Housing Bubble Bursting

D'Peoples Voice

digitally-yours wrote: »

I am a good mother, worker and citizen, but I have no future here'

http://www.independent.ie/business/personal-finance/i-am-a-good-mother-worker-and-citizen-but-i-have-no-future-here-1166575.html

How can anybody afford the rent for even a one-bed apartment which costs €1,200 a month when living costs are excruciatingly high?

I should have the chance to buy a home to gain some security. I know that in 11 months I will have to move again when my rent is once more increased.

This article is pure nonsense - typical over the top figures.
Who in there right mind is paying EUR 1,200 a month for an appartment in Wicklow, has she looked at DAFT.ie, you could rent a 3-bed HOUSE in West Dublin for that much!
The assumption that rents are going to rise again next year, they have only recently caught up with where they were back in 2002, never mind the fact that if anything the oversupply of properties that people can't sell and are now being rented and they will reduce rents over the next year.
But I'm sure there are one or two out there will will believe her figures!!

Glenbhoy

Re the rent increases over the past year, it is now my belief that this will start to ease off.
Time for the old anecdotal story again of course.
A colleague of mine has been searching for somewhere to rent for the past month, he's now got one, the asking price was 2100, he offered 1850 and that's been accepted. Now, the real story is that over the past fortnight he's checked out 7 properties, 5 of them have been taken off the market after spending much of the past year there, the owners, on hearing that rents have increased (because investors were not renting but trying to get out of the market) have decided that at least with the rent they'll get some return and hope that the market picks up by next year again.
Added to this of course is the slow down in construction and the subsequent decrease in demand for rented accommodation.

SkepticOne

She is objecting that 40,000 is far to low a threshold but this sort of income is firmly in the middle income bracket. How will raising to threshold to 45 or 50k help the majority of people who are on less than 40K (I think the average industrial wage is 33K), many of which won't even qualify for a mortgage for one of these 'affordable' homes yet will be paying taxes to allow councils purchase unsold apartments from developers to sell on to middle income earners at a discount.

The correct thing to do would be to let prices return to fair values as quickly as possible, but unfortunately the government is going prolong the slump through subsidies and tax incentives for those on middle and upper-middle incomes.

Glenbhoy

SkepticOne wrote: »

She is objecting that 40,000 is far to low a threshold but this sort of income is firmly in the middle income bracket. How will raising to threshold to 45 or 50k help the majority of people who are on less than 40K (I think the average industrial wage is 33K), many of which won't even qualify for a mortgage for one of these 'affordable' homes yet will be paying taxes to allow councils purchase unsold apartments from developers to sell on to middle income earners at a discount.

The correct thing to do would be to let prices return to fair values as quickly as possible, but unfortunately the government is going prolong the slump through subsidies and tax incentives for those on middle and upper-middle incomes.

40K is a low income for a family, it is not enough to buy a home with. Whilst you refer to average industrial being 33k, that will often be double for a family income. However, in parts of Dublin I think you can still qualify for affordable homes with a salary of up to 60k.
Btw anyone know what the actual average salary (as opposed to average industrial) in Ireland is? Probably 40K anyway?

daveirl

This post has been deleted.

SkepticOne

The usual scenario is that a relatively small number of wealthy bring the average up. The majority of people would be below this average. But people tend to feel hard done by no matter what their income is. AFAIK the median is not calculated in Ireland.

SkepticOne

Here's some median salary information based on survey rather than official information. These figures suggest that 40,000 is pretty much in the professional white collar category. Although it is not stated the person in this article is on a higher salary than this. I would venture that the majority of single mothers would not qualify for affordable housing on the basis that their income is too low rather than too high and that therefore extending the subsidy to higher earners won't help in the least and is fundamentally unfair.

http://www.payscale.com/research/IE/Country=Ireland/Salary

gurramok

In the last budget, it was stated that 66% of the workforce earn under 34k p.a.

http://www.budget.gov.ie/2007/downloads/TechnicalAnalysis.pdf

SimpleSam06

Glenbhoy wrote: »

40K is a low income for a family, it is not enough to buy a home with. Whilst you refer to average industrial being 33k, that will often be double for a family income.

Have you priced childminding services lately? And what happens when the kids get off school two hours before the parents get off work?

Glenbhoy

SimpleSam06 wrote: »

Have you priced childminding services lately? And what happens when the kids get off school two hours before the parents get off work?

Childminding costs are pretty high and you probably need to let the kids run loose for 2 hours between the end of school and finishing work. Now, what was your point?

SimpleSam06

Glenbhoy wrote: »

Childminding costs are pretty high and you probably need to let the kids run loose for 2 hours between the end of school and finishing work. Now, what was your point?

Double the wage isn't double the purchasing power for houses, or anything else, if you factor in children.

Calina

His/her point was that childminding costs tended to write off the guts of one of the two incomes in a double income family and so shouldn't really be relied on to fund an excessively expensive house of which most houses within commuting distance of a job in this country are because a fair whack of jobs are in the Dublin area, unless of course, it's good that we have an aging population with a pension time bomb coming, along with a lack of new buyers to buy all those houses and apartments that were bought instead of pensions.

Glenbhoy

SimpleSam06 wrote: »

Double the wage isn't double the purchasing power for houses, or anything else, if you factor in children.

I don't disagree at all, don't think I ever did? I was just pointing that the single parent in the Indo story (who earned 40K) was not well off at all.

homeOwner

Second, if prices stop rising, it makes no sense to buy a house. Compared with mortgages, rents are ridiculously low. For €2,000 a month you can pay a mortgage on something in a muddy field on the wrong side of Celbridge, without nearby shops or schools and a two-hour commute to Dublin.

For the same amount you can rent a €1 million house in southeast Dublin, close to the Dart line and surrounded by good schools

The fact still remains that after renting for say 10 years your rent on the €1M house will not be 2000 per month. It is more likely to increase by 10% each year or at the whim of the landlord and you may be turfed out if the landlord wishes to sell or if he just becomes too difficult you may want to leave. You cannot lock rent in for more than 12 months and this is the problem with renting in ireland especially for families. If you have your kids going to the local school you are not going to want to move because the landlord puts up the rent. How will the situation look after renting for 15 years or 20 years? How much has it cost you?

With a mortgage, at least you locked in your price when you bought. You have to deal with interest rates but over 10 years they go up and they go down but at least you are paying for an asset that you can sell, the price may go down but its still a tangible asset that will recoup you some of your investment after 10/15/20 years so its not all dead money and you dont have to worry about moving once your kids are settled into school. As long as you can afford the repayments it doenst really matter what the housing market is doing.

Calina

homeOwner wrote: »

The fact still remains that after renting for say 10 years your rent on the €1M house will not be 2000 per month. It is more likely to increase by 10% each year or at the whim of the landlord and you may be turfed out if the landlord wishes to sell or if he just becomes too difficult you may want to leave. You cannot lock rent in for more than 12 months and this is the problem with renting in ireland especially for families. If you have your kids going to the local school you are not going to want to move because the landlord puts up the rent. How will the situation look after renting for 15 years or 20 years? How much has it cost you?

With a mortgage, at least you locked in your price when you bought. You have to deal with interest rates but over 10 years they go up and they go down but at least you are paying for an asset that you can sell, the price may go down but its still a tangible asset that will recoup you some of your investment after 10/15/20 years so its not all dead money and you dont have to worry about moving once your kids are settled into school. As long as you can afford the repayments it doenst really matter what the housing market is doing.

If you are in Dublin, it is hard to lock in property as well. For example, many FTBs started off with starter homes/apartments. For the purpose of having children, they have to trade up. This is going to be increasingly hard for people on high LTVs which is effectively anyone who bought in the last year or two because property prices are falling.

The situation is not as simple as you paint, it is not either/or for life. Renting will suit people at different times in their lives, as will buying. Currently for the vast majority of people in the Dublin area it makes far more sense to rent than to buy because they will get a far better quality property in a better location. On the other hand, absolutely stretching themselves to buy is no guarantee of stability either since repossessions are starting to grow and that brings with it other associated problems into the future. Your price is not locked in because if you have to sell, you are back at the mercy of the market and a lot of people are finding out that this is a double edged sword. In my estate, asking prices are down about 15% over the last 10 months. The purchase price is locked in, but not the sales price. The key issue in Dublin is it is far more affordable to rent in the city than it is to buy. EG, I work 5 minutes from where I live. If I were to spend on a mortgage what I spend on rent, I would be living 90 minutes away from work. To the cost of the mortgage has to be added the cost of that commute, ie three hours of my time a day plus associated transport costs. It is not a bargain by comparison and over 15 years, what does that cost me? Well beyond money it would drive me totally insane.

In other words, telling people that the only right answer is to purchase is shortsighted. If I bought what I could afford five years ago I just wouldn't actually have a life because I'd be spending my life travelling to and from work. I think you need to grow up a little, to be honest because you are not looking at this intelligently. Owning your own house is not the be all and end all of sorting out accommodation. Renting has its merits, even in this country which has possibly the most ridiculous rental set up I've seen anywhere. The costs are not all financial and the benefits are not all financial.

I'll close by saying only this: people need to make their own decisions. They do not need to assume that their view fits everyone else's lives. In short, you cannot say that either renting or purchasing is right in all cases. By the looks of things, a lot of people have come to the conclusion that right now, purchasing is not right.

Afuera

homeOwner wrote: »

You cannot lock rent in for more than 12 months and this is the problem with renting in ireland especially for families.

There's nothing preventing a tenant from negotiating a longer term lease (say for 5 years) in Ireland. To keep the landlord happy, they could suggest that the rent be increased on an annual basis based on the official rate of inflation. Having all of this specified in a lease would superceed the terms laid out in a Part IV tenancy.

homeOwner wrote: »

As long as you can afford the repayments it doenst really matter what the housing market is doing.

You need to be careful with blanket statements like that. If you're just about able to afford the repayments on the mortgage but are not able to fund your pension or a comfortable lifestyle then you may end up quite badly off.

SimpleSam06

Glenbhoy wrote: »

I don't disagree at all, don't think I ever did? I was just pointing that the single parent in the Indo story (who earned 40K) was not well off at all.

Aha gotcha now, I picked you up wrong. Too many bullfights.

SkepticOne

The latest Daft report shows prices dropping by 2% in third quarter. This is equivalent to an annualised fall of 9% if the drops don't continue increasing.

It looks to me that hitherto the slump in the housing market has taken the form of a massive build up in inventory rather than price drops (see daftwatch). Now we are beginning to see inventory levelling off and asking prices falling. We are also seeing a build up of rental inventory and some dropping of asking rents.

Gradually it looks like reality is beginning to dawn on people.

Colonel Sanders

SkepticOne wrote: »

The latest Daft report shows prices dropping by 2% in third quarter. This is equivalent to an annualised fall of 9% if the drops don't continue increasing.

It looks to me that hitherto the slump in the housing market has taken the form of a massive build up in inventory rather than price drops (see daftwatch). Now we are beginning to see inventory levelling off and asking prices falling. We are also seeing a build up of rental inventory and some dropping of asking rents.

Gradually it looks like reality is beginning to dawn on people.

I'm looking at hypothetic situations here but if the ecomomy slows down, foreigh nationals begin to move away this 'spiral' can get worse but how much worse?

I'm sure its been asked before on here (forgive me, its a long thread ) but if we assume most migrant workers rent and they begin to leave its leaves a lot of rental properties empty putting further downward pressure on rents. Some people who bought to let will want to sell as they are not achieving an income from their investment. This puts further downward pressure on house prices.

Very simplistic assessment I know but, in a nutshell, I'm asking how bad couldthis type of 'spiral' situation get and how likely is it to happen?

Calina

It could spin out over a number of years depending on the level of obstinacy on the supply side.

Scottish

Anecdotal evidence:

I just accepted an offer on my house, after it had been on the market for 6 months.

Got 8% less than the asking, and decided to take it - as I bought about 4.5 years ago I still have a tidy profit.

Estate Agents are saying that if a house has been on the market for 3 months or more, you should offer 10% (at least) less than the asking price. It is my belief that the fall in the PUBLISHED prices is not telling the whole story. My estate agent rang me on a Thursday (supposedly the busiest day of the week) and said they were all sitting in the office doing admin - my house was one of the few that generated regular viewings, and very briefly, some competitive bidding. And I still accepted 8% less.

Only cash buyers have any sway at the moment, and they are like "gold dust" to quote the EA. Thankfully, thats exactly what I found for my place.

Will now drop out of the market until after xmas and see what happens (in the fortunate position of not having to pay rent either).

I think there are a lot of nervous people out there. The prices that you see coming down are just the ones that have blinked. Plenty more will blink if you make them the right kind of offer.

SkepticOne

SkepticOne wrote: »

The latest Daft report shows prices dropping by 2% in third quarter. This is equivalent to an annualised fall of 9% if the drops don't continue increasing.

Correction: the annualised figure should be 7.7% drop in asking prices. As pointed out, the figure that the house eventually goes for could be much less and this won't be recorded.

digitally-yours

Is this Worrying ?

The US Census Bureau and the Department of Housing and Urban Development today jointly announced the following new residential construction statistics for September 2007.

Housing starts plunged 10 percent to a seasonally adjusted 1.191 million annual rate, after falling 3.2% in August to 1.327 million . The construction rate of 1.191 million set in September was the lowest since 1.083 million during March 1993. Year-to-year, housing starts were 31 percent below the level in September 2006.

Builder confidence in the market for new single-family homes was further shaken in October due to continuing problems in the mortgage market, substantial inventories of unsold units and the perceived effect that negative media coverage is having on potential buyers, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released on Tuesday. The HMI fell two more points to 18 in October, its lowest point since the series began in January of 1985.

“Builders in the field are reporting that, while their special sales incentives are attracting interest among consumers, many potential buyers are either holding out for even better deals or hesitating due to concerns about negative and confusing media reports on home values,” said NAHB President Brian Catalde.

“Consumers are still trying to sort out market realities and get the best deals they can,” noted NAHB Chief Economist David Seiders. “Many prospective buyers may very well have unrealistic expectations regarding new-home prices as well as how much they can expect to receive for their existing homes. When the market is in proper balance, people can recognize a good deal when it comes along; at this point, they view a good deal as a moving target.”

The positive news from today’s report, said Seiders, is that builder expectations for sales conditions in the next six months held steady at 26. “Builders believe they are taking the right steps to reduce inventories and position themselves for the market recovery that lies ahead,” he said. “Indeed, NAHB’s housing forecast indicates that home sales should stabilize within the next six months and show significant improvement during the second half of next year.”

BUILDING PERMITS

Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 1,226,000. This is 7.3 percent below the revised August rate of 1,322,000 and is 25.9 percent (±1.4%) below the revised September 2006 estimate of 1,654,000.

Single-family authorizations in September were at a rate of 868,000; this is 7.1 percent below the August figure of 934,000. Authorizations of units in buildings with five units or more were at a rate of 311,000 in September.

HOUSING STARTS

Privately-owned housing starts in September were at a seasonally adjusted annual rate of 1,191,000. This is 10.2 percent below the revised August estimate of 1,327,000 and is 30.8 percent below the revised September 2006 rate of 1,721,000.

Single-family housing starts in September were at a rate of 963,000; this is 1.7 percent below the August figure of 980,000. The September rate for units in buildings with five units or more was 201,000.

HOUSING COMPLETIONS

Privately-owned housing completions in September were at a seasonally adjusted annual rate of 1,391,000. This is 8.2 percent (±8.7%)* below the revised August estimate of 1,516,000 and is 31.1 percent below the revised September 2006 rate of 2,019,000.

Single-family housing completions in September were at a rate of 1,095,000; this is 11.6 percent below the August figure of 1,239,000. The September rate for units in buildings with five units or more was 265,000.

http://www.finfacts.com/irelandbusinessnews/publish/article_1011516.shtml

digitally-yours

Now this is seriously worrying !
The warning bells are ringing !


Britain risks the prospect of a US-style crash in its house prices as the credit crunch in the financial markets takes its toll of a heavily over-valued property market, the International Monetary Fund warned today.

In its half-yearly health check of the global economy, Washington-based IMF said the housing market in the UK was even more over-priced than that in America before its recent prolonged decline.

"Housing markets have boomed in a number of fast-growing countries, most notably Ireland, Spain and the UK, with rapid price rises and sharp increases in residential investment relative to GDP exceeding even those observed during the US housing boom", the Fund said in its World Economic Outlook.

Article continues

Some increase in house prices, the Fund said, was justified by changes in economic fundamentals such as lower interest rates, the rise in the number of single-person households and rising incomes.

It added, however, that the model it used showed that in the US real house prices had risen by about one-third more than explained by fundamentals and that the over-valuation in Britain was even more pronounced.

"The unexplained share of house price increases is assessed to be still larger in a number of other countries, including Ireland, the Netherlands and the UK."

While stressing that there was "considerable uncertainty" about the estimates because of factors such as immigration, the IMF concluded that "taken at face value, the estimates suggest that a number of advanced economies' housing markets outside the United States could be vulnerable to a correction."

The IMF said that five increases in interest rates from the Bank of England since August 2006 had already contributed to "some cooling" of the UK's housing boom, adding that "recent developments are likely to have a further dampening impact, particularly if credit availability were to be tightened".

The Fund sent out a gloomy message to the chancellor, Alistair Darling, as he prepares to travel to Washington for his first IMF meeting.

Labour is relying on the economy remaining strong in order to win back public support after the on-off general election saga, but the Fund said Britain's sharp increase in prices coupled with the tendency of consumers to finance spending from re-mortgaging their homes in a rising market made the UK economy especially vulnerable to a property crash.

Estate agents in the UK have been reporting falling prices for the past two months, while the monthly snapshot of the property market from the Halifax also showed a decline in prices in September.

The IMF said some easing in the UK property market was desirable but while downgrading its forecast of growth in Britain next year by 0.4 points to 2.3% it expressed concern that the correction could go too far.

"Could a housing correction in western Europe be as deep as in the US? The extent of house price over-valuation may be considerably larger in some national markets in Europe than in the US, and there would clearly be a sizeable impact on the housing markets in the event of a widespread credit crunch."

The IMF said, however, that there were reasons to believe that a crash might not materialise. Europe had not seen such a marked deterioration in lending standards as the US, where many of the loans offered to people with poor credit ratings have turned sour over the past few years. In addition, countries like Britain had seen demand for homes boosted by the arrival of overseas workers at a time when supply was constrained by strict planning laws.

"First, housing markets in western Europe have generally avoided sub-prime mortgage origination and the deterioration of lending standards observed in the US.

"Second, a number of country-specific factors, including strong immigration and supply constraints, are likely to continue to support housing sectors in particular national markets."

The Fund said the recent financial turbulence had increased the risk of a more drawn-out crisis in the US housing sector, which could spread to the wider economy.

"Tightening credit conditions could affect a broader range of households and further curtail effective demand for housing. And house prices could decline more sharply than currently expected with implications for residential investment and consumer spending."

The danger, the IMF, added was that the contagion would spread from the US to Europe. "At the same time, credit conditions may also tighten in some of the western European countries - because of their large exposures to asset-backed commercial paper and continuing strains in short-term funding markets - and this could have a significant bearing on the housing market in these countries."

source
http://business.guardian.co.uk/houseprices/story/0,,2193108,00.html?gusrc=rss&feed=24

nesf

IMF source for the Guardian's article: http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/c2.pdf

Less hyperbole, more graphs...

gurramok

Nice find nesf.

Omy my zod:), just look at how out of whack Ireland is with every other country in those graphs, it ain't pretty reading at all, on the mild side, its horrific

nesf

There have been major demographic shifts in Ireland though (immigration + household size changes) over the past 20 years which do feed some bit into those graphs and why Ireland is so utterly out of whack with markets like the UK and the US. The market is most certainly overvalued but it's worth keeping in mind.

This bit is key:

The results indicate that almost three quarters of the rise in real house prices over the period 1997–2006 can be explained on average by the estimated model, although this still leaves a significant unexplained component. For the United States, real house prices are assessed to have risen by about one-third more than explained by fundamentals (second figure). The unexplained share of house price increases is assessed to be still larger in a number of other countries, including Ireland, the Netherlands, and the United Kingdom. However, there is considerable uncertainty about these estimates, because local conditions that are not captured in the econometric analysis could play an important role. For example, migration patterns, supply constraints, and changes in the availability of mortgage financing—including to the subprime sector—could all be relevant. On the other hand, some of the increase in house prices that is explained by the model, such as through the role for credit growth, may not reflect solely economic fundamentals. Nevertheless, taken at face value, the estimates suggest that a number of advanced economies’ housing markets outside the United States could be vulnerable to a correction.

It's really important to keep those two caveats in mind when reading that piece.

DublinWriter

Scottish wrote: »

Will now drop out of the market until after xmas and see what happens (in the fortunate position of not having to pay rent either).

We're now in the annual 'silly-season' for property. Coming up to Xmas, no-one wants to move.

Looking at myhome, I see a lot of properties around my own area of North Dublin still on offer. It looks that people are holding out for a market-bounce in early 2008.

digitally-yours

nesf wrote: »

IMF source for the Guardian's article: http://www.imf.org/external/pubs/ft/weo/2007/02/pdf/c2.pdf

Less hyperbole, more graphs...

Awesome

Those graphs tell the picture very very clear.

Danger Ahead Big time !

gurramok

nesf wrote: »

There have been major demographic shifts in Ireland though (immigration + household size changes) over the past 20 years which do feed some bit into those graphs and why Ireland is so utterly out of whack with markets like the UK and the US. The market is most certainly overvalued but it's worth keeping in mind.

Thing is, every other industrialised country has had significant immigration and household size changes(look at divorce rates/singles living alone) including the UK and US.
The UK has had its own bubble with warning that prices will fall today from the very same IMF report http://news.bbc.co.uk/2/hi/business/7049930.stm), but the UK has short supply unlike us with huge oversupply building only twice the number of houses compared to 14 times less the population
http://www.nhbc.co.uk/Newscentre/Library/filedownload,28930,en.pdf (186,000 houses built in uk(2006) compared to 93,000 here(2006)

Think about it