After the event, I was exchanging a couple of views with the representative of our construction sector, who agreed with my prediction that by the end of this crisis, Irish construction sector will shrink to no more than 5% of GNP or just 20% of its pre-crisis peak. And that the risk is for our construction sector to remain at that level (instead of rising to a healthy 10-12% level) for a very long period of time.
Alas, something else has driven me to a realisation that anyone who is hoping for stabilization of our property values at their current (or near) price is inhabiting an invented reality. This:
Now, think of this...A four-bedroom, two-bath brick historic federal in Little Falls, N.Y., a city of about 5.000 on the Erie Canal, is on the market for $250,000, the house was built in 1827 and is on the National Register of Historic Places.
Off the house's center hall are east and west parlors. Both have fireplaces.
Though it has been renovated several times over the years, it retains some original details, including mantels, and some pine and chestnut flooring.
All four bedrooms are on the second floor, two with original pine and chestnut flooring and one with a fireplace and a walk-in closet.Ok... I can go on and on, but... check it out for yourselves here. And all for €170,000 in one of the wealthiest states of the nation that is the wealthiest on planet Earth.
My prognosis - median price in Ireland in real terms (2009 Euros) of €120,000 by the end of this crisis. Why? Because there is no reason why our average homes should be trading above 4bed historic properties in upstate New York. None.
6 comments:
Hi Constantin,
I agree with your median prediction of 120,000 for houses in Ireland. Morgan Kelly, George Lee, Richard Bruton, David McWilliams, Shane Ross( hero in my eyes for exposing auctioneers financial engineering)
and your good self were the only ones brave enough to voice your worries about Ireland's "BERTIE BUBBLE"
A critical factor with US real estate is property tax is collected locally and is used for schools,local police force,local roads ,town maintenance ,road salting and clearance in winter.
The more services the higher the property tax .Also the taxis related to the value of the property.
So a good area will generally have higher property taxes.
For example in many small towns and villages in the North Eastern States a house such as the one you listed could have very high property taxes.
In fact property tax really represents a second mortgage on a house.In the case you portrayed taxes of between 6,000 to 7000 dollars annually would be reasonable for the North East.
This would represent a monthly payment of 500 to 600 dollars in addition to a mortgage payment.
In determining the median price of 120,000 euros in Ireland at the end of this crisis did you factor in the effect of property taxes which will likely be in place by then?
Regards,
Sean.
No, Sean, I did not.
But neither have I factored into my non-scientific 'estimate' the fact that this is hardly comparable to an Irish average house - built with little design or spatial planning in mind, of 3 beds with 1200 sq feet of space, and I also omitted the cost of commuting in Ireland, relative to that in the US. Or other taxes. Or the quality of life in general. Or the fact that our disposable income buys us far less in any store we care to walk into than that of the US consumers...
Lt me do a comparison. My mortgage would afford over three of these homes, but pays for a small three bed+den with 1 1/2 bath and no yard. Though located in the city centre, because it is not serviced by any transport, my family has to drive pretty much everywhere. There is no decent access to grocery stores (I refuse to count Spars and Centras sprinkled around the city like confetti at a kids birthday party as grocery stores)... and so on.
Property taxes in the US can be steep. The steepest are in Passaic County NJ, which includes Little Falls N.J., eat up a whooping 8.5% of homeowner (after-Fed tax) median incomes. Union County, N.J. (8.1%) is second, followed by Essex County, N.J. (8.1%), and Westchester County, N.Y. (7.8%).
Now, for some reason all I can find on property taxes in Little Falls N.Y. is that they are zero (see: http://www.zillow.com/local-info/NY-Town-of-Little-Falls-homes/r_398526/)
But that said, would I pay $500 per month in property taxes more on top of my current mortgage to afford a house like that? With some of the best schools (see the link above) in the US for free (again, being city dweller in Ireland means I cannot get my son into a half-decent public school, which means I have to pay the equivalent of US property taxes every year to private schools)? To pay for proper policing of my property, not the customary Gards' 'We can't send out a car to deal with your vandals because we have no cars available' stuff? You bet I would.
The worst of it all is that next year we too will have property taxes, courtesy of the Government. And these will be paying for public sector wages and welfare, not services to the immediate community from where these will be collected.
So if property tax drives real estate prices lower, then wait till it hits Ireland...
"The worst of it all is that next year we too will have property taxes, courtesy of the Government. And these will be paying for public sector wages and welfare, not services to the immediate community from where these will be collected."
No, not really.
We too will have property taxes, courtesy of the Government BUT it is to pay for scams like Irish Glass Bottle in Ringsend. It will take ten years of local taxes at ten thousand PER HOUSE (€10,000) to pay off the €450,000,000 IGB DDDA-NAMA scam. Interest charges and management fees for distribution within the cute-wee-hoor culture are extra.
The local community will need to pay for private health insurance to try to detect unmonitored microparticles and nanoparticles inside their body-cells (100,000 man-years of lost life every 15 years). Or 2 months to 2 years of shortened life-expectancy for each resident of Dublin (BSEM paper). Dead people won't need social services, so economically it could be a win-win.
Dr. G. This is scary stuff indeed. But it does suggest that the unwinding of the property bubble in Ireland represents more than just falling asset prices. It means the restructuring of a whole chunk of an economy that was geared around the accumulation of an asset on the back of debt: financial services, construction, furniture / household goods etc... The American home you show seems to be very pleasant, elegant even. There are houses for 1.5m in Foxrock that look like Saddam's palace compared to this.
@Galway tent. The property disaster on the banks / DDDA books will be taken care of by NAMA and so it's reasonable for Dr.G to assume that unwillingness to reform government will be absorbing extra taxes into the future. What those on the left need to be made to realise is that there isn't really any moral distinction between over paid 'front-line' public service workers and Sean Fitz. Both believe they can skim unearned money from the system. It's just that Seanie got more. But the principle was the same.
@Paul mcconnell
Nama is a rotten-to-the-core idea. Please read Dr G's postings on the topic (sep/oct 2009?).
Teechers paid an average of €100,000 including pension is over the top. However if nurses are overpaid why are 80% of foreign nurses reported as likely to move to Aussie, uk, etc. The problem in some public services is not nec pay. It's more likely the problems are caused by the cutr wee hoor managerial culture. Everyone is "working very hard" in a system of organisational kaos. Seanie, Igb, Ddda, Nama, fas are exemplars of the cute wee hoor culture fostered by the governing theocracy. Public sector pay by comparison is a red herring used to divert attention from Irelands root-cause problem: a small cohort of insular or inbred managers practicising cute-wee-hoorism.
Post a Comment