Anyone watch prime time last night about house prices?

nahdoic

Anyone watch prime time last night about house prices?

I still felt the same way afterwards - I think that very shortly after mortgage interest rates go up to around 6% then the property bubble in Ireland will crash.

But then the next question, when are interest rates likely to rise to 6%? Or will they ever be that high again?

If interest rates stay at their current level, then I still feel that the bubble could be maintained indefinitely - so you should buy now.

BigEejit

The other thing that could burst that bubble is supply and demand ... some places (like Dublin) maintain a high demand for new housing ... but there are other regions where the demand is very low, but the builders are still putting up estates in the belief that they can continue to make millions like they have been doing for the last several years ... right now there are several properties that i know of quite close to me that have been up for rent for 4 or more months ... not great if you are an investor .... the house across the road from me is empty for at least that long if not longer .. (dunno if it is up for rent, was bought early summer and has been vacant since) .....

So, builder builds house, sells to investor, investor tries to rent it out, fails to do so for an extended period, sells the freaking thing to try and get his money out to buy a house that will make him money (or at least pay the mortgage). Multiply this by X amount of investors and there could be a drop in prices and rents.

PS I heard a strange thing the other day ... basically builders like to keep their money ploughed into new investments to minimise their tax debt (i.e. they pay less tax if they are constantly building new properties) ....

secret_squirrel

Originally posted by nahdoic
If interest rates stay at their current level, then I still feel that the bubble could be maintained indefinitely - so you should buy now.

And your qualifications for sayin this are?

For rates to go to 6% the ecb would have to make a decision that the whole of the eurozone would benefit from a hike like that.

Whats far more likely is a crash due to oversupply. Rents are already dropping all over dublin.

History has shown that the housing market is very cyclical..what goes up at silly rates eventually corrects itself with a big drop. And a crash in rental income usually preceeds this...and buy-to-renters are usually the first to feel it since many over extend themselves.

Victor

Originally posted by nahdoic
If interest rates stay at their current level

They can't they are at 50 year lows.

nahdoic

And your qualifications for sayin this are?

It's called intuition, a gut feeling that's why i said 'i still feel'. Notice how I didn't recommend this as advice - too subtle for you?

They can't they are at 50 year lows.

Yeah. But when do you think a rise in interest rates will occur? On the prime time show they were suggesting in 2 years time, I don't know how they came to that conclusion though.

It will more than likely be a combination of over-supply (reducing rental income) and a rise in interest rates (increasing mortgage expense). The buy-to-rent investor is already starting to feel a squeeze from a slight drop in rental income. But if interest rates still stay at their current level - then I still feel that the current bubble can be sustained.

But I still feel the nail in the coffin will be when interest rates go up to around 6% - making mortgage affordability exceed rental income very suddenly across the board. Investors will very suddenly be losing money hand over fist from an already difficult rental market. Forcing them to flood the market with property to sell all at once with one big huge property crash.

spongebob

Mortgage rates will not hit 6% in this decade !

Good ole oversupply could do do it though. Expect first in the newer outer suburbs of the large cities and watch. Some crummier rural areas will get it too.

M

pork99

This guy really hits the nail on the head

Thus both wages and profits could rise simultaneously.This, surely, is the point of the exercise, is it not? If Irish workers get paid more per hour of work because we are producing more, then we can have more free cash to spend in our free time.

But no, we do precisely the opposite. We invest all we can in land and houses.The opportunity cost of this is lower productivity per worker. This means relatively lower wages than our German neighbours. Lower wages and a much higher proportion of our after-tax take home wage going to rents and mortgages (historically, low interest rates notwithstanding), means less disposable income.

Equally, the huge rise in land prices causes a huge transfer of cash from workers to landlords, for doing nothing and, more egregiously, from the young, who shoulder the debts to the old and middle-aged who own the land. This is not how a modern, sophisticated economy works; it is demographic feudalism.

McWilliams Article

secret_squirrel

The buy-to-rent investor is already starting to feel a squeeze from a slight drop in rental income.

I moved rented houses 2 months ago in swords. And from personal experience I could have rented several houses of a similar size for €200 less a month. Thats a 17% drop in a year. More than slight methinks. The top end of the housing market is already stagnating..some houses have been on the market months. Admittedly N County Dublin contains some of the biggest volumes of new houses around Dublin..but from this evidence the market has hit plateau locally, which suggests a crash might be very near indeed.

But I still feel the nail in the coffin will be when interest rates go up to around 6% - making mortgage affordability exceed rental income...

And you got this figure from where - read it in your tea leaves perhaps??
Predicating a sentence with I feel and then going on to quote precise figures is pointless unless you are going to back it up with either personal experience or fact. Whats your basis for pulling 6% out of the air? Was this value on Primetime or do you hold a PHd in Economics?

sceptre

Originally posted by nahdoic
But then the next question, when are interest rates likely to rise to 6%? Or will they ever be that high again?

The ECB will sacrifice anything to keep interest rates low. It's one of the core targets for the Eurozone to keep the cost of borrowing low. I wouldn't have a team of hundreds running a breath-holding relay to wait for the rate to hit 6%.

For mortgage affordability to exceed rental income, the rate doesn't have to hit 6% anyway. All that has to happen is that rental income falls. Then the figure can be anything at all. In other words, my breath-holding relay team may find that the market crashes before they are allowed take a breath at all. All that's required is a lot more sellers than buyers - that's what a crash is.

jd

Not scientific but same development...
nov 2002
http://archives.tcm.ie/businesspost/2002/11/10/story331023.asp
Santry Demesne apartments in demand
Sunday, November 10, 2002

By Gillian Nelis

A total of 115 apartments valued at €30 million have been sold at the Temple Court apartment development in Northwood, Santry Demesne, since show apartments opened two weeks ago
.....
.
.
.
The firm is now taking deposits for the second phase at Temple Court, which comprises 30 one, two and three-bedroom apartments and penthouses, due to be completed next summer. Prices start at €230,000 for a 46 square metre one-bedroom apartment, with 61 square metre two-beds priced from €265,000.
.
.


Oct 2003 same development
http://www.unison.ie/irish_independent/stories.php3?ca=303&si=1062846&issue_id=9919
LYMEWOOD MEWS,

Santry Demesne.

From €229,000

Stylish apartments in convenient location

THE designs for different sections of Santry Demesne
.
.

The one-beds start from €229,000, the two-beds from €269,000 and the three-beds from €309,000.

High quality Alno German fitted kitchens incorporate timber units individually designed for each apartment layout.

All kitchens will have integrated electrical appliances as standard including Washer Dryer, Oven Hob and Extractor, Dishwasher and Fridge.
.
.


note now throwinging kitchen whiteware.. also i believe new two bedrooms start at a larger size.

flangeman

I think whats more interesting about this issue is the social context.

I'm 25(soon 26), I live in London, no kids and an ok job. I know that I will never own property in this city. For two reasons, I always see myself as going home and thus(stupidly) won't purchase here(also no credit history). But at home(small town an hour from Dublin in the North East), people are buying houses like they are peanuts. Nearly all members of my family(some younger and cousins) are purchasing houses. I'm getting pressured by my mother to buy something, even cousins living as aliens in New York(who haven't been home in years)are sending home money to buy houses in estates. Doesn't it all stink? doesn't something sound wrong? Considering everybody has a lot less to spend, car insurance/food/drink costing more.

I think that Ireland will learn what the term 'negative equity' means, just like this country did.

I believe it will come, but I dare not say a thing, not a single word about what I think, because so many have made purchases. I hope I'm wrong for their sake, but right for my sake.

Reminds me of an interview I read about a stockbroker who pulled everything out of stock exchange days before the crash(that started the first great depression). The reason was, as he explained. "When I left my apartment the lift operator was asking me for stock tips, when I left my building the doorman was wasking me for stock tips, when I got in my car, my driver was asking for stock tips. So I went to work and sold everything because too many people were winning and nobody was losing, and this time would come"

I can't help but feel if everybody is telling me to invest in Land and houses then its already too late.

nahdoic

Originally posted by flangeman
Reminds me of an interview I read about a stockbroker who pulled everything out of stock exchange days before the crash(that started the first great depression). The reason was, as he explained. "When I left my apartment the lift operator was asking me for stock tips, when I left my building the doorman was wasking me for stock tips, when I got in my car, my driver was asking for stock tips. So I went to work and sold everything because too many people were winning and nobody was losing, and this time would come"

I can't help but feel if everybody is telling me to invest in Land and houses then its already too late.

I totally agree. When everyone is doing it, it's time to get out. But wasn't it the shoe shine boy who was giving the stock broker a tip that made him sell everything before the crash?

From McWilliams Article
So why does the price not adjust downwards?

Well for a variety of short-term reasons, but mainly because the cheap credit keeps the whole game in business. Yes, there is demand, but this only explains the direction of prices, not the extent of price increases.

I still feel the same way, as long as we have cheap credit then this boom can still be maintained. Although house prices may stop rising or face a very small reduction. But I can't see a crash happening while money is so easily available.

mollser

One reason why they may fall is 'mass emigration'. Once people realise what a sh*te quality of life is offered by Dublin they would go if the right opportunity came up.

Family reasons aside, why do people still want to live there??????

BTW, in an international context, house prices appear to be remarkably over valued, a correction is iminent. Agree with posts above, when everyone is saying what a great investment it is its time to get out. Panic buying is also supporting them, of that I'm convinced.

pod

You'd think people would have learned lessons from the dot com boom - some apparently have not...

Victor

Originally posted by jd
note now throwinging kitchen whiteware.. also i believe new two bedrooms start at a larger size.

It is also a year later and prices are always lower for the first phase of a development (to encourage people to put up cash up front and help the marketing "frenzy").

jd

1 bedrooms now at a lower price than a year earlier-with the appliances thrown in..
mmm

ur mentor

Interesting thread what about the fundamental laws of economics
supply and demand?
Anyone see any more of Bacon lately?
are experts stillright with expected need for c 50,000 houses per year?

sceptre

Originally posted by flangeman
The reason was, as he explained. "When I left my apartment the lift operator was asking me for stock tips, when I left my building the doorman was wasking me for stock tips, when I got in my car, my driver was asking for stock tips. So I went to work and sold everything because too many people were winning and nobody was losing, and this time would come"

It's that attitude more than anything else that kept me away from buying any dotcom shares (back when I had money before I went back to college:)). Every idiot seemed to be popping money into the stock market in one way or another.

Originally posted by pod
You'd think people would have learned lessons from the dot com boom - some apparently have not...

People never learn. They didn't remember the late 80s crash when the dotcom frenzy started either. The attitude always seems to be "this is so totally different to that". I tend to think of tulips.

Victor

Originally posted by sceptre
I tend to think of tulips.

When was there a crash in the tulip market?

spongebob

Originally posted by Victor
When was there a crash in the tulip market?

c. 1620, nearly bankrupted Holland.

The British had the South Sea Bubble a century later. The great thing about búbbles is that every bubble bursts. You should consider that to be as immutable as the laws of physics whether you 'own 'a home or not.

My favourit book about such events is the short but detailed "Funny Money" by Spicer , published about 20-22 years ago. It details the meteoric rise and crash of a bubble in Gas prices in Oklahoma. The book is a howl once you understand the basic premise behind the bubble which was that a ridiculous amount of gas could be found at a ridiculous depth and that by the time you got it topside it would be wortha ridiculous amount. It was allegedly about 8 miles down. Nobody has ever drilled more than 2 miles and produced hydrocarbons, even now, but off the whole thing went . It crashed the 13th largest bank in the US and forced the 9th largest into a merger.

The dot com boom did nothing of the sort, the pain was felt on the stockmarket instead. The banks did grand this time.

M

pod

I think it was 1637, but don't quote me on it...

It sounds strange now that people paid absolute fortunes for tulips, but I suppose is it really any stranger than when people paid fortunes for an internet site/name?

(Or a one-bed flat in Dublin?)

jd

Originally posted by Muck
c. 1620, nearly bankrupted Holland.


The dot com boom did nothing of the sort, the pain was felt on the stockmarket instead.

M

anf your pension fund too, unfortunately

nahdoic

Interesting article by Clif Droke about the real estate market in america at the moment. There seems to be a lot of parallels with our own at the moment.

He doesn't believe interest rates will have to rise in order to cause the crash. Just like what many of you are saying - basic supply and demand will do it.

Anatomy Of A Real Estate Crash

...

That brings us to the next point in this dissection of a real estate crash. According to the Wall Street Journal, a mere half-point rise in interest rates would price two million households out of the market for the media-priced home. Many analysts insist that interest rates must spike before the housing market begins to collapse, but is this necessarily so?

In the not-too-distant past, a generational bubble in stock prices was hinged, in part, on low interest rates and credit growth and the experts at that time were proclaiming that a major increase in interest rates would pop the stock market bubble, yet interest rates continued their overall decline even as stock prices peaked and the bear market in equities got underway. The stock bubble ended simply because there was too much supply relative to demand, which is to say that buying power from the general public dried up at some point after being dominant for the better part of the late 1990s.

The real estate bubble is no different, with the widespread public buying responsible for pushing housing prices above and beyond reasonable valuations. The '90s stock market bubble and today's real estate bubble both shared the same pivot from the declining trend in interest rates, as the extremely low interest rate was used in both cases to justify reckless buying on the part of the general public.

...

spongebob

In the US they often allow 95-100% Mortgages. The Yanks even have a system whereby the person selling the property can Subsidise the buyer by giving the Down Payment to a charity that then 'donates' it to the buyer.

This allows some extremely dodgy people to get mortgages, there is an interesting artcile on the matter Here .

Sometimes the Builder donates the down payment via these charities.

The Irish Equivalent will be those estates and developments where the builder offered vast allowances to those who scrape together the 10% and therefore have no money left over for furniture or kitchen appliances.

These incentives were fairly common in the summer of 2001 and will be common again by next spring. They will also provide a good lead indicator of the areas where property will be dumped on the market in the initial stages of a a slump and where negative equity will pose a greater hazard going forward. Do look that gift horse in the mouth !

M

mollser

Just had a thought about another VERY plausible reason for a crash - TIGHTENING OF CREDIT

The banks are practicing very liberal terms of credit of late. They have already received a slap on the wrists for this, with no effect. In effect, the boom has been created by cheap and affordable credit. There is more debt out there than there has ever been.

If the banks are forced to tighten their lending policies, less money available for property, correction happens.

Also, a rise in taxes (not at all an impossibly) will restrict peoples repayment abilities there.

While i'm on this, how many more avenues of credit can be exploited? Lets look at this for a moment:

20 years ago, the norm was for one income families to really really stretch and buy a house.

For the last number of years, it has 2 incomes (in the case of young couples, mates whatever) which need to really really stretch to afford a house.

Nowadays, its 2 incomes + renting out rooms to afford to buy a home, while also borrowing the deposit from the CU or another financial arm. (miguel42 shocked me as to how easy this was to do - couldn't believe it!)

What further lines of credit are available??? It looks like we are at the absolute limit as to what desparation tactics people have to exploit to make a house in any way affordable. This is not sustainable, and nor should it really be tolerated.

On the flip side, a bit bitter I know, but if the benchmarking goes ahead, probably expect to see another nice surge in the $%#*&# house prices.:mad:

yankinlk

Not even close to the end of financing options available to Irish House buyers.
How about 50 year mortgages, nothing wrong with that - hell, people move after 7 years (average) anyway. Interest only loans could be more common. 100% financing isnt here yet really.

Glad I didnt listen to the people prediciting the crash three years ago when I bought my house at the "top end" of the market. This year I bought my second house (thanks to a proper american credit card I was able to put the downpayment of 8% on two credit cards.).

Who says the housing market HAS to crash anyway. Its cyclical sure, it will ease up and become a BUYERS market for a while (signs it already has in some areas) and when I mean a while we are talking 10 years or so. The housing market is slow to change either direction normally.

jd

Originally posted by yankinlk
This year I bought my second house (thanks to a proper american credit card I was able to put the downpayment of 8% on two credit cards.).

!!!
downpayments uing CRedit Card debt..
sorry-/me goes off shaking head...

mollser

Originally posted by jd
!!!
downpayments uing CRedit Card debt..
sorry-/me goes off shaking head...

Unbelievable!

You see, its lads doing that that the developers and banks love - keep the whole thing perched up there nicely while doing yourself over!

i'm still laughin away here at that....


50 year mortgages???? ffs!

seamus

Originally posted by yankinlk
Who says the housing market HAS to crash anyway. Its cyclical sure, it will ease up and become a BUYERS market for a while (signs it already has in some areas) and when I mean a while we are talking 10 years or so. The housing market is slow to change either direction normally.

It's not necessarily cyclical.

As has been pointed out by many, many departments recently, Irish birth rates are dropping. About time probably. But in 30-40 years time, there's going to be an oversupply of housing, especially in Dublin, as people retire/move on/die, and there's no-one there to take their house.

I think we'll see vast housing estates, like those in Lucan, with loads of vacant houses. On the upside, it means there'll be more council housing.

Victor

Originally posted by mollser
50 year mortgages???? ffs!

In Japan they have (had?) 100 years mortgages that you would end up passing onto grandchildren.

And look where that got them.

star gazer

In Japan they have (had?) 100 years mortgages that you would end up passing onto grandchildren. And look where that got them.
Victor

That point was well put in David MacWilliams article, the Japanese model should have been a warning to our policy makers on housing and the price of land.

http://www.sbpost.ie/web/Sitemap/1.2did-322681372-pageUrl--2FBusiness-2FComment-and-Analysis.asp

One has to wonder why we didn't learn from the mistakes of japan...

Imposter

Originally posted by seamus
As has been pointed out by many, many departments recently, Irish birth rates are dropping. About time probably. But in 30-40 years time, there's going to be an oversupply of housing, especially in Dublin, as people retire/move on/die, and there's no-one there to take their house.

You forget the effects of immigration here! The way to deal with this problem is controlled immigration (somewhat like switzerlands current plan) where most immigrants get a job and as a result obviously need somewhere to live.

Earthhorse

You do realise that Japan has a population of well over a hundred million people and that large areas of the island are mountainous and unsuitable for buidling housing? The Japanese economy is also based on fundamentally different structures from Ireland's so there's little point in comparing the two.

In America it's also, generally speaking and from a cultural point of view, the case that unpaid debts have less stigma attached to them. They are a more risk averse society than ourselves. I'm not saying mortgages based on credit are an economically sound idea, just that they suit the American culture better than ours.

The truth is that both McWilliams and Hughes are right. McWilliams is right when he says there is no value for money and Hughes is right when he says there won't be a crash. There's no value for money because people believe there isn't. Value is a subjective thing and if people are saying they're not getting value for money then they're not. Most people are buying because they have to - newlyweds can't exactly live on the couch.

There won't be a crash because for that to happen either interest rates would have to rise sharply or supply would have to quickly outstrip demand. Interest rates will rise but it will be predictable and incremental. Supply may outstrip demand but if it's going to take thirty to forty years to happen the market won't exactly be shocked when it does.

Never trust an economist folks; they predicted 10 of the last 5 recessions.

star gazer

You do realise that Japan has a population of well over a hundred million people and that large areas of the island are mountainous and unsuitable for buidling housing? The Japanese economy is also based on fundamentally different structures from Ireland's so there's little point in comparing the two.
Earthhorse

The culture that is similar is the desire for land and the belief that you can never lose with land. Our planning and development laws mean that something zoned for agricultural purposes may as well be mountains for the supply and demand scale. There are reports that a small number of large landowners have sufficient land to control the release of zoned residential land. The smell from the mahon tribunal isn't plesant and the past planning and development culture may not have been condusive to an effective supply and demand marketplace.

Value is subjective but the economic effect of crippling the younger generations with debt isn't going to help irelands entrepreneurial drive. The price of rents has already started to level out and fall in some places, investors will be less and less likely to invest as rents fall. They start to shift investments back into booming stockmarkets, interest rates raise to level off inflation in an expanding EU economy and there could be a slight adjustment.

Earthhorse

Ah, I'm a bit clearer on what you're trying to say now, though I still think Japan isn't maybe the best example given that they have one of the highest population densities in the world.

On your other point I did mean to say that I think a dip or stagnation in house prices will occur but this is not the same thing as a crash.

star gazer

yeah japan is different it's just the concept of human behaviour and the consequences of that. Clearly Japan is thousands of miles away geographically and culturally but we do share certain things too.
I would fear that the people that thought that houses were totally safe and any dip would get them panicking, it might have been better to have seen a levelling off of prices this year to keep things real while not hurting investors. It isn't good to keep the future leaders of the country in debt for so long, because it will stiffle our economic creativity IMO.

sceptre

Originally posted by Muck
The great thing about búbbles is that every bubble bursts. You should consider that to be as immutable as the laws of physics whether you 'own 'a home or not.

Indeed. What most of these burst bubbles have in common is the idea of buying something, usually with little inherent or guaranteed value, and paying a price for it based more on the resale value (the investor assumes prices will continue to climb) than the actual inherent value of the item.

Bubbles are like pyramid schemes (specifically Ponzi schemes). When you have a situation (as eventually we've had with every single bubble) where there are less buyers than sellers the price takes a dip. When sellers realise this there's a rush of selling as everyone realises that their investment is at risk. Bubbles fall foul of one of two things: the realisation of people that they're buying something that is worth a lot less than the price they paid for it (which in a purely functional world would mean the inherent value of the item but for practical purposes means the price that people are prepared to pay) OR if the item's price rises to an extent that not everyone who wishes to buy can afford to take a small piece of the pie, sometimes the market simply runs out of buyers or possible buyers. Sometimes both happen at around the same time - when that happens there's always a very dramatic crash.

Houses have an inherent value of course. From an economist's point of view there's a substantial utility value in a dwelling and hence a house will always have some value. However... Every property market is based on the idea that the dwelling will retain its value. Every heated-up property market is based on the idea that the dwelling will retain its value and will in fact rise substantially in value, effectively providing a substantial bonus to the property holder whenever the property is sold (whether that's before or after death) (and effectively paying for the premium paid for the property as a result of borrowing (the interest) AND the premium paid for the property as a result of buying an item in high demand in an overheated market). Because of the expectation that the property will rise in value, any overheated property market has quite a bit in common with any other overheated market we've had in economic history. We've never had a dramatically overheated market where people have had high expectations of the price moving upwards that didn't eventually end in some kind of failure, often in a rather dramatic way.

Of course if you're just buying a house to live in, in which you're happy, and you're not particularly interested in playing the property game it doesn't matter all that much when you buy your house as long as you're happy with it. Satisfaction is still the wild variable in economic theory and will probably always remain so.

There's a possibility that the property market will either just settle down or will cool down gradually. Based on the amount of investment property in this country though and the high level of borrowing both to pay for long-term loans (like houses) and short term borrowing (notably credit cards in Ireland), any move towards a downturn will result in at least a sudden drop at some stage in my opinion. Not necessarily a crash (though I suspect this will happen in the next few years) but at least a reasonable price drop as a result of negative equity in the market (the banks are already taking a semi-active role in propping up the market artificially by taking ownership of the houses of loan defaulters and renting them to the occupants). When? Ah if I could guess that I'd be a property developer:D


(edit)Aaaagh. Damn blockage of the word "Bu88les"!

mollser

Originally posted by Earthhorse
There won't be a crash because for that to happen either interest rates would have to rise sharply or supply would have to quickly outstrip demand.

Correct, interest rates may not rise dramatically, but there is a more than strong possiblity that TAX rates will rise, perhaps sharply, which will affect peoples affordability. Potential negative effect.

Supply outstripping demand, as long as people continue to lose their jobs, this could come about quicker than expected. Funny, currently reading 'Fast Food Nation', and the scant regard that American corporations show for areas where they are based is frightening. They can and do up and move overnight, seeking out cheaper labour continuously. IMO, there is a substantial risk of Ireland just becoming another pawn in the movements of the big corporates. A doomsday scenario I admit, but a more than likely one, unfortunately.

Most likely is, as Sceptre says, a cooling off period will come, rather than a crash. However, with the benchmarking... :mad:

sceptre

Originally posted by pod
I think it was 1637, but don't quote me on it...

Well, we could:D - you're right.

Prices actually reached a peak in 1636 before taking a downturn but the total crash came in 1637.

Two things of note from the tulip affair. It's the perfect example to throw at anyone who makes a comment along the lines of "the market may crash but prices /always/ eventually recover" (as we've heard countless times since 1987). Tulip bulb prices /still/ haven't returned to the 1636 levels (and 367 years is rather a long time to be waiting for an investment to make a profit or even break even). Tulpewoerde also gave birth to the futures market, the bane of most Business Studies students' college lives. Blame the Dutch.

Originally posted by pod
It sounds strange now that people paid absolute fortunes for tulips, but I suppose is it really any stranger than when people paid fortunes for an internet site/name?

No stranger at all. It's the exact same thing really. The names and countries change, the items for sale are different but the story is pretty much the same in every one of these markets. There are always a few making a lot of money, a lot that seem to be making some money (when greed gives birth to the expectation gap, most people cash out when the market is on its way down (if not out)) and hence (because the money has to actually come from somewhere (assuming no-one's actually manufacturing anything) there are a lot of people losing some money. Always based on the expectation that an item will rise dramatically in value just as a result of you holding it and others wanting it rather than any inherent utility value.

It's the way it's always been (well, at least since the 1630s), it's the way it always will be unfortunately. If you (edit: not you as in "pod" but you as in "any of us") think that greed is good, you'd better be one of the guys leading the market or cashing out early. When you've got a market where people who don't know what they're doing are borrowing far beyond their means to get a piece of the action, that market has a very close best before end date. That's the key to any approaching crash in my opinion. At least in a property downturn people are left with a house, even if it's worth a lot less in cashin value than they thought. I'd rather be left with a house and debt than a tulip (or piece of worthless paper (look back at the South Sea bubble, John Law's Mississippi Company, the UK bank crash in the early 70s, 1980s junk bonds or shares in boo.com) and debt:)

Preferably I'd be left with a house and no debt though:D
I'm an optimistic pessimist. The glass may be half full or half empty depending on who owns the glass and how big it is.

Figment

Ok, so if the bubble bursts and house prices crash how can i ( a potential home owner) benifit from staying put? Would i be better saving what money i have and getting a mortgage out when prices come down?

Instead of talking about the negatives, how can you take advantage of a burst bubble?

sceptre

Originally posted by Figment
Instead of talking about the negatives, how can you take advantage of a burst bubble?

Well, if you've a pile of cash lying around you pump it into property right at the bottom of the market and you're on an almost certain winner. Basic principle of buy low & sell high.

Assuming you're an ordinary Joe like the rest of us, you're facing the same problem as the rest of us (well not me - as a current (CS) student, it'll be a few years before I even start thinking about crying about the property prices). No-one can predict with any certainty what will happen. Most people can't even make a semi-educated guess about it. You're asking us to move from largely theoretical macroeconomic analysis to practical microeconomic advice and I'm rather uneasy about handing out anything approaching financial advice to anyone who isn't me if you're going to take it as serious advice in any way. I'm not a professional financial adviser and I half doubt that anyone who posts here is.

Just be aware that, regardless of the qualifications of the person answering your question, any answers you get (and I'm assuming you will get a number of "I'm waiting because..." or "I'm buying now because..." answers) will be speculation. Perhaps educated speculation, perhaps intuition, perhaps completely idle speculation. Nothing more. Death and taxes are the only certainties as they say.

Let's put it this way though. Say you buy a house tomorrow and a (massive) crash comes in six months. Suddenly what you owe the bank is far more than the value of your house. Do you walk away or pay off the loan? Obviously you'd feel a bit sheepish about jumping early but if you've played by the basic rules (buy a property that suits your needs and wants AND that you can afford to pay off the loan on) you've got the house you wanted. So (keeping in mind that I know nothing about actually buying property as an individual), buy the house you want (or as close as you can get) when you can afford to get that house. That way you'll have something more (the enjoyment you get from that house) than the mere resale value of the house. If you're just buying to get on the property ladder and a crash comes, at least you'll be on that ladder when you buy something you can afford when you can afford it. At worst, you'll just have to stay in your less-than-perfect-for-you house for a little longer than planned.

It's almost impossible to take advantage of something that's as difficult to predict as a crash (unless you're George Soros and you caused the crash in the first place). You can lose either way - prices could continue climbing for some time and reach a period of equilibrium. If you're buying something it's far easier to think microeconomics than macroeconomics (the latter will just drive you nuts - you'll be playing a game that you can probably only win by luck) and consider your own needs, ignoring the greater market as much as you can. If you're buying to invest by paying the mortgage from rantal income rather than to live in, this advice is certainly not applicable.

Apologies if the above just comes across as dumb practical advice or view. I'm not a house-owner, as I said I won't be even thinking about it for some time so getting the views of actual house purchasers might be advisable. You can't predict what's going to happen though. It's akin to going out with someone while checking over your shoulder to see if something better comes along (though minus the possibility of getting slapped). The personal (as opposed to financial) benefit to you is greatest if you decide that the time is perfect when you feel the time is perfect. If you're not buying a house purely as an investment, that personal benefit to you is more important than many regard it so keep it strongly in mind.

Originally posted by Earthhorse
Never trust an economist folks; they predicted 10 of the last 5 recessions.

Funny because it's true. Tragic for the same reason. I'd rather go drinking with a doomsayer economist who predicts crashes every Tuesday than one who reckons the big wonderful boom will last forever (in the short run) though.

yankinlk

Originally posted by jd
!!!
downpayments uing CRedit Card debt..
sorry-/me goes off shaking head...

Oh sorry! You think i should follow the Irish banks unfairly biased in their own favour rules and watch my dream home be bought up by someone else???

I used a credit card for a down payment to secure a house that I otherwise would have lost out on. When my FIRST house sold 6 weeks later I used the profit to pay that off - not an issue. You can't do that here because the joke of a credit card you get is only 500 euro limit.

My point is their are really no choices here yet compared to england or probably the rest of europe. I ignored the strict rules and did some creative financing and now own my dream home.

spongebob

I know somebody who got €2000 on the plastic, whacked it into a Credit Union as a deposit and walked out of the Credit Union a week later with €8000 which was their deposit. They had figured out where they were going to clear the Plastic in 2 months and the Credit Union in 2 years. Respect!

Creative Financing is a good thing if you make a carefully calculated bet that works. Overstrectching yourself for a small semi in a crummy area or a one bed shoebox is a bad thing, they are always first up against the wall in a soggy market, never mind a slump or crash.

Location counts at all times. Be aware of that when dreaming of a home !

M

BigEejit

Originally posted by Muck
Location counts at all times. Be aware of that when dreaming of a home !

I have relations in London that bought a 2 bed apt near Notting Hill, just before the crash in the early 90's ... they were disgusted that the value dropped ~20% ... at the time Notting Hill was not all that great an area, things were looking bleak if they had to sell .... but they held on and now the apartment is worth approx 400 - 600% of what they paid for it .... moral of the story, get into an up and coming area ... or like in the case of my relations, be poxy.

Victor

Originally posted by sceptre
Houses have an inherent value of course.

Usually have an inherent value. Usually a factor based on affordability. In extreme circumstances (war, Chernobyl, erosion, severe economic depression) houses are the last thing (most people) people want to buy.

About 2 years ago, in the North East of England, one council was selling off whole streets of it's housing stock for 50 pence each (on the condition you buy two!), simply because **no one** wanted to live there.

The are similar areas along "peacelines" in Belfast, where a certain house might be worth £50,000 and the one around the corner unsaleable.

Originally posted by Muck
Overstrectching yourself for a small semi in a crummy area or a one bed shoebox is a bad thing, they are always first up against the wall in a soggy market, never mind a slump or crash.

This is snobbery through and through. The weakest part of the market recently has been the "luxury" properties, because people don't have dot.com paper profits anymore. Most people will still pay €300 each/month to live in even the worst parts of Dublin, simply because they need somewhere to live. Few are going to fork out €8-20m (including "renovations", one builder spent €17m "doing up" his house), which some people have.

spongebob

Originally posted by Victor
Most people will still pay €300 each/month to live in even the worst parts of Dublin, simply because they need somewhere to live.

A crummy area is a crummy area Victor, I won't waste money living across the road from Anto and Deco ....watching me watching them watching my house when I go to work in the morning. Every morning for years.! I'll pay the extra .

We are not on about the €5m sector of the market in this thread, we are on about the €300k entry level in Irish cities.


M

Victor

Originally posted by Muck
A crummy area is a crummy area Victor, I won't waste money living across the road from Anto and Deco

Many Antos and Decos have jobs these days.

spongebob

Being able to safely walk home from a local pub that is OK to drink in is another criterium of mine Victor , I would hope not to see Anto and Deco scratching their arses against me car when i get home

M

BigEejit

Originally posted by Muck
Being able to safely walk home from a local pub that is OK to drink in is another criterium of mine Victor , I would hope not to see Anto and Deco scratching their arses against me car when i get home
M

The problem there is you would not see Anto and Deco scratching, you might see them Zooming ...... past you in your car ...... with your TV in the back seat.

As Muck says, you could find a house is shít areas, but would you live there? would you like your kids growing up there? ... I'm pretty sure parts of Dublin, Limerick and Cork have houses for less than €200k, but you would be mental to buy them because they would be in (e.g.) shítty parts of Finglas/Clondalkin/Knocknaheeny etc etc...

Stop labelling as snobbery something thats is (in all likelyhood) someone trying to do the best they can for their family.

spongebob

Originally posted by BigEejit
As Muck says, you could find a house is shít areas, but would you live there?

You can add Galway and Waterford to that list as well.

In "Auctioneer Speak" they emphasise "up and coming areas" or mention that normal human services are "near" ... "near" sometimes means that the local shop is a bunker with no windows and the local chipshop takes the money first aand throws an indeterminate carbohydrate gloop at you through a hatch some time later.

My advice to ALL housebuyers is to tool out to where they are thinking of living on a friday night and to stroll around, have afew pints and stroll around some more, if they find that it ain't great (or worse) then they should consider the amount of friday nights they are committing themselves to by virtue of their acquiring a mortgage.

Spending 300k to be trapped in your own house every friday night is daft, life is too short.

M

Earthhorse

originally posted by mollser
Supply outstripping demand, as long as people continue to lose their jobs, this could come about quicker than expected.

Unemployment in Ireland hasn’t risen all that much and is largely rising due to the introduction of new labourers to the market, that is school leavers and college graduates. There are still nearly as many people with jobs and the demand is most definitely there.

I note that when you’re talking about tax rates you use the terms “strong possibility” and “perhaps sharply”; in other words you’re speculating. I accept the possibility of what you’re saying but not the inevitability.

I could be wrong, as I haven’t read Fast Food Nation, but I imagine most of the American corporations you are talking about were operating in America, where workers rights are minimal, or in developing nations where they are virtually non existent. I don’t think what they’ve done there would happen in Ireland on the same scale.

I largely agree with Sceptre’s analysis of overheated markets but I think what he’s leaving it out is that the majority of investment property bought in Ireland is done in order to leverage the purchase of another property. People are using these houses as collateral, or to supplement their income, so they can get a mortgage on the house they actually want. These people are unlikely to sell even if there’s a dip in the market so the repercussions of a dip are more limited.

One thing he is definitely correct about is that nobody should take this thread as investment advice. We’re debating the likelihood (or not) of something that’s contingent on too many factors to be easily predictable. Personally I’d benefit greatly if there was a crash as I’m living at home but earning a steady wage, but I don’t think it will happen. I guess I’m a pessimist, just on a micro, rather than macro, stage!