Housing bubble starting to pop?

HelterSkelter

A couple of months ago houses in my area (a council area in Dublin) were all around the €400,000 mark. Checked myhome.ie yesterday and most were €390,000, with the cheapest one €381,000.

EDIT: I pass this house everyday on the way home. It has been on sale for about 3 weeks now. A Sale Agreed sign appeared for a few days but it's back to For Sale now. Seems like they are having difficulty selling it. There are other houses on the road that seem to be For Sale for quite a while also.

http://www.propertyselector.com/clients/movehome/propdetails.cfm?propexpid=49

SimpleSam06

Afuera wrote:

But the prices have already risen by around 10% in the first few months of this year which would suggest that the ERSI is not expecting any more rises for 2006. Their projection for 2007 is only a 3% increase which is roughly in line with inflation. This sounds like it's already flattening out to me.

And if it increases by 10% to 15% in the remaining five months of 2006, its not overheating at all is it?

General_Zod

Hi there,

I have been reading the threads here with great interest for the last while and have decided to post my first message.

I cannot understand how people believe that house prices on this little isle of ours will remain high forever. Assets of all types go through boom/bust cycles inherently - it is an economic certainty that prices will adjust (crash) to real levels once the cheap credit runs out and people wake up to the mania being drip fed from the highest levels.

Statements like - "FTBs will not be able to buy into the market for a long time" actually defies the principles of a Market - what if Supermarkets such as Dunnes Stores were unregulated and prices were allowed to rise so much (based on false demand, greed and cheap credit) that normal people on modest incomes could not longer afford necessities - Dunnes' stores would not last very long, as they would only have a minority customer base.

It is correct that the market prices are set by the amount that consumers are willing to pay, but fear and greed can distort this - worth and value seperate.

A lot of the problems we have seen in Ireland are caused by many factors.

1. We are no longer in control of interest rates.

2. We allow uneducated/unqualified/unregulated property Agents to set prices - which of course are always going to increase as higher and higher commision is the fundamental goal.

3. Cheap credit delved out by (seemingly)unregulated and irresponsible lenders.

4. A genetically embedded need to own property - bred in to the Irish populace since the time we got our land back from the English gentry. (rent is dead money etc. etc.)

5. A retarded government so inept as to allow things to have gotten this far out of control just to keep their own coffers full.

As well as all that, the typical Bullish/VI theory of a "soft landing" nirvana is nothing short of a bad understanding of economics and it's history - there has never been a property boom at the order of magnitude that we are experiencing in Ireland that has ended in a so called "soft landing" - when the probability of capital appreciation is reduced towards zero watch the dominoes fall.

I would just like to add that I really pity the current/next generation of Irish kids leaving school/college - I think it is a national disgrace that the government has done no thinking for their future - they have thrown away a serious opportunity for building a serious country. And please excuse my french but I will eat my mickey if they get re-elected.

davidoco

wardwil wrote:

A friend of mine works for one of Irelands richest business men (been involved in the financial and construction industries)

While the rich and the famous are to be admired, I would take advice from a rich developer in Ireland today with two catering packs of saxa salt.

A rich developer as can be seen at the recent and current tribunals doesn’t have to be particular intelligent

CiaranC

SimpleSam06 wrote:

note especially the comment about the pricing of pencils. I don't have the time to go repeating myself. Its only expensive stuff as long as people see it as expensive stuff. Thats what the entire property market is based on. Perception in people's minds. Seem a little shaky to you?

Of course its based on perception in peoples minds, what market isnt?

The only difference is that you percieve housing to be overpriced, and thusfar the rest of the market hasnt.

Is there supposed to be something groundbreaking in your analysis?

davidoco

davidoco wrote:

While the rich and the famous are to be admired, I would take advice from a rich developer in Ireland today with two catering packs of saxa salt.

A rich developer as can be seen at the recent and current tribunals doesn’t have to be particular intelligent

Somebody who should be very optimistic about the housing market (since he makes all his money from it.) giving a negative opinion should probably be listened to more so than economists and banks.

SimpleSam06

CiaranC wrote:

Of course its based on perception in peoples minds, what market isnt?

The only difference is that you percieve housing to be overpriced, and thusfar the rest of the market hasnt.

Is there supposed to be something groundbreaking in your analysis?

Yes, ignoring the rest of the comments (including my own) giving good reasons for a swift change in market sentiment really isn't helping your position. You are basically saying the sun shines the hottest at noon, so its always going to be that hot.

The only thing that market perception changes is profit margins (cf iPods). And really, most housing just isn't that expensive to build. Certainly nowhere near the prices being asked for it. So its basically 80% profit margins, and rising, for a basic human requirement. Oh yes, I can see that lasting.

HelterSkelter

coolhandluke wrote:

... along with a few smart investors who realise the games up and want to get out a few bob up,....

You mean like AIB who recently sold their HQ in Donnybrook and leased it back, or Bank Of Ireland who recently sold 12 of their branches and leased them back?

General_Zod

HelterSkelter, did you not hear, that is actually a positive thing for the Irish property market, the VIs would have you believe that the reason both AIB and BOI have taken that stance is to free up more capital to be able to give out even more loans!

SimpleSam06

Awfully public spirited of them, Zod...

CiaranC

SimpleSam06 wrote:

Yes, ignoring the rest of the comments (including my own) giving good reasons for a swift change in market sentiment really isn't helping your position. You are basically saying the sun shines the hottest at noon, so its always going to be that hot.

/shrug

I think in your haste to be all clever, you have assumed too much. Ive already said that these rises in prices are unsustainable and that even a soft landing is looking less likely. ???

davidoco

HelterSkelter wrote:

You mean like AIB who recently sold their HQ in Donnybrook and leased it back, or Bank Of Ireland who recently sold 12 of their branches and leased them back?

It makes perfect financial sense for AIB to sell the site and it has nothing to do with the housing market.



The bank's 99-year lease of the building dates back to 1972 and has another 66 years to run. Surprisingly, the lease provides for a staggered rent over the full 99-year period and, even after 34 years in occupation, the bank is still paying only about 60 per cent of the open market rental value.

The rent roll of over €6 million equates to a rent in the early €30s per sq ft. High quality office accommodation such as this would easily rent for up to €538 per sq m (€50 per sq ft) in this central location.

The substantial shortfall in the rent roll going to Salix means the pension fund is not getting anything like the return it could expect from such a prestigious building. An eventual sale would give Salix the opportunity to invest in a higher yielding property.

Sources in the property market have indicated that, in the event of a sale and leaseback arrangement going ahead, the bank will pay a rent of €484 per sq m (€45 per sq ft) for the block along with an annual fee of around €4,000 for each of the 220 car-parking spaces. The short term lease is expected to run for about five years while a new headquarters is developed.

It will have a floor area of at least 41,805sq m (450,000sq ft), more than double the present headquarters which extends to 18,580sq m (200,000sq ft).

There will be no scarcity of developers and investors prepared to pitch for the Baggot Street building because of the strong rental income available while planning permission is sought to enlarge the building.

SimpleSam06

CiaranC wrote:

I think in your haste to be all clever, you have assumed too much. Ive already said that these rises in prices are unsustainable and that even a soft landing is looking less likely. ???

Theres not much clever about pointing out the facts as I see them. Feel free to correct me on any particular point. Meanwhile, this is for all the property speculators out there:

CiaranC

Speaking of not thinking things all the way through, I cant help be amused at the people (usually single people on the avg national wage) coming on here and rubbing their hands together at the prospect of a property crash.

They seem to think that a property crash will mean that house prices will fall to exactly where they can become a property owner themselves (presumably they will buy exactly where prices go back up because they are so clever) without the impact on the wider ecomony affecting them in any way whatsoever.

These people are as delusional as the supposed sheep who 'think prices can rise at their current rates forever'. (Where are these people anyway, they dont seem to post on the internet)

jesus_thats_gre

HelterSkelter wrote:

You mean like AIB who recently sold their HQ in Donnybrook and leased it back, or Bank Of Ireland who recently sold 12 of their branches and leased them back?

One of the big auctioneers done this recently too I think.

General_Zod

Think it was HOK, Gunne also sold off their residential property business.

CiaranC, what is your own forecast?

I am sure that most people would welcome a reduction in property prices from their current dizzying heights, not just those on an average salary wanting to get on the ladder - it seems to me to be terrribly dangerous to the economy at large if this goes on much longer.(if the damage has not already been done)

Idleater

SimpleSam06 wrote:

Theres not much clever about pointing out the facts as I see them. Feel free to correct me on any particular point. Meanwhile, this is for all the property speculators out there:

Just wondering,

if house prices crash what happens to rent prices?

L.

SimpleSam06

CiaranC wrote:

Speaking of not thinking things all the way through, I cant help be amused at the people (usually single people on the avg national wage) coming on here and rubbing their hands together at the prospect of a property crash.

Hold on a minute there, don't be making assumptions about anyone's relative wages or marital status. Lets stick to the facts and projections based on those facts, because for the kind of money we are talking about, anything else is extremely unwise.

CiaranC wrote:

They seem to think that a property crash will mean that house prices will fall to exactly where they can become a property owner themselves (presumably they will buy exactly where prices go back up because they are so clever) without the impact on the wider ecomony affecting them in any way whatsoever.

Again, you are making wild assumptions about people. If the property market crashes, the economy goes straight to hell awfully quickly, make no mistake about it. This means widespread redundancies, emigration, and an unsupportable government beurocracy.

CiaranC wrote:

These people are as delusional as the supposed sheep who 'think prices can rise at their current rates forever'. (Where are these people anyway, they dont seem to post on the internet)

Delusional, indeed. Why? I've done nothing but give reasons, and I have yet to hear a single one coming from you.

SimpleSam06

nereid wrote:

Just wondering,

if house prices crash what happens to rent prices?

L.

I have no idea. I'd imagine there would be a lot more rental properties on an already very competitive market, which usually means a price reduction. I haven't really thought about it though.

CiaranC

Zod wrote:

CiaranC, what is your own forecast?

Maybe Ive been reading too many AAM threads, but Im beginning to feel we are screwed either way. Growth will kill us. A collapse will kill us. Soft landing seemingly isnt going to happen.

SimpleSam06 wrote:

Delusional, indeed. Why? I've done nothing but give reasons, and I have yet to hear a single one coming from you.

I wasnt talking specifically about you. What do you want me to give reasons for exactly, anyway?

SimpleSam06

CiaranC wrote:

I wasnt talking specifically about you.

Who cares, I responded to you.

CiaranC wrote:

What do you want me to give reasons for exactly, anyway?

So, eh, what exactly have you been saying throughout this discussion?

CiaranC

So, eh, what exactly have you been saying throughout this discussion?

Whatever it is, you seemed determined to disagree with it

Idleater

SimpleSam06 wrote:

I have no idea. I'd imagine there would be a lot more rental properties on an already very competitive market, which usually means a price reduction. I haven't really thought about it though.

I have no idea either, but there would be as many valid arguments to say it would increase due to the fact that people would try to regain as much of the loss in value of their property somehow?

My point being, that to those that "wish" for a crash, might end up on the raw end of the rental market as well as being on the raw end of the buying market.

A crash in the housing market may also have further recession effects on the economy as a whole so that could mean job cuts wage cuts etc etc for everyone.

Not being able to afford a 300k house on 30k a year is the same as not being able to afford a 150k house on 15k a year, and if (hypothetically) the rental market stays level or increases as investors seek to recoup, then people are also going to be priced out of the rental segment.


L

SimpleSam06

CiaranC wrote:

Whatever it is, you seemed determined to disagree with it

Thats not true!

SimpleSam06

nereid wrote:

I have no idea either, but there would be as many valid arguments to say it would increase due to the fact that people would try to regain as much of the loss in value of their property somehow?

My point being, that to those that "wish" for a crash, might end up on the raw end of the rental market as well as being on the raw end of the buying market.

A crash in the housing market may also have further recession effects on the economy as a whole so that could mean job cuts wage cuts etc etc for everyone.

Not being able to afford a 300k house on 30k a year is the same as not being able to afford a 150k house on 15k a year, and if (hypothetically) the rental market stays level or increases as investors seek to recoup, then people are also going to be priced out of the rental segment.

Well people can try to recoup their losses as much as they like, they still aren't going to get anyone in their houses if they start rack renting. I can't see any real reason for rents to increase with a property crash; I can see a few good reasons why they might stay the same or even decrease, however, the most important one being that there is a glut of houses available, and people desperately trying to cover mortgages in any way they can.

I can't see wage cuts ever happening (has that ever happened?), or at least not on a grand scale, and certainly not in the best earning sector, the public one. The idea that wages are going to decrease concomitant with house prices has got no foundation whatsoever, really.

What will happen is that the 20% to 25% of the Irish economy that depends on housing will drop to 5% or so, and the 20% of revenue that the government makes from property wil vanish into thin air. The knock on effects of that will be considerable, including a tightening of loan restrictions by lending institutions, quite a few layoffs in the public sector (strikes notwithstanding), and a spreading ripple effect.

The further you are from the construction and property speculation industries, the happier you will be.

kluivert

Another housing thread that ends up in a you said this I said that argument.

Facts:

Top end of the housing market is slowing down as reported in the Irish Times two weeks ago, where these houses are not selling at auction, and are being put up for sale by pirate treaty.

IF this trend continues it will filter down, but a slow will be evident when middle class housing starts to slow down and not till then can you say if the housing market is going to slow down or not.

For the simple reason, no one has a cystral ball.

Those who dont want to buy at the top end (as evident) will buy in the middle section and thus house prices in the middle section rises at a stead pace.

Do you own a house, are you buying or selling, if not why worry, a house is a house. serves a function of keeping a roof over your head, not to fill your pockets even deeper.

By right houses should depreciate when you think about, a house is not in the same condition same when it was first built there, every year your house is wasting away.

CiaranC

Sam wrote:

including a tightening of loan restrictions by lending institutions

This is the big one for me. You have to ask yourself will you still be able to get a mortgage even if prices are lower.

For guys in the civil service etc. its an easier call.

Do you own a house, are you buying or selling, if not why worry, a house is a house. serves a function of keeping a roof over your head, not to fill your pockets even deeper.

Amen to that.

Cantab.

davidoco wrote:

The majority of those predicting a crash aren't even on the ladder yet. It reminds me of a queue at a bar, the person just in without any drink shouts the loudest.

It’s false hope really that property prices will come back down to a level where the FTB can buy within Dublin in particular.

Evidence would point to the contrary (as colourful as your reasoning may seem).

Take a look at this poll:

http://www.boards.ie/vbulletin/showthread.php?t=2054955532

SimpleSam06

kluivert wrote:

Another housing thread that ends up in a you said this I said that argument.

Facts:

Top end of the housing market is slowing down as reported in the Irish Times two weeks ago, where these houses are not selling at auction, and are being put up for sale by pirate treaty.

/couldn't resist
//Parlay?

kluivert wrote:

IF this trend continues it will filter down, but a slow will be evident when middle class housing starts to slow down and not till then can you say if the housing market is going to slow down or not.

For the simple reason, no one has a cystral ball.

Those who dont want to buy at the top end (as evident) will buy in the middle section and thus house prices in the middle section rises at a stead pace.

Do you own a house, are you buying or selling, if not why worry, a house is a house. serves a function of keeping a roof over your head, not to fill your pockets even deeper.

Houses aren't selling at the top end because they are ludicrously overpriced. Also, the Irish Times is only one source, and I wouldn't go so far as to call it unbiased. Several other sources I have been tracking (like daft.ie) are showing a decrease in mid range housing prices. Not across the board, but in a lot of situations.

You are dead right about a house being a house, however. My biggest problem is with speculators that buy houses as an investment; I find that morally repugnant, like buying up a load of medicines in order to push the price up. Housing is a basic human need, and profiteering from it should be strongly discouraged.

CiaranC

Well...that poll does actually show that the majority of those predicting a crash dont own property, doesnt it?