And for the sake of friends, family, and strangers who are stuck in the mess that ensued, I heartily wish I’d been wrong.

Things I’ve heard first hand in Ireland:

– “Shur, when did you ever hear of a house in Ireland going down in value?”

– “Shur, what are the banks going to do, take the house off you?” (with an incredulous tone)

It’s the cult of property that throws off all logic. Maybe we’re afear’ed the English will try and take back the land . . .

James

The price your house would sell for should be irrelevant to you, unless you want or need to sell. My parents, and most of their friends, were comfortable knowing that they’d probably stay in their place for 20 years or more. I don’t feel that way about a one-bed condo, which is all most first-time buyers can afford in San Francisco these days, and likely in Dublin too.

Rule number one of investing: know your risk appetite and your time horizon. If you have borrowed more than you can now sell your bubble house for, you can’t go anywhere until you make up the difference. Not if you lose your green card application, or you now have three kids who can’t fit in the shoebox, or your FDI employer decides that the Irish workforce is too expensive and stroppy and she’s moving on. You’re stuck.

It’s very real. It took one London friend of mine eleven years to dig out from the last bubble.

Rule two: diversify. Your comment about sacrifice assumes there’s only one way to save. But that’s the point of my piece—right now, if you think you’ll stay for less than ten years, you can invest much more effectively by renting and putting the large balance into a portfolio that’s more likely to appreciate. That opportunity cost is a bigger deal to me than the threat of negative equity.

Doing “whatever it takes” to make a mortgage makes no financial sense for a prospective first-time buyer, at least at the moment. Emotional baggage about homeownership aside, in San Francisco and Ireland it’s a terrible investment for those with a short time horizon.

And the flipside is that Irish economy would look healthier and more mature if people put their extra cash into homegrown companies (or even international stocks and bonds) rather than yet more yellow houses. But no—even the people who worry about the Irish bubble just buy houses in London, Manhattan, or Spain.

Also, I do think there’s a generational aspect kicking in in Ireland, though not the one you mean. San Francisco saw a giant crash in 2000; we saw one in New York after September 11th. The Irish boom generation hasn’t experienced that yet, and maybe that’s why negative equity doesn’t seem real yet.

Who is to say that intermittent job loss in not your future in the next 30 years? Or the next 40 years for some of the more adventurous youngsters out there who decided on a mortgage that long? Do you think the economic cycle has changed irrevocably. It has not, in fact – in that time – a recession is altogether certain.

Actually your parents had it relatively good if they could get a mortgage in Ireland back then, which implies a middle class income. Their affordability for the first year may have been difficult with mortgage rates of 14% a year ( but no more difficult than now) , but those rates were high because inflation was high. The next year the real value of the mortgage was reduced by the inflation rate, and every subsequent year. Then later – due to some structural changes – their house price went through the roof in value. Those structural changes which will not be duplicated ( dual income earners, extremely high wage growth due to labour constrictions, and a massive lowering of the mortgage rate as we entered the Euro), and made them the winners in the generational lottery.

That generation were the winners worldwide.

All you have to hope for is rates of interest that can only go up from historical lows – historical lows by Bundesbank standards, too – and the problem is not just negative equity but the inability to pay back the monthly payments.

A friend of mine who can just afford his house, asked his broker what the monthly payments would be if we have the same rates as, say, 1992. The broker typed it in, and got a rate of 5,650 euro a month. It probably wont go that high again, but who knows? The euro may well split up in 30 years. In any case the only way is up.

I reckon it’s a generational thing. I sometimes catch myself bemoaning my fate and then realise that when my parents were my age, they were in a much more precarious position with a mortgage, intermitent job loss and the costs of a growing family. The notion of sacrifice in the now seems to have become very unfashionable, but we’re only mortgaging our futures. I laugh in negative equity’s face to be honest.

There is a relationship between rental availability and buyer’s purchasing ability in San Francisco – they are diametrically opposed.
Cheers on discovering this so early.

I think your new rental cuts you free to enjoy your adopted city. It sounds like you still feel NYC at your side. Part of the reason that I rented in California was that I knew I would never leverage property ownership for the kind of respect a “native” gets in California. Contrast that to New York City, where being foreign gives you status and respect.

As for buying, unless you’re there for the very long haul, buying when the rental market rates won’t cover the mortgage is never a good idea. (like the dublin market is now). It sounds like you made the right decision.

As for buying in Ireland: I get that pressure too, and have for years. And I do feel like a kid when I go home and see my friends living in large, apparently appreciating houses, when I still rent little flats. But screw it. The fundamentals make no sense there, and haven’t for a long time. It’s the ancestral belief in land pushing out any sensible portfolio diversification. Who wants to be the last girl to go broke for a mistake?