Housing Bubble Bursting

hi5

ixoy wrote:

Well is the landlord losing money if he bought the place 15-20 years ago? He's only losing money if he bought the place recently.

.

He may be up on his original investment but once the rate of inflation went above property appreciation(about 6 months ago) he started losing money.
He is losing the opportunity cost of having sold up and put the money in a higher yeilding assset,add this to the amount he is subsidising the tenant.
As the market is now falling he is also losing capital.

The investors with an understanding of how investing works left property a few years ago, except some who took a calculated risk on capital appreciation and have probably sold up by now.

The market was driven by a fad and will plummet

jdivision

Deleted User wrote:

The investors with an understanding of how investing works left property a few years ago

Proof please. Given house prices have risen nearly 50 per cent in the last three years I doubt that they did.

daveirl

This post has been deleted.

conor_mc

jdivision wrote:

Proof please. Given house prices have risen nearly 50 per cent in the last three years I doubt that they did.

They'd be the ones who took a gamble on capital appreciation then, no?

soma

conor_mc wrote:

They'd be the ones who took a gamble on capital appreciation then, no?

Yup, they're called speculators.

Nothing wrong with speculation (I do it myself with equities and financial spread bets) but I always find it hilarious when I hear obvious speculators say that they're "investors" or "in it for the long haul". :rolleyes:

I don't doubt for a minute that the herd that was frothing at the mouth when the asset speculation was rampant, will be panicked and terrified on the way down.

joemc99

conor_mc wrote:

Two things:

If the landlord bought the place 15-20 years ago, he'd do better selling it and sticking the profit in a deposit account. Less risk, less stress, less hassle, zero work involved. More profit.

I'd be sure this kind of landlord has no mortgage on the property now, so surley he would make a lot more out of renting (eg €1300/month) than interest on the sale!!!

conor_mc

joemc99 wrote:

I'd be sure this kind of landlord has no mortgage on the property now, so surley he would make a lot more out of renting (eg €1300/month) than interest on the sale!!!

Why? Do the maths....

Sell a €500k house and stick the lot on deposit @ 4.35% and you get €21500pa less DIRT. No risk to capital, except inflation.

EDIT - I'll even give you capital less CGT - so €400k on deposit = €17200pa.

Rent at €1300p.m. is equal to an annual return of €15600, less costs/maintenance, and less income tax. Massive risk to capital at height of the market.

Seriously, when you get to the stage where deposit accounts are beating assets, it's time to get the hell out of the asset!

jdivision

jdivision wrote:

Proof please.

Proof? You need proof!

House prices shot up in value year after year - rents have not. Houses have been constantly getting worse and worse as an investment.

http://www.rte.ie/business/economyataglance/houseprices.html
From that above link - house price increases per year

2002 13.3%
2003 13.8%
2004 8.6%
2005 9.3%
2006 11.8%

Have rents increased by anyway near those %
Nope

So instead of having less and less people buying second and third etc houses as "investments" that percentage has increased and the amount of First time buyers as a % each year has decreased.

It doesnt make sense ....... unless they are speculating.......... hmmmnn over a quarter of a million houses empty not rented ... I wonder has it anything to do with capital Gains tax, you know, where if you rent it you have to pay a tax on the profit. If you dont rent it you are not liable to pay the tax.

jdivision wrote:

Given house prices have risen nearly 50 per cent in the last three years I doubt that they did.

You are getting Speculation mixed up with investing.
Property Bubbles are caused by Speculation.
This is a classic bubble scenario.

miju

jdivision wrote:

Proof please. Given house prices have risen nearly 50 per cent in the last three years I doubt that they did.

there were two large enough reports from EA's and possibly Davy's about how 40% of their business from investors had disappeared (they didnt use the phrase disapeared wis something more elequontly put)

ill gladly try ddig it out for ye

Do-more

Will be interesting to see the total figure of houses for sale on Daft in the coming weeks. Was just told about an investor who rang an EA in Newbridge to put his 2nd house on the market after seeing "Future Crash" on the TV. The EA told him not to bother coming into the office for a few days as he had queues of people wanting to put their property on the market!

iguana

conor_mc wrote:

Why? Do the maths....

Sell a €500k house and stick the lot on deposit @ 4.35% and you get €21500pa less DIRT. No risk to capital, except inflation.

He'd have to pay cgt on the sale price as the house isn't his home.

Nermal

conor_mc wrote:

Rent at €1300p.m. is equal to an annual return of €15600, less costs/maintenance, and less income tax. Massive risk to capital at height of the market.

Transaction costs associated with selling?

Readily available gearing with property as opposed to other assets?

Tax breaks?

There are still reasons to hold on to some properties, if not buy...

(perhaps I'm just out of ideas, nothing looks cheap right now and deposit accounts just feel... wrong in some way)

whizzbang

Do-more wrote:

Will be interesting to see the total figure of houses for sale on Daft in the coming weeks. Was just told about an investor who rang an EA in Newbridge to put his 2nd house on the market after seeing "Future Crash" on the TV. The EA told him not to bother coming into the office for a few days as he had queues of people wanting to put their property on the market!

daftwatch does a good graph of this, in case you have not seen it before...

http://daftwatch.atspace.com/

nesf

Nermal wrote:

Transaction costs associated with selling?

Surely the transaction costs associated with renting would be larger no?

nesf

whizzbang wrote:

daftwatch does a good graph of this, in case you have not seen it before...

http://daftwatch.atspace.com/

Nice, anything easily available with a bit more scope (i.e. more than Daft) and over a longer time scale?

Iristxo

http://www.magicmum.com/phpBB/future-shock-property-crash-t56816.html

so very many people still have their head buried in the sand. Beats me.

is_that_so

Iristxo wrote:

http://www.magicmum.com/phpBB/future-shock-property-crash-t56816.html

so very many people still have their head buried in the sand. Beats me.

This was discussed about 10 pages back.

Zambia

whizzbang wrote:

daftwatch does a good graph of this, in case you have not seen it before...

http://daftwatch.atspace.com/

Well it was at 14,000 last August
Its now at about 37,000 so after that programme bad as it was will we reach 40,000 by the end of the month.

Iristxo

Well apologies for that then! You guys write so much I can't keep up...

johnnyskeleton

Iristxo wrote:

Well apologies for that then! You guys write so much I can't keep up...

Maybe there should be a whole forum dedicated to this topic, with each aspect of it divided into separate threads. It is certainly very popular.

nesf

johnnyskeleton wrote:

Maybe there should be a whole forum dedicated to this topic, with each aspect of it divided into separate threads. It is certainly very popular.

I agree, a schadenfreude/pessimism forum would be very popular

Gurgle

conor_mc wrote:

Why? Do the maths....

Sell a €500k house and stick the lot on deposit @ 4.35% and you get €21500pa less DIRT. No risk to capital, except inflation.

lol

We have a new winner.

Thats the worst thought out arguement in these 68 pages of silliness.

No risk except inflation?
Inflation isn't a risk, its pretty much guaranteed.

20 years ago for 50k you could have bought a house in a decent area in Dublin and have enough change for a new car.

Now, all you get is the car.

Sell that house now for 500k and put the money in a deposit account for 20 years, do you think you will have enough money for a house?

I seriously doubt it.

Maybe you'll be able to buy a BMW for 500k in 20 years. You might have to make it a 3 series and cut back on the alloy wheels and inertial stabilisers.

Speculators are short term investors, their plan relies on short term house price growth far outstripping inflation.

A long term investor relies on price growth being not too far behind inflation over a couple of decades.

A long term investor entering the housing market now is as sure of making his money as they were 20 years ago, before the housing boom.

They aren't likely to see the same 1000% return along with 20 years of rent, but then the people investing 20 years ago had no reason to expect that return either. They just got lucky and hit the jackpot.

conor_mc

Gurgle wrote:

lol

We have a new winner.

Thats the worst thought out arguement in these 68 pages of silliness.

No risk except inflation?
Inflation isn't a risk, its pretty much guaranteed.

Do you honestly think I'd advocate putting 400k on deposit for 20 years though? Give me some credit!

The point was made to illustrate the relative value of investing in property at the moment. That's why the concept of "rental yield" was created - to have a comparative measure. There are dozens of better investments than property, but when deposit accounts look favourable in the short term (static growth = inflation eating away at house price too, never mind falling prices!), then there's something seriously amiss given the risk involved with property.

Depreciation of capital is possible with property, virtually impossible with cash unless your bank collapses. There is no weight being given by specuvestors to this risk in the Irish market at the moment.

Zambia

nesf wrote:

I agree, a schadenfreude/pessimism forum would be very popular

Hang on pessimism ?? Granted there are some where doomed emigrte posts here.

Fact is there are just a lot of people on this thread a lot more in the last week who just think the market is falling.

There has been loads of articles posted stating the state of various linked factors to the market. A lot of which are indicating falling growth in the housing market.

There has been evidence of rising supply provided. Rising Supply in any market leads to a fall in price.

These are just facts , they may not be pleasant. Fact is the thread has been very helpfull in monitoring the market and having articles and good links provided.

I know of a least one friend of mine going into a 500,000 new house purchase who when shown Daftwatch (by me) pulled out.

Ireland is still a good place to live we just need to thread carefully as regards property in the next few years.

patrickolee

Zambia232 wrote:

I know of a least one friend of mine going into a 500,000 new house purchase who when shown Daftwatch (by me) pulled out.

How significant is the number of properties advertised for sale on Daft? Are they not relatively new in the 'for sale' side and pushing it strongly for the last couple of years? They were always very popular for rental, but their sales side is only recently successful. If you also had figures on Myhome.ie family it might be more indicative. I'll bet we'd see a sharply rising graph for Myhometolet.ie as they are only newly in the rental market.

In addition, there are physically more houses in the country as new ones are constantly been built, so it stands to reason that there will be more for sale.

conor_mc

patrickolee wrote:

In addition, there are physically more houses in the country as new ones are constantly been built, so it stands to reason that there will be more for sale.

Isn't that the point though - higher supply, lower demand = falling prices!

patrickolee

conor_mc wrote:

Isn't that the point though - higher supply, lower demand = falling prices!

Or maybe it means higher supply - higher demand - stable prices.

Anyway I was going more for... more houses - more houses for sale. Quoting the number of house available on one particular (relatively new to sales) website is probably not such a strong argument for the sky to fall in.

eirmail

patrickolee wrote:

How significant is the number of properties advertised for sale on Daft? Are they not relatively new in the 'for sale' side and pushing it strongly for the last couple of years? They were always very popular for rental, but their sales side is only recently successful. If you also had figures on Myhome.ie family it might be more indicative. I'll bet we'd see a sharply rising graph for Myhometolet.ie as they are only newly in the rental market.

In addition, there are physically more houses in the country as new ones are constantly been built, so it stands to reason that there will be more for sale.

similar increases are available for myhome.ie, over in the property pin. The myhome.ie website isn't as "friendly" as the daft.ie which allows the computer script behind daftwatch to work.

There are definite figures for Dublin which show property for sale has at least doubled since August

conor_mc

patrickolee wrote:

Or maybe it means higher supply - higher demand - stable prices.

Anyway I was going more for... more houses - more houses for sale. Quoting the number of house available on one particular (relatively new to sales) website is probably not such a strong argument for the sky to fall in.

Where's the higher demand?

When inventory is rising and we have a large amount of anecdotal evidence of house prices falling, I think that tells me that demand is falling. It's logical to think that when you predict and propogate a "soft-landing" theory, you take away the prospect of capital appreciation, thus reducing the number of quick-buck specuvestors who go looking to buy property.

Bear in mind that its a lack of official statistics on house sold and current inventory that causes interested observers to do their best in illustrating the trends - they're not watertight statistics, but I'd rather have daftwatch than nothing at all.