discourse by the National asset Management Agency (NAMA) legislation to buy bad loans off the Irish banks). It has a useful graph of inflation adjusted house (asking) prices from the 70’s to the present.

    Ronan Lyons is also an informative commentator. He used to work for Daft (maybe he still does, I don’t know).

    The Irish Economy blog is very informative about macroeconomic matters including the health of the banks and the costs of the bailout.

    Then there are a number of websites that crunch and graph data supplied by the principal property websites in the republic like Daft.ie and Myhome.ie. These are:
    Daftwatch
    Irish House Hunter
    Collapso

    Then there is the classic paper by UCD economist Morgan Kelly on the likely extent of Irish house price falls (.pdf here).

    I think that we should use ‘objective’ measures when deciding how much to spend. For example, there is the old-fashioned principle that banks should lend only 3 times your salary. (This discussant claims in Ireland the average house price used to be 2.5 times the average wage). Alternatively, it is possible to estimate the house price based on the expected rental yield of 7% (if you’re investing in a house, it should yield a return on your investment of 7% or else it’s not worth the hassle and you’re better off putting the money in the bank instead). That means the fair price is something like 14 times the rental value. Mind you, this method is still likely to overvalue house prices since rents in Ireland are ridiculously high –that’s my subjective impression, but it seemed to be born out by an admittedly limited trawl through UK housing websites. A three bed, semi-detached house within 1 mile of Manchester city centre fetches around £750 per month or (approximately €900), whereas a comparable house in Dublin it would be around €1200.

    Like I said, we can afford to wait. We do like our current situation because we get on very well with the neighbours even though the house is really too small. At the very least we’re going to have to be very cautious in our offers because it would be awful to buy a house and then have the fall wipe Dot’s full year’s wage and all our equity off its value (especially since I won’t then be able to use the equity in the house as security for a bank loan to start my own business!).

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    5 thoughts on “Buying houses

    1. Dot

      I suppose the weight of informed comment is enormously in favour of waiting, as you wish to, and my main counter-argument is only the feeble and emotional one that I’m longing to buy a house, I’m sick of renting, and I want to know where we’ll be living not for the next few months but for the next few years, so we can plan things like schools. But I do have a couple of more rational reasons: interest rates are about to go up, and if we wait a bit longer before borrowing we’ll not only be allowed to borrow less but have to pay more for the privelege. And I also think it will be easier to start a business if we have a permanent address and a place that we can use as we wish, for example for putting a small home-brewing set-up in the shed.

    2. My daughter (22yrs old) is looking at buying a house in Dunedin. She should be able to borrow about $100,00 and a small 1/2 bedroom house that needs attention would cost her about $120,000. So she’s starting to save hard. In the meantime, I think our house would get around 50,000 less than it would 3 years ago

    3. mairij

      I understand Dot’s sense of urgency and her desire to feel settled. It’s a very strong emotional pull.

      But I think Ken is quite right that house prices will go down. I also think you will accumulate savings faster than a rise in interest rates. My experience is that the house hunting raises the desire to settle as soon as possible (similar to the sort of greed I feel when I see a banquet of delicious food and can’t wait to tuck in) . But the more one looks, the more one discovers great houses all over the place and the more discerning one becomes about looking for the pitfalls. If one misses a desirable house that perfectly fits the bill, my experience is that another soon comes up and it’s always fun to speculate about what they might be like to live in (It’s rather like leaving the icing on the cake until last because one enjoys the anticipation as much as the actual taste). The house hunting becomes an excuse for outings and fun.

      So I strongly caution against rushing the process; once you have made the decision to buy, you are stuck with the consequences. The good thing about house hunting now, however, is that you are seeing houses when the weather is at its worst. This will probably give you an eye for the things to look for when you visit houses in the summer.

    4. Helen Conrad-O'Briain

      An Old Woman of the Roads

      O, TO have a little house!
      To own the hearth and stool and all!
      The heaped up sods upon the fire,
      The pile of turf against the wall!

      To have a clock with weights and chains 5
      And pendulum swinging up and down!
      A dresser filled with shining delph,
      Speckled and white and blue and brown!

      I could be busy all the day
      Clearing and sweeping hearth and floor, 10
      And fixing on their shelf again
      My white and blue and speckled store!

      I could be quiet there at night
      Beside the fire and by myself,
      Sure of a bed and loth to leave 15
      The ticking clock and the shining delph!

      Och! but I’m weary of mist and dark,
      And roads where there’s never a house nor bush,
      And tired I am of bog and road,
      And the crying wind and the lonesome hush! 20

      And I am praying to God on high,
      And I am praying Him night and day,
      For a little house—a house of my own—
      Out of the wind’s and the rain’s way.
      -Padraic Colum

      – I’m not a good one to ask, since I still cry when I read this poem – as I have since I first read it when I was eleven.

    5. Katimum

      Interestingly, N was the cautious one of us two and I was eager to get out there and buy – is it the nesting instinct? I do sometimes wish we had been bolder and gone for a larger property and bigger mortgage at the start as with inflation it would have ended up looking like a very good deal, but then, on Black Wednesday when mortgage rates were shooting sky high and all my colleagues were worried sick how they would meet their repayments, we had already paid off ours. What one really needs is a fool proof crystal ball.
      Incidentally, Dot, your book got shown off in Reedham school today – everyone was very impressed that someone who started off in that school could write something so impressively academic! (I was giving a talk on the history of the church with special reference to the Anglo-Saxons.)

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