Housing Bubble Bursting

Pa ElGrande

Chipboard wrote:

The three issues which affect housing are supply, employment and sentiment. 1 and 2 are fine and all you have at the moment is adverse sentiment caused by our brilliant leaders. Stamp duty is a tool used by the govt to manipulate the housing market. Housing is such a huge part of the govts tax take (not only stamp duty but Vat and PAYE from the house building industry) that they will do whatever they have to to keep the train running. All will be fine in around 3 months time and people will still be waiting for the big crash like everyone has been for the last 7 years.

Supply:
A significant chunk of the supply built in the last 7 years has been to service the property speculator demand, who are now trying to exit the market.
If you are up for it, go for a drive around the country to see the ghost estates and apartments. I visited two estates recently where most of the buildings are being let out to workers from South America and Eastern Europe who are building the estates. We really are building houses for builders to build more houses.

Employment:
Drop into your local planning office and find out what the trend in planning permissions is (in some areas its down over 30% year on year). The biggest source of employment in this country is construction. Now tell me that employment is going to remain strong? Construction is only about 25% of GNP, so the impact is going to hurt.

Sentiment:
If so many investors felt confident about the market then why has the inventory for sale increased by over 3 times? Amazing how stamp duty became a major problem and political football when prices stopped rising.
All political party promises are predicated on the revenue gathered from the construction sector, they will not be able to deliver a fraction of what they promise.

This is not a passing phase, In 3 months time (August) the situation will be worse. What has happened to Irish property prices over the last 5 years has been a deviation from the normal trend largely driven by speculation aided by low interest rates, loosening credit standards and favourable tax policies. Prices will now revert to the mean, so you will see prices where the market has been most exhuberent (South Dublin) and where demand does not exist ( Leitrim) drop the furthest. Areas in the middle will not drop so much (maybe 30%), but this will depend on local employment conditions.

seahorse

Well people; I for one cannot wait till this ridiculous situation comes to a halt and house prices fall to a level where people can reasonably expect to own their own home. And I think when the bubble does well and truly burst the people who owe thier hides to the bank will only have themselves to blame for being so short-sighted as to imagine this crazy situation was ever going to last.

I know people who could have afforded a mortgage years ago and had the sense to buy abroad instead and carry on renting here. This situation has been played out countless times worldwide. It dosent take a degree in economics to understand that what goes up must come down. :rolleyes:

iguana

seahorse wrote:

I know people who could have afforded a mortgage years ago and had the sense to buy abroad instead and carry on renting here. This situation has been played out countless times worldwide. It dosent take a degree in economics to understand that what goes up must come down. :rolleyes:

In fairness people who bought years ago are probably safe from price drops alone. If someone bought a house for €350k five years ago which is now worth €600k they can weather a substantial drop. Obviously it depends on how many years ago, but the thing is lots of people who waited won't be any better off if they have been waiting several years. This bubble continued for a lot longer than people expected it to. It's really only the people who bought in the last two years and can't manage the IR rises or need to trade-up who have reason to worry about price drops.

However if price drops happen as part if the general economy tanking, which is the likely case, then very few people will come out well. If you lose your job and can't find another the only real advantage of not owning a house is your ability to emigrate.

seahorse

iguana wrote:

In fairness people who bought years ago are probably safe from price drops alone. If someone bought a house for €350k five years ago which is now worth €600k they can weather a substantial drop.

Yes, that's true, but I think more people have already lost their homes than is reported in the media. My aunt, for example, bought a huge 450k home down the country about four years ago and had to sell it at 30k under the asking price because of the crazy IR rises a few months back. Now she's living in rented accomodation with a weary eye on the market and not a clue what to do.

ronbyrne2005

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/04/20/cnire20.xml

jimmycrackcorm

ronbyrne2005 wrote:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/04/20/cnire20.xml

Strangely enough I thought our Dell/Intel/Microsoft exports were for the EMEA markets....

""The Irish are heavily dependent on exports of tech-goods to the US, so they're hit hard by the rising euro," said Bernard Connolly, chief strategist at Banque AIG."

Obviously the Telegraph is an expert in Irish affairs.

I'm still waiting for ythe first story about negative equity. Strangely nobody complains if long term shares take a dip in value but it if a long term asset such as your home takes a price drop it's the end of the world.

Victor

seahorse wrote:

Well people; I for one cannot wait till this ridiculous situation comes to a halt and house prices fall to a level where people can reasonably expect to own their own home.

Realise that it is interest rates that are driving a lot of this. Any decrease in house prices will likely see repayments stay the same.

Earnings and confidence, however would see repayments drop, but as people aren't earning the same it doesn't leave them with a surplus of cash.

jimmycrackcorm wrote:

""The Irish are heavily dependent on exports of tech-goods to the US, so they're hit hard by the rising euro," said Bernard Connolly, chief strategist at Banque AIG."

Obviously the Telegraph is an expert in Irish affairs.

In 2006, our exports to the USA were valued at €16,218m (mostly "Chemicals and related products", i.e. Viagra, etc.) compared to €14,532m for the UK and €14,201m for Belgium (I presume there is something fudged in that figure).

http://www.cso.ie/releasespublications/documents/external_trade/current/extrade.pdf

ixoy

I'm curious - do people expect to be able to buy a bigger property by waiting or the same? I've a sinking feeling that, if I wait say a year (which I'm inclined to do) that property prices will drop but, as interest rates rise to meet this, buyers will still end up in the same position. The advantage being, of course, that we'll be more innured to the mortgage repayments by having waited.
I don't neccesarily forsee being able to get a bigger/better shoebox though for your money..

pwd

There's an article in the herald am warning "loose talk can harm the boom", where they had an economist saying that doomsayers could talk us into a recession, or something, which just made everything seem more like a big pyramid scheme, as somebody described it above.

The situation reminds me of this:
http://en.wikipedia.org/wiki/Shoe_Event_Horizon

whizzbang

ixoy wrote:

I'm curious - do people expect to be able to buy a bigger property by waiting or the same? I've a sinking feeling that, if I wait say a year (which I'm inclined to do) that property prices will drop but, as interest rates rise to meet this, buyers will still end up in the same position. The advantage being, of course, that we'll be more innured to the mortgage repayments by having waited.
I don't neccesarily forsee being able to get a bigger/better shoebox though for your money..

I think that I will be able to buy the same shoebox but for half the money (as this is all the bank will loan me) I will however only owe the bank half as much and I'm hoping it will be a 25 year mortgage rather than a 40 year one.

This is a better position than buying a shoebox now, and oweing the bank twice as much over 40 years. These repayments would be much worse than waiting a few years and buying as the initial amount will demand much larger repayments as the rates rise.

for example:

buy now shoebox = 400k @ 5% x 40 years= 1928 per month = 1,928,000 over life of mortgage
buy later shoebox = 250k @ 6% x 25 years = 1,617 per month = 1,617,000 over life or mortgage

If you are assuming that rates are going to keep going up then eventually my 400k loan will be repaid at these higher rates as well which makes it even worse. In my book you are better off getting the smallest loan you can for the shortest amount of time you can.

uberwolf

do you really believe any reasonably located property is going to nearly half in price in any crash?

Anyone who has taken out a 35 year mortgage is not going to still be paying it back in 34 years time, even increasing payments by 3% p.a. will see you out of there 10 years earlier.

El Stuntman

whizzbang wrote:

buy now shoebox = 400k @ 5% x 40 years= 1928 per month = 1,928,000 over life of mortgage
buy later shoebox = 250k @ 6% x 25 years = 1,617 per month = 1,617,000 over life or mortgage

your maths are way off:

1928 pm * 40 years = 925k

1617 pm * 25 years = 485k

Zambia

pwd wrote:

There's an article in the herald am warning "loose talk can harm the boom", where they had an economist saying that doomsayers could talk us into a recession, or something, which just made everything seem more like a big pyramid scheme, as somebody described it above.

The situation reminds me of this:
http://en.wikipedia.org/wiki/Shoe_Event_Horizon

You should all start erecting posters we have loads of them we can lend you

whizzbang

El Stuntman wrote:

your maths are way off:

1928 pm * 40 years = 925k

1617 pm * 25 years = 485k

oops, you're right, used wrong figure from http://www.jeacle.ie/mortgage/

too early for me

ok so , the 25 year mortgage on 250k even at a higher rate is still nearly half the total repayments of the 400k one at 40 years.

(bit embarrassed by that to be honest )
still the argument holds! :P

conor_mc

ixoy wrote:

I'm curious - do people expect to be able to buy a bigger property by waiting or the same? I've a sinking feeling that, if I wait say a year (which I'm inclined to do) that property prices will drop but, as interest rates rise to meet this, buyers will still end up in the same position. The advantage being, of course, that we'll be more innured to the mortgage repayments by having waited.
I don't neccesarily forsee being able to get a bigger/better shoebox though for your money..

Whether you buy the house at say 500k today or 350k in three years time, you'll still be paying the same interest rate between years 3 to 30/35/40 (fixed rates aside).

The major difference will be that if rates were to hit 7% for example, you'd run a significantly higher risk of losing your house if you have a 500k mortgage rather than a 350k mortgage.

dame

Daftwatch etc aren't all that accurate and there aren't as many houses on the market as it appears. There's at least one house in my area that has been Sale Agreed for the past month (sign in garden says so), but the house is still on both Daft.ie and MyHome.ie, inflating the total number of properties "for sale".

babytooth

iguana wrote:

In fairness people who bought years ago are probably safe from price drops alone. If someone bought a house for €350k five years ago which is now worth €600k they can weather a substantial drop. your ability to emigrate.

ture, if you didn't "release equity".
how many bought on the strenght of this equity...

geometric losses...

conor_mc

dame wrote:

Daftwatch etc aren't all that accurate and there aren't as many houses on the market as it appears. There's at least one house in my area that has been Sale Agreed for the past month (sign in garden says so), but the house is still on both Daft.ie and MyHome.ie, inflating the total number of properties "for sale".

I'm sure that never happened when there were only 10k houses for sale on daft either. On the other hand, there are single ads for multiple-house developments.

In the absence of official figures like they publish in the UK and the US, this is the best indicator of the market we have. A shocking situation that interested observers must do their best to provide data which should be provided by the state.

Regardless, the trend is there for all to see. Given that any scientific measure would have a margin of error, so does daftwatch etc.

whizzbang

dame wrote:

Daftwatch etc aren't all that accurate and there aren't as many houses on the market as it appears. There's at least one house in my area that has been Sale Agreed for the past month (sign in garden says so), but the house is still on both Daft.ie and MyHome.ie, inflating the total number of properties "for sale".

sale agreed doesn't really mean anything. buyer can (and do) still pull out.

A Random Walk

dame wrote:

There's at least one house in my area that has been Sale Agreed for the past month (sign in garden says so),

Does it not strike you as odd that it would be up for a month? Sounds to me like another sale that isn't going to happen, or more likely a chain is involved. The wise seller these days keeps his house on the market until the cash is handed over.

Zambia

A Random Walk wrote:

Does it not strike you as odd that it would be up for a month? Sounds to me like another sale that isn't going to happen, or more likely a chain is involved. The wise seller these days keeps his house on the market until the cash is handed over.

Sale agreed for a month is nothing , but as whizz bang said sales fall through

dazberry

whizzbang wrote:

sale agreed doesn't really mean anything. buyer can (and do) still pull out.

Anyone in Dublin travelling on the red line in to the city centre cast your eyes left (right for rear facing commuters ) when you pass the GoldenBridge Stop, and before you reach Suir Rd you will see a house roughly in the middle of the first section of houses on Devoy Rd (its not advertised anymore on myhome).

Since late 2005 this house has gone For Sale > Sale Agreed > For Sale > Sale Agreed > Sold > For Sale. The same basic sign has been up for the last ~20ish months.

D.

mel123

Hi, i have not read this whole thread, but i have been keeping an eye on it.

Am i right in saying that there isnt 'definately' going to be a change in stamp duty - it only depends on which party is voted in?

For people reading this thread who are FTB's, are u holding out until the elections??
My gut feeling is that most people seem to be holding out to see what is going to happen at the end of May, after this I think we will see a lot of sale agreed signs going back up...thats just my opinion. I half think that the politicans are to blame in the market declinging, for promising to do 'something' with stamp duty.

Zambia

mel123 wrote:

Am i right in saying that there isnt 'definately' going to be a change in stamp duty - it only depends on which party is voted in?

Please tell me you talking about An Post here , as thats the only Stamp duty that hasnt been discussed here at length

super_furry

Zambia232 wrote:

Please tell me you talking about An Post here , as thats the only Stamp duty that hasnt been discussed here at length

Maybe, but this is a 1600 post thread now. No-one new to it is going to read them all, so questions like this will pop up from time to time.

Zambia

super_furry wrote:

Maybe, but this is a 1600 post thread now. No-one new to it is going to read them all, so questions like this will pop up from time to time.

Bit of a book all right ...but your right. Sorry Mel in my opinion reducing stamp duty wont help. I agree with you politicians (M,McDowell) gave the market a fright its now falling , people are cashing out supply is increasing. They cant stop it now.

lol - every few pages we get a stamp duty post

http://www.boards.ie/vbulletin/showthread.php?t=2055033806&page=77

at the risk of repeating myself and others for the thousandth time
stamp duty is not the issue. The market stalled before Mc Dowell opened his mouth. This totally exacerbated the wobbly market.

The vast vast majority of First time buyers - according to bank and estate information - DO NOT pay stamp duty. Stamp duty is an issue for people trading up.

The real issue - the elephant in the room - is that houses are too expensive and now that interest rates have gone up people cannot borrow as much as previously. Each rate rise decreases how much you can borrow.

FACTS

45% of properties for sale on daft.ie are under 317,500

75% of FTBs purchase a dwelling between 100,000euros and 250,000euros.

http://www.esri.ie/irish_economy/permanent_tsbesri_house_p/HPI2007Feb_report.pdf

uberwolf

Deleted User wrote:

FACTS

45% of properties for sale on daft.ie are under 317,500

75% of FTBs purchase a dwelling between 100,000euros and 250,000euros.

http://www.esri.ie/irish_economy/permanent_tsbesri_house_p/HPI2007Feb_report.pdf

where are these properties? - I presume a long way from the Quays in Dublin. Are we then dealing with more than one property market? Within the Canals in Dublin, within the M50 in Dublin, within the Dublin commuter belt? and repeat on smaller scale for all urban centres?

Rew

Deleted User wrote:

FACTS

45% of properties for sale on daft.ie are under 317,500

75% of FTBs purchase a dwelling between 100,000euros and 250,000euros.

http://www.esri.ie/irish_economy/permanent_tsbesri_house_p/HPI2007Feb_report.pdf

Im a FTB and I was about to €11,300 in stamp duty till I backed out of the sale yesterday. Its a bloody big issue for me FACT!