Property Prices – Rent Still

Daft.ie tracks the asking prices of property in the country. Recently in the Irish Independent David McWilliams writes about the collapsing house prices and asks how far will they fall?

This is a valid question. I have written about this subject in the past and have pointed out the usual relationship between annual rents and capital value is about 12 – 14 to 1 by international standards. So if rent is €1200 per month the capital value of the house should be €144,000 to €168,000.

Property values taken from the height of the boom are down about 38% in Meath, Louth about 40%, Kildare and Wicklow about 36%, Dublin 50%.

The average asking price nationally in Q2, 2010 is €244,000 ,  36% down on the 2007 peak.

McWilliams instances an average house price of €220,000 at a rent of €863 per month and says that this gives a gross yield of just over 4%. Then calculate the funding costs which will be greater and it shows that it is senseless buying property to let right now.  McWilliams writes that property will have to fall to €135,620 before it will yield a gross 7%, which is reasonable given that government bonds yield about 5%. McWilliams writes that prices will have to fall by another 30% for renters in the commuter areas around Dublin to choose buying over renting.

He says that prices in the central Dublin are getting close to the bottom.

I am not so sure about that.

Advise from Bill is to rent and not buy at present or if you suspect a fire sale offer 30% less and see what happens!