The problem wasn't that naysayers were saying that property was overvalued, it was that they were predicting the bursting of the bubble on nothing more evidence than property being overvalued which in a bubble isn't very accurate or useful. Predictions without timing aren't very impressive.
Why is the bubble bursting though, and ask yourself, is it the bubble bursting that has put us into this recession or is it the same external factor that burst the bubble that is also plunging us into recession? The bursting bubble could be as much a side effect as the recession itself. Causality is important here, correlation can be misleading.
Think of it this way, if interest rates rise and credit availability decreases markedly, an asset bubble will tend to burst or at least to putter out. The thing is, why are the interest rates rising and why has credit availability decreased? Are these the cause of the recession/downturn or is the bursting bubble? Does it make any sense to predict the bubble to burst rather than to predict what will cause it to burst and what this, rather than the bubble, will do to the rest of the economy.
Well, of course it was going to happen, some of us knew it would happen within a certain timeframe while others fundamentally disagreed that it will happen at all.
That's what i'm stating. The ESRI was quoted in a post, they came out with their prediction was it around March while some posters here predicted this up to 2 years ago within a timeframe of 2-3yrs before the ESRI even mentioned the R word.
Now the ESRI don't have a great record of predicting, they keep revising every so often their growth figures.
Yes, big difference between predicting this recession and a white christmas. The recession was predicted by some posters within accuracy while a white christmas cannot be predicted at all, its random.
That's about timing within reason and looking at the data available. Those of us who stated that the R word is coming before the ESRI did were ridiculed with deaf ears, remember?
Isnt the evidence on this clear? The Irish housing market stalled when the ECB increased interest rates - with the inevitable lag. That clearly made most BTL properties uneconomic ( although last years increase in rents - the first in the millenium - were probably a reaction by landlords to increases in mortgage repayments, that can only last if demand exceeds supply which it doesnt).
The global credit crunch - I doubt it. I was offered 6-8 times salary late last year ( this was unsolicited I was in the bank for other reasons). Havent tried this year but I have no evidence that the entire mortgage market is seized up. In any case there would be a lag, if the global credit crunch is going to affect the housing market in Ireland it will reflected in the y-to-y drop from this year on.
The bubble burst in mid 2006. The credit crunch came in August 2007, a whole year ahead. That's why this is a domestically lead recession which was based on too much construction related activity for overpriced land, commercial and housing.
International factors cannot be fully blamed for the recession as they came much later and even have not fully hit us yet.
You're still missing my point, though possibly that's because I'm not making it clear rather than any fault on your part.
In logic there's a formal fallacy called affirming the consequent. It basically means that if given a statement "If X then Y" and Y happens that you assume that X is right. It's a serious problem in the realm of prediction because if you are not wary of it you can affirm any prediction simply because the result happens. For instance, if a year ago I predicted that a recession would happen within a year because of Ireland not winning the Eurovision we'd all agree that it was silly and no one would give it any extra weight just because a recession happened this year. The thing is that predicting an event, and giving a cause, doesn't mean that you are right if that event does indeed happen. It's only in retrospect where we can examine the actual causes of the event can we (with error) separate the good predictions from the bad ones and learn which forms of prediction to use in the future.
This undermines many of the predictions that happened to coincide with the present recession simply because the explanation of why we would go into a recession simply aren't valid. As a basic separation of good and bad predictions, any prediction that failed to simultaneously predict a global downturn can be tossed aside since as not having been confirmed simply because their explanation is missing a crucial and major element of the cause of this recession (and honestly, such predictions show an unawareness of the openness of this economy and its high level of foreign companies which expose us to the global economy to a huge extent and anyone not factoring this in doesn't have a good grasp of our economy to begin with).
The second problem is that given a group of recession predictions, a fair amount of them (if given generous timing requirements like 2-3 years) will be right purely by chance and not by any skill of prediction on the part of the predictor. This again undermines successful predictions since we have to assume that many of them have been right purely by luck and not because of some intrinsic power of prediction.
There are more points but I'm just trying to highlight a problem with the logic of "we predicted it would happen, and it did, so we are vindicated."
Is it the international factors that tipped this over from being a severe slowdown to a recession though? Are we looking at a combination of factors, rather than just the bubble bursting, when we're looking at what's causing this recession? Is the bubble bursting a necessary, and not a sufficient, cause for the recession etc? Is the bubble bursting being worsened by international conditions?
My point is that are we making a mistake when we look at this recession solely in the context of the bubble bursting, or should we be looking at a broader economic picture here.
I'd agree of the following : Is the bubble bursting being worsened by international conditions?
Thing is, the international conditions in the form of the crunch has not even hit the banking sector severely yet. They will still lend a borrower several times their income in some cases(from anecdotal and Accomodation forum for example). And then the banks will have to contend with the writing off of bad debts domestically from property as well as a crunch, it ain't looking good.
The economy is being hammered from 3 sides:
The exchange rates(full affect)
The credit crunch (partial affect so far)
The domestic housing bubble bursting.(full affect)
The international conditions of the falling sterling/dollar since last year has indeed affected exports to a degree, that is true.
If the crunch did not happen until now, it will still be a recession as we wean ourselves of construction related activity which needs to be slashed in half to be comparable with normal European economies.(bar Spain as they are in same bubble boat)
Prof John Fitzgerald of the ESRI once said to RTE in April 2007:
"We have allowed building construction to grow too rapidly and take up too big a share of the economy," the Economic and Social Research Institute's professor John FitzGerald (son of Garret and elder brother of Mark, chairman of estate agents Sherry FitzGerald) told the presenter, business journalist Richard Curran. "We are out on a limb at this stage; getting down off it is going to be delicate without hurting ourselves."
So, this recession is been made worse by whats happening in Wall st, that's the unfortunate part. The ESRI agree that it will take at least another year for the economy to get over this recession with readjustment from construction related activity to export related activities(depends on govt policy if it this bears fruit), that i agree with.
Funny thing is how people think this will get better quickly, I just can't see the catalysts for recovery, housing hasn't even started to be marked to market yet.
One of my friends, his dad was in the construction industry and was let go. He hasn't been able to get a job since.
My best friend, she lives with her mam.....her mam is a single parent like, and she's afraid of losing her job because her boss let 7 people go the other week.
My uncle has been doing very well over the years, who works in a car dealership....but now the cars aren't selling in the last 6 months and the owners of the business say if things don't pick they'll have to close down completely.
I'd honestly be very surprised if the economy got over this recession in a year. We dependent on the global economy to get us out of this really, and I really doubt that we'll get any boost up until the US etc start picking up again, whatever the Government try to do. We're an extremely open economy, our course in many ways is plotted by people who we've no control or influence over.
I can see the Exchequer in greater trouble during this recession compaired to that of the 80ies. The old reliables that were a great cash cow in the past are being killed off.
Livestyles have now changed, many people have turned away from the drinking culture (Recent lawa have not helped, IE Smoking Ban, heavy handed public order offenses and early night club closing). Also excessive high mortgages and rents have fforced people to stay in. about 25% of the pubs in Ennis have closed for good in the last five years.
The main problem coming from the financial sector is that their problems are far from over. Since the US have agreed their new funding deal some normality will return to their area of the world.
That should hopefully remove them as a problem within the next 18 months which then leaves the government to its own devices to rescue the economy.
i notice some people still saying that we've only been partially hit by the international credit crunch... well that's bullplop. Just because the credit crunch only started making news in recent weeks doesn't mean people haven't being seeing it's effects. Companies in Ireland started to suffer from the credit crunch way back in 2007 when the run on Northern Rock occurred, i've seen this first hand. you cannot disentangle it from our current situation; yes we had peaked and had started a down turn but it wouldn't have been half as bad as this if it weren't for the credit crunch. We are a highly open economy, any global downturn tends to hit us worse than anywhere else because we don't have the domestic markets to keep us ticking over.
Just on the house price bubble thing. I think the problem was not that people could not accurately predict when it would burst (nearly impossible thing to do anyway) but that people refused to believe that there would be any burst. Because the bubble had gone on so long people stopped seeing the risk. A common argument made was "if it is a bubble surely it would have burst by now?" The general belief out there at the time was that the rate of increase would slow, that prices would either stop rising or that the rate of growth would moderate.
What we have in Ireland now is a house price bubble bursting combined with an international credit crunch. We would still have a recession due to the Irish house price bubble bursting but it more severe due to external factors. The two of course are related. The Irish bubble has been made possible partly by the availability of cheap credit internationally and this international credit bubble has also burst.
It was about August or September 2007 that credit crunch started actually effecting money lent in Ireland but the collapse of construction had already started.