How much could your house value fall by ?

Hard landing, soft landing, 10% fall or 50% fall, you are probably sick of all this economic gobbledygook. There are three parameters that determine house prices, rental value, interest rate and sentiment. To calculate the minimum value of your house, first find out how much you would get for renting it out for a year ( say €2,000 per month or €24,000 p.a.). Now find out how much you could borrow where the yearly interest would equate to the rental value. In this case €24,000 would pay the interest on €480,000 at 5%.

The difference between the calculated value and the market value is determined by sentiment. Sentiment for investors is mainly driven by the expected rise in value over time. Investors were prepared to pay stamp duty and other buying costs on the basis that that this money would be recouped over time, and also that that buying and selling costs are deductible against capital gains tax. Any long term appreciation is only subject to a maximum capital gains tax of 20%.

Sentiment for home owners is mainly driven by status in society, stability in family life not being at the beck and call of the evil landlord. There are other sentimental reasons for paying over the odds for a home.

So what are the rules of falling house prices. Rule one house price reduction is slow and sticky, no one wants to believe that they are losing thousands of euro per week. Rule two the bigger they are the harder they fall, who is going to pay €8,000 per month rent for a €2,000,000 house? More expensive houses lose a bigger proportion of their value.

Who wins ? People moving up the value chain, more specifically those who have sold and are prepared rent for a year as house prices drop.

Who loses ? Those who have bought houses in the past two years. Those who are renting. And last but not least the parasitic auctioneers.

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Review of Senate Election - Part 1

This years general election was my first attempt at getting a Trinity seat in the Seanad. I considered trying in 2002 but decided not to as the three incumbents were fairly active. In the intervening years I got no literature from Mary Henry and I had heard that David Norris had retired from his lecturing job in Trinity and had moved to Cyprus, so it looked like a vacancy was coming up. As it happened Mary decided not to run again, so who was going to replace her another doctor, a scientist who new about climate change and earth science (me), or another woman?

Given that all politics is local I decided to write to all my neighbours ( or more specifically those with Terenure in their address) and asked for support. I was fairly shocked when I one of the recipients ( someone I knew vaguely) started to snub me. I not sure what the complaint was, my discovery of a less than grand address, misconstruing my letter seeking support as a begging letter, or maybe my letter arrived at a bad personal time. Most people greeted the news with delight. One neighbour suffering from the Bolton Street Complex was masquerading as a Trinity graduate and the only time he spent in Trinity was picking up a DU building degree.

After introducing to my neighbours I wrote to a sample of 3,000 electors and introduced myself. I followed these letters up with a call to try and find out what the issues that concerned them were. I only had one negative response ( a relative of a well known Nazi), I now regret not giving her an earful. I had a very enjoyable conversation with Professor Luce who was the Dean of Science when I was a Junior Freshman Natural Science student. He made me aware that my academic prowess was being badmouthed by other contenders and that he was impressed by my approach to the campaign. The Luce family was one of the first victims of drug violence in Dublin, Professor Luce's brother was savagely murdered in his home by an intruder in the late seventies.

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The Generation Game

I missed the programme on Monday night, Dan's unmeasured comment (ridiculous) on Tuesday's Prime Time prompted me look at the programme on the internet today. Definitely not ridiculous, more "why let the facts get in the way of a good story" sort of programme or an abstract of the totality of reality.

A few assumptions about the growing Chinese economy have to to be looked at. The main one is that the growth will continue at the same exponential rate for twenty years, this is not a reasonable assumption it has to taper off. We have to draw parallels with the growth of the Russian economy, communist background and no real understanding of the free market, Felicity was working in the IFSC when the Russian foreign minister singlehandedly destroyed the Russian economy with one well intentioned but naive speech. The communist party is still in control in China, this is not going to change and they can do as they please.

A few positive things about the Irish economy have to be mentioned, overall the number of people at work in Ireland will increase next year. Salary is not the only competitiveness factor, tax regime especially corporation tax is more important. Access to and support of the European Market and the Euro are also important, as well as political stability and accountability.

The notion that products must be made only of bits, widgets and goo is a falacy, computer programs are also products.

So what if the young are giving to the old. In previous eras everyone was handing taxes over to London, up to recently almost everyone in the population handed over money, land and buildings to the church. Least the old are spending the money their money here.

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