Housing Bubble Bursting

Gurgle

Do-more wrote:

do you hear many people saying "great, we're going to jump in here and buy"?

More likely you'll hear, "we are going to wait and see what happens, and if prices start to rise again, we are ready to move quickly"

To you thats reason to believe that prices will drop by 50% before they level off?

To me it is the market levelling off.

babytooth

patrickolee wrote:

Have you ever seen a herd of sheep as they are chased by a dog? Or a shoal of fish chased by a seal?

Cast your mind back to September 2001. Everybody was saying that it was the end of air travel as we knew it as people opted not to fly on holiday and waited to see if any more terrorist acts happened. Naturally enough. Airplane (and airline) prices plumetted. While all the airline bosses were panicking and cancelling their Boeing orders Michael O'Leary realised that people would still need to fly in the future and people would relax after the initial panic. He negotiated a deal to buy a brand new half price fleet of airplanes!

Moral of the story, if you can keep your head while others lose theirs...everyone will hate you :-)



Well you're able to repeat what was in a television programme anyway! Way to go on the memory.

i'm liking your analogy, but think about what your saying...

micko bought something that is of worth to him, something at a knockdown price.
Now, you can buy a house now at its new knockdown price, less 40k, but if you can rent the plane at less than half the price of buying it, as well as not worry about the maintainece of the plane or its upkeep, well think the business answer is obvious, maximise your cashflow and rent...

house on the other hand are different and unique because....becausee..

i'l get back to ya...

If it drops a little it will drop alot - its the mentality of the market.

It was driven by speculation and prices will drop until they become investments again and only then will they begin to rise again.

There will be no soft landing and will will see prices from 2002 possible earlier than that again - adjusted for inflation.

patrickolee

babytooth wrote:

i'l get back to ya...

No need, I'll finish it for you.

babytooth wrote:

i'm liking your analogy, but think about what your saying...

micko bought something that is of worth to him, something at a knockdown price.
Now, you can buy a house now at its new knockdown price, less 40k, but if you can rent the plane at less than half the price of buying it, as well as not worry about the maintainece of the plane or its upkeep, well think the business answer is obvious, maximise your cashflow and rent...

house on the other hand are different and unique because....becausee..

people have a limited working life span... or more specifically banks will allow people take mortgages out with terms appropriate to the length of time left until they retire. They have a limited time in which to buy their home and start paying off that mortgage. If they wait 10-15 years, they will be unable to do that.... hit 35 years old, you can forget it... or keep buying those lotto tickets.

In addition, people are emotionally attached to security of tenure. Masters of their own future. They like to know when they are older, they will have a house that is theirs to do with as the wish. No one can lord it over them. They won't be paying rent. They like to be able to do their gardens, get to know their neighbours, paint their own walls, tile their own bathrooms... or in my case park their unsightly bicycles in front of their house without some landlord telling them they can't! (I'm not bitter)

I feel like William Wallace when I say 'FREEDOM' ! I'm sure I look much better tho.



Now if tenants had significant rights in this country, things may indeed be different.

SarahSassy

This country is doing a great job of scare-mongering and talking itself into a recession.

nesf

patrickolee wrote:

Now if tenants had significant rights in this country, things may indeed be different.

The question here is whether a renting mentality follows significant rights for renters or that significant rights for renters follows a renting mentality in the population. If it's the former then how quickly do attitudes change?

SarahSassy

SarahSassy wrote:

talking itself into a recession.

You cant do that - that show on RTE or a few people on the internet arent going to cause job losses - reality will or wont do that. A recession will only occur if REAL LIFE factors cause it - you cant talk yourself into a recession.

If you go along and keep a positive attitude it wont keep your economy going - you need to keep alert all the time and be prepared for things

nesf

Deleted User wrote:

You cant do that - that show on RTE or a few people on the internet arent going to cause job losses - reality will or wont do that. A recession will only occur if REAL LIFE factors cause it - you cant talk yourself into a recession.

If you go along and keep a positive attitude it wont keep your economy going - you need to keep alert all the time and be prepared for things

Consumer confidence is a real life factor though and a nation can talk itself into tightening the belt a bit tbh. Though I'd agree that a few people talking on here aren't going to cause it.

Do-more

patrickolee wrote:

Well you're able to repeat what was in a television programme anyway! Way to go on the memory.

I suggest you read back 50 or 60 odd pages, I'd say most of the script for that TV programme was originally written on this thread, not the other way round.;)

patrickolee

nesf wrote:

The question here is whether a renting mentality follows significant rights for renters or that significant rights for renters follows a renting mentality in the population. If it's the former then how quickly do attitudes change?

Interesting question.... I think the former as I believe that people are the same regardless of color, creed or _location_. I don't believe that we have a different psyche from any other society and strong tenants rights in other countries coincide with a relatively strong preference for renting. Renting would be the ideal in terms of flexibility, if it were not uncertanity and lack of freedoms attached. Uncertainty is acceptable when you are young, but less so the older one gets.... says a very old 33 year old!

Consumer confidence is real but you not be able to talk yourself into a recession - confidence is affected by things like job losses - real things - consumer confidence reflects whats really going on - people talking about it.
Talk itself will will not cause a recession.

nesf

Do-more wrote:

I suggest you read back 50 or 60 odd pages, I'd say most of the script for that TV programme was originally written on this thread, not the other way round.;)

Along with the scripts of several other potential TV programs describing several other futures tbh.

babytooth

patrickolee wrote:

No need, I'll finish it for you.


people have a limited working life span... or more specifically banks will allow people take mortgages out with terms appropriate to the length of time left until they retire. They have a limited time in which to buy their home and start paying off that mortgage. If they wait 10-15 years, they will be unable to do that.... hit 35 years old, you can forget it... or keep buying those lotto tickets.

In addition, people are emotionally attached to security of tenure. Masters of their own future. They like to know when they are older, they will have a house that is theirs to do with as the wish. No one can lord it over them. They won't be paying rent. They like to be able to do their gardens, get to know their neighbours, paint their own walls, tile their own bathrooms... or in my case park their unsightly bicycles in front of their house without some landlord telling them they can't! (I'm not bitter)

I feel like William Wallace when I say 'FREEDOM' ! I'm sure I look much better tho.



Now if tenants had significant rights in this country, things may indeed be different.

FREEDOM...totaly with you on that one, but i wouldn't consider myself free to have a 35 or 40 year mortage on a depreciating asset, even if it means i can hang a picture on the wall or plant my back garden..

Especially if i end up losing 2 or 3 or even four years gross wages on it, not to mention the fact that i have to pay punitive damages if i ever decide to move up or down...

FREEDOM...freedom...freedom...is owning a house a fleeting dream of freedom, or is freedom cold hard cash and the choice to decide....or is freedom, the irish dream, 3 bed semi d close to a train station and being paid for over 40 years, in the vain aspiration that it will actaully pay for it self by keeping pace with inflation after i factor in the cost of upkeep and ancilliarys....

freedom....freedom...

ohhh freedom....

William Wallace would be shocked to consider being in hoc to an institution for 30 years as free,

FREEDOM....

babytooth

SarahSassy wrote:

This country is doing a great job of scare-mongering and talking itself into a recession.

The sun has got its hat on, hip hip hooray.....and now the weather will be amazing from now on....

maybe the country is doing a great job of burying deeper and deeper into denial...sand...debt... fill in what you feel to be appropiate...

nesf

Deleted User wrote:

Consumer confidence is real but you not be able to talk yourself into a recession - confidence is affected by things like job losses - real things - consumer confidence reflects whats really going on - people talking about it.
Talk itself will will not cause a recession.

Consumer confidence can be affected by potential job losses, potential interest rate rises etc etc. It's not only affected by actual things. I don't overly disagree with you, I just would give a bit more weight to the general mood of a population in these things.

nesf

babytooth wrote:

FREEDOM...totaly with you on that one, but i wouldn't consider myself free to have a 35 or 40 year mortage on a depreciating asset, even if it means i can hang a picture on the wall or plant my back garden..

Especially if i end up losing 2 or 3 or even four years gross wages on it, not to mention the fact that i have to pay punitive damages if i ever decide to move up or down...

I don't disagree with the punitive damages part (it's a nice way of describing it) but the idea of losing 2 or 3 years gross wages is something that caught my eye. How do you mean lose? Do you mean in terms of negative equity or in terms of the difference to rent?

The thing is, that over a 35 or 40 year period, rents do increase. It's likely that after 20 years (just to pick a random number) that you're paying less for your mortgage than you would if you were renting. 20 years of inflation would almost assure it. You definitely lose out in the short term, but do you actually lose over the medium to long term? (20 or 30 years of house price increases would probably wipe away any negative equity too tbh)

Mortgages after all are long term entities, well for most non-investors.

If you mean in terms of buying pre and post crash then you have a point but it's dependent on a relatively large crash happening in order to make a big difference over the long run.

patrickolee

babytooth wrote:

FREEDOM...totaly with you on that one, but i wouldn't consider myself free to have a 35 or 40 year mortage on a depreciating asset, even if it means i can hang a picture on the wall or plant my back garden..

William Wallace would be shocked to consider being in hoc to an institution for 30 years as free,

FREEDOM....

Aye I knew yis'd like it if the bauld William made an appearance!
Thing is, you aren't tied in for 35 or 40 year mortgage... you're tied in for 5-10 years. Even the most pesimistic George Lees would not think that you'd be in trouble for more than 10 years. And when we say trouble, we mean not been able to move. Still have somewhere to live and will have 10 years counted down on the 30 year clock.

I'll always remember my sister buying a house 18 years ago now. I helped her move in. They bought the biggest house they could afford... a real stretch, but they had to because they wanted to be close to work schools, etc. Cost them 38,000. They still have a mortgage of course... but I'd say it's not _toooo_ bad. I wonder will people look back at this thread in 18 years time and what will they think?

miju

hang on since when did taking out a 35-40 mortgage mean your only tied in for 5-10 years????????

35 years is 35 years , we're not talking about criminal sentencing here

patrickolee

You would not be in negative equity land for 30-35 years and so could, if u wanted to, sell your property and pay off your loan. In 35 years, you might be paying 400,000 to convert your attic!

Cadbury's caramel.

nesf

patrickolee wrote:

Interesting question.... I think the former as I believe that people are the same regardless of color, creed or _location_. I don't believe that we have a different psyche from any other society and strong tenants rights in other countries coincide with a relatively strong preference for renting. Renting would be the ideal in terms of flexibility, if it were not uncertanity and lack of freedoms attached. Uncertainty is acceptable when you are young, but less so the older one gets.... says a very old 33 year old!

Personally I think the renting mentality comes from a long sustained period of good protection for renters and especially long leases being relatively common as an option. Renting for life on a string of short-term leases (i.e. 1 - 2 years) is a very expensive proposition tbh.

Then the flip side is if you look at the US and their really long term fixed mortgages that provide similar "security" for home owners. It a balancing act between the two groups but it's interesting nonetheless. Our way isn't the only way and I think people forget that sometimes.

nesf

patrickolee wrote:

You would not be in negative equity land for 30-35 years and so could, if u wanted to, sell your property and pay off your loan. In 35 years, you might be paying 400,000 to convert your attic!

Heh, I think that trying to explain what long term inflation is just doesn't work with a lot of people. They are too attached to the idea of a euro meaning X loaves of bread or something.

Plus in 35 years we might be paying 1,000,000,000,000 yuan to convert our attics...

patrickolee

lol, you're probably right nesf. At least we tried

A Random Walk

I'm sorry guys I think you're misunderstanding some basic economics here. Rental inflation is demand pull inflation i.e. if there are 100 units and 101 people looking to rent, rents increase. If there are only 99 people, rents decrease.

Most of what feeds into our "inflation" figures is cost-push inflation, where for example your loaf of bread costs more because oil costs more and it costs the bread company more to make and deliver to the shops.

Rents are the same as they were in 2002 because demand pull inflation for rents has been actually falling, uptil recent months. This alone gives the lie to most bullish housing arguments and waffle about demand for property. But more importantly, if general inflation (e.g. the price of bread) goes up in the morning by 2%, rents won't follow automatically. They is some linkages obviously (cost of repairs and getting tradesmen in as an example), but in general rents are in no way driven by consumer price inflation.

Some people here seem to assume that if we see 50% consumer inflation over the next 20 years, rents will also have increased by 50%. Not so - rents have been falling for 6 years in real terms, and have only nominally reached the levels of 2002 (in real terms they're about 20% cheaper than 2002).

nesf

A Random Walk wrote:

Some people here seem to assume that if we see 50% consumer inflation over the next 20 years, rents will also have increased by 50%. Not so - rents have been falling for 6 years in real terms, and have only nominally reached the levels of 2002 (in real terms they're about 20% cheaper than 2002).

I neither assumed nor stated that. Nominally speaking rents do increase, not at the standard rate of inflation, or wage inflation etc. In nominal terms in 20 years a mortgage payment taken out now for a property will (most likely) be less than the nominal cost of renting said property.

If real terms it's a different picture I agree but in real terms mortgage repayments drop and raise as time goes on which has to be taken into account if you want to talk about real rental rates etc.

Edited due to error.

A Random Walk

nesf wrote:

In nominal terms in 20 years a mortgage payment taken out now for a property will (most likely) be less than the nominal cost of renting said property.

Sure, and for the first 10/15/20 years the renter has been paying less for the same accomodation than the person with the mortgage, and we're assuming the renter is investing the difference. In the current climate of mortgages being 100% more expensive than the rent on the same property, the maths favour the renter (normally it is the other way around).

Property has been a terrible investment if you look at the long term - property in the US (only country with really good long term data) shows that it hasn't even kept pace with inflation - house prices in the US now inflation adjusted are less than they were 100 years ago (ref Shiller's "Irrational Exuberance"). And that doesn't include the cost of upkeep of the house.

Some good reading from the WSJ here on why houses may not be as good an investment as you think.

patrickolee

A Random Walk wrote:

I'm sorry guys I think you're misunderstanding some basic economics here. Rental inflation is demand pull inflation i.e. if there are 100 units and 101 people looking to rent, rents increase. If there are only 99 people, rents decrease.

Unless ten of the landlords bought their properties 30 years ago, have no mortgage to pay and are willing to wait for a few months to rent their property. Not being particularly cash strapped.

Hard for public service workers to take a pay cut; equally hard for landlords to take a rental reduction. Many of them are happy to leave their properties empty for a few months in order to keep/increase their income. (BTW I'm not a landlord)

patrickolee

A Random Walk wrote:

we're assuming the renter is investing the difference.

That's where that argument falls over... most people, if they have money, will either not invest it in high growth funds, or will simply spend it. Even if this were not the case, endowment policies taken out 20 years ago have failed quite spectacularly, leaving many home owners with shortfalls. Would you expect the normal 'renter' to outperform the endowment policy fund managers of yesteryear?

Not likely.

nesf

A Random Walk wrote:

Sure, and for the first 10/15/20 years the renter has been paying less for the same accomodation than the person with the mortgage, and we're assuming the renter is investing the difference. In the current climate of mortgages being 100% more expensive than the rent on the same property, the maths favour the renter (normally it is the other way around).

Property has been a terrible investment if you look at the long term - property in the US (only country with really good long term data) shows that it hasn't even kept pace with inflation - house prices in the US now inflation adjusted are less than they were 100 years ago (ref Shiller's "Irrational Exuberance"). And that doesn't include the cost of upkeep of the house.

Some good reading from the WSJ here on why houses may not be as good an investment as you think.

Interesting article and I agree with you, but again I never called a house an investment, I've only ever spoken of homes and of renting versus buying. Two things:

1) 100% more? How exactly do you mean. I look around at rents here (i.e. Cork city centre) there isn't that discrepancy between mortgage and rental rates.

2) Regional variation plays a role. Rental rates are very geography dependent and the discrepancy between rental rates and mortgage rates varies quite a bit from region to region, especially as you go farther out into the suburbs. Does it actually make sense to talk in national terms about this particular issue (or the housing market at all tbh)?

lola_run

Was just watching the prime time report on the housing bubble.

If it's so cheaper to rent, why are people so bent on buying houses in Ireland?
Doesn't seem logical to me at all.

aphex™

lola_run wrote:

If it's so cheaper to rent, why are people so bent on buying houses in Ireland?
Doesn't seem logical to me at all.

Because landlords are dodgy and way too unregulated.