Thanks for the comment. Of course you’re right, these figures only show the tip of the iceberg, so to speak. While they include a significant amount of countable factors, such as prevailing house prices, rents, mortgage interest relief schemes, mortgage terms, interest rates, etc., they can’t include everything countable, not least uncountable things which count, such as perceptions of risk, prevailing attitudes towards home ownership, and so on.

I find it interesting, though, that while you do practice what you preach – you rent now, having once bought – you know exactly what your mortgage payments would have to be to buy it. This suggests that if the graph above applied to you, you’d buy! Or am I doing you a disservice? Presumably, if your house is valued at 2mn, the blue line above is most similar to your own rent-buy line, which presumably is interesting to you?

Those prices will only be for inner city Detroit, which for all intents and purposes is a failed city. It is on a downward spiral and should basically be bulldozed. Parts of Buffalo and Pittsburgh are the same, where you can pick up a house for less than $10,000. The suburbs of Detroit will be a completely different story, and I’m sure house prices in the suburbs wouldn’t show such a huge decline. Nobody with a job would ever live in inner city Detroit….too many drugs, gangs, and shootings. Doesn’t matter how cheap the houses are, you just can’t live there.

Dublin on the other hand (I live in North Co. Dublin) has been overpriced for a long time….people got too greedy and now they are paying the price for it. Personally, I see a couple more years of downward house prices in Ireland, mainly because there’s very few out there who can get a mortgage large enough to buy the average house on the average salary. For now I’m renting.

Thanks for the comment. Do you think moral hazard is a threat, i.e. that by a Debt Jubilee, we fail to learn the lessons that we need to learn from this episode? Or do you think that things are so bad, that even with a blanket debt amnesty, we’ll still remember that houses are for life, not just for ladders?

R

Thanks for visiting and for the comment. Ireland’s currently wondering what to do with its mortgage interest relief system at the moment (explained here: http://www.revenue.ie/en/tax/it/leaflets/tax-relief-source-mortgage-interest-relief.html). It is indeed massive tax revenue foregone. When pieced together with the potential for negative equity and the absence of a property tax in Ireland, it’s certainly some hole we’ve got ourselves into.

R

http://www.jobcentreplus.gov.uk/JCP/Customers/WorkingAgeBenefits/Dev_016128.xml.html

Could get veeery expensive for taxpayers!

The issue of neg. equ. is really a political matter. The legislators (all of them) need to consider legislation that will allow persons with mortgages on their primary residence (home) to write off the entire, or part. The economic model (Permagrowth) that most assumed would provide a continuing, and increasing, income stream is finished. Hence the ability of those unfortunate people, caught in neg. eq., to repay their mortgage is zero! Repossession will only result in another homless family and a vacant property to be vandalized. If some of those in neg.eq. form the opinion that they are being ‘evicted’ – watch out!! Things will go from bad to ugly to dangerous. We need a Debt Jubilee – however it can be arranged. I would suggest to your readers that they consult, Bunreacth Na hEireann (Art. 43.2.2). This economic downturn is here to stay for a very long time.

Brian P

Hope all is well

I created a similar graph from Jan 02 to Jan 09 for national data, using ESRI/TSB for house prices and daft for rents. I used ECB + 1.69% as the interest rate. There may be more accurate data available from Central Bank.

The graph is very volatile because changes in interest rates have such an affect on the interest portion of the loan. The interesting periods are when interest rates are stable for a long period of time.

ECB rates were 3.25% from January 02 until Nov 02. The “premium” associated with renting reduced month on month from €375 in January to €175 in November.

ECB rates were 2% from June 03 to Nov 05. The “premium” associated with renting reduced month on month from €310 in Jun 03 to €175 in Sept 05 and it stayed constant at €175 until December when the ECB rate changed.

Finally, from July 07 to July 08, ECB rates were at 4%. It was the premium associated with buying that reduced in this time period. It reduced month on month from €275 in July 07 to €175 in April 07 where it stayed constant until the next ECB rate change in August.

On further examination, the “premium” appears to be moving towards an equilibrium after every ECB rate change, and is only thrown off course by another ECB rate change.

As for the causes of a reduction in the price of rents – No doubt increased supply is a factor. But this has been slow to affect rents. Newspapers have been reporting developers dumping properties on the rental market since the slowdown since early 2007. The drastic falls in rent are more recent. Perhaps because of reduced demand due to net outward migration. if 78,106 people left the country between Nov 07 and Oct 08, God only knows how many have left so far in 2009