Housing bubble starting to pop?

Calina

Sponge Bob wrote:

a) most families buying then had a single income earner, now most have 2

this presumes that most of those families will not have an interruption to double incomes via children and a) taking time off to care for same or b) paying creche fees. Either way, the second income is not long term dependable or else, future demographic growth is in big trouble. It's not even medium term dependable as people are older when they move in together and there is a limited window on the having children front.

Sponge Bob

true but it takes 2 or 3 sprogs to cancel out a typicalish second income .

Calina

and the average birthrate required for population replacement is in excess of 2 per family.

D'Peoples Voice

House Prices grew by an annualised rate of 1.21% in November
http://www.esri.ie/irish_economy/permanent_tsbesri_house_p/HPI2005Nov_report.pdf

Prices for houses Outside Dublin fell, first time since December 2004.

The average price for 3 bed semi-detached house showed no growth in November

The average price paid for a house in Dublin and outside Dublin in November of this year was EUR368,576 and EUR240,201 respectively.

After the entry of Slovenia into the euro area on jan 1st, Ireland's influence on Monetary policy (interest rates) has been further diluted.
Before Slovenia joined, we contributed to 0.9% of the economy of the euro area, hence the ECB would take 0.9% of our growth/inflation rates into account when considering interest rate changes, compared to 35% of Germany's growth/inflation rates. The recent entry of Slovenia means that ireland's economy is slowly becomming almost totally irrelevant to the future direction of interest rates in the euro area.

p;

Calina

Calina wrote:

this presumes that most of those families will not have an interruption to double incomes via children and a) taking time off to care for same or b) paying creche fees. Either way, the second income is not long term dependable or else, future demographic growth is in big trouble. It's not even medium term dependable as people are older when they move in together and there is a limited window on the having children front.

Do NOT underestimate the importance of this point.
Even through illness/injury - we all get sick
Children - Ideally we want (as a nation) to spend some time with them!
This whole crack of buying out in ballygobackwards while workin in the big smoke and havin two sprogs is crazy!

To say that if it levels off now and the norm needed to buy a house(in ballygobackwards) is for a joint income UNINTERRUPTED for 35 YEARS

Its absurd.Do NOT underestimate the importance of this point.
Even through illness/injury - we all get sick
Children - Ideally we want (as a nation) to spend some time with them!
This whole crack of buying out in ballygobackwards while workin in the big smoke and havin two sprogs is crazy!

To say that if it levels off now and the norm needed to buy a house(in ballygobackwards) is for a joint income UNINTERRUPTED for 35 YEARS

Its absurd. A nation of pensioners paying mortgages.

Do-more

As said above the "crash" will be a long drawn out affair not a short sharp shock, I've seen estimates of anywhere from 3 to 14 years before we see any growth from where the market bottoms in real terms.

But to give an example of what can happen, a friend's mother who lives in Liverpool bought two semi-d's at a bank repo auction after the UK crash in the early 90's (? date) before the crash houses on that street were selling for £26-£28K sterling, she bought the two of them for £8K (by that I mean £4K each!) they had been fully refurbised by an investor and were in walk in condition.

Having said that I know gerry built shoe boxes in West Dublin which are probably valued at €280,000 now and if someone was bidding €40K for one in 3 years time, I wouldn't be bidding against them!

SimpleSam06

D'Peoples Voice wrote:

House Prices grew by an annualised rate of 1.21% in November.

Hmmm. Taken on a month by month basis however, house prices are in fact dropping outside of Dublin, according to this finfacts article. Here are a few more interesting quotes from the article:

Looking specifically at November the price of houses nationally rose by 0.1% during the month, down from the rate of 0.6% recorded in October this year and the 0.7%, 1.0%, 1.1%, 1.2% & 1.6% recorded in September, August, July, June & May respectively. The index also reveals that over the last twelve months (i.e.: from November 2005 to November 2006 inclusive) the growth in national prices was 13.1%. This is down significantly from the rate of growth to October ‘06 (14.2%).

House prices in Dublin grew by 0.8%, while prices Outside Dublin fell by 0.1%. In October 2006 the relative price increases were 0.9% and 0.2%.

The average price for 3 bed semi-detached house showed no growth in November, down slightly from the rate in October 2006 (0.1%) while in November last year growth of 0.8% was registered.

Is this the first official note of house prices dropping in Ireland? If we extrapolate that trend a bit further, back of the envelope calculations here, the rate of price increases has dropped by about 1.5% from May to November, discarding that the rate of droppage is increasing, which gives us about 0.2% per month.

Given a baseline of 0.1% increases, at this rate the price of housing will have dropped by 2.4% by this time next year. If the trend in November is the pattern, housing will have dropped by about 6% by November 2007. So given this, it should take about ten years for property to reach what I would call its "true value", around 50% to 60% of what it is now.

External influences will affect this one way or the other, inflation, interest rate rises or decreases, public sentiment, build rates and so on. Of course this is fairly speculative, but there it is, for what its worth. The curve is most definetely turning, however.

Deleted User wrote:

To say that if it levels off now and the norm needed to buy a house(in ballygobackwards) is for a joint income UNINTERRUPTED for 35 YEARS

Its worth noting that after fifteen or twenty years, the bulk sum owed on a mortgage is reduced by a fair amount, especially factoring in inflation (although thats nowhere near as high as it was in days of yore). This might be offset by rate rises, that remains to be seen. You're dead on correct though, most couples can just forget having kids for at least ten years, assuming there are no other problems. Although childminding services might only be needed for about three years per child, they cost enough that you may as well discount them.

It really is a form of indentured servitude, especially with falling house prices. You won't be able to move or change jobs. Welcome the new boss, same as the old one.

SimpleSam06

And I see someone has updated the wikipedia "Irish property bubble" entry. Here are a few choice snippets...

An IMF report in 2000 said the Irish property bubble, if sustained, would go against all evidence collated in other countries that had experienced such a phenomenon. House prices have tripled since that report was published.

Since 2000, approximately 75,000 housing units have been built every year as detailed by the Department of Environment, Heritage and Local Government. However, a significant proportion of these new homes are unoccupied. Economic commentators give a figure of approximately 230,000 vacant properties. Of these up to 115,000 or so may be holiday homes.

Figures exist for completions because the ESB provides information on the number of properties newly connected to the electricity network and from data supplied by Local Authorities and from The Dept of the Environment and the CSO.

Currently there is enough zoned land to accommodate 460,000 new homes, though as housing density figures continue to rise each year existing land has the potential to provide an even greater number of housing units.

23% of Irish GNP is dependant on construction. Of this new residential housing construction makes up nearly 13% of GNP.

The Irish Financial Regulator has suggested in its latest Financial Stability Report (2006) that Irish residential property prices are, at present, anywhere between 14% and 75% overvalued, depending on the valuation model used.

D'Peoples Voice

http://www.businessworld.ie/livenews.htm?a=1616762;s=rollingnews.htm

Mortgage affordability to improve

Estate agent Lisney has produced research claiming that rising pay and slower house price growth this year will improve mortgage affordability.

Lisney says net incomes will rise by 9.25pc this year. Using Bank of Ireland's forecast of 3pc house price growth, it says that mortgage repayments should fall as a percentage of net income as a result.

Strange but I can't find in this story anything about FUTURE interest rates being expected to increase in March, June and September this year.

http://www.bloomberg.com/apps/news?pid=20601068&sid=a065HvU.hVW8&refer=economy

Money-supply growth in the euro region unexpectedly accelerated in December to the fastest pace in almost 17 years, increasing pressure on the European Central Bank to raise interest rates.
.....the highest growth rate since February 1990, according to ECB records.
...ECB governing council member Mario Draghi said Jan. 23 there are no signs of economic growth slowing in the 13-nation euro region.
....Futures trading shows investors have increased bets the ECB will raise its key rate to 3.75 percent in March.

D'Peoples Voice

Do-more wrote:

As said above the "crash" will be a long drawn out affair not a short sharp shock, I've seen estimates of anywhere from 3 to 14 years before we see any growth from where the market bottoms in real terms.

At least the year is getting off to a good start!
http://irishhousepricesfalling.blogspot.com/2007/01/new-year-new-price-drops.html

I can't imagine what two more interest rate hikes and futher uncertainty about job security will do to the market!

xbox-face

i try to buyu house, they tell me if i have no job i cannot take mortgage. can i sue these racists

stevedublin

xbox-face wrote:

i try to buyu house, they tell me if i have no job i cannot take mortgage. can i sue these racists

you probably can sue them, but you'll lose.

HashSlinging

.from accommodation and property

Seen someone post a message about the US market and a forcast by HSBC US Mortgage Services.

HSBC Mortgage Services in the US have said there forcast of 8.8 billion dollors for bad debt due to defaults will be higher by some 20%. Mainly in relation to mortages taken out in 05 - 06.

Now put the kettle on.

jreddington

I was curious about this thread's participants' opinion on the Section 23 tax relief and its present and future impacts on property prices.

As background, I am an Irish citizen but have lived in the U.S. all my life. My long term plan is retirement to Ireland. Have been scouting out areas and monitoring property prices. I now am financially set enough to consider purchasing a second home in Ireland but not at today's prices. Of course looking back, I should have stretched and purchased something 5-6 years ago.

Plan is to purchase and let as a holiday home, using it myself when I can. In my present position I can gradually transition to retirement spending more and more time in Irleland with full retirement, living full time in the property, in 10-15 years.

During the last few visits I have been amazed by the number of Section 23 projects. I have learned that as a U.S. taxpayer, the benefits of this are not available to me and that such a property would be a poor choice since the selling prices are inflated over comparable non-23 properties.

However, I've had some interesting discussions aobut this. Theory is that this tax break has been available for about 5-6 years. You have to hold the property for 10 years to maintain the tax benefit. Therefore, I see a possibility of a lot of these units coming on the resale market in 4-5 years. Such an inventory would have downward pressure on all properties.

Looks like the market may have turned downward already but looking out in the 5+ year timeframe does Section 23 look like an important factor?

Supercell

Some of the section 23 properties were incentived to be built in areas where none would ordinarily be built.

In a downturning market, some of these properties would be spectacularily bad buys.
In 5+years we may be 5 years into a 5-8 year downturn in the property market, section 23 stuff will just be unsellable like most other properties with the exeption perhaps of some Co Dublin (Dalkey,Killiney,Howth) and some D4/6 properties.

jreddington

Longfield wrote:

Some of the section 23 properties were incentived to be built in areas where none would ordinarily be built.

I think this is a very important comment. Like most tax incentives, Section 23 encourages people to do what they wouldn't do depending on the basic economics. However, it is a very broad brush. In some areas, the resulting construction could be the spark that revives a neglected area. However, in other areas it could result in overbuilding and push future housing price drops.

One area I can think of is Kenmare. I'm AMAZED at the amount of Section 23 construction going on. This is an area that had pretty healthy tourism, holiday home, and retirement (many from the UK) growth before Section 23. The new construction going on now plus the planned "new town" by the river is changing the character of the area. It's becoming more like Kilarney. Not knocking Killarney per se, but maybe only one "tourism center" city per region is really needed.

Now what happens when people try to cash in on their Section 23 investment? Will it lead to an even greater drop in prices than would otherwise happen? If so, it may be a benefit for me since that's when I may see myself getting into the market.

D'Peoples Voice

Reyman wrote:

Good post EC ! A lot of wisdom there for those interested.

My recollection for the 1970s and 1980s was that the accepted correct value of the house you finally finished up in (i.e. after one or two trade ups) was four times your personal salary (i.e. a single salary)

Anyone like to hazard a guess on what it is now?

Mortgages of seven times incomes offered

Despite ongoing interest rate rises, borrowers are taking out mortgages that cost as much as 55 per cent of their monthly take-home pay, according to Michael Dowling, president of mortgage brokers, the Independent Mortgage Advisers’ Federation.

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS-qqqs=news-qqqid=21592-qqqx=1.asp

How high will this rate go do people think, excluding the expected rate rises in March, June and September of this year?

jreddington

Sounds like the lending frenzy that has started to severely affect the market here in the U.S.

As housing prices climb away from the affordability of "standard" mortages many companies became creative. This included financing up to 100% of the value of the home, sometimes with a complicated double mortgage with 80% in one mortgage and 20% in the other.

Other loans with negative amortization, meaning your monthy payments are less than the interest, meaning the amount of money you owe in the loan increases instead of decreases. Assumption was you either sold the house at a profit, or refinanced futher down the road since your house would then have more value.

Other mortgages where there is a teaser fixed rate for 1-5 years, then goes to market adjustable rates. Some folks are seeing nearly a doubling of their payment once the teaser runs out.

Then there's the "no documentation" loans where you just state your income. Don't have to prove it. This sounds very similar to the article noted where they calculate renting a room as income whether you do it or not. Also loaning at 55% of income is asking for trouble.

All this stuff ends up working only in a fast rising market. The market goes down and you can't refinance even if rates go down since the loan amount can end up higher than the value of the house.

This is especially the case in the "sub-prime" market where folks with worse credit ratings pay higher interest rates. My girlfriend's daughter worked for brokers for these types of loans. She's been laid off twice as each company went under.

Predictably, with a softening real estate market here in the U.S. forclosures are rapidly ramping up, further depressing the market. I see the same thing happening in Ireland as people get to the point where they can't support their mortgages.

Used to be in the U.S., the majority of mortgages had fixed interest rates which held payments steady. Adjustables have become an increasing share of the market. In Europe with even more ajustable rate mortages, the recent rate hikes could really trigger a rapid decline.

daveirl

This post has been deleted.

D'Peoples Voice

Is there a way of downloading this thread into a Word doc, some of the comments are definitely worth keeping, like the following

ongarite wrote:

Oct 2006, Was just listening to the business show in Newstalk and they had 2 financial analyst on and they were talking about how you shouldn't fix your mortgage interest rate now as rates have reached the ceiling.

Are they still employed as pundits by Newstalk?

SimpleSam06 wrote:

Sept 2006, The two pillars of the housing bubble, interest rates and market sentiment, are both starting to fall away. What with reversing trends in economies, China running the risk of overheating, and the general German terror of inflation, I can see mortage rates going as high as 6%, the Fed be damned, which would double the interest portion of mortgage repayments for anyone that has them.

An article like that in a widely read national paper is going to seriously damage market sentiment; those thinking of buying are going to pull out, and those in danger will be trying to sell, which floods the market with even more properties, creating a snowball effect. This is going to get messy. So much for the nouveau riche who really weren't and the amateur investor who thinks he's a professional.

NCS wrote:

Sept 2006, Must admit, I don't see interest rates going quite so high. The ECB seems to lumber its way through decisionmaking and as it is purely driven by the concerns of the French and German economies, I wouldn't be surprised to see interest rates peak by the end of the year and drop back a little in the first quarter of 2007. Too late to mitigate the damage to sentiment though...

krille

Hi Board,

We are all too focussed and concerned about houseprices.

During the dotcom bubble...I recal myself, checking the value of my shares at least 5 times a day and placing buy and sell orders at least once a week. I made and lost some money during that period, but most of all I learned a lesson.

I kept some of my shares in my portfolio and invested my remaining funds in property. Yes that gave me peace of mind till recently. In recent years we bought, renovated and sold a few properties...but now it seems prices are getting far too high to make sense. Too much hesitation about where the market is heading.

My lessons learnt from playing on the stock exchange during the dotcom era? Sell all whilst prices are high and so I did?

So what now: let me reassure you immediately....I don't intend to keep it in under the mattress, or worse in a bank account.....nonono

It looks like the highest returns on the property market are made by developers, no matter how the property prices move. Property development allows for controllable, predictable and sizeable returns on investment.

If on top of that the property development project is based in an emerging market (where capital gains are between 15% and 25% a year) the returns are mind blowing.

I am now looking for like minded co-investors / partners to get involved in a new property development project in Morocco.

If you think this type of investment might be of interest to you contact me on: info@prolan-invest.com or visit: www.prolan-invest.com

Regards,
Krille

http://www.rte.ie/business/2007/0314/jobs.html


500 Jobs gone, house market slowing down which will result in more job losses,
the economy is in trouble if you ask me. Whats the best way to deal with this - what should the Govt be doing ? Whats the best way for an individual to ride out the storm!

daveirl

This post has been deleted.

D'Peoples Voice

Gurgle wrote:

Heres a prediction for ya:
House prices will continue to rise for the next few years, then slow down and in some places decrease a bit, though probably not as far as today's prices.

Check out DAFT.ie, and the number of houses for sale per county.
Ok, Dublin as expected with the country's biggest population has over 4,459 properties for sale.
But check out the other counties

Cork 3,465 (78% of Dublin's stock)

Kerry 2,262 (51% of Dublin's stock)

Galway 2,233 (50% of Dublin's stock)

Mayo 2,147 (48% of Dublin's stock)

Waterford 1,558 (35% of Dublin's stock)

Wexford 1,393 (31% of Dublin's stock)

If the Dublin property market is stagnating, and there are only 4,500 properties for sale, then what is happening to prices in the rest of the country?
Mayo having almost half as many houses for sale as Dublin, that's not right surely!

NCS

D'Peoples Voice wrote:

Is there a way of downloading this thread into a Word doc, some of the comments are definitely worth keeping, like the following... Are they still employed as pundits by Newstalk?

Hang on - in my post which is quoted above I clearly meant they'd ease back a little in the sense of either staying the same or increasing.

http://irishpropertywatch.5gbfree.com/ipw_daft_report1_200307.html

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

FOUR HUNDRED AND TWENTY TWO PRICE DROPS

mambo

Listen to an estate agent try to explain that the seller offering to pay the buyer's mortgage for the first 6 months is not really a discount on the property, and does not affect the "value" of the property :eek:

Click on "Live free for six months?" at
http://www.rte.ie/news/2007/0320/drivetime.html

gerrydublin

mambo wrote:

Listen to an estate agent try to explain that the seller offering to pay the buyer's mortgage for the first 6 months is not really a discount on the property, and does not affect the "value" of the property :eek:

Click on "Live free for six months?" at
http://www.rte.ie/news/2007/0320/drivetime.html

Thats hilarious, but the EA has a point, it's not the same as a discount on the property

From the buyers prospective

they still have to get loan approval for 245K, more difficult than getting it for 239K

the additional interest cost of servicing the additional 6K will be a lot more than the 6K the buyer receives from the seller

From the sellers prospective

the figure used for "sales proceeds" in any capital gains calculation will be 6K higher, that is 245K is the sale proceeds not 239K

the seller must disclose the fact that they have gifted 6K to someone, because although the 6K is below the CAT exemptions threshold, it must be added to other gifts received by the buyer since 1988.

although

not valid in case, stamp duty would be higher for the buyer in a similar case involving a house price over 317K

From the estate agent's point of view

Commission is higher on 245K than 239K

whizzbang

gerrydublin wrote:

From the estate agent's point of view

Commission is higher on 245K than 239K

Wow, very good point! had not thought of that!