Housing Bubble Bursting

Raskolnikov

Tom123 wrote:

Almost all the extra properties built over the last 5 years are now empty.

That's a ridiculous statement.

whizzbang

Zambia232 wrote:

As my lecturer used to repeat every class Tesco do not accept bricks as payment.

Yep, but you can hurl one through the window

miju

Raskolnikov wrote:

That's a ridiculous statement.

OK well how about the equivalent of about 59% of the last five years housing output lying vacant as per the census?

What makes up that 59%? Well we'll take the 450,000 houses completed in the last five years (rough figure). Then factor in the 266,000 vacant houses as per the last census. Of which 170,000 are houses with a further 42,000 classed as apts / flats and the remaining 54,000 odd being classed as holiday homes.

colc1

miju wrote:

OK well how about quivalent of 52% of the last five years housing output lying vacant as per the census

speculators everywhere I'd be worried if I was them now!

Tom123

Raskolnikov wrote:

That's a ridiculous statement.

Ridiculous but true

dazberry

whizzbang wrote:

Yep, but you can hurl one through the window

Reminds me of the Kenny Everett / Sid Snot gag - where eventually he turns around to his gf and tells her he's not made of bleedin' bricks

D.

Victor

MG, kindly provide links to articles.

"Employment in construction firms fell by 2.3% in July compared to the same month last year. .... The monthly Central Statistics Office (CSO) survey questions 1,000 private construction firms which employ five or more people.

Because many people are self employed in the construction industry and there are many small firms with only a few employees, this survey isn't a perfect measure.

parsi

Victor wrote:

MG, kindly provide links to articles.

Because many people are self employed in the construction industry and there are many small firms with only a few employees, this survey isn't a perfect measure.

It's a good indicative measure. It was accepted during the good times and it should be accepted during the bad times as long as its methodology is the same..

SimpleSam06

Gurgle wrote:

From wikipedia:

Wikipedia is not, and I cannot emphasise this enough, not a reliable source of information, particularily on hot button issues with wealthy VIs involved.

SkepticOne

Gurgle wrote:

We're not topping that list, we're the second richest country in the world and we have one of the fastest growing populations in the first world.

Just on the topic of being the second richest country. This has often been used to justify high house prices.

According to the Central Bank as reported in the SBP today, net financial assets have fallen from 98% to 79% of GDP between 2001 and 2005. Net financial assets are defined as assets such as cash, savings, shares etc. less debt. This is well below the european average of 128%, e.g. for Switzerland it is 229%.

Our borrowing to fund houses has actually made us poorer than we would otherwise be.

miju

SkepticOne wrote:

Our borrowing to fund houses has actually made us poorer than we would otherwise be.

WOW , didn't see that one coming

SkepticOne

miju wrote:

WOW , didn't see that one coming

That's what happens when you start arguing with people who think that borrowing money to buy each other's houses at inflated prices makes us rich.

http://www.thepropertypin.com/viewtopic.php?t=3474

making the front page of the property supplements!

miju

seems the propertypin.com and irish price watch are garnering some national media attention. kudos to verbatim and gekko over on the PP for the images

miju

lollers blindjustice you just beat me to it

whizzbang

SimpleSam06 wrote:

Wikipedia is not, and I cannot emphasise this enough, not a reliable source of information, particularily on hot button issues with wealthy VIs involved.

Whenever anyone quotes wikipedia against me I'm tempted to just go and edit it to make myself correct , Thats the true power of the wiki!

gurramok

Mortgage rates may go up before the ECB rate goes up due to interbank rates been too high, it ain't looking good at all.
http://www.independent.ie/business/irish/homeowners-may-face-rate-hike-1081848.html

Who was it here who dismissed the interbank rate problem to mortgage holders as nonsense?

Sindo wrote:

IRISH homeowners could face an interest-rate hike of a quarter of a per cent within the next couple of months, as the turmoil in financial markets pushes up the cost of lending between banks, a leading economist warned last night.

And if Irish banks decide to cover their higher costs by passing them on to customers in the form of a rate increase, it will be variable-rate mortgage holders who feel the pinch.

According to John Beggs, chief economist at AIB, those on tracker or fixed mortgages will not be exposed, as their rates are either fixed or track the European Central Bank's key interest rate, which currently stands at 4pc.

"There are clearly going to be economic effects with what's happening in the financial market and the obvious way is the higher cost of borrowing," said Mr Beggs. "It could be a 0.25pc increase over the next couple of months, although individual banks will have to make their own decisions about the impact of raising their rates."

BendiBus

gurramok wrote:

Mortgage rates may go up before the ECB rate goes up due to interbank rates been too high, it ain't looking good at all.
http://www.independent.ie/business/irish/homeowners-may-face-rate-hike-1081848.html

Who was it here who dismissed the interbank rate problem to mortgage holders as nonsense?

Further more detailed coverage in the SBP

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS-qqqs=news-qqqid=26709-qqqx=1.asp

Hobo Sapiens

patrickolee wrote:

Yes, but your third point is wrong. It would be a bit like saying the price of petrol is not dependant on the price of crude oil! Interest rate swaps operate on a relatively small margin, the margin is largely dictated by ....

the distance from the edge of the page to the text

patrickolee

Hobo Sapiens wrote:

the distance from the edge of the page to the text

Huh?

There's a lot of panic out there at the moment. It doesn't bode well.

whizzbang

patrickolee wrote:

Huh?

There's a lot of panic out there at the moment. It doesn't bode well.

"The margin"

patrickolee

whizzbang wrote:

"The margin"

Doh... lol.

SimpleSam06

Yes indeed, according to the front page of today's Irish Independent, the "Days of big spending are over, says Cowen". Brian Cowen yesterday warned that the massive spending which has fuelled the public sector for the last five years is "a thing of the past". Bertie, however, insisted there was no need for pessimism.

What we're seeing here is the inevitable fallout from the collapse of the property bubble, events long predicted in this thread. The Irish government has been spending almost all of the enormous tax windfalls from the boom on expanding an increasingly useless but entrenched civil service, and now that tax take has vanished, projects are being cut, plans being cancelled, and the civil service is "only" getting a 13% increase in spending this year.

In the same paper we have discussions of the speech made by the German envoy, Christian Pauls, who pointed out that 20% of the population in this country are civil servants, an astonishing amount, and harshly criticised the doctors in Ireland, saying that doctors in Germany would be very happy to receive one third of their pay. And to be honest, if I had a choice between a German doctor and an Irish one, I know which choice I'd make. He also made the point that junior ministers in Ireland make more than the German Chancellor.

Of course, Bertie the builder didn't miss his opportunity to take another ham handed swing at people pointing out the reality of the situation, hitting out at "some people" who, he said, "appear to have taken a strange delight in a return to the bad old days".

How the christ did these idiots ever manage to get elected? I'm actually not sure if they bought their own tripe to the extent that they are not aware of the economic realities they are facing, or if they are simply looting what they can while the going is good.

Victor

whizzbang wrote:

Yep, but you can hurl one through the window

That will keep construction going - they need a window and you need a wall.

Victor

parsi wrote:

It's a good indicative measure. It was accepted during the good times and it should be accepted during the bad times as long as its methodology is the same..

It had its problems then as well, every year there would be a big jump in January as the sample size changed.

Glenbhoy

See the US have reduced interest rates by 0.5%, panicking, no!! Will this put pressure on ECB to at worst keep rates level?

Dakeyras

I sometimes have a read of this thread every now and again but I’ve never contributed until now but I thought I’d share with you all some interesting reading from the economist (September 15th-21st issue) which I just read this morning.

The article relates mainly to Americas housing boom but contains some interesting reading with regard to Ireland. The following are the relevant quotes:

“Research by David Miles and Vladimir Pillonca of Morgan Stanley concludes that there are likelier candidates than America for a housing bust. In a recent paper covering 13 European countries as well as America, they assess how much of the rise in property values in the past decade can be put down to bubble-like optimism about future price increases. The authors constructed a model in which housing demand is driven by rising real incomes, population growth and declines in real interest rates. They then estimated the downward effect on prices from increased homebuilding. They argued that what is left—the part of price rises that is unexplained—is without substance and vulnerable to a correction.

In six countries—Belgium, Britain, Denmark, Greece, Spain and Sweden—real house prices have risen much faster than the model predicts. Mr Miles admits that calculation of real interest rates may have distorted the results for Greece. But in the remaining five countries, the average “excess” increase in real house prices is 47%. Some of the paper's results challenge accepted wisdom. Ireland's housing boom, often seen as a spectacular bubble, is almost entirely explained away by rapid real-income growth, rising population and the drop in real interest rates. Nevertheless, Irish house prices are now falling, if modestly.”



http://www.economist.com/finance/displaystory.cfm?story_id=9804125

And I don’t think we can explain away the economist or researchers in Morgan Stanley as vested interests in the Irish Property market.

SimpleSam06

Dakeyras wrote:

And I don’t think we can explain away the economist or researchers in Morgan Stanley as vested interests in the Irish Property market.

No, but we might go so far as to call them wrong. Theres a lot more to downward pressure than the number of houses you build - they failed to include important factors like affordability, number of investment properties, exotic financial instruments and loosened lending criteria, and so on.

Seems like a bit of a dilettante effort, tbh.

Dakeyras

Tbh, a dilettante effort is what I would call some peoples assessment of ‘the bubble’ in general sometimes.

Since this is a study of past rising markets (in general) any of the factors you mentioned would have contributed to rising house prices and thus have been contained in ‘the part of the price rises that is unexplained’.

I’d also be interested to hear what exotic financial instruments you are talking about and how you think they exert a downward pressure on house prices.

SimpleSam06

Dakeyras wrote:

Tbh, a dilettante effort is what I would call some peoples assessment of ‘the bubble’ in general sometimes.

Well, everyone is entitled to an opinion I suppose. Some of these "dilettantes" have made some very impressive and in-depth analyses of the Irish market, however, with a lot of facts behind them. Incontrovertible facts. What is particularily surprising is that they had to do so; in most countries the state of the property market isn't a national secret.

Dakeyras wrote:

Since this is a study of past rising markets (in general) any of the factors you mentioned would have contributed to rising house prices and thus have been contained in ‘the part of the price rises that is unexplained’.

Or alternately, it could be just another case of drive-by economism, of which we have seen a great deal in recent years. A report like that certainly would help bolster a collapsing US housing market, don't you think?

EDIT: To clarify that a bit, they only factored in the unexplained price rises. If the only thing they are using as their downwards pressure is the number of houses built, their model is crucially flawed. Don't forget, they are calculating what prices should be, as opposed to what they are. Their model is the price should be such and such, based on number of houses built. I'm saying their model should factor in a great deal more as regards what prices should be.

Dakeyras wrote:

I’d also be interested to hear what exotic financial instruments you are talking about and how you think they exert a downward pressure on house prices.

Its not so much these instruments that exert downwards pressure, its when these financial products meet their demise that it becomes harder to get money from lenders, and hence the available cash for house purchase is less.