Property bubble: NYT article on Japan's experience

ronbyrne2005 · 04-01-2006 10:25am

dunkamania wrote:

Population density is intentionally kept lower in Ireland,restrictions on building sizes,no skyscrapers etc,so property in good locations should retain value well.

the government and planners have moved towards higher density.sure theres a 32 storey tower going up near heuston station so population density will rise dramatically in ireland over next 10 years

Borzoi · 04-01-2006 11:11am

jhegarty wrote:

can everyone predicting the crash , and who wasn’t predicting a crash last year ,and the year before please stand up?

This is of course part of the problem, various economists have been predicting an Irish property price collapse for so long now, that the value of their opinion in the public eye has been totally eroded.

antoinolachtnai · 04-01-2006 11:18am

There are structural issues in the Irish marketplace which make it somewhat different from the UK marketplace which is the focus of the commentary above. In particular, ownership of land is structured differently, and the population is considerably older in the UK. Also, we have a much bigger population of immigrants who aren't really settled. So you shouldn't generalize directly from the UK to Ireland.

JimmySmith · 04-01-2006 11:36am

Borzoi wrote:

This is of course part of the problem, various economists have been predicting an Irish property price collapse for so long now, that the value of their opinion in the public eye has been totally eroded.

And rightly so, because the only thing they have proved so far is that they don't have a clue what they are talking about. They just keep getting it wrong. If you call tails 20 times the chances are that it will be tails after 19 heads

These guys are a) just playing the odds so they can claim that they told you so, b) trying to justify a position they took based on the fact that THEY think there will be a crash soon.(like not buying a house 5 years ago because they were waiting for the price to drop)

Sponge Bob · 04-01-2006 12:52pm

lomb wrote:

They will come in around 500k, and u wont be able to swing cat in them and the yield is edging down to 3%-3.5%, lunacy.

The yield is a most important figure 7-8% is the kind of yield you need to cover your costs in a static market , this gives an indication of how far prices may have to fall in some areas.....do note that rent can rise ina falling market because nobody is buying so a drop in house prices may be accompanied by a rise in rents in the same areas . Therefore if your yield is say 5% it could improve if you hold on to the place.

Also note that interest rates are still historically low and will remain low so the optimal yield may be more like 6% nowadays rather than the 7-8% historic average.

Either way something has to give to improve the yields and my bet it that it will be the house prices. The bubble in Irish property make the dot com crap from the late 90s look quaintly sensible in retrospect

dunkamania · 04-01-2006 2:14pm

Dont under estimate the value of perception.

The more people believe the market will stay buoyant/crash the more likely it
is to be that way.

As analysts increasingly talk about a crash,it becomes more likely as investors begin to act on the perceived drop in property value,by selling of their properties,which leads to a drop in market prices,independent of market fundamentals.

D'Peoples Voice · 05-01-2006 2:17pm

Bluehair wrote:

Political suicide not to mention being one of the vested interests mentioned though I grant you it could/should have been done years ago. No one wants to jump first either for fear of being 'blamed' for causing the inevitable drop, so we all trundel merrily onwards and keep our fingers crossed that Ireland really is different.

It isn't of course... :rolleyes:

The problem is trying to satisfy everyone.

Take for example the most important tax relief of them all - interest relief.
When this relief was removed by McGreevy in 2001, house prices fell but rents increased.
House prices fell because someone earning €1200 pm rent, now had to pay income tax at their marginal rate on rent, in addition to paying another €1000 or so to pay for their mortgage. Hence many investors sold out. This reduced the supply of rental properties, and rents increased.
Vested interests then complained about the knock-on effect this was having on rents for the less well off who depended greatly on rental accommodation.
what happened next I believe will come back to haunt us!
There were two possible soultions,
the first increase the level of social and affordable houses thereby reducing the increase in rents for the less well off,
the second to reinstate the offsetting of mortgage interest against rental income.
The government could have borrowed at historically low levels of interest and gone for the first option. Instead it went for the free market option of the second.

Of course, he did introduce higher rates of Stamp duty for investors in addition to the removal of index relief for capital gains, but in comparison these reliefs are insignificant.

So what happens if a new government get in and elect to remove interest relief again? Who knows! My guess is that they will be told, at this time in the day, it's too late, there are too many investors. It could definitely crash the market!

Maskhadov · 07-01-2006 6:45pm

if house prices fell here i would be delighted

lomb · 07-01-2006 8:50pm

but they wont, unless interest rates hit 10%, and although u and i might be delighted peolple who own property wont be and they make up the greatest vested interest in this country and in politics. the reality is as long as property rises everyone is happy even people buying, the reason is everyone thinks if i buy today at 500 and its worth 600 next year than GREAT! who loses? in reality, the quality of life of young people as well as there independance is getting eroded every day as wealth is shifting to the elder generation.

ronbyrne2005 · 07-01-2006 9:20pm

lomb wrote:

but they wont, unless interest rates hit 10%, and although u and i might be delighted peolple who own property wont be and they make up the greatest vested interest in this country and in politics. the reality is as long as property rises everyone is happy even people buying, the reason is everyone thinks if i buy today at 500 and its worth 600 next year than GREAT! who loses? in reality, the quality of life of young people as well as there independance is getting eroded every day as wealth is shifting to the elder generation.

you cant know that they wont fall here,we are not incontrol of our own economy as we are a small trade dependent economy with no monetary control and therefore we are very susceptible to any number of factors which may cause economic problems. rapidly rising property prices over long periods is bad for an economy,better to have a slow constant rise.
interest rates hittin 10%isnt the only potential problem

coolhandluke · 08-01-2006 5:00pm

lomb wrote:

but they wont, unless interest rates hit 10%, and although u and i might be delighted peolple who own property wont be and they make up the greatest vested interest in this country and in politics. the reality is as long as property rises everyone is happy even people buying, the reason is everyone thinks if i buy today at 500 and its worth 600 next year than GREAT! who loses? in reality, the quality of life of young people as well as there independance is getting eroded every day as wealth is shifting to the elder generation.

10% !are you mad,i'd say around 6% would sink alot of people i know.I would agree with you though that young people are being sacraficed to make older people rich and they'll be expected to fund their pensions then in years to come.
I feel so sorry for young people trying to buy a house just to live in now,i bought a house 5 years ago and they were certainly far more affordable in comparission to earnings and prices.You now have to borrow many multiples of your salary to get a poky little box somewhere.This country has gone to the dogs,the greed is unbeliveable.

spacetweek · 08-01-2006 10:08pm

TempestSabre wrote:

The alternative is to rent for a few years and that is dead money.

I'm so sick and tired of the constant renter-bashing you get in Ireland, "Dead money" - a case in point. We still have this mentality of renters being working class and on the dole or something. I rent with friends in the centre of town and am very happy. The area is great, the accommodation fabulous, it's fully furnished with free 24 hour security, maintenance etc. And the rent is piffling - 400/month!

I never stop laughing at all you chumps out there with your 300k gaf in Athboy that'll lose 30% value when the market crashes.

Sponge Bob · 08-01-2006 11:37pm

spacetweek wrote:

I never stop laughing at all you chumps out there with your 300k gaf in Athboy that'll lose 30% value when the market crashes.

300k mortgage over 25 years is €1400 a month at the current interest rate, per month.

TempestSabre · 09-01-2006 2:52am

spacetweek wrote:

I'm so sick and tired of the constant renter-bashing you get in Ireland, "Dead money" - a case in point. We still have this mentality of renters being working class and on the dole or something. I rent with friends in the centre of town and am very happy. The area is great, the accommodation fabulous, it's fully furnished with free 24 hour security, maintenance etc. And the rent is piffling - 400/month!

I never stop laughing at all you chumps out there with your 300k gaf in Athboy that'll lose 30% value when the market crashes.

Do you need a hand with that chip your carrying? :rolleyes: Its not bashing anyone. I could say renting a bike is dead money if you can buy one cheaper. Its the same principle. If hiring a bike is cheaper then buying one then buying a bike is dead money.

http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=110

At the end of the day its about making your money work for you. For many people who bought 4 or 5 years ago a mortgage was the same if not cheaper than renting. So it made sense to put your money to work for you. At the moment it isn't if its cheaper to rent. However you should only pay what you can afford. For many people childcare costs 2 and 3 times their mortgage. So they have to balance that with paying a mortgage or rent.

You also have to consider in 30-40 years time, if you retire, will you still be able to pay afford to pay the same level of rental income. What if you become sick or invalid in the meanwhile. Who pays your rent then? For many people, especially those who bought 4yrs ago or more, their mortgage is cheaper than rent would be. In 20yrs they'll own a house, and paying 0 a month. You'll still be paying rent. The other point to consider that not everyone wants to live in the city center. Especially those with families.

However a lot of people are investing in houses. If you have the money, whats the point of having your money tired up in pensions and saving accounts that make little or no money, when for the past 5-10 yrs that same money could have made 50% or more.

Another point is these investors are really just gambling on the market. When the market dips or crashes, many will people will get caught. However many will get out having made a lot of money. I think they'll be laughing. If they make a couple of million and lose half a million. They'll still be better off.

Personally I wouldn't be buying into property now, unless I could afford to lose what I invest. In many ways it no worse than staring a business. Its never a sure thing.

TempestSabre · 09-01-2006 2:59am

Sponge Bob wrote:

300k mortgage over 25 years is €1400 a month at the current interest rate, per month.

Thats if you are staring afresh. I know a few people have similar patterns as follows, who bought a 80 sold at 160, bought a 140 sold at 240, bought at 270, but now worth (currently) 1.1 million. Thats over 10 years. They have that house a roughly a mortage of 80k and are 10years in on a 25yr morgage.

bounty · 09-01-2006 6:44am

TempestSabre wrote:

You also have to consider in 30-40 years time, if you retire, will you still be able to pay afford to pay the same level of rental income. What if you become sick ......

renters think its a bubble, they will probably buy if or when, the prices crash / drop / slump / become affordable

JimmySmith · 09-01-2006 7:41am

I've just heard a top economist on the Radio.
The crash is the day after tomorrow.

TempestSabre · 09-01-2006 10:10pm

bounty wrote:

renters think its a bubble, they will probably buy if or when, the prices crash / drop / slump / become affordable

Not a bad plan in the current market. But it might 10 years. Thats a long time.

aphex™ · 09-01-2006 10:41pm

You know all those Taxis that come out at night in Dublin? I reckon thats a 2nd job for a lot of people to pay their mortgage. I don't think that is sustainable in the long term for most people. They are going to get burned out after a certain amount of time.

And I always see convoys of empty taxis going around.

I don't like the idea of having to get 2 jobs to pay a mortgage. It is these people who are going to crash and burn when the interest rates go up. But thats what you get when so many people artificially boost their finances.

Sources in business tell me a lot of people are faking payslips in order to get loans, too. Their attitude of "ah sure I'll sell it if I can't afford it" is just stupid. Heard some woman in the bank say that the other day.

People have wayy too much personal debt. In some of the less well off areas of Dublin most people have newer cars than people earning much more than them.

The level of greed is unbelievable in Ireland today.

But prices close to Dublin will probably not be hit as hard in the event of a crash- because of the poor transport system people are always looking to move closer to town.

When I leave college I'm going to be very wary about where I'm going to stick my savings. Irish banks have just totally taken the piss way too much in giving mortgages out to some people.

dunkamania · 10-01-2006 9:53am

aphex&#8482 wrote:

I don't like the idea of having to get 2 jobs to pay a mortgage. It is these people who are going to crash and burn when the interest rates go up. But thats what you get when so many people artificially boost their finances.

All the people I know with two jobs,are saving for the deposit,as opposed to using the money for mortgage payments,there is a big difference.

Sponge Bob · 10-01-2006 11:03am

dunkamania wrote:

All the people I know with two jobs,are saving for the deposit,as opposed to using the money for mortgage payments,there is a big difference.

Nothing new in having 2 jobs to get the deposit in order to get the mortgage .

What IS new is the size of the multiple of the average income represented by the average house price.

In 1970 , and long term, the average house price was maybe 4 times the average income , sometimes more sometimes less but thereabouts.

Now its 7 times or 8 times the average income.

Therefore either the average house price goes down (not to 4 times as interest rates are historically low) or the average income goes way up.

If the average house price goes down significantly in Irleand the banks will be so stung, and the economy so generally depressed by lack of liquidity in the banking sector , that the average income will also drop somewhat ....a la Japan in the 1990's

We may move towards a new long term ratio of average house price = 6 times the average income but that would still require a correction downwards in the order of 20% . My feeling is that it will overshoot, 33% is what I think....averaged out.

Aphex correctly pointed out that the peripheral exo-suburbs in Longford and Westmeath and Carlow will suffer disproportionately more than the endo-burbs in Naas and Maynooth never mind the central locations like Tallaght and Swords.

air · 10-01-2006 6:11pm

lomb wrote:

but they wont, unless interest rates hit 10%, and although u and i might be delighted peolple who own property wont be and they make up the greatest vested interest in this country and in politics. the reality is as long as property rises everyone is happy even people buying, the reason is everyone thinks if i buy today at 500 and its worth 600 next year than GREAT! who loses? in reality, the quality of life of young people as well as there independance is getting eroded every day as wealth is shifting to the elder generation.

I totally agree with the above. IMHO another major contributor to house price inflation is inheritance / gifts from parents to children.
I think that there should be heavy taxes on gifts from parents to children such that everyone is on a level playing field with regard to deposits.
It really adds to house price inflation when people dont have to save for a deposit because their parents have provided it for them and / or guarantee the loan.

ronbyrne2005 · 10-01-2006 6:25pm

Sponge Bob wrote:

Nothing new in having 2 jobs to get the deposit in order to get the mortgage .

What IS new is the size of the multiple of the average income represented by the average house price.

In 1970 , and long term, the average house price was maybe 4 times the average income , sometimes more sometimes less but thereabouts.

Now its 7 times or 8 times the average income.

Therefore either the average house price goes down (not to 4 times as interest rates are historically low) or the average income goes way up.

If the average house price goes down significantly in Irleand the banks will be so stung, and the economy so generally depressed by lack of liquidity in the banking sector , that the average income will also drop somewhat ....a la Japan in the 1990's

We may move towards a new long term ratio of average house price = 6 times the average income but that would still require a correction downwards in the order of 20% . My feeling is that it will overshoot, 33% is what I think....averaged out.

Aphex correctly pointed out that the peripheral exo-suburbs in Longford and Westmeath and Carlow will suffer disproportionately more than the endo-burbs in Naas and Maynooth never mind the central locations like Tallaght and Swords.

since most women now work theres 2 wages in most homes so the old 4/5 times average income ratio isnt relevant ,instead average household income is the relevant figure.still even allowing for increase in women working the house prices are still overvalued on economic FUNDAMENTALS . it was the surge of women working due to mc creevys individualisation that led to the rapid house price increases of recent years.

D'Peoples Voice · 10-01-2006 7:11pm

TempestSabre wrote:

For many people who bought 4 or 5 years ago a mortgage was the same if not cheaper than renting. So it made sense to put your money to work for you.

Very true, but did they ask themselves what direction rents would take in the future? All I ever hear people ask themselves about is the direction of interst rates in the future, and what is the level of rents at the minute! They never seem to ask themselves how can a market sustain about 30,000 investment properties coming onto to the market each year. Rents have not really increased by much in the past 4 years, and still the rate of house building remains relatively consistent. I've been hearing commentators talk about the slowdown in house building for years, if planning permisisons for 2006 & 2007 are anything to go by, it won't be for another few years.

TempestSabre wrote:

You also have to consider in 30-40 years time, if you retire, will you still be able to pay afford to pay the same level of rental income. What if you become sick or invalid in the meanwhile. Who pays your rent then?

A mortgage is about €1,000 for many people, rent about €400 per month in your typical 3 bed professional people rented accomodation. Putting the remaining difference of €600 per month in a pension, coupled with 46% tax relief, investing in commercial property or stocks and shares if you are a risk lover, would add up to a large nest egg at retirement to pay for rental accomodation.Alternatively many pension scheme pay out if you ahve to retire due to ill-health.
The problem is that you could be living with students in your 70's:D

TempestSabre wrote:

In 20yrs they'll own a house, and paying 0 a month. You'll still be paying rent.

They also have little or no pension, many will have have company schemes, other will be asset rich income poor, in which case they will have downsize their house. Also if house prices did fall, many would still have large loans and little or no collateral to borrow to maintain their standard of living.

TempestSabre wrote:

Personally I wouldn't be buying into property now, unless I could afford to lose what I invest. In many ways it no worse than staring a business. Its never a sure thing.

Nothing is a sure thing in my opinion except that Richard Bruton is an idiot. :mad: The reduction of stamp duty in budget 2004 increased house prices in 2005. This only benefitted the house vendors, meaning instead of the money going to Government to pay for social and affordable houses in the form of stamp duty, it's going to property speculators. Look at every report by a property specialist this year, and they will point to the boost to the market caused by the reduction of stamp duty. Our Richard now wants to remove it completely.

TempestSabre · 10-01-2006 9:34pm

I dunno where you are getting your figures, but the mortgage is shared between two people in most cases. So the rent/mortagage are broadly the same. So the pension is equally affordable. Not that I think you should skip a pension in preference for property but I suspect that property might give a better return in the long run. Pensions have performed badly over the past few years. Though obviously its all levels out over the long term.

Theres still a demand for housing, and rental accomodation. While its not as high as it was 5 years ago I know of no one whos had a problem getting 800-1500 a month in rent. Its easily covering the mortgage. Any reports I've seen do not see that demand falling for a few years yet.

ronbyrne2005 · 10-01-2006 10:33pm

TempestSabre wrote:

I dunno where you are getting your figures, but the mortgage is shared between two people in most cases. So the rent/mortagage are broadly the same. So the pension is equally affordable. Not that I think you should skip a pension in preference for property but I suspect that property might give a better return in the long run. Pensions have performed badly over the past few years. Though obviously its all levels out over the long term.

Theres still a demand for housing, and rental accomodation. While its not as high as it was 5 years ago I know of no one whos had a problem getting 800-1500 a month in rent. Its easily covering the mortgage. Any reports I've seen do not see that demand falling for a few years yet.

pensions over last ten years have return an averag of 10% per annum and thats a supposed bad period! add in the tax benefits and pensions are a great investment over 30-40 yrs.
property has over past century yielded far less than equities ,so if you add in tax advantages pensions beat property hands down over the long term

TempestSabre · 10-01-2006 11:13pm

ronbyrne2005 wrote:

pensions over last ten years have return an averag of 10% per annum and thats a supposed bad period! add in the tax benefits and pensions are a great investment over 30-40 yrs.
property has over past century yielded far less than equities ,so if you add in tax advantages pensions beat property hands down over the long term

Can you give us a link to the pension performance figures. I thought it was less than that.

http://www.aic.ie/site/newscontent.php?id=8

ronbyrne2005 · 10-01-2006 11:22pm

the info is in the link you posted!

Fund Selection Average
15.28% /16 6.50% /16 1.19% /16 3.55% /15 10.04% <---average ten year 10% ,compound that add in tax benefits and you cant go wrong.

D'Peoples Voice · 11-01-2006 2:35pm

Let me start and say I don't wish to put myself forward as someone who is trying to knock the property market, I want to appear balanced. Though sometimes, I'll admit what I say can appear contradictory to that point.

TempestSabre wrote:

Theres still a demand for housing, and rental accomodation. While its not as high as it was 5 years ago I know of no one whos had a problem getting 800-1500 a month in rent. Its easily covering the mortgage. Any reports I've seen do not see that demand falling for a few years yet.

Let us look at the point which estate agents push, the demand for rental accomodation is still strong! If prices are static, it means the increasing supply is absorbing the increasing demand.

But I like you believe that with all the first time buyers(who as you speculate are couples not single people) buying now, demand will not continue to increase but remain relatively static. A further problem is that a lot of the Irish who were renting are bing replaced by Eastern Europeans. But What's their average salary and more importantly are they here to stay? If demand remains relatively constant while the supply continues to increase, what happens rents?

I 'll leave you with a thought, demand far outstripped supply in the mid to late nineties, rents soarded by as much as 90% in places. Within 5 years the increase in supply had caught up with demand.
Bearing in mind that the level of construction is increasing year on year, although maybe not at an increasing rate, perhaps it may even level out at 68,000 units pa, just how long will it be before rents start reducing.
Look at our average annual rate of house construction since 1970
Average 1970-79 22,918 units pa.
Average 1980-89 23,338 units pa.
Average 1990-99 30,191 units pa.
Average 1999-05 63,647 units pa.(2000 - 49,812 compares to 2005 - 76,000)
Has the size of families got bigger?

pork99 · 11-01-2006 11:35pm

If you really want to give yourself a sleepless night read this

http://www.alternet.org/story/30640/

This housing bubble economy represented, holistically speaking, the wish to maintain a sense of normality in American life under conditions of disintegrating normality, and it is no symbolic accident that it centered on the images of hearth and home, because fundamental comforts were what many Americans actually stand to lose in a reality-based future. The decay of standards and norms in banking behavior applied to housing started, as in the case of the proverbial rotting dead fish, at the head, the Federal Reserve, and infected every lowly loan officer through the body until, in effect, lending standards ceased to exist.

The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.

Property bubble: NYT article on Japan's experience

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