The Housing Market

The_Minister

Right now, demand is high and supply is low, so prices are massive. How can this be reduced? Should it be reduced?

There are two ways to reduce the price, both of which the government seem to be doing.
1. Increase supply. Houses and apartements are shooting up everywhere.
2. Decrease the demand, by decreasing the focus on Dublin. The government are doing this with decentralisation, which will free up many houses, and will encourage growth in other parts of the country.

but, (there's always a but)

do we want this? How many people wish to retire on the money in their house? How many have borrowed money, or wish to borrow money against it? Those setting up businesses would no longer be able to use land for the same value of collateral as before. The popular thought seems to be that we are better off with cheaper housing prices, and certainly, many are. But, are most of us?

dunkamania

The_Minister wrote:

There are two ways to reduce the price, both of which the government seem to be doing.
1. Increase supply. Houses and apartements are shooting up everywhere.
2. Decrease the demand, by decreasing the focus on Dublin. The government are doing this with decentralisation, which will free up many houses, and will encourage growth in other parts of the country.

1. has nothing to do with the Goverment,this is a Laissez-faire/free market effect.
2. decentralisation will only ever have a minimal effect.

Higher density housing could lower demand on land,but the local authorities arent keen to implement it

The_Minister

dunkamania wrote:

2. decentralisation will only ever have a minimal effect.

Why? Thousands of homes coming on the market at once, surely that will lower prices?

dunkamania

its a drop in the ocean

The number of people relocated,as far as I know less then 1000.

The concept has been less than a stellar sucess

J.S. Pill

The_Minister wrote:

2. Decrease the demand, by decreasing the focus on Dublin. The government are doing this with decentralisation, which will free up many houses, and will encourage growth in other parts of the country.

The only growth its going to encourage is maybe the odd spar or centra beside the flash new offices. If the government had went along with the national spatial strategy and decentralised government bodies to regional hubs like Cork or Waterford instead of the backwater swamps it currently has earmarked then maybe national growth would be a bit more balanced - check out the decentralisation thread on the politics section.

The_Minister wrote:

do we want this? How many people wish to retire on the money in their house? How many have borrowed money, or wish to borrow money against it?

I hate to cite David McWilliams but he said that borrowing against houses has a kind of circular effect on house prices whereby money borrowed against property often goes into investment into more property thus pushing prices up further and thus increasing the amount one can borrow against property and so on and so on....Still its always worth pointing out that there are certain upshots from what seems to be a grim state affairs for many.

The_Minister

dunkamania wrote:

its a drop in the ocean

The number of people relocated,as far as I know less then 1000.

The concept has been less than a stellar sucess

Relocated so far, yes, but if it all goes ahead as planned, with the large numbers planned, then it will succeed. Many more thousands will be made leave Dublin if it goes ahead.

J.S. Pill, I see your point about placing the jobs in the main cities, but even putting that many more people within driving distance of Cork and Galway, will help the local economies. (AFAIK most of the backwaters are near enough to large cities)

Perhaps a more drastic plan?

Introduce legislation to cap the amount that people can borrow for mortgages - this will lower the amount of available money and thus lower house prices. Naturally, schemes to protect first time buyers would have to be implemented.

Also, what is the tax status on renting? I know that in Germany (in Munich and Berlin) it is more economical to rent rather then to buy a house. Why this is I don't know. If renting was as attractive as purchasing a house (for a set time period anyway) both for the tenant and the landlord, this might see more renovations of existing property and thus introduce cheaper (for an set time period) housing which should lower house prices.

Or is this totally wrong because tbh this is not something that I have really looked at..

Dalfiatach

It makes economic sense to rent now, in Ireland. And has done for years.

I'm sharing a three-bed Galway city-centre townhouse with 2 mates for €975 a month. A mortgage on this place would be over €2000 a month, as it is "worth" nearly €400K. Our rent has not increased at all in 4 years.

House prices in Ireland are just pure insanity. There's no two ways about it, our property market is insanely over-valued.

Historically, everywhere in the West, for the last 100 years, the long-term ratios have been pretty stable. Long-term house prices tend to be around 120 X monthly rent. Net Rental yields (allowing for 1 month voids, repairs etc) should be at least 7%. A 25-year capital-repayment mortgage should cost roughly the same as rent - in fact for long periods in the past, such a mortgage was cheaper than renting. That is the original source of the "rent is dead money" mantra - because for decades it was true, why rent when for the same money, or just a little extra, you could buy? These are the international property norms, and they applied equally to Ireland as to everywhere else....up until about the year 2000....

keynesian

I agree with the above 2 statement,
this is a mind set, "rent is dead money" is said with out thought. To change thisthe goverment would not only have to introduce finachal insentives but legistate. They would have to increase legistation on landlord AND tenent, e.g. ensure that tenents look after propety and secure permency for tenent, like in german. It could be said that only those with econimies of scale and efitioncy of rescoures should owen property. Maybe do it like the swedes and most homes are owed by goverment(changed in recent years).
{funny side note highest ower/ocupid is in poorest of EU15}

Bank and low interest rates are fuelling house prices. Making a dangerus situation, when you have to pay the piper. I imagin this burdin on banks will be lessed by the ECB. ppl are releasing equity that may disipear if house prices fall.

I haven't had a change to read the CB eco stats, dose any one think we at the peak of the market?

Dalfiatach

The peak of the market was around May/June 2006. Look at the details in the Daft Q3 report - prices are falling in certain categories already. The insider money has already long gone from the market - look at the banks selling off their property portfolios, and comments by the likes of Dermot Desmond, Michael Smurfit, and Eddie Hobbs.

This will only accelerate with the definite ECB rate increase in December, the probable further ECB increase in March, the fact that stamp duty will not change in the budget (and this is a complete red herring, the market stalled 3 months before McDowell opened his mouth), as the Irish media summon the courage to report on the housing crash that has been wreaking havoc in the US for 6 months now, and as the realisation that we've all been damn fools starts to sink into the general consciousness.

The PTSB index is meaningless, and lags the market by 4-6 months...but by January expect them to magically stop saying "Prices up 934% this month get on the ladder before its too late OMG!!!" - instead monthly figures will be nowhere to be seen and instead they'll say things like "house prices up 6% in 2006" - which is a sleight-of-hand con job, house prices rose rapidly in the first few months but then stagnated or fell for the rest of the year. Not that they'll tell you that.

The party is over. But it'll take another 6 months for the hangover to kick in.

Chakar

The housing market like all other markets such as the stock market is based on confidence.The confidence of the consmers is another excellent example with consumers running up hundreds of millions of euro in credit card debt.The availability of credit is a good thing but when the people are overdrawn by 300 billion with the government debt miniscule compared to that figure it is quite a role reversal given that the national debt used to be quite high in the 80's and early 90's.

My opinion is that if the housing market stays stable and just plateaus off with supply catching up with demand then it will be good and I think that today's Sunday Independent front page article showing a decrease in house prices by 4,500 euros in one month since McDowell was speculating about the cutting in stamp duty.

I really don't think we will have a slump as what people tend to forget is that while the housing markets in Britain and Japan collapsed, their infrastructure was excellent and given that we are just building up our infrastructure to European standards after decades of no investment in this infrastructure I think we'll be okay.

keynesian

I'm trying to sell, mcdowl caused I slomp, wasn't really there befor. I'm trying to sell and get out. well caz there no profit in residencal, capital apresation maybe, little profit. In real term I think price have stagenated if not droping.

Ground level info, prices are all over the price, no definend rise or full, on the same street and semilar house selling price up and down on asking.

Your right it's here, but ppl may not realize in real terms prices are falling. Your right it's all about confidence in the market. How meture is the mend set of the ppl. will they panic, will they notice.

Call it, prices will down by?
real or nominal?

keynesian

Chakar wrote:

I really don't think we will have a slump as what people tend to forget is that while the housing markets in Britain and Japan collapsed, their infrastructure was excellent and given that we are just building up our infrastructure to European standards after decades of no investment in this infrastructure I think we'll be okay.

please expaned!

Dalfiatach

I made my prediction back in August and I'm sticking to it. By Christmas there'll be the beginnings of panic. Everywhere you go this Christmas, everyone will be babbling about property and whether there will be a crash. By Feb, nominal prices will be in freefall and this will continue for 2+ years. Nominal prices will collapse by 35% or more by Q4 2008 from the peak in Q2 06, and then stagnate for at least 6 years. The overall correction in real terms, considering markets tend to overshoot on the way down, will be over 50%.

2011-3 will be the best time to buy, though everyone and his dog will loudly insist you are mad to buy property.

And this is a medium-case scenario. It could get worse. Japanese property prices fell in real terms for 14 years running after their bubble popped. We are not different. It can happen here. And I believe it will - in fact I believe it has already started.

keynesian

I'd be inclined to agree, the markets peaked and price are stagnating, salesman ship is making a difference on price, now.

After the New Year, when the market is open for trade is when we'll see whether they panicked over Christmas turkey. Perhaps, though, this will make ppl hold off on selling curving supply. Buyers new to the market will continue to buy, unaware, keeping demand up. (pigs might fly too). The Irish are used to property, most of the big cull and reposition of assist has happened. Demand is high and business community maybe willing to sit it and curve supply to keep nominal prices on the level. If this happens, panic maybe curved too. You don’t need to look far to see the bull has been tamed, {property forum}.

Can the gov step in?
Lowing stamp duty, could cause a transfer of money from tax to price. Making appear the market is stable and keep it ticking over, just long enough so the media find their next target.
Buy up property for social housing, expensive, but it would eat up supply and cause a floor. Plus, maybe get a few ppl off the street. {Not that I’m advocating distorting the market }
Or let the market sink?

I don’t think we’re going to see a crash like Japan, simple because that was fuel by bank go to the wall. I think the CB & ECB, will rain in bank (causing credit drying up:() but ECB has federal fund for bail out.

I’m going for 10% nominal reduction by the end of 5yr, but I think I’m being optimistic.

I don't think that a full crash will occur.

People want housing prices to reduce, and from anecdotal evidence, their appears to be a large number of people on the fringes looking for houses but are not willing to pay current prices.

Taking into account that I know nothing about the housing market, I would think that there will be a fall in prices but demand will pick up when it reaches a more acceptable level.

There has been so much talk about property for so long now in the public domain that this could be an 'anticipated fall' and this (hopefully) could prevent a crash.

dunkamania

original_psycho wrote:

People want housing prices to reduce.

These people are mostly non home owners

keynesian

dunkamania wrote:

These people are mostly non home owners

Non home owers are bi-est in there view, hence the phrasing of the start post, I imagine.

Reading the CB stats, I'm reminded that I cooling in the market happened this time of year too. CB woried the bulk of Comercal loans are being used in Construction Industry and retail proporty. Cheep loans feeding a cycal, and in residensal too. CB seems to think Construction has not yet reached long term equoliberum. A large section of our Economy is now based on Construction and there is I feeling that there could be job loss therefor leading to defaults on loans. Poeple may have over reached them selves in a "need" to get on the "property ladder".

I needn't tell you the spiralling efect of what I have just out lined,
thoughts.

Andrew 83

Surely a big factor is those who are buying houses either to sell on for profit or to rent rather than to live in themselves. These people are adding a massive number of extra buyers into the market (who are richer than your average house buyer by quite a substantial amount). Taking these additional, richer, people out will surely help bring prices down. To discourage them from continuing their practices I'd hammer up taxes on those buying additional houses beyond their primary residence (ok maybe be generous and say one holiday house but no more than 2 before the high tax kicks in). That way if they do decide to keep buying up the tax money can at least be channeled into social housing.

Andrew 83

dunkamania wrote:

These people are mostly non home owners

While I completely understand that people don't want to be caught in a situation where they are paying massive mortgages way above the value of their homes, surely those with most to lose if housing prices don't continue to rise way above inflation rates are those investing in property as I outlined above. I wouldn't cry too many tears over that. A very large slowing of the rising property prices rather than a collapse would be a good thing I think.

OTK

The_Minister wrote:

Right now, demand is high and supply is low, so prices are massive. How can this be reduced? Should it be reduced?

Low prices for essentials means higher disposable income for luxuries. I would have thought low house prices would be a good thing. Government policy is to stabilise house prices. They don't want a crash followed by angry voters.

There are two ways to reduce the price, both of which the government seem to be doing.
1. Increase supply. Houses and apartements are shooting up everywhere.
2. Decrease the demand, by decreasing the focus on Dublin. The government are doing this with decentralisation, which will free up many houses, and will encourage growth in other parts of the country.

Supply has increased but clearly not met demand as prices have still risen. Increasing supply of houses is not like increasing supply of consumer goods. The amount of land available to build on near to where people work is limited and the number of housing units you can build on a piece of land is limited by planning regulations.

if you want to decrease demand consider the demand factors:

• immigration: linked to booming economy (may end soon)
• smaller households (people not living with granny) - not likely to change unless we get really poor
• cheap credit - may end but strength of euro may crap euro economy may keep interest rates low
• investor confidence - the weakest factor, may pop at any time
• strength of the economy - recession means less demand
• tax reliefs - section 23 etc (may change at any time)
• property taxes: stamp duty, construction VAT

Most of these are outside the government's control. Expect the govt to attempt to bolster prices if things start to slide. The only tools they really have are planning, taxation and subsidy. Ireland is unusual in having zero residential property tax and very low local taxes, so it's a great place to buy a second house and hardly ever use it.

The idea of stimulating growth outside of Dublin is good but house prices in the other cities are not that far off Dublin. The government is not seriously trying to stimulate growth in the cities outside Dublin, it is more of a case of throwing presents to random towns and villages.

Supply has hit demand. what is it 90,000 houses we have built this year?
and again next year?
Prices will come down - people dont have as high a spending power as before with the rate hikes each rate hike decreases the amount the bank will loan on a mortgage.
what about the 250,000 houses according to the Central statistics office have NEVER been lived in - and most were bought after 2002. never rented or lived in means SPECULATION. capital gain!

Prices are unjustifiably overpriced.
But in the past few months very little has been selling. People have been dropping their prices.....

http://irishhousepricesfalling.blogspot.com/

http://daftwatch.atspace.com/

the housing market is being discussed on this website here:
http://www.boards.ie/vbulletin/showthread.php?t=2054967253

OTK

Deleted User wrote:

Supply has hit demand. what is it 90,000 houses we have built this year?

Correct me if I'm wrong but I though that by definition, supply has not met demand in a market with rising prices. Speculative demand from investors no matter how crazy and likely to disappear is still demand and has the same effect on prices.

Digi_Tilmitt

Houses are overvalued. It would be a good thing for them to greatly devalue. I don't see why homeowners would be so bothered by a crash. You buy a house to live in it. What's the point in spending years paying back a mortgage if you only plan on remorgaging it and getting raped with interest again? The only people who will suffer are people who have bought into a euphoric overpriced market as an investment. Quite frankly, it's their own fault, the euphoria of the market has gotten to them.

So I hope the ECB hikes like mad and batters the housing market to bits. Then the annoying people who've convinced themselves and proclaim loudly that the market can rise forever will be humbled, and young couples will actually be able to afford a home to live in.

Digi_Tilmitt

Digi_Tilmitt wrote:

I don't see why homeowners would be so bothered by a crash. You buy a house to live in it.

lots will be very upset. how many bought miles from work, in 2 bed townhouses "to get on the ladder".
TRAPPED BY NEGATIVE EQUITY.:eek: