Wednesday, May 13, 2009
Irish eyes ain't smiling
Irish Independent: Collapse in house prices will be good for economy
This is why Irish house prices will continue to fall and fall. We are the victims of the retrenchment of credit. No-one will lend to our banks, and they won't lend to everyone else.
Every town I pass has a huge ghost estate. These houses will never sell for the prices that are demanded. The reason is simple: they are still madly overvalued.
In America, the long term value of a house is roughly 14 times the annual rent it would generate. Applying that formula to a 3 bed semi in Galway, which rents for €800 per month, the house price should be €134,400. Yet the seller expects to get €335,000 for it!
The average Irish house in these estates is likely to fall by anywhere between 50pc and 60pc in the next few years. And even that is assuming that prices don't undershoot.
4 Comments
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1. japanese uncle said...
cheap accommodation relative to wages is the basis of a dynamic economy.
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Well said!
2. quiet guy said...
I have some doubts about some of the points made in this article:
Using the American market to price Irish houses is open to question. At the risk of sounding like an estate agent, each market is different.
Also, the idea that the Irish economy is going to benefit from this mess is silly. Sunk costs on overpriced housing represent a lost opportunity to do something that could have produced real wealth for their economy. A very large sum of money has been wasted.
3. crunchy said...
Collapse in house prices will be good for economy.
Bit late now! Who has it been good for then over the last decade before all the politians finally clicked?
4. Chriswov said...
This is the guy behind "The Pope's Children" BBC Four-check it out