Dead Cat Bounce in Property Markets

jd1983 · 23-04-2014 11:33pm #1

Like a lot of bears on these forums, I've been assuming that thee recent surge in house prices is due to a dead cat bounce. However I've been looking for evidence that a dead cat bounce has occurred following other property booms internationally but I'm finding little evidence.
Plus by definition a dead cat bounce should be typically short lived, it's about 18 months since the bottom of the market so it's hardly short lived.
Saying all the above, I feel average property prices in Dublin are unaffordable to most FTB's and therefore I would expect them to fall. However I'd feel more confident of this if there was a historical precedent elsewhere for this type of trend.

ezra_pound · 24-04-2014 12:05am

jd1983 wrote: »

Like a lot of bears on these forums, I've been assuming that thee recent surge in house prices is due to a dead cat bounce. However I've been looking for evidence that a dead cat bounce has occurred following other property booms internationally but I'm finding little evidence.
Plus by definition a dead cat bounce should be typically short lived, it's about 18 months since the bottom of the market so it's hardly short lived.
Saying all the above, I feel average property prices in Dublin are unaffordable to most FTB's and therefore I would expect them to fall. However I'd feel more confident of this if there was a historical precedent elsewhere for this type of trend.

Don't think the UK early nineties crash bounced like a dead cat at all.

djpbarry · 24-04-2014 3:56pm

jd1983 wrote: »

Saying all the above, I feel average property prices in Dublin are unaffordable to most FTB's...

Are they? Plenty of 2/3 bed properties going for well under €200k?

Potatoeman · 24-04-2014 4:57pm

Other busts didn't have NAMA or the reluctance for repossesions. I would like to see some figures on the number of people that can afford properties. The boom highlighted that people were overspending based on their incomes and should only be buying property around three times their annual salary. So how many people can actually afford properties over 300k?

danmanw8 · 24-04-2014 5:00pm

Potatoeman wrote: »

Other busts didn't have NAMA or the reluctance for repossesions. I would like to see some figures on the number of people that can afford properties. The boom highlighted that people were overspending based on their incomes and should only be buying property around three times their annual salary. So how many people can actually afford properties over 300k?

A very important point! Interest rates are now at an all-time low (much lower than they were during the property bubble)
If interest rates start to go up again (which they always do in the lifetime of a mortgage) then people will feel the squeeze even if they are buying at 60% of the prices from the last peak.
I just hope that, this time, the banks are stress testing the applicants based on that reality.

Potatoeman · 24-04-2014 5:16pm

danmanw8 wrote: »

A very important point! Interest rates are now at an all-time low (much lower than they were during the property bubble)
If interest rates start to go up again (which they always do in the lifetime of a mortgage) then people will feel the squeeze even if they are buying at 60% of the prices from the last peak.
I just hope that, this time, the banks are stress testing the applicants based on that reality.

Someone posted in another thread that only 5% of households are on incomes of over 100k so by the three times annual salary rule that leaves a very small portion of the nation.

techdiver · 24-04-2014 5:32pm

I still think people are over extending themselves to buy houses, especially in Dublin. I would "qualify" for a significantly larger amount than I am prepared to take, but I chose not to as I think a change in our circumstances would cause serious problems down the line.

I stress test myself on one salary in my own personal affordability test and others should do the same. Of course this is not the case. Some may be able to struggle buy, but they will be putting too large of a chuck of their income towards a mortgage and this will have repercussion for the wider economy as their spending power in the domestic economy is reduced.

I still think most of the country are financial illiterates when it come to long term financial planning. They only see the here and now and have no concept of the cost of rising interest rates and the cost of childcare down the line etc. I hear the compliant that banks are not lending, but this is patently untrue. They are lending to people who can afford and at more realistic levels. In fact I still think the lend far too much based on certain incomes.

I'm starting to think that we are only going to see rising house prices especially in Dublin in the short to medium term as there are no repossessions and little or no construction going on, at least not at the level that is required to meet demand. It's a depressing thought that so little has been learnt from the last crash, but for those who are over extending themselves again, fool me once... etc...

Who will we blame this time??

Frank Lee Midere · 24-04-2014 5:56pm

danmanw8 wrote: »

A very important point! Interest rates are now at an all-time low (much lower than they were during the property bubble)
If interest rates start to go up again (which they always do in the lifetime of a mortgage) then people will feel the squeeze even if they are buying at 60% of the prices from the last peak.
I just hope that, this time, the banks are stress testing the applicants based on that reality.

Banks are charging much higher retail rates than the headline ECB rates. Its about 5%+. Which makes a huge difference.

techdiver wrote: »

I still think people are over extending themselves to buy houses, especially in Dublin. I would "qualify" for a significantly larger amount than I am prepared to take, but I chose not to as I think a change in our circumstances would cause serious problems down the line.

I stress test myself on one salary in my own personal affordability test and others should do the same. Of course this is not the case. Some may be able to struggle buy, but they will be putting too large of a chuck of their income towards a mortgage and this will have repercussion for the wider economy as their spending power in the domestic economy is reduced.

I still think most of the country are financial illiterates when it come to long term financial planning. They only see the here and now and have no concept of the cost of rising interest rates and the cost of childcare down the line etc. I hear the compliant that banks are not lending, but this is patently untrue. They are lending to people who can afford and at more realistic levels. In fact I still think the lend far too much based on certain incomes.

I'm starting to think that we are only going to see rising house prices especially in Dublin in the short to medium term as there are no repossessions and little or no construction going on, at least not at the level that is required to meet demand. It's a depressing thought that so little has been learnt from the last crash, but for those who are over extending themselves again, fool me once... etc...

Who will we blame this time??

The banks are actually stress testing.

I agree that houses are still too high. a salary, heading towards 100k wouldn't buy a decent house in a decent area in the city (not the county) not even in North Dublin, and obviously not South Dublin. Of course not everybody is dependent on salary alone, the bank of mum and dad and inherited wealth still comes into play. I find it amusing that some people are putting houses on sale, right now for 2006 figures, as any attempt to do a mortgage calculation for a 400K house would show that the household income needed is north of 120K - depending on the length of the mortgage maybe more, with an 80K deposit. And given that people have to have a 20% deposit, they tend to be older. I have seen houses in beyond the M50 put on the market for that. But 400K now is far more expensive than when 20 year olds could get 3% over 40 years with no money down. Now it takes serious money for the deposit and serious salary for the payments.

But, in fact, mortgage transactions are not a huge part of the market, not last year any way. Which can be explained by the above figures. What is happening now is a fairly sizeable increase, in the last few weeks on Daft. lets see what happens.

Frank Lee Midere · 24-04-2014 5:58pm

Arguably, in terms of affordability, we haven't in fact left the bubble.

marc_faber · 24-04-2014 6:08pm

jd1983 wrote: »

Like a lot of bears on these forums, I've been assuming that thee recent surge in house prices is due to a dead cat bounce. However I've been looking for evidence that a dead cat bounce has occurred following other property booms internationally but I'm finding little evidence.
Plus by definition a dead cat bounce should be typically short lived, it's about 18 months since the bottom of the market so it's hardly short lived.
Saying all the above, I feel average property prices in Dublin are unaffordable to most FTB's and therefore I would expect them to fall. However I'd feel more confident of this if there was a historical precedent elsewhere for this type of trend.

may be a dead cat bounce in the property market outside dublin but prices in the capital are poised to go much higher in the years ahead ( ive no vested interest btw )

the bizzare thing about the boom was that any kind of house in a field in leitrim was worth a fortune , thats not coming back ever

marc_faber · 24-04-2014 6:10pm

djpbarry wrote: »

Are they? Plenty of 2/3 bed properties going for well under €200k?

not in a remotely desirable area

Frank Lee Midere · 24-04-2014 7:03pm

marc_faber wrote: »

may be a dead cat bounce in the property market outside dublin but prices in the capital are poised to go much higher in the years ahead ( ive no vested interest btw )

the bizzare thing about the boom was that any kind of house in a field in leitrim was worth a fortune , thats not coming back ever

The prices are poised to go much higher is baloney. Where would the credit come from? Don't you realise that supply will increase if prices were to increase.

You can't tell anything from a market with tiny transactions.

marc_faber · 24-04-2014 10:00pm

Frank Lee Midere wrote: »

The prices are poised to go much higher is baloney. Where would the credit come from? Don't you realise that supply will increase if prices were to increase.

You can't tell anything from a market with tiny transactions.

the phenomenon of migration to cities will continue across the globe , dublin will have a population of over two million people within thirty years if not twenty , even the likes of cash rich russians , chinese or arabs will keep a floor under prices in desirable areas , those kind of people who bought up in london are not incapable of finding dublin on a map and their capital reach is global

dublin overshot on the way down

the point im making is that a very defined gap between dublin and the rest of the country will be a hallmark of the future property market in ireland , much like happens in the uk with london , relativley speaking , dublin is every bit as dominant in ireland as london is in the uk

beeno67 · 25-04-2014 6:53am

Potatoeman wrote: »

Someone posted in another thread that only 5% of households are on incomes of over 100k so by the three times annual salary rule that leaves a very small portion of the nation.

What is this three times salary rule? House prices in Ireland never averaged 3 times average wage. That is a myth.

I bought my first house 20 years ago. At that time banks lent 3.5 times one income plus 1.5 times a second income if there was one. Obviously very low paid do not buy houses. At present average wage for a full time worker is €45,000 a year. Average house price is €180,000 or 4 times average income. By historic standards houses are not over priced.

jd1983 · 25-04-2014 7:33am

Run of the mill 3 bed semi's in avaerage areas are selling for nearly 400k in Dublin, do you not think this is high?

beeno67 · 25-04-2014 7:40am

jd1983 wrote: »

Run of the mill 3 bed semi's in avaerage areas are selling for nearly 400k in Dublin, do you not think this is high?

I am talking average prices compared to average wages. Sure some houses are overpriced just as some people are overpaid.

professore · 25-04-2014 7:46am

beeno67 wrote: »

What is this three times salary rule? House prices in Ireland never averaged 3 times average wage. That is a myth.

I bought my first house 20 years ago. At that time banks lent 3.5 times one income plus 1.5 times a second income if there was one. Obviously very low paid do not buy houses. At present average wage for a full time worker is €45,000 a year. Average house price is €180,000 or 4 times average income. By historic standards houses are not over priced.

Average wage is way lower than 45k. In the public sector maybe.

beeno67 · 25-04-2014 7:57am

professore wrote: »

Average wage is way lower than 45k. In the public sector maybe.

http://www.cso.ie/quicktables/GetQuickTables.aspx?FileName=EHQ03.asp&TableName=Earnings+and+Labour+Costs&StatisticalProduct=DB_EH

Average hourly earnings = €21.69
Full time worker is 40 hours per week for 52 weeks a year (assume paid holidays)
21.69 X 40 X 52 = €45,115 a year.

yankinlk · 25-04-2014 8:03am

dead cat bounce is used in the stock market, and wrongly used in the housing market. housing market swings up and down slowly over time, we are turned and going back up. it might not go up like before, and it might only go so slowly it looks like is just stable, but it will be at least 7 years before it "bounces" back down.

professore · 25-04-2014 8:08am

beeno67 wrote: »

http://www.cso.ie/quicktables/GetQuickTables.aspx?FileName=EHQ03.asp&TableName=Earnings+and+Labour+Costs&StatisticalProduct=DB_EH

Average hourly earnings = €21.69
Full time worker is 40 hours per week for 52 weeks a year (assume paid holidays)
21.69 X 40 X 52 = €45,115 a year.

Average means very little with wages anyway as the small number of top earners earn way more than those at the bottom and middle. Not counting the huge numbers of unemployed out there. That's why you are only seeing a bounce in Dublin, as you have lots more middle and high earners plus international investors. Take the high paid public sector and semi state workers out and the people working for MNCs and what's left won't set the world alight. The vast majority of people in Ireland work for SMEs and average wages there excluding the boss would be 20 - 25k.

In most other European countries this group would be renting all their lives with controlled rents and long term leases, or in social housing. Not here though.

leonidas83 · 25-04-2014 9:12am

beeno67 wrote: »

http://www.cso.ie/quicktables/GetQuickTables.aspx?FileName=EHQ03.asp&TableName=Earnings+and+Labour+Costs&StatisticalProduct=DB_EH

Average hourly earnings = €21.69
Full time worker is 40 hours per week for 52 weeks a year (assume paid holidays)
21.69 X 40 X 52 = €45,115 a year.

New CSO survey on Earnings Hours and Employment Costs (EHECS) covering all sectors of the economy other than Agriculture, forestry and fishing introduced from Q1 2008.

Also every other media outlet is reporting the current average wage to be closer to the 33,000 euro mark taking all sectors into consideration & all employment types.

Your table seems more in line with wages in the public sector exclusively. See table below

But back to the dead cat bounce, whats driving the price of houses in the property market at the moment is the lack of supply of adequate housing in certain parts of Dublin. The market overall is three tiered with considerable price rises in south dublin, marginal rises in the other cities in Ireland & a continuing decline in property prices in rural areas around the country.

The main reasons for the lack of supply imo is a banking system with no appetite for repossessions currently due to a lack of political will for it. We have one of the lowest repossessions rates in Europe & this doesn't look like likely to change.
Also the construction industry has nearly been wiped out over the last few years in Ireland & new property development usually follows a few years later when there has been continuous rises in the price of property. So there is a distinctive gap historically between when prices tend to rise & major construction begins.
Finally, confidence, the majority of people who have been putting off buying a property over the last few years are starting to see a shift in prices now & are trying to get on the ladder before it becomes unaffordable. Confidence in the market in certain parts of the country is well & truly back

beeno67 · 25-04-2014 10:09am

leonidas83 wrote: »

New CSO survey on Earnings Hours and Employment Costs (EHECS) covering all sectors of the economy other than Agriculture, forestry and fishing introduced from Q1 2008.

Also every other media outlet is reporting the current average wage to be closer to the 33,000 euro mark taking all sectors into consideration & all employment types.

You are confusing average wage, which is probably around 35k, with average pay for a full time worker which is what I said. The average worker only works 31hours.
In reality an average full time worker actually works 45 hours a week but I left the calculation at 40 hours and thus excluded overtime. If you took overall pay including overtime and bonuses the average worker probably earns closer to 50k. Posters on this site tend to be young, new to work force and obviously earn less than this.

I accept that higher paid workers skew the figures but the house that sells for over 1million also skews the average house price. Really we should compare median wage (preferably median household income) to median house price.

techdiver · 25-04-2014 10:11am

beeno67 wrote: »

You are confusing average wage, which is probably around 35k, with average pay for a full time worker which is what I said. The average worker only works 31hours.

This is no less relevant to the affordability argument. People who work part time need to live somewhere too. You can't just discount a large section of society when calculating what the cost of property should be.

beeno67 · 25-04-2014 10:16am

techdiver wrote: »

This is no less relevant to the affordability argument. People who work part time need to live somewhere too. You can't just discount a large section of society when calculating what the cost of property should be.

Part time workers, those on minimum wage, those with temporary employment should not expect to buy a house. That was the thinking that caused the bubble.

I used average wage to average house price as a crude gauge which was already mentioned in this thread. I was replying to that showing that based on long term averages property costing 4 times average wage is pretty standard.

The average wage to average house price ration is commonly used to estimate what average prices should be but obviously the average wage of those who buy houses is substantially higher than the average wage in the population.

techdiver · 25-04-2014 10:27am

beeno67 wrote: »

Part time workers, those on minimum wage, those with temporary employment should not expect to buy a house. That was the thinking that caused the bubble.

I agree.

beeno67 wrote: »

I used average wage to average house price as a crude gauge which was already mentioned in this thread. I was replying to that showing that based on long term averages property costing 4 times average wage is pretty standard.

The average wage to average house price ration is commonly used to estimate what average prices should be but obviously the average wage of those who buy houses is substantially higher than the average wage in the population.

You used average wage of full time worker, not national average wage.

Regardless, the current price of property in Dublin is way too high even for those above average full time wage. I still think people are too willing to consider a €400K mortgage on a household gross wage of 90k-€100K. I believe this to be imprudent and that is my argument. If one salary is lost, then they are up **** creek!

Prices would be more realistic if both people and the financial institutions were more cautious in their approach to long term borrowing.

sock puppet · 25-04-2014 11:14am

beeno67 wrote: »

You are confusing average wage, which is probably around 35k, with average pay for a full time worker which is what I said. The average worker only works 31hours.
In reality an average full time worker actually works 45 hours a week but I left the calculation at 40 hours and thus excluded overtime. If you took overall pay including overtime and bonuses the average worker probably earns closer to 50k. Posters on this site tend to be young, new to work force and obviously earn less than this.

That's some serious warping of statistics there. You can't just assume that average hourly earnings are the same for full time workers as for the "average" worker, who is a mix of full time and part time workers.

Potatoeman · 25-04-2014 11:22am

beeno67 wrote: »

What is this three times salary rule? House prices in Ireland never averaged 3 times average wage. That is a myth.

I bought my first house 20 years ago. At that time banks lent 3.5 times one income plus 1.5 times a second income if there was one. Obviously very low paid do not buy houses. At present average wage for a full time worker is €45,000 a year. Average house price is €180,000 or 4 times average income. By historic standards houses are not over priced.

It an international rule of thumb much like the rule that you should not be spending more than 33% of income on accomadation.

sock puppet · 25-04-2014 11:42am

Potatoeman wrote: »

It an international rule of thumb much like the rule that you should not be spending more than 33% of income on accomadation.

I'd say it's more of a general tendency than a rule. It might be a rule of thumb for an individual, but it doesn't roll up simply to the average house should be 3.5 times average income, for lots of reasons.

If you want to compute a "fair" price for a house you'd be better off looking at it from an investor perspective.

Potatoeman · 25-04-2014 11:54am

sock puppet wrote: »

I'd say it's more of a general tendency than a rule. It might be a rule of thumb for an individual, but it doesn't roll up simply to the average house should be 3.5 times average income, for lots of reasons.

If you want to compute a "fair" price for a house you'd be better off looking at it from an investor perspective.

Rule is probably a bad term. Its a guideline but gives a good indication of what people can afford.

Frank Lee Midere · 25-04-2014 12:06pm

marc_faber wrote: »

the phenomenon of migration to cities will continue across the globe , dublin will have a population of over two million people within thirty years if not twenty , even the likes of cash rich russians , chinese or arabs will keep a floor under prices in desirable areas , those kind of people who bought up in london are not incapable of finding dublin on a map and their capital reach is global

dublin overshot on the way down

the point im making is that a very defined gap between dublin and the rest of the country will be a hallmark of the future property market in ireland , much like happens in the uk with london , relativley speaking , dublin is every bit as dominant in ireland as london is in the uk

This is the new excuse. Dublin is not London. Most rich foreigners couldn't find it on a map and are not the people turning up at allsop which is 94% Irish.

Nor do they care about Manchester.

Geuze · 25-04-2014 12:09pm

professore wrote: »

Average wage is way lower than 45k. In the public sector maybe.

http://www.cso.ie/en/statistics/earnings/

http://www.cso.ie/en/releasesandpublications/er/elcq/earningsandlabourcostsq32013finalq42013preliminaryestimates/#.U1pBrfldWSo

Average wages per hour = 21.69

Average wages per week = 687

Data is for 2013 Q4.

(687)(52) = APPROX 36,000 average wages.

If you worked (52 weeks) * (39 hrs) at average wages (21.69), you would earn 44k approx.

But note that average hours pw are less than 39.

Dead Cat Bounce in Property Markets

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