Housing Bubble Bursting

gurramok

Dakeyras wrote:

The report is stating that the Irish increase in house prices (251%) can be explained by accounting for rapid real-income growth, rising population and the drop in real interest rates.

Obviously incomes didn’t rise by 270% nor is that what is stated, the report is stating that by taking the above mentioned factors into account these explain the increase according to their model. Since Afuera helpfully posted a link to the actual study we can now have a look at the data and methodologies used and if someone can show were they got it so wrong I’m very happy to listen to it. I’ll be reading the report tonight myself to see what their exact methodology was

CPI index went up by 30% in the same period.

Regarding incomes, 67% of the workforce earn BELOW 34k p.a., hardly an incentive to buy an average priced house for 2 people.

They assume an average of 10% deposit for each house transaction which is absolute bull for Ireland with 100% mortgages widespread nevermind the 92% previously when data was collected on prices in 2004.
They assume the house purchased is 3.5 times the annual income of the household.
This is bull too here, banks have normally lent 4.5 times combined income in the rate plummeting era.

GDP figures can be taken with a pinch of salt when construction fuelled by cheap credit accounts for over 20% of GDP nevermind the 20%+ of the workforce employed in construction here during the boom. Also nevermind the huge public sector purse thats forked out on rising revenues from cheap credit fuelled construction, upto 30% of govt revenue dependent there on the boom.

I wonder do their disposable income figures take account of gross or net income(minus debts), any link for that?

That report is based on assumptions and models trying to predict what happened and what is likely to happen in the future with lack of local factors using outdated data.
I believe the real facts from the likes of here
http://www.finfacts.com/irelandbusinessnews/publish/article_1010787.shtml
http://www.finfacts.com/irelandbusinessnews/publish/article_1010263.shtml

Dakeyras

SimpleSam06 wrote:

I see...


Er, you do know theres a conspiracy theories forum?

of course you'll already know that was a direct quote from the earlier posted article, not a statement of my opinion and anyway this is far more entertaining than the conspiracy forum tbh

miju wrote:

please dont send him my way

oh have no fear, i shall endeavour never to darken your door

patrickolee

gurramok wrote:

They assume an average of 10% deposit for each house transaction which is absolute bull for Ireland with 100% mortgages widespread nevermind the 92% previously when data was collected on prices in 2004.

100% mortgages are not widespread. Very hard to get.

Anyone know if there are any figures out there for length of mortgages across the eu?

BingoWings

patrickolee wrote:

100% mortgages are not widespread. Very hard to get.

Didn't some bank (PTSB?) recently say that 33% of their mortgages were 100%ers?

Worse than the 100% mortgages, how about the Speculator interest only mortgage?

http://arandomwalk.com/forums/index.php?showtopic=58
HAVE A READ!

TJM

patrickolee wrote:

100% mortgages are not widespread. Very hard to get.

In theory yes. In practice most people seem to go to the credit union for the deposit and the bank for the remainder - making it a 100% mortgage in reality.

TJM

TJM wrote:

In theory yes. In practice most people seem to go to the credit union for the deposit and the bank for the remainder - making it a 100% mortgage in reality.

Any data to back this up? Or is it another sweeping generalisation?

dochasach

Deleted User wrote:

Any data to back this up? Or is it another sweeping generalisation?

I always thought the parents, aunts and uncles usually made up the remainder:

mortgagesolutionsonline wrote:

The Bank of Ireland takes parents' income into account and deducts their mortgage commitment. Through doing this the Bank of Ireland is willing to lend 4.5x the parent's salary plus 1x the first-time buyer's income. As an alternative it will use 4x joint, if this fits better. The annualised payments for the graduate loan of £7,000 would be taken off this figure.
...
The only conditions that we need to be aware of are that the maximum age of parents is 60, and the maximum term 35 years. Other features are that the Bank of Ireland also allows close relatives to be included, such as aunts and uncles...

Of course this article is a few years old and it discusses cosigned documented parental contributions. As we know, under-the-table contributions are very uncommon in Ireland ;-)

As to the economist article, the online version seems light on details but I don't think it signifies an "All Clear" for Ireland to carry on with runaway spending on property. For example, Switzerland may have a lower GDP, but it also has significant assets unrelated to real estate (Gold, Diamonds, antiquities...) The Economist article appears to include the fraction of GDP related to the building industry, which in Ireland is about 23%:.

finfacts wrote:

Goodbody Stockbrokers report says construction to remain key ...
The report outlines the fact the construction sector in Ireland accounts for 23% of GDP compared to a 12% EU average. Goodbody Stockbrokers’ Chief Economist ...
www.finfacts.com/irelandbusinessnews/publish/article_10007496.shtml -

I would suggest that The Economist authors should have subtracted the construction sector from all GDP calculations for a better estimate of relative risk. (Ireland's GDP would be corrected down to 77% of it's current value.) Obviously a country which obtains 100% of its GDP from construction can't build itself out of a construction related recession or property bubble collapse.

TJM

Deleted User wrote:

Any data to back this up? Or is it another sweeping generalisation?

Credit unions

There is anecdotal evidence that a growing number of homeowners are borrowing the deposit for their home from credit unions. This effectively means they are borrowing the full price of the house - placing the borrower at considerable risk of mortgage arrears.

As most credit unions are not members of the Irish Credit Bureau, lenders cannot check if an applicant is borrowing the deposit for a house.

http://archives.tcm.ie/businesspost/2004/09/19/story723955015.asp

Paying the deposit on a house in Ireland is becoming more difficult as house prices rise.
A survey by Genworth Financial reveals that, typically, a first-time buyer in Ireland borrows the maximum amount they can on their credit card, probably around €3,000.

They add a credit union loan of around €20,000 to this and then borrow the rest from family and friends to make up a house deposit of around €30,000.

http://mortgages.blogs.ie/2007/02/01/paying-a-deposit-on-a-house/

For example, someone looking for a deposit to buy a house can place cash of €1,000 with one credit union, borrow €4,000 on the strength of that deposit, use the €4,000 to open four more deposits with four other credit unions and borrow another €16,000 on the strength of the €4,000 that was borrowed in the first place.

They can then "pyramid'' this debt with a further 16 credit union accounts and borrow a further €64,000. And, hey presto, they now have the cash to put down a deposit, with the remainder of the purchase price being financed by a secured mortgage from a bank.

This leaves the bank sitting pretty - with security on the house - and leaves the credit unions between them with nearly €50,000 of unsecured lending to the customer whose house and other assets have been given as security to the banks.

This practice - carried out by less financially-secure members of the population - creates 'pyramid' risk and an adverse compounding effect on the risk profile of credit unions.

http://archives.tcm.ie/businesspost/2004/10/10/story348733938.asp

Loans are provided for any provident or productive purpose. Whatever you want to do, whether its placing a deposit on a new house, doing those home improvement jobs, changing the car, educating yourself or your family or just simply going on holidays, we can help.

http://www.mullingarcu.ie/Content/Services/Loans.htm

Some of the brokers enquired how the applicant would raise the necessary money to cover the deposit, stamp duty and so on. Still posing as a first-time buyer, this newspaper suggested that a credit union loan was being considered to cover the additional costs as the couple had no savings. The advice given varied considerably.

One broker said: ``A credit union loan is the most popular way around it, although other people have looked for parental guarantees secured on another property or a parental gift.''

http://archives.tcm.ie/businesspost/2004/09/26/story964908411.asp

SkepticOne

patrickolee wrote:

100% mortgages are not widespread. Very hard to get.

The Government published figures yesterday, in the Annual Housing Statistics Bulletin 2006, showing 36% of first-time buyers in 2006 took out 100% mortgages. However, the Irish Mortgage Corporation said that was out of date and the figure dropped to less than 24% in its latest survey. url=http://archives.tcm.ie/irishexaminer/2007/07/10/story36906.asp]cite[/url

Perhaps not the majority but still a very significant proportion of people who could not otherwise have got mortgages entered the market after 100% mortgages were introduced pushing up prices. This proportion is falling and I would expect it to drop to insignificant numbers in the coming months. How much prices will fall we don't know yet but I would expect it to be substantial.

Dakeyras

Well I have returned after having a read of the report which we were discussing yesterday, the report being the one upon which the economist article was based. A link to the study is here:

http://www.germany-re.com/files/00034800/MS%20Housing%20Report%202007.pdf

Cheers again to Afuera for locating the report.

First off I only intended to post the article as an interesting and alternative take on the Irish market from an economic source unconnected to the Irish market but I was quite surprised at how instantly it was dismissed in some quarters. While the article can be dismissed by saying who knows what their model or data was Afuera helpfully located the study.

Perchance now a time to read the study and examine its relevance and whether indeed they are far off the mark? Lol, no it seems, extract a few points of interest and disparage them (LTV, GDP etc) without reading the report or indeed just throw in a total refutation of the report without even giving it as much as a glance, I particularly liked this:

SimpleSam06 wrote:

The report uses old and incomplete data, uses misconceived methodologies, and arrives at fallacious conclusions, particularily with regard to the Irish property market.

If you’d like to expand on that statement SimpleSam and perhaps indicate the instances that you referring to we would all be greatly enlightened, I’d particularly like to hear what exactly you think is wrong with their model and calculations. Ah you already answered that I hear you say, well the below does not constitute an answer

SimpleSam06 wrote:

If the only thing they are using as their downwards pressure is the number of houses built, their model is crucially flawed.

SimpleSam06 wrote:

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.

As I said before this study is carried out between 1996 and 2006 which in the case of Ireland was a rising market, the downward pressures you mentioned would in fact contribute to an upward pressure. And the aim of the model is to try and substantiate the rises in house prices in economic terms and discover what excess cannot be explained so you downward pressures (which are actually upward pressures) should be contained in the unexplained portion of prices rises.

Anyway with regard to the study itself it is, as it states, a study of European Housing and Mortgage Markets rather than solely a study of house price increases. As such the various charts relating to Debt to GDP ratio, LTV ratios, House prices to GDP are informative only and are not used in their model as is explained in their study. So while you might argue that construction is too large an element of GDP that does not effect the outcome of their model or calculations one way or the other.

In relation to accuracy of data as mentioned previously on the thread the housing stock figures are up to 2006. The average prices in 2004 are from the housing statistics in the European union and it appears they have extrapolated the 2005 and 2006 figures from the European Mortgage Federation growth rates. While the accuracy of these figures can be debated ad infinitum I don’t see how they can be extremely far of the mark. I note in exhibit 10 in the report the estimate of the average house price in Ireland in 2006 is circa 380,000, which if anything seems high for the average Irish house price at the end of 2006. So if anything they have overestimated somewhat the amount of price increases.

The other point made earlier that a large element of population growth has been sustained by migrant workers who have no interest in buying houses. Whilst the fact that there are a large number of migrant workers is easily quantified the fact that they have no interest in buying houses is again based on anecdotal evidence. Whether they wish to buy or not though is not in the end relevant to the basis population growth is used in the study.

The fact is that even if migrant workers have no intention of buying a house they still add upwards pressure to house prices. Everyone needs somewhere to live and even if the majority are renting this increases demand for rental properties, thus encouraging more investors and thus increasing house prices. But it goes without saying that if population growth contributes to rising markets obviously a population decline would contribute to a falling market. But this study is not attempting to predict the future, it is a study of the past 10 years and whether the past increase can be explained economically.

As to the model used in the study whilst it takes a very simplistic approach in that they take demand for housing as depending on average per capita incomes, the population and the real cost of home ownership and using that to calculate what house prices should have risen by based on those variables by inputting the information into their equations. I can’t fault the logic and I certainly wouldn’t describe it as a misconceived methodology.

As to the results of their model in relation to Ireland in particular they are stating that only 8.1% of the increase in house prices in Ireland since 1996 is due to change in capital gains effect, whereas in the UK it is 38.8%. this figure as the percentage of price increases based on people perceptions that prices will rise could be equated to other assessments of overvaluation in the irish property market.

Whilst their figure is lower than many other estimates there have been numerous figures for the overvaluation from anywhere to 10% to 50%

As to the conclusions they draw in the study they are conclusions regarding offering different type of mortgage contracts so I’m not sure how SimpleSam decided they were fallacious and it is not clear how this is so with particular regard to the Irish property market, but then it does help to actually read something before commenting on it.

The study in question does not say all is well with the Irish property market, the Irish market is only a small part of the study but it contains some interesting conclusions based on their model. As a study containing the exact basis for calculations of price increases and assessment of economic variable affecting price increase over the last 10 years I’ve found it interesting. The substantiation of overvaluation is obviously a very difficult figure to come up with as in the end it is only with hindsight that that exact figure will be known, and in the end it is the market that will decide what that is.

It is only the instant dismissal of this study's content that has led me to post so much on it. But then it’s not just the bulls that can dismiss economic data or arguments when they don't fit their view.

Afuera

Dakeyras wrote:

Cheers again to Afuera for locating the report.

No worries. Do you still agree with the statement that The Economist made based on this report?
http://www.economist.com/finance/displaystory.cfm?story_id=9804125
"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."

Dakeyras

In the context of the economist article it seems to suggest more than is contained in the study. It seems the important words in that quote are 'almost entirely explained away'. The figures in the study do show a big difference in other estimates of the over valuation in the irish market though.

After reading that study i wouldnt have phrased a comment exactly as they have but I do see what they are trying to say.

so a yes and no answer really, a yes in that the study seems to quantify what the general consenus considers a rather large bubble and no in that the statement seems to infer that only an insignificant percentage of house price increases isn't explained.

Afuera

Dakeyras wrote:

In the context of the economist article it seems to suggest more than is contained in the study. It seems the important words in that quote are 'almost entirely explained away'.

It's definately suggesting a lot more than the report contained. The model in the report is able to account for a rise of 173.6% in the last 10 years in Ireland. In actuality their was a rise of about 270% for the 10 years ending in 2006. There's no way the Economist can truthfully claim that the report has "almost entirely explained" the Irish boom.

SimpleSam06

Dakeyras wrote:

First off I only intended to post the article as an interesting and alternative take on the Irish market from an economic source unconnected to the Irish market but I was quite surprised at how instantly it was dismissed in some quarters.

So lets see here. You don't read the report, you post an article from the economist which reaches conclusions entirely at odds with the reality of the Irish market, with nary a link, and now you are surprised when this gets dismissed out of hand.

Then, you proceed to waffle indignantly at great length about how your report should be treated as gospel, although you aren't defending it, lets not forget that, and respond to courteous posts from myself and others in a manner which suggested affront that anyone would dare question your economic wisdom. Still without ever reading the actual report.

All of this is levelled at posters who have been discussing and examining the Irish market in great depth for the last two years, lest we forget, something you feel fit to describe as "entertaining".

And now, having finally at long last read the actual report (which someone else had to find for you), you swagger back in with a variety of arguments, most of which have been dealt with exhaustively in the thread that you deign to read fully. Months ago in some cases.

What more need be said?

Dakeyras

SimpleSam06 wrote:

What more need be said?

well it seems that quite a few things actually. Firstly i posted a report from the economist which I linked to as an intersting report on world property prices with particular regard to this discussion. How at odds this is with your understanding of the Irish property market depends entirely on the view you have of that market.

As to reading the study it was based on I think we can clearly see who hasn't bothered to read it and make unsubstantiate claims about it, since you seem unwilling to substantiate your fallacious conclusions quote. I also notice a distinct skill you seem to have of ignoring questions that are asked of you, perhaps this is your interpretation of politeness? I at least have the politeness to answer questions addressed to me, whether you agree with my rational or logic or not. Its also your perogative to debate those if you so wish.

And i also hate to shock you but posting on this thread is not the only means of studying and commenting on the Irish property market, and certainly the study of the irish property market by some has not been confined to just the last two years.

While the discussion of the current Irish property market is not in itself entertaining I do find some of your posts quite entertaining. One should try and enjoy discussions as best one can.

As to addressing some of the issues read months ago I did say in my first post many pages ago that I read this thread from time to time. But again you show a distinct skill for selctive reading. And whilst I may waffle, as I am prone to do, at least I am presenting answers to questions put to me and not replying with an utterly pointless post (but again it's entertaining).

Still if this is the level of polite response to be expected in this thread well then then we have a very different understanding of that word.

Still I didn't really imagine that there was any chance of you substantiating your earlier comments but everyone deserves a chance.

TJM

TJM wrote:

http://archives.tcm.ie/businesspost/2004/09/19/story723955015.asp

http://mortgages.blogs.ie/2007/02/01/paying-a-deposit-on-a-house/

http://archives.tcm.ie/businesspost/2004/10/10/story348733938.asp

http://www.mullingarcu.ie/Content/Services/Loans.htm

http://archives.tcm.ie/businesspost/2004/09/26/story964908411.asp

I stopped reading when I got to the word 'anecdotal' in the first segment.
Hardly qualifies your statement "In practice most people seem to go to the credit union for the deposit and the bank for the remainder - making it a 100% mortgage in reality".

SkepticOne

Deleted User wrote:

I stopped reading when I got to the word 'anecdotal' in the first segment.
Hardly qualifies your statement "In practice most people seem to go to the credit union for the deposit and the bank for the remainder - making it a 100% mortgage in reality".

To be fair, there's never going to be official statistics on people using credit union loans to pay deposits that are supposed to be savings. It is always going to be anecdotal.

SimpleSam06

Dakeyras wrote:

well it seems that quite a few things actually.

Your post gets much better when I mentally do a voice over. I'll just fix this for you:

Dakeyras wrote:

Firstly i posted a report from the economist which I linked to as an intersting report on world property prices with particular regard to this discussion. How at odds this is with your understanding of the Irish property market depends entirely on the view you have of reality.

As to reading the study it was based on I think we can clearly see that I posted without bothering to read it, and now I am waffling incessantly in order to get the last word in. I also notice a distinct skill you seem to have of ignoring questions that have been already answered many times in this thread. I at least have the politeness to answer questions addressed to me, ad infinitum and many times over.

And i also hate to shock you but I know very little about the Irish property market, and I have only just jumped into this thread with a half cocked report and an attitude.

While the discussion of the current Irish property market is not in itself entertaining I do find some of your posts quite entertaining. One should try to use heavy handed sarcasm whenever one gets a chance, no matter that sarcasm really does deserve the title, the lowest form of wit.

As to addressing some of the issues read months ago I did in fact not read this thread, which one is supposed to do before one leaps in with one's handbag flailing. I waffle, as I am prone to do.

Still if this is the level of polite response to be expected in this thread well I really can't take what I dish out.

Still I didn't really imagine that there was any chance of me not having the last word but everyone deserves a chance.

I may have missed a typo or two there. Nyeh, its Friday.

The_Conductor

Guys- behave.....

TJM

Deleted User wrote:

I stopped reading when I got to the word 'anecdotal' in the first segment.
Hardly qualifies your statement "In practice most people seem to go to the credit union for the deposit and the bank for the remainder - making it a 100% mortgage in reality".

Perhaps you might try reading a bit further then:

Paying the deposit on a house in Ireland is becoming more difficult as house prices rise.
A survey by Genworth Financial reveals that, typically, a first-time buyer in Ireland borrows the maximum amount they can on their credit card, probably around €3,000.

They add a credit union loan of around €20,000 to this and then borrow the rest from family and friends to make up a house deposit of around €30,000.

http://mortgages.blogs.ie/2007/02/01/paying-a-deposit-on-a-house/

Dakeyras

SimpleSam06 wrote:

YI may have missed a typo or two there. Nyeh, its Friday.

well at least you continue to amuse.

the day you decide to answer questions rather than refer to the fact others have already answered them for you, even though it would be impossible to answer questions about a study prior to the posting of that study, is the day i might listen.

anyway, i'll cease to misbehave by leaving the last word to SimpleSam since that seems to be of some importance to them

[edited to add more sarcasm because i do love a lower form of wit]

TJM

TJM wrote:

Perhaps you might try reading a bit further then:

http://mortgages.blogs.ie/2007/02/01/paying-a-deposit-on-a-house/

OK then -
One in four house purchasers (both first-timers and others) now borrow for a deposit, according to the research.
So difficult is it to come up with a deposit that 13pc of new buyers have no deposit when they buy their first home.

If "one in four" and "13%" translates as "most people" there's something wrong with my maths.
I read press releases and surveys like this every day. It really doesn't say much at all.;)

Bicky

This is my first post but i have been reading this thread since the first day.
I posted to thank Dakeyras for trying to present a different point of view... however wrong it may be.

Originally Posted by FavouriteSlave
I stopped reading when I got to the word 'anecdotal' in the first segment.

What is the problem with anecdotal evidence?
Using anecdotal evidence alone anyone can see through the mania and that practices like unsecured loans as deposits are common place.
After all there are three types of lies. Lies, damned lies, and statistics.

SimpleSam06

Bicky wrote:

What is the problem with anecdotal evidence?

The plural of anecdote is not data, would be the problem...

miju

LOL, it seems thepropertypin.com / irishpricewatch.com coverage in the paper last week has caused myhome.ie to change their site configuration

now address and prices appear as images on their site instead of text. they've obviously never heard of Optical Character Recogition LOL

ronbyrne2005

miju wrote:

LOL, it seems thepropertypin.com / irishpricewatch.com coverage in the paper last week has caused myhome.ie to change their site configuration

now address and prices appear as images on their site instead of text. they've obviously never heard of Optical Character Recogition LOL

Someone needs to contact the media about this, the owner of myhome.ie the Irish Times should not be attempting to hide publicly available info in this manner. Matt Cooper on Last Word would love to cover this panic situation from the vested interests.

miju

its a bit of a non issue AFAIK as a work around it using the above technology is already in the works from what i've read in the property pin forums

Dalfiatach

miju wrote:

its a bit of a non issue AFAIK as a work around it using the above technology is already in the works from what i've read in the property pin forums

Aye, but it'll be fun to mercilessly take the piss out of a VI all over the nation's airwaves for a couple of days

Victor

The Sindo headlines seemed rather desperate yesterday.

It's a case of boom not bust, say the real experts
I blame DINKY generation for sowing despair
Gloomy predictions on RTE shows hitting house sales