Housing bubble starting to pop?

NCS

Sponge Bob wrote:

By about Apr-June next year it becomes a stampede as the realisation bites that there is no SSIA 'bounce' to be had but its too late for the junior investors by then .

_kaBoom_

Pretty much as I see it - a continuing SSIA release sustaining a period of uneasy growth... for a while... and a possible flurry of rental demand should Romania and Bulgaria be allowed unfettered access. But thereafter, a pause... and when the more naive investors panic, major dumping. And that's in the absence of any economic contraindicators such as further interest rate rises, fuel price rises or Intel/HP looking at Eastern Europe/China/India and rubbing their chins reflectively.

I'm curious to know how asymmetric the drop would be though. As regards Dublin, I'm guessing apartments/high density and further-flung commuter belt houses would suffer the most; it seems to me that the comparative under-supply of houses within the M50 may protect those values rather better. Furthermore, even in a recessional housing market, those who can stretch to it will generally aspire to trade up from apartment to house, from 3-bed to 4 etc.

Sponge Bob

Romania and Bulgaria will not be allowed in to the labour market. Thats that. Maybe after 2010 as I can demonstrate but not before.

The UK determined that we would get the Poles (as the bigger of 2 partners in a common travel area) , once they decided to let the last tranche of entrants in then we did too because once in the UK they may travel to Ireland if they wish .

The UK decision was made after they grossly underestimated the number who would come over , estimating 13000 a year which turned out as 200,000 a year more like and as a consequence of this and of local elections in the UK next year they will not allow unfettered labour market access to any new EU entrants while they digest that last lot and spread the load around Europe a bit. This is due in 2009 AFTER which the UK will review the situation.

We in Ireland ended up with 100,000 Polish residents (150,000 new EU entrant citizens) as a direct consequence of this underestimation in the UK in about 2003 .

As the Poles (and others) elegantly dovetailed their arrival with an insane building bubble there was not only work but accomodation for them too . Once the BUILDING stops I would think that up to 100,000 will leave just like the Paddies every time there was a Building slump in the UK.

Suddenly Losing 100,000 bodies from a national rental market of say 600,000 bodies (not sure exactly how many rent ) cannot but have an effect on demand and rental price levels....now can it !!!!!??!

SkepticOne

SimpleSam06 wrote:

Err, isn't that just paying rent to the bank, except at a variable rate? They'll have to get the marketing department working overtime to put a good spin on that one! Still, in 50 years, the inflation would have worked your mortgage debt down to a manageable level, if you don't go bankrupt in the interim. I'd better not give them ideas. Have they put inter-generational mortgages on the block yet?

The interest-only mortgage is the ultimate inter-generation mortgage. If they called it the "billion year" mortgage they would be closer to exposing what it really is to the ordinary person, yet still be short of accurate.

The disadvantage is that it exposes the 'dead money' aspect of a mortgage. You can then compare the 'dead money' of the mortgage with the 'dead money' of renting. I put 'dead money' in qoutes because, in both cases, it is not really dead money. You are paying for a service. You are getting something in return. With rental yields at about two to three percent, in many cases there is less 'dead money' renting than borrowing for a house.

Nevertheless, the vast majority, apparently, of specuvestors use interest-only mortgages to finance their speculation. They don't percieve it as a problem because, in their view, the price will have gone up significantly by the time they sell it on. This is also why it does not matter terribly that the property might not be making much in rent (or even be vacent) since the point is to sell it on at a profit.

The reason I think it would work with FTBs and other non-investors is that the same bubble mentality of the investors is also at work with many FTBs. When an FTB buys a property with a two-hour commute to work, it is not because they
enjoy commuting but because of fear that they will be priced out of the market if they don't buy. An interest-only mortgage would allow them to 'get on the ladder' and then at some future date (maybe when they get a promotion or better job), they can start paying off a bit of the capital.

I believe that many of the high end properties, in addition to specuvestments, are financed by IO mortgages. Some FTBs may also be using them, but they have not been marketed specifically to them.

belly

daveirl wrote:

This post has been deleted.

well its a good thing for me:D

belly

Sponge Bob wrote:

Oversupply or Oversupply or Oversupply and Interest Rates

17% of our housing stock (nearly 300000 units mostly modern and habitable ), is empty as the investors rely on a combination of tax breaks and capital appreciation to 'make money'

Once the capital appreciation stops they stop 'making' money and head for the exits . Thats happening now but the Auctioneers are allowing their mates to get out first and pretending there is no problem and that the SSIAs will mean more rises next year

By about Apr-June next year it becomes a stampede as the realisation bites that there is no SSIA 'bounce' to be had but its too late for the junior investors by then .

_kaBoom_

once supply exceeds demand the builders will stop building which will correct any oversupply and reverse any downward pressure on house prices

SimpleSam06

belly wrote:

once supply exceeds demand the builders will stop building which will correct any oversupply and reverse any downward pressure on house prices

Demand from where? A great many FTBers are already priced out of the market, and many more should have been if the banks weren't indulging in grossly unethical lending practices. The government is already talking about cracking down on speculators. Immigrants, I laugh. These are the same people responsible for downwards pressure on wages in lower earning job brackets. They are buying houses in Ireland now?

275,000+ houses sitting empty, and how many of those are speculator properties bought in hopes of capital appreciation, especially given that 40% of last years market was speculators? When interest rates rise, and payments on that investment can't be made, they will sell them at whatever price they can get, or the banks will sell for them. And the painful part about all of this, is that even if they hand the bank the keys to the house, they still owe the banks the balance of the loan after the house is sold.

The market is already oversupplied, drastically.

But then again, lets not forget, Ireland is different. Sure didn't Saint Patrick drive out the property crashes? And you can't lose on property hey!

belly

whizzbang wrote:

thats a lot fo unlikely "if"s!

gov interference: election are a brewin, they're all going to want to "manage the soft landing"
Germany seems to be doing very well these days, hence interest rate hikes.

Also, prices in Ireland are based on sentiment, sentiment which seems to be changing these days...

well i suppose if your aunt had balls she'd be your uncle sure nobody has a clue its all speculation but will have the craic anyway

it is true that germany is in the mist of a fragile recovery boosted by the world cup but unemployment is still 7-8% and i think thats gonna take a long time to correct. interest rates are raised a few points a people starting shi..ting themselves and all the doom and gloom brigade come storming out
talking of house collapse negative equity blah blah blah the papers have a lot to answer for there btw. large continued hikes in interest rates are in nobodys interests not business not the consumer/worker not government. i do believe interest rates will go up a little to keep inflation in check but nothing to start any kind of a stampede away from the property market.

hmmm

hmmm wrote:

House prices always go up
There will be 2 million Bulgarians moving here shortly
We still have not reached the "greatest fool"
We are running out of land and if you don't buy now you will end up living on a fishing trawler

my apologies,
i stand corrected, as OBVIOUSLY the market will not crash
thank you for your EYE OPENING wisdom

Sponge Bob

belly wrote:

the doom and gloom brigade come storming out
talking of house collapse negative equity blah blah blah the papers have a lot to answer for there btw.

You mean the normal bits of the papers not the property supplements surely.

Keep your nose buried in them property supplements dude because thats the reality you obviously enjoy ! Avoid looking at anything to do with George Lee on the telly as well.

Then you won't notice any doom and gloom and you will be one happy bunny .

belly

SimpleSam06 wrote:

Demand from where? A great many FTBers are already priced out of the market, and many more should have been if the banks weren't indulging in grossly unethical lending practices. The government is already talking about cracking down on speculators. Immigrants, I laugh. These are the same people responsible for downwards pressure on wages in lower earning job brackets. They are buying houses in Ireland now?

275,000+ houses sitting empty, and how many of those are speculator properties bought in hopes of capital appreciation, especially given that 40% of last years market was speculators? When interest rates rise, and payments on that investment can't be made, they will sell them at whatever price they can get, or the banks will sell for them. And the painful part about all of this, is that even if they hand the bank the keys to the house, they still owe the banks the balance of the loan after the house is sold.

The market is already oversupplied, drastically.

But then again, lets not forget, Ireland is different. Sure didn't Saint Patrick drive out the property crashes? And you can't lose on property hey!

well if your right then all these ftb and immigrants will have to rent so there we have it demand :eek:

whizzbang

belly wrote:

well i suppose if your aunt had balls she'd be your uncle sure nobody has a clue its all speculation but will have the craic anyway

it is true that germany is in the mist of a fragile recovery boosted by the world cup but unemployment is still 7-8% and i think thats gonna take a long time to correct. interest rates are raised a few points a people starting shi..ting themselves and all the doom and gloom brigade come storming out
talking of house collapse negative equity blah blah blah the papers have a lot to answer for there btw. large continued hikes in interest rates are in nobodys interests not business not the consumer/worker not government. i do believe interest rates will go up a little to keep inflation in check but nothing to start any kind of a stampede away from the property market.

So what are your predictions for the property market? 5 years from now how much will prices have gone up by?

SimpleSam06

belly wrote:

well if your right then all these ftb and immigrants will have to rent so there we have it demand :eek:

Those immigrants who will be leaving as soon as the property bubble collapses? Or those FTBers who are still living at home (wasn't there a program on TV about that lately?)... Tell you what, call me when rent starts to cover even the interest on a mortgage.

D'Peoples Voice

belly wrote:

it is true that germany is in the mist of a fragile recovery boosted by the world cup but unemployment is still 7-8% and i think thats gonna take a long time to correct.

http://www.bloomberg.com/apps/news?pid=20601100&sid=aOjbjCqRGixE&refer=germany

Germany's economy is on course to grow at the fastest pace since 2000 this year as spending by companies on equipment and buildings increases, giving the European Central Bank scope to raise interest rates across the dozen euro nations. The VDMA machine makers' association said today that sales will climb for a fourth year in 2007, the best performance in 25 years.

The European Commission yesterday said Germany's economy will expand 2.2 percent in 2006, the fastest pace in six years. German factory orders rose a greater-than-expected 1.8 percent in July, the ministry reported yesterday.

Investors have raised bets that rate increases will continue into next year. ECB Council member Axel Weber said yesterday that no decision has been made to stop raising rates in December.

I think it's agiven that ECB rates will be 4% by June '07.


Now assuming that at the current ECB rate of 3%, the variable rate mortgage is currently 4.35%(http://www.yourmortgage.ie/Research/rates.jsp),
when the ECB rises to 4%, we can expect the mortgage rate to rise to at least 5.35%. While this is not too much a concern, being stress tested for 7.35% is a problem.

To explain, take the AVERAGE house price in Dublin today EUR 408,959 (http://www.esri.ie/pdf/HPI2006Aug_report.pdf).

This means mortgage repayments over the standard 20 years is EUR 3,198.56 PER MONTH or if you like to pay debt over a longer period of 30 years EUR 2,752.04 PER MONTH.

Now how many people who couldn't afford to purchase a house at PREVIOUS prices will be able to purchase a house at these mortgage repayments

CiaranC

Wierd that reports such as this one dont get an airing in these threads:

http://www.rte.ie/news/2006/0906/housing.html

'206,000 mortgages taken out a year', 'substantially higher number than previously estimated', 'purchasers of residential investment properties (account for only) (13.3%) (of the market)'

belly

D'Peoples Voice wrote:

http://www.bloomberg.com/apps/news?pid=20601100&sid=aOjbjCqRGixE&refer=germany



I think it's agiven that ECB rates will be 4% by June '07.


Now assuming that at the current ECB rate of 3%, the variable rate mortgage is currently 4.35%(http://www.yourmortgage.ie/Research/rates.jsp),
when the ECB rises to 4%, we can expect the mortgage rate to rise to at least 5.35%. While this is not too much a concern, being stress tested for 7.35% is a problem.

To explain, take the AVERAGE house price in Dublin today EUR 408,959 (http://www.esri.ie/pdf/HPI2006Aug_report.pdf).

This means mortgage repayments over the standard 20 years is EUR 3,198.56 PER MONTH or if you like to pay debt over a longer period of 30 years EUR 2,752.04 PER MONTH.

Now how many people who couldn't afford to purchase a house at PREVIOUS prices will be able to purchase a house at these mortgage repayments

not all will some people will some will just have to rent if they wish to live and work within dublin/galway etc and not commmute or they will have to buy a cheaper house further out and do the commute into work

belly

SimpleSam06 wrote:

Those immigrants who will be leaving as soon as the property bubble collapses? Or those FTBers who are still living at home (wasn't there a program on TV about that lately?)... Tell you what, call me when rent starts to cover even the interest on a mortgage.

leaving for where? home to massive unemployment? i dont think so
i sure they was some tv program about the average ftb living at home but i doubt every potential ftb is willing to live at home and play the waiting game i reckon most settle for something less ie live furtherr out or drop the idea all together.

SkepticOne

Deleted User wrote:

still no anti crash arguments
gettin boring now

1. Argument based on undermining credibility of experts.

The likes of The Economist, the IMF, the OECD, the ECB, the Central Bank have been been predicting a crash yet this has not yet happened.

So it won't happen.

2. Argument based on a peculiar definition of a bubble.

For a crash to happen there has to have been a bubble. However you can only call it a bubble after it has crashed. Since there has been no crash yet we can't call the present situation a bubble. Since there is no bubble there can't be a crash.

3. Argument based on consequences.

Those saying there will be a crash often like to believe that they will be able to buy property at knock-down prices, yet in the event of such a crash everyone would be effected due to the effect of such a crash on the economy at large.

Therefore there will be no crash.

---

daveirl

This post has been deleted.

whizzbang

CiaranC wrote:

Wierd that reports such as this one dont get an airing in these threads:

http://www.rte.ie/news/2006/0906/housing.html

'206,000 mortgages taken out a year', 'substantially higher number than previously estimated', 'purchasers of residential investment properties (account for only) (13.3%) (of the market)'

Excellent point! where have all the bulls gone from this thread?

as for the mortgage numbers if you dig deeper you see 1/3 of them or so are some form of equity widthdrawl, which is scarey.

The other 120,000? Well, (roughly) 20% of them were investors, 20% ftbs and 20% upgraders. So only 40,000 or so of them are people taking money out to move from the rental (or parents place) into their own home. Wow, 60%ish of mortages are used by people not buying their own place!

chump

CiaranC wrote:

Wierd that reports such as this one dont get an airing in these threads:

http://www.rte.ie/news/2006/0906/housing.html

'206,000 mortgages taken out a year', 'substantially higher number than previously estimated', 'purchasers of residential investment properties (account for only) (13.3%) (of the market)'

Well first of all you're free to air your thoughts here at any time.
Secondly you haven't digested the stats correctly.

To quote from the article you linked to

These loans can be split into five groups -

first-time buyers (17.6%),

mover purchasers (21.7%), [upgraders, STB's etc.]

purchasers of residential investment properties (13.3%),

re-mortgages (13%)

top-up mortgages (34.4%). [extracting household equity]

The two stats here that count are FTB's and Investors, with 17.6%, and 13.3% respectively.
The figure for mover purchases doesn't make clear if it they are selling 1 and buying another [which I'm assuming], or if they're possibly holding onto their current home and buying another.

Anyway assuming it's buy 1, sell 1.
It means that homes arriving on the market are being purchased by FTB's and Investors. (afterall upgraders are making no dent in the quantity of stock available).
So that is a ratio of 17.6: 13.3 ~ 57%, vs. 43%

And these figures, if we take the message from the previous posts, are the best case scenario for people with a mindset like yours. Because the money from remortgaging and top-up mortgages may well be used in buying investment properties, perhaps in Ireland, or perhaps abroad.

SkepticOne

CiaranC wrote:

Wierd that reports such as this one dont get an airing in these threads:

http://www.rte.ie/news/2006/0906/housing.html

'206,000 mortgages taken out a year', 'substantially higher number than previously estimated', 'purchasers of residential investment properties (account for only) (13.3%) (of the market)'

Yes, it is a very worrying statistic for those who hope there won't be a crash. Even though we were aware of the rapidly increasing indebtedness of the Irish population we did not believe to date that it had got this severe.

The big increase in indebtedness has not been in FTBs (who aren't entering the market in greater numbers than before) but rather in speculators and those topping up existing mortgages (sometimes euphamistically reffered to as "releasing equity"). This would seem consistant with the final stages of a bubble, a market driven mainly by temporary speculative demand.

finnpark

http://www.villagemagazine.ie/article.asp?sid=1&sud=2&aid=1969

All the so called experts seem to think house prices will go up for another year before crashing along with construction industry and our economy.

Afuera

finnpark wrote:

http://www.villagemagazine.ie/article.asp?sid=1&sud=2&aid=1969

All the so called experts seem to think house prices will go up for another year before crashing along with construction industry and our economy.

A lot has changed in the last three months since that article was written. Continued German growth, ongoing vigilance by the ECB (i.e. raising interest rates), rising inventories of housing stock and falling asking prices to name a few.

It would be interesting to see what those same people think of the economy at this stage.

Kazap

SimpleSam06 wrote:

Can this be the beginning of the end of the property bubble? And does this mean FTB actually have a chance over the coming year? Should first timers wait until the prices bottom out?

Personally I think that the average FTB as always been able to buy a property, it just takes a lot work and a realisation that our first choice destination may be out of reach. I was able to buy my 1st place in London this year, perhaps one of the hottest markets around, took me 5 years to save up the deposit but I made it, five years ago I was complaing that it was impossible but I resolved to save up whilst I waited for the bubble to burst - but it never did! I put up my FTB story here.

Who knows what the future may hold, personally I just wanted the security of somewhere to live as id had bad landlord experiences, it was worth any price to buy my own place. Having a large deposit protects me from negative Equity in a down turn I guess, and would help me move up the ladder. I think Id rather see prices stablalise for the next 5yrs or so, I dont think a massive crash will help anyone, it will just server to disrupt the economy and hurt us all...

chump

Kazap wrote:

Personally I think that the average FTB as always been able to buy a property, it just takes a lot work and a realisation that our first choice destination may be out of reach. I was able to buy my 1st place in London this year, perhaps one of the hottest markets around, took me 5 years to save up the deposit but I made it, five years ago I was complaing that it was impossible but I resolved to save up whilst I waited for the bubble to burst - but it never did! I put up my FTB story here.

Who knows what the future may hold, personally I just wanted the security of somewhere to live as id had bad landlord experiences, it was worth any price to buy my own place. Having a large deposit protects me from negative Equity in a down turn I guess, and would help me move up the ladder. I think Id rather see prices stablalise for the next 5yrs or so, I dont think a massive crash will help anyone, it will just server to disrupt the economy and hurt us all...

I personally wouldn't compare the London market to that of Ireland, and of course Dublin. The UK market, I believe, would have had an ever greater rise in home prices had they had similar interest rate levels as the rest of europe in the last 5 odd years. If a bubble does exists there, I don't believe it compares in magnitude to that of Ireland.
A crash definitely will disrupt the economy and hurt everyone, but what's the alternative?
Continually increasing prices? - limited scope for this with higher rates, relatively stagnant wages, basicly unaffordability for FTB's
A levelling off in prices? - where's the incentive for the investors/speculators relying on capital appreciation? can they afford rate rises? how many have IO mortgages? what does a prolonged period of zero or miniscule, or possibly negative growth mean for them?

I can see the sense in a levelling off in prices (hurting less people), but I can't see it happening. I believe there are hordes of amatuer investors in the irish market in it for capital appreciation. Can they afford to hang on? Do they want to? If a slowdown occurs - I think they'll bail. Infact the bright ones may be cashing out now.

Sponge Bob

The UK has about 4% of its homes empty, we have 17% of our homes empty. There is no comparison really.

SimpleSam06

belly wrote:

leaving for where? home to massive unemployment? i dont think so
i sure they was some tv program about the average ftb living at home but i doubt every potential ftb is willing to live at home and play the waiting game i reckon most settle for something less ie live furtherr out or drop the idea all together.

What makes you think there is massive unemployment at home? They are coming here because they get 5 times what they would earn back home in a minimum wage job. Once they have their house bought back home, they can return, start their families, and continue their education or go back to their old jobs. We've got accountants, civil servants, and bankers working on building sites in this country.

Not to mention that the corporate groups which are currently in Ireland are relocating shortly to Eastern Europe and Poland. One major major employer in Galway has recently announced internally that it is folding up its tents soon, I won't say which one in case I get people in trouble, but thats being repeated across the board.

faceman

Can someone tell me when dublin property is going to see negative equity and from what year of purchase? I need to plan for the futures and i told my bank manager that boards has the answers!

SimpleSam06

faceman wrote:

Can someone tell me when dublin property is going to see negative equity and from what year of purchase? I need to plan for the futures and i told my bank manager that boards has the answers!

As of now?
:eek:

NCS

Local info only here, but in 1998 a house on our estate (D15) would have been around 120,000. Now, the same spec house is on offer at 420,000 (and frequently selling for way beyond the asking price). So to reach negative equity on the 1998 purchase would require a major (and highly unlikely) disaster. But I imagine anyone making a first purchase post-2000 or 2001 might well be at risk. Negative equity is only really a problem if you have to sell due to changing circumstances or rising interest rates. Had I bought recently and stretched the finances based on a gamble that interest rates would continue to scratch around the low percents indefinitely, then I'd be feeling the urge to be a caveat pre-emptor about now. But that's just me.