Housing Bubble Bursting

ronbyrne2005

Kipperhell wrote:

They still exist. It is normally only offered when you get a new mortgage. I had one when I was made redundant. Very useful. Didn't work for 6 months because I didn't need to. The payment on mine was up to a year not 18 months though. Through AIB which use London General Holding.

As for all the glom and doom it is no surprise that something would change but I think people are jumping all over it too quickly.
Stamp duty is certainly an issue right now but how it has had an effect thus far is debatable. Stupid political fighting is likely to have a negative impact. I must admit I would resent the removal of stamp duty in an abrupt manner. There are certainly more equal ways to remove a tax that many have paid in recent times. I actually don't see why somebody who boughht a a year ago should have poaid a huge amount of tax and get nothing for it with somebody a year later not having to pay tax. It makes more sense to introduce a property tax giving credit to those who have paid stamp duty so as to eliminate stamp duty but maintain government income. I doubt it would be well recieved by the public.

Kipper, if someone paid the tax last year and it was removed the price of the property would rise to reflect it so in net terms they would be no worse off. Say they bought for 450k and paid 27k,if stamp duty didnt apply the property would'nt have cost 450k and would have cost them closer to 450k+27k as potential buyers would have used the extra money available to them to bid prices higher. If the stamp duty was subsequently removed the price of the home would rise by the amount of extra money available to potential bidders. Similarly in a falling market any fall would be reduced by approximately the amount the stamp duty too.

chump

ronbyrne2005 wrote:

Kipper, if someone paid the tax last year and it was removed the price of the property would rise to reflect it so in net terms they would be no worse off. Say they bought for 450k and paid 27k,if stamp duty didnt apply the property would'nt have cost 450k and would have cost them closer to 450k+27k as potential buyers would have used the extra money available to them to bid prices higher. If the stamp duty was subsequently removed the price of the home would rise by the amount of extra money available to potential bidders. Similarly in a falling market any fall would be reduced by approximately the amount the stamp duty too.

But for that argument to be useful and to satisfy voters who have bought prior to the stamp duty change - it must be admitted that a reduction in stamp duty will lead to immediate house price increase equal to that of the stamp duty reduction.

I just think the whole stamp duty debacle is a farce to be honest.

At some point the money is going to have to be raised in taxes. Ultimately the greatest tax burden falls to the most wealthy with stamp duty and so it could be argued to be equitable.

If the political parties were honest they would explain how they are going to raise the shortfall -ie. new property related taxes, income tax, etc.

The reality is the public are being blindsided by the blustering over stamp duty. As shane and so many others have pointed out, FTB's are not excessively impacted by the stamp - it primarily effects the wealthy property endowed classes.

Of course I understand that the structure of stamp duty is quite unfair, afterall an increase in 1k in the price of a house could have an exponential increase in the stamp.

So what do I think?
I think stamp duty should be reformed,
BUT the aim should be not to reduce the tax intake - instead to eliminate the important thresholds by using tax bands, ie. everything over 300k taxed at X%, and over 500k at Y% etc.
Of course then there is the big issue of free labour movement etc. etc., which I have no answers for as yet.

Stamp Duty

I think the real issue is simply the price of the houses. Its gone too high end of story. People forget that €317,500 is a serious amount of money.


I have to add that I was shocked years ago when I first read " If the property is under 125 square metres and you're a first-time-buyer or owner occupier NO DUTY is payable."
In my eyes this is encouraging SMALLER places to be built. Decreasing standards of living.

This country can be so backwards sometimes

Victor

125m2 is big house, especially for two people.

Big in Ireland - not everywhere though - but why a tax to dictate whats big and whats not

gurramok

Price drops nationwide gathered by Soma has made national news now in the Mail On Sunday and accepted as independent evidence of the slump, see here http://i159.photobucket.com/albums/t155/oskar2007/slump-1.jpg

DublinWriter

Deleted User wrote:

I have to add that I was shocked years ago when I first read " If the property is under 125 square metres and you're a first-time-buyer or owner occupier NO DUTY is payable."
In my eyes this is encouraging SMALLER places to be built. Decreasing standards of living.

My own 4-bed semi is 105m2 and I'm rattling around in it.

I don't think the problem is with 'smaller property' I think it's with estates being built on top of estates without and long-term strategic planning for infrastructure (schools/shops/parks).

Just look at the national planning tragedies such as Lucan and Blanchardstown. They are repeating the mistake of Ballymun all over again, but this time in 2D instead of 3D.

Stamp Duty is a political side-show. Any immediate reductions in stamp-duty will be absorbed by greedy builders and auctioneers.

The_Conductor

DublinWriter wrote:

Just look at the national planning tragedies such as Lucan and Blanchardstown. They are repeating the mistake of Ballymun all over again, but this time in 2D instead of 3D.

They are now considered to be international planning tragadies- the EU Commission is funding tours of Lucan in particular and bringing delegations from Poland/Czech and Slovak Republics over here to show them how *not* to spend their EU loot. The M50 was also shown to the Poles- unfortunately they didn't learn an awful lot- their equivalent of the M50, which received 80% EU funding, was started at opposite ends with the intention of meeting in the middle. Thanks to their brand of Parish politics- guess what, it doesn't meet......

nesf

gurramok wrote:

Price drops nationwide gathered by Soma has made national news now in the Mail On Sunday and accepted as independent evidence of the slump

Poorly written tbh, it makes a slump in the upper end of the market sound like a slump across the market. I'm not disputing that the upper end is being badly hit but anyone claiming that the national market as a whole is showing a 20pc slump is being dishonest tbh.

Then, it could be my distaste for sensationalism that's turning me off the article rather than anything else.

The_Conductor

Personally I wouldn't consider a 20% fall a slump. Its just a minor correction- entirely attributable to the increase in interest rates, nothing more, nothing less. If it falls 50-60%, then thats a slump in my eyes. Would I be considered overly pessimistic if I said that a orderly fall in values of 10-15% per annum over the next 3 or 4 years, could in actual fact be construed as the "soft landing" that everyone is going on about? As for negative equity- well anyone who bought in the last 18 months most probably is in negative equity (as in, if they were forced to sell their property in the current market they would have to reduce it below its value of 18 months ago in order to interest people in it).

20% fall- thats nothing. Lets wait and see how large a fall and over how long a prolonged period things fall........

Re: interest rates- comments this morning would appear to indicate further increases (over and above the June and September rises that are already expected). Hmmm- 30k per .25% rate rise...... Those 30k's add up......

Gurgle

smccarrick wrote:

Would I be considered overly pessimistic if I said that a orderly fall in values of 10-15% per annum over the next 3 or 4 years, could in actual fact be construed as the "soft landing" that everyone is going on about?

Lol, thats a bit too rough to call a soft landing:D
A 5% to 15% inflation-corrected drop over 3 to 5 years is a soft landing.

I'd call 20%+ a major slump, 50% a bursting bubble.

And I still expect to see a soft landing. In fact I'm seeing one.

conor_mc

smccarrick wrote:

Personally I wouldn't consider a 20% fall a slump. Its just a minor correction- entirely attributable to the increase in interest rates, nothing more, nothing less. If it falls 50-60%, then thats a slump in my eyes. Would I be considered overly pessimistic if I said that a orderly fall in values of 10-15% per annum over the next 3 or 4 years, could in actual fact be construed as the "soft landing" that everyone is going on about?

Eh, isn't 10-15% per annum for 3 or 4 years a fall of 30-60% overall?

That's a crash, my friend.

Soft landing is pretty much static nominal prices imho, that way the VI's can spin it to convince everyone that they haven't actually lost any money in property.

Any fall over a 12 month period will merely serve to reinforce the classic bubble behaviour of fear -> desperation -> panic, accelerating the price falls.

imeatingchips

Here's a link to the report referenced by the article:

www.irishpropertywatch.com - MyHome Report #5 - 23/04/07

Total # Drops Detected 773
Time Period 2 weeks

http://irishpropertywatch.5gbfree.com/ipw_myhome_report5_230407.html

whizzbang

To be fair to IPW I think the Sunday Mail blew it out of proportion. IPW just highlights drops, it doens't make sweeping statements like the article did!

chump

imeatingchips wrote:

Here's a link to the "independent report" mentioned in the article:

www.irishpropertywatch.com - MyHome Report #5 - 23/04/07

Total # Drops Detected 773
Time Period 2 weeks

http://irishpropertywatch.5gbfree.com/ipw_myhome_report5_230407.html

Are you doubting its independence?
Just because a newspaper took a source and used scare tactics and wildly summarised its results doesn't mean the source isn't independent.

As the author of the pages says on the thepropertypin.com

This is the kind of thing that in my opinion could make the crash worse than even some uber-bears believe.

As someone pointed out, most of the media has to operate in one of two modes: they either try to sensationalise a story or they try to panic their readers. It's what sells. It's what could end up making a "needed" 50% correction into a japanese-style 80% correction.

Now that headline is an exaggeration of anything that has been printed on IPW - I sure as hell didn't make any sweeping statements on there like prices across the board are down 20%.

The panicked herd will do damage in both directions, egged on by the media.

gurramok

I think the big drop in price in the new development of Belmayne for a 1bed apt from 350k to 275k is significant(line 5 of todays IPW report), that it occurs in Dublin where bulls say there is still demand for even apt accommodation supposedly, never mind houses.

tHE vAGGABOND

banks dont want to give you money for 1 bed appt's tho gurramok - they just dont see them as a good investment [and I agreee tbh]..

So more and more folks are buying 2 bed places or even houses, thus leaving developers having to really push the 1 bed places to get rid of them..

Why would I spend 350k on a 1 bed place in the 'burbs when I could get a 2 bed place or even a house for similar money also in the 'burbs - make no sense at all to be tbh

imeatingchips

chump wrote:

Are you doubting its independence?
Just because a newspaper took a source and used scare tactics and wildly summarised its results doesn't mean the source isn't independent.

As the author of the pages says on the thepropertypin.com

Sorry, I typed that post in a hurry. Reading back now I can see how the quotes suggest I doubt it's independence but I don't at all.

Just thought it would be handy for boardsies to be able to look at the report themselves while discussing it and stuck in the quotes to highlight the link between the article and the report.

I'll update the post to remove the quotes.

btw, completely agree with you about the article.

nesf

imeatingchips wrote:

Here's a link to the report referenced by the article:

www.irishpropertywatch.com - MyHome Report #5 - 23/04/07

Total # Drops Detected 773
Time Period 2 weeks

http://irishpropertywatch.5gbfree.com/ipw_myhome_report5_230407.html

Cheers, that's interesting reading. Do they subdivide it by region or price band at all?

Zambia

http://www.breakingnews.ie/ireland/?jp=MHAUQLOJGBMH

Slow down in Building 2,000 less propertys produced than this time last year.

patrickolee

That's great news... so supply is adjusting to meet the new demand. Landing gear deploying :-)

nesf

Zambia232 wrote:

http://www.breakingnews.ie/ireland/?jp=MHAUQLOJGBMH

Slow down in Building 2,000 less propertys produced than this time last year.

Yeah the whole Cork supply situation is odd, the whole boom seemed to get into full swing later than Dublin iirc. There's a few large developments meant to go up this year, it'll be interesting to see if they do or whether they'll change their focus (i.e. slap in more retail than apartments etc).

ronbyrne2005

patrickolee wrote:

That's great news... so supply is adjusting to meet the new demand. Landing gear deploying :-)

Em, what do you think will happen if building is massively cut back ? Job losses, which will hit the rest of the economy leading to unemployment an less growth and/or recession.

iguana

There is a lot of implication that house prices are falling because buyers are waiting to see if they will save money on stamp-duty after the election, and so are not buying. But surely this makes no sense as when you think through that argument logically the opposite should be happening.

In 2004 I nearly bought a house in Ireland and would have been paying €17,500 stamp duty, while we were sale agreed the stamp duty bands changed and if we had continued with the sale we would have saved €8,000. If after the sale had fallen through we had decided to keep looking in Dublin we would have had an extra €8,000 to bid with. However so would all the other first time buyers. So it would have been the sellers who benefitted from stamp duty reductions. The only buyers to benefit would be those who were sale agreed during the time that the reform was announced.

So surely the actual consequence of belief that stamp duty will be lowered is that sellers would actually hold off on putting their houses on the market until buyers had higher purchasing budgets. Therefore putting prices up as there would be less on the market.

Gurgle

iguana wrote:

So surely the actual consequence of belief that stamp duty will be lowered is that sellers would actually hold off on putting their houses on the market until buyers had higher purchasing budgets. Therefore putting prices up as there would be less on the market.

That would certainly have been the case in 2004.

Things have changed, the housing market has certainly lost its momentum. Speculators are exiting the market. While theres no sign of a crash, there seems little chance of going back to the 10-15% pa rises that brought them in.

FTBs are patiently waiting to see if theres a crash before taking the plunge.

People who had planned to trade up are seeing their equity rising much more slowly than they imagined.

Builders are slowing down, as its no longer worth their while worth paying overtime to finish the current projects.

So now we've got a market full of buyers waiting for a crash and sellers waiting for a recovery.:D

And it all seems to be balancing out to a soft landing.

Do-more

Gurgle wrote:

And it all seems to be balancing out to a soft landing.

I admire your optimism if nothing else!

This might play out if interest rates stay steady or fall, but given that interest rates are expected to rise then the market is set for further drops in price.

There is no question that buyers and sellers are queueing up on both sides and it's a question of whose nerve holds out the longest. You can already see some whose nerve has broken already (buyers and sellers). But most are still sitting and waiting.

With huge inventories building up and more and more property coming to the market each day on the sell side. And negative sentiment building hugely and interest rate rises looming on the buy side. There really only is one way for prices to go and that's down.

Remember even if they want to buy, unless they already have mortgage approval, affordability for buyers will be reduced once interest rates rise. I really can't see there being 90,000 pre-approved buyers waiting in the wings ready to mop up the property that is already on the market!

Even the most optimistice don't believe that property prices will rise above inflation, so the speculators who have driven this market up are no longer buyers (many are trying to sell) given that speculators bought almost half of all properties in the last few years that represents a huge reduction in demand, enough to drive the market down on it's own!

davej

Stamp duty debate on Q&A last night.

http://rte.ie/news/qanda/

Brian Cowen seems to be the voice of reason on this specific issue..

davej

ixoy

Based purely on ancedotal evidence, any potential FTB that I know is holding off for a crash. If others acted in this manner, then a certain lowering of prices is surely inevitable?

Whilst I haven't fully decided exactly what I'm doing, I'm leaning also towards a wait-and-see approach and rent in the meanwhile. I figure it a little like this:

Rent for a year could cost us say 15k for somewhere decent. Now let's say at the moment we were looking for a 90% mortgage, equating to 290K on a 320K property. On that mortgage, 9K would - once we factor in interest rates over a 30year period - represent (minimum) of 15K repayment. So, after a year to break even, we'd need a 9K drop on the price of a house. That's just a 2.8% drop in price, which I believe is possible in the commuter area of Balbriggan that we're looking at.

Are my figures flawed or do I have it right in my head?

conor_mc

ixoy wrote:

That's just a 2.8% drop in price, which I believe is possible in the commuter area of Balbriggan that we're looking at.

Are my figures flawed or do I have it right in my head?

The way I figure it, a 290k 30-year mortgage at 5% (probable in the next few months) would cost you just over 14k in interest, less relief @ 20% = €11,200 or so.

Stick your 30k on deposit and we'll say you earn about 1k in interest after DIRT by next year.

€1250 seems the going rate for a 3-bed in Balbriggan, so 15k per annum.

Net cost of renting then is 15,000 - 11,200 -1,000 = €2,800.

Factor in management charges and maintenance that you don't have to pay when renting, add in a few hundred in rent relief and you're pretty close to breaking even.

Afuera

conor_mc wrote:

Factor in management charges and maintenance that you don't have to pay when renting, add in a few hundred in rent relief and you're pretty close to breaking even.

Yes, this is the way I'd look at it too.

You only need a very slight drop in prices to start seeing real gains for holding out. Each percentage drop will save you 3200 EUR off the mortgage which will save you an additional 2800 EUR in interest over the lifetime of the mortage (30 year @ 5%).