Housing bubble starting to pop?

chump

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!

Sure people are only making an informed guess. I don't think anyone is naive enough to believe that anyone KNOWS what's going to happen. So what's your point?

finnpark

Yeah, I heard Medtronic were shutting down alright.

SimpleSam06

finnpark wrote:

Yeah, I heard Medtronic were shutting down alright.

Them too? To quote the late great Steve Irwin...

Crikey!

finnpark

SimpleSam06 wrote:

Them too? To quote the late great Steve Irwin...

Crikey!

Why, which one did you mean. Can you give the first letter?;)

SimpleSam06

finnpark wrote:

Why, which one did you mean. Can you give the first letter?;)

You'll know soon enough.

Sizzler

NCS wrote:

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.

Anybody who bought a gaff post 2000? Fook me...that would have to be some disaster:eek: Theres gaffs all around where I live which were approximately 40% less than they are now, if you seriosuly believe they will lose that c.40% in value then you might as well go and emigrate to Poland and get yourself a bargain while there still is some

Afuera

NCS wrote:

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.

The recent figures from the Irish Bankers Federation and PwC showing the astronomical amount of topping up of mortgages going on would seem to suggest that it won't only be recent buyers who are at risk of falling into negative entry. Topping up a mortgage is only an option when a certain amount of equity is built up in a property. I'm sure many people thought they might take advantage of the capital appreciation windfall and buy that beemer, do that extension, or buy that house in the sun that they always wanted. The LTV (loan to value) figure really is the key to whether someone is at risk of falling into negative equity or not. I'd estimate that if someone has a LTV of 70% or greater then they could be at risk. Recent buyers will almost certainly fall into this category but they are not the only ones at risk.

Pa ElGrande

SkepticOne wrote:

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.

Anyone who thinks the Ireland's house owning population is in good health today is either misinformed, or quite simply deranged. We have the information on this thread to see the sheer staggering size of personal debt attributed to property ownership, and the secured loans taken out after that purchase.
The higher house prices go, the further they will inevitably fall, and the losses are going to be simply eye watering this time.
To succeed in any market knowing when to enter, and when to exit is key. Most of us are not astute enough to know when to act, hence the reason we have a crash in the first place, is too many people, misjudging the market, getting over borrowed, then falling foul of the banks who call in the loans when times get tough.
The simple fact to remember in a downturn is that more people loose their employment, income and their homes, They loose their houses despite the fact that they have risen for years, but the writing is on the wall for a crash.
Hindsight is a wonderful thing, and I guess we all wish we had it. But we don't, most of us will follow the crowd to the bitter end.

Who will be in tears? P.28

• Everybody because a burst housing bubble is likely to create a serious recession with rising unemployment
• Especially anybody who bought near the top
• Any owner-occupier who bought a larger house than they needed (for “investment”) and now has a large mortgage –though interest rates will fall
• People with an interest-only mortgage face a “negative pension”
• Investors in buy-to-let property –rents falling
• NB Nominal house prices could take 15-20 years to recover –last time it took 10 years, 1989-1999, but inflation averaged 4.3%. What if inflation is zero?

Bubbles and busts: Will the world housing boom end in tears?
John Calverley, Chief Economist & Strategist, American Express Bank Ltd.
http://www.rbs.com/content/media_centre/rbs_and_the_economy/downloads/uk/Calverley_Scottish_Lecture.pdf

Pa ElGrande

Sizzler wrote:

Anybody who bought a gaff post 2000? Fook me...that would have to be some disaster:eek: Theres gaffs all around where I live which were approximately 40% less than they are now, if you seriosuly believe they will lose that c.40% in value then you might as well go and emigrate to Poland and get yourself a bargain while there still is some

Only attractive houses will maintain value: quality – or more accurately value-for-money – replaces quantity in a market in a downturn.
Potential sellers will either cut their often paper losses & pile into the market before prices fall any lower, or prepare for a long wait until prices regain their previous highs, it depends on how confident you are.
There will be more forced sales from builders, speculators, auctions, movers, repossessions, families outgrowing homes and people desperate to escape unsuitable homes thus setting the going rate at new lows for other sellers.
Demand will fall even if we have falling nominal interest rates as banks are afraid to lend, fearing negative equity, and first time buyers and professional investors expect prices to fall further. If you have an 'unattractive house' you will fare worst with greater that 50% falls at the nadir.

SimpleSam06

Pa ElGrande wrote:

Anyone who thinks the Ireland's house owning population is in good health today is either misinformed, or quite simply deranged.

Hear hear Pa. This madness has to end, one way or the other.

DublinDilbert

Just wanted to throw in my 2 cents worth regarding investors and interest only mortgages...

From talking to investors, it looks like quite a few of them are taking out interest only mortgages to fund property investments.

I think it's fairly clear that any investor taking out an interested only mortgage, isn’t borrowing for the long term, they are doing it to get the capital appreciation, ie you can borrow money at 4% / Year, but the property value will rise by 12% / Year, you’ve just made 8% ( on paper anyways ), but by using someone else’s money.

Also another advantage is that the “low” rental yields they will get from the property will just about cover the interest payments to the bank.

I guess the real question is what are these guys are going to do as interest rates start to go up and capital appreciation slows down ( I think almost everyone is in agreement that property can’t keep appreciating at 12% / year )??


It seems to get an interest only mortgage from a bank, you have to be well in with them, ie have other property or family members with property interests, could this be one way by the banks to keep the market more buoyant for the time being?


I'd be interested to know what you think of my thoughts above...

Sponge Bob

DublinDilbert wrote:

I guess the real question is what are these guys are going to do as interest rates start to go up and capital appreciation slows down ( I think almost everyone is in agreement that property can’t keep appreciating at 12% / year )??

They will panic and (try to) dump. This is noticeable in Galway already but the auctioneers have so far throttled the supply on the market (their mates in other words)

If you ring around some of the big auctioneers in Galway today and say you are thinking of selling in Doughiska they will refuse your bizniess because they have a 'pipeline' of their mates gaffs to sell first.

By the time they get 'around' to you ...next year..... it will be too late.

Thats the fate of the junior investors post 2001 ....writ large. They will miss the boat when it comes to selling and will basically take a bath next near. All ponzi schemes are like that , only those at the top of the pyramid get out with cash

belly

DublinDilbert wrote:

I guess the real question is what are these guys are going to do as interest rates start to go up and capital appreciation slows down ( I think almost everyone is in agreement that property can’t keep appreciating at 12% / year )??

i agree 12% gains cant continue but i dont see that going into reverse
when investors stop seeing the high returns on property they'll stop buying into it. when builders see it getting harder to move property they'll ease off on building it and what you will have is a slow down is property prices.

but a crash with house prices falling by 30-40% as some have mentioned across the board imho just will not happen.a bit like a plane crash many things have to go wrong all at once to bring the thing tumbling down .not every investor in residential property is looking for the fast buck many are building a portfolio and planning to use the rents as a pension and then leaving the lot to there familys. the fact although hard to swallow for some is that the average ftb will just have to get used to communting to work in order to be able to afford there first property.

redspider

Its funny, some people always chastise others on how long it takes for property to come up in a conversation. The problem is that property in this country is now 25% of the economy. It is THE area that is driving growth, and every business, family, etc, is affected by the phenomenon. Its little wonder that there is talk about it.

Of course the question is when wil this growth end. It is clear that the prices being paid are above the long-term run-rate average. However, people are willing to pay these prices, and there is demand, and due to restrictions and control in supply, the well documented land banks, the market is not as open as we'd like.

Also, nearly everywhere else is making a killing on property, and assest are being turned into immediate cash, but the payment for the property, which is mainly for the land, not the actual building on it, is paid back over years in a loan. The nation on average is effectivly taking out a loan. The loan EACH YEAR is now huge, the guts of 30 billion, one fifth of the economy. So, there are dangers. And people are using property price increases to spend elsewhere. That rpeort stated:

top-up mortgages - 34.4% - which is about 70,000 and I recall the average was somethng like 85k. So thats nearly 6 billion on discretionary spending, which is going on SUV's, etc. To many economists, it is a false economy, and The Economist Intelligence Unit would be in that camp. But the market isunderpinned by its momentum, the faith in the mantra that property is a sure bet, investors flipping properties as short as every 3 years, and the Giernment taking a huge tax intake and able to bolster salaries and wages in the public sector.

How to protect yourself: well, no-one can control whats going to happen, the fallout may be a slow degenerative one that will last for years, decades. The only thing you can do as an individual is to be prepared for both a slow down and this thing to continue to roll on.

Like a rubber-band being stretched, there is a risk it will snap back at some point. But negative equity wont be felt by those that bought in 1998, it will be felt by those that bought in the preceding 12 mths to the 'slow-down'. But Ireland is posessed with land and ownership long before this century, so prices may.

And as I pointed out before, property valuation cycles can e long-term, there was a continual drop between 1850 (perhaps 1845 in Ireland de the famine) and 1920 or so. So, at some point, several generations of families may find it hard. Property in Europe in general was depressed in value with the two world wars, and we have been springing back up ever since.

But, if you are an investor today, would you invest in Ireland or Poland. Poland is probably a better bet, more upside. But people have to buy where they live and work, so you see Polish people buying in Ireland. However, as a litmus test, I dont think you hear of Polish investors buying in Ireland.

All we can do is wait and see what happens. This is a property frenzy.

Redspider

belly

Sponge Bob wrote:

If you ring around some of the big auctioneers in Galway today and say you are thinking of selling in Doughiska they will refuse your bizniess because they have a 'pipeline' of their mates gaffs to sell first.

yep there all turning away business and its all a conspiracy:rolleyes:

belly

redspider wrote:

Its funny, some people always chastise others on how long it takes for property to come up in a conversation. The problem is that property in this country is now 25% of the economy. It is THE area that is driving growth, and every business, family, etc, is affected by the phenomenon. Its little wonder that there is talk about it.

Of course the question is when wil this growth end. It is clear that the prices being paid are above the long-term run-rate average. However, people are willing to pay these prices, and there is demand, and due to restrictions and control in supply, the well documented land banks, the market is not as open as we'd like.

Also, nearly everywhere else is making a killing on property, and assest are being turned into immediate cash, but the payment for the property, which is mainly for the land, not the actual building on it, is paid back over years in a loan. The nation on average is effectivly taking out a loan. The loan EACH YEAR is now huge, the guts of 30 billion, one fifth of the economy. So, there are dangers. And people are using property price increases to spend elsewhere. That rpeort stated:

top-up mortgages - 34.4% - which is about 70,000 and I recall the average was somethng like 85k. So thats nearly 6 billion on discretionary spending, which is going on SUV's, etc. To many economists, it is a false economy, and The Economist Intelligence Unit would be in that camp. But the market isunderpinned by its momentum, the faith in the mantra that property is a sure bet, investors flipping properties as short as every 6 years, and the Giernment taking a huge tax intake and able to bolster salaries and wages in the public sector.

How to protect yourself: well, no-one can control whats going to happen, the fallout may be a slow degenerative one that will last for years, decades. The only thing you can do as an individual is to be prepared for both a slow down and this thing to continue to roll on.

Like a rubber-band being stretched, there is a risk it will snap back at some point. But negative equity wont be felt by those that bought in 1998, it will be felt by those that bought in the preceding 12 mths to the 'slow-down'. But Ireland is posessed with land and ownership long before this century, so prices may.

And as I pointed out before, property valuation cycles can e long-term, there was a continual drop between 1850 (perhaps 1845 in Ireland de the famine) and 1920 or so. So, at some point, several generations of families may find it hard. Property in Europe in general was depressed in value with the two world wars, and we have been springing back up ever since.

But, if you are an investor today, would you invest in Ireland or Poland. Poland is probably a better bet, more upside. But people have to buy where they live and work, so you see Polish people buying in Ireland. However, as a litmus test, I dont think you hear of Polish investors buying in Ireland.

All we can do is wait and see what happens. This is a property frenzy.

Redspider

well put

redspider

belly wrote:

well put

The property flipping point of 6 years was an error, its more like 3 years.

Sizzler

Pa ElGrande wrote:

Only attractive houses will maintain value: quality – or more accurately value-for-money – replaces quantity in a market in a downturn. If you have an 'unattractive house' you will fare worst with greater that 50% falls at the nadir.

ROFL One of THE funniest posts I have EVER seen on boards ! Where do you come up with this shoite?

Can you define 'attractive' please? Just because you find something /attractive ugly doesnt mean the next man will. FFS ! Ever heard the saying 'each to their own'?

RIDICULOUS ! Go back and get your leaving cert economics book out, at least you sounded half intelligent when quoting from there.

SimpleSam06

belly wrote:

but a crash with house prices falling by 30-40% as some have mentioned across the board imho just will not happen.

Property is worth exactly what the market says it is worth, no more, no less. If the public decided tomorrow that your house was worth a fiver, you won't get more than that for it, regardless of what you feel it is worth. If public sentiment turns sharply enough, there is no limit to how fast they can fall, or how far.

That is in fact exactly why prices went as far north as they have, and as quickly. Depending on public sentiment for your investments is a double edged sword.

belly wrote:

the fact although hard to swallow for some is that the average ftb will just have to get used to communting to work in order to be able to afford there first property.

The notion of the haves and have nots by dint of birth went out with the brits, I'm happy to say. If and when the property market collapses, everyone will be feeling the pain.

NCS

Sizzler wrote:

Can you define 'attractive' please? Just because you find something /attractive ugly doesnt mean the next man will. FFS ! Ever heard the saying 'each to their own'?

Actually I interpreted this to mean attractive in the sense of being lower-density, within M50, close to rail links, schools etc rather than on a big estate thrown together 40 miles out with no amenities. Those factors are already dictating price and would likely become even more important in a slowing market. (Though I'd never buy an ugly house)

chump

Sizzler wrote:

ROFL One of THE funniest posts I have EVER seen on boards ! Where do you come up with this shoite?

Can you define 'attractive' please? Just because you find something /attractive ugly doesnt mean the next man will. FFS ! Ever heard the saying 'each to their own'?

RIDICULOUS ! Go back and get your leaving cert economics book out, at least you sounded half intelligent when quoting from there.

1. providing pleasure or delight, esp. in appearance or manner; pleasing; charming; alluring: an attractive personality.
2. arousing interest or engaging one's thought, consideration, etc.: an attractive idea; an attractive price.
3. having the quality of attracting.

Maybe you didn't know that attractive can be used as a desciptive term for more than just looks?
Attractive location, size, quality, style, etc etc.

mickoneill30

Edit replied to a wrong post. Whoops.

Mad Finn

Sizzler wrote:

ROFL One of THE funniest posts I have EVER seen on boards ! Where do you come up with this shoite?

Can you define 'attractive' please?

Er, attractive in a financial context is a widely used term meaning 'likely to yield a good return on investment' I am pretty sure that is what the poster was talking about as opposed to any aesthetic qualities.

Given that the market value of a house is determined by three factors: location, location and location, attractive would mean: close to central Dublin; close to a Luas or Dart line, or sited in the middle of some genuinely 'attractive' (in the aesthetic sense) surroundings. EG Dalkey or Killiney

Sizzler wrote:

RIDICULOUS ! Go back and get your leaving cert economics book out,

Good advice. You might find it 'attractive' to follow it too.

D'Peoples Voice

belly wrote:

i agree 12% gains

that's the problem with the Irish,
their mentality is all about the rise in the price,
it's never about getting some perspective.

Instead of the government backed body, the ESRI, helping the PTSB to issue a monthly price index they should be issuing a rental index. Then at least people would know whether the VALUE as opposed to the PRICE of houses is rising.
As far as I'm concerned this government caused this bubble by not providing it's citizens with impartial information, in the same manner as IFSRA does for financial products. People should be told that to invest in an asset whose annual yield is below the current interest rate is akin to refusing a guaranteed rate of return in return for a probable lower annual return, and worse still expecting the value of the asset to increase because in the future there will be others out there willing to do the same.
They will soon learn, only a fool purchases an asset that has an annual yield below the prevailing rate of interest, unless it's to be a quick sale!

Sizzler

Mad Finn wrote:

Good advice. You might find it 'attractive' to follow it too.

AMB

Sizzler

NCS wrote:

Actually I interpreted this to mean attractive in the sense of being lower-density, within M50, close to rail links, schools etc rather than on a big estate thrown together 40 miles out with no amenities. Those factors are already dictating price and would likely become even more important in a slowing market. (Though I'd never buy an ugly house)

Close to M50= The biggest car park in dublin?
Rail links = LOL
Schools can be found in most places

Hardly attractive

Sizzler

chump wrote:

1. providing pleasure or delight, esp. in appearance or manner; pleasing; charming; alluring: an attractive personality.
2. arousing interest or engaging one's thought, consideration, etc.: an attractive idea; an attractive price.
3. having the quality of attracting.

Maybe you didn't know that attractive can be used as a desciptive term for more than just looks?
Attractive location, size, quality, style, etc etc.

LOL. Point taken, but it didnt come across that way, my bad

Sponge Bob

International credit risk and rating agency Fitch have just started a press conference where they upped the level of risk and downed the stability in the Irish banking system and all because of silly mortgage lending.

The Irish banks have the same risks levels now as Russia and South Africa but behind Azerbaijan by a whisker

This will undoubtedly cause a credit crunch ....just watch . From the FT

The conclusions of the report, which examines 81 economies, are based on two indicators. The banking system indicator measures intrinsic banking system quality or strength while the macro-prudential indicator looks at excessive lending growth when accompanied by either strong asset price appreciation or realexchange rate strength.

Azerbaijan is the most vulnerable to potential economic shocks, followed by Russia, Iceland, South Africa and Ireland, according to the report.

Anybody think those IO mortgages were a good idea still ???

NCS

Sizzler wrote:

Close to M50= The biggest car park in dublin?
Rail links = LOL
Schools can be found in most places

Hardly attractive

I never said "close", I said "within", ie. avoiding approaches such as the disastrous N3/N4 interchanges. What's funny about rail links exactly? Luas/Maynooth/Dart corridors have always enjoyed higher property values. Schools can be found in most places, but not necessarily always places found in the schools.

Cantab.

Sponge Bob wrote:

International credit risk and rating agency Fitch have just started a press conference where they upped the level of risk and downed the stability in the Irish banking system and all because of silly mortgage lending.

The Irish banks have the same risks levels now as Russia and South Africa but behind Azerbaijan by a whisker

This will undoubtedly cause a credit crunch ....just watch . From the FT



Anybody think those IO mortgages were a good idea still ???

top 10 ISEQ companies:

AIB
CRH
BOI
Anglo Irish Bank
Elan
Ryanair
Irish Life & Permanent
C&C
Kerry Group
Grafton

Given that 4/10 of these companies are stuck to the Irish property market (those highlighted in bold), God only knows how the Irish economy will look over the short to medium term.

Of the remaining companies, I'd say C&C, Elan and Ryanair will do well - a depressing country requires lots of alcohol, a depressing country requires lots of medication, and a depressing country requires lots of aeroplanes to get the young and the immigrants out.