Housing Bubble Bursting

The_Conductor

From yesterdays Indo

Fears of property slump grow as prices fall

By Edel Kennedy and Brendan Keenan
Thursday May 31 2007


HOUSE prices are falling rapidly across the country, the latest house-price index reveals.

Only the capital is holding up in the property market and prices in the commuter-belt counties around Dublin plunged 1.8pc last month alone.

House prices in this region were down 3.6pc in the first four months of the year, which would represent an annual fall of 11pc.

Fears of a slump in the property market grew yesterday after the permanent tsb/ESRI house price index showed prices nationally fell 1.3pc in the first four months. This was combined with a small increase in Dublin prices and a 1.5pc fall in the rest of the country - with the biggest drop in Dublin's commuter belt.

A house in the counties of Louth, Meath, Kildare and Wicklow was worth €12,000 less than last December, according the the indes, at €332,000.

Dublin house prices reached an average cost of €429,754, while the average house nationally dropped €2,500 in value in April and, at €306,619, was worth €4,000 less than in December

Niall O'Grady of permanent tsb said the price reduction is across the board, with the exception of Dublin homes and new homes, which have shown little or no growth.

"Prices nationally have returned to levels seen in August last year," he said. "Clearly the uncertainty around stamp duty was still a factor in April and, together with recent and likely future ECB rate rises, is impacting on demand."

However, an affordability index from EBS building society and DKM economic consultants said that, despite rising interest rates, mortgage costs for the average first-time-buyer working couple has actually fallen back slightly.

Prices for first-time and second-time buyers were reduced by 0.8pc and 0.9pc, bringing the average cost to €277,617 and €343,670 respectively. However, average prices over the last year were still 5.1pc higher than the price paid in April 2006.

The EBS/DKM index found that net mortgage payments remained steady at 25pc of income throughout March, April and May, compared with 26.4pc at the end of 2006.

Iristxo

state?

That would be as good as publishing my address in the internet

uberwolf

re: latest index - this is an environment where FTBs were on the fence because of the election, with the stamp duty issue to be resolved.

We're all looking for signs, and there will always be scope for straws to clutch at, but the dust will have to settle on amendments made to stamp duty before we can assess properly

jesus_thats_gre

Iristxo wrote:

That would be as good as publishing my address in the internet

I think he was raising attention to the fact that you were using state and not estate. He was not asking you what estate you live in..

Iristxo

I think he was raising attention to the fact that you were using state and not estate. He was not asking you what estate you live in..

Woops! You're right, my mistake. I suppose this would be a good time to add in that I'm a foreigner hehe.

Zambia

Iristxo wrote:

Woops! You're right, my mistake. I suppose this would be a good time to add in that I'm a foreigner hehe.

What are you doing on the Internet do you not know your meant to be out buying farmland in Louth and various overpriced propertys on the commuter belts !!!

Iristxo

I already did, not land but a house and not in the commuter belt but in the suburbs. It WAS overpriced, though! Think I'll be paying that mortgage for the rest of my life... or untill I sell it back to the bank in my retirement!

Strongly considering selling now, though...

dochasach

Iristxo wrote:

I already did, not land but a house and not in the commuter belt but in the suburbs. It WAS overpriced, though! Think I'll be paying that mortgage for the rest of my life... or untill I sell it back to the bank in my retirement!

Strongly considering selling now, though...

As a fellow non-national, non-Irish, immigrant, migrant, blow-in, whatever the latest term they use for us is, I'd have to say that the fact that my right to live here is ephemeral while a 50-year mortgage at my age is nearly eternal played a huge part in my decision not to buy a house. Sure you can always sell and recover your money in a rising market, but those of us who grew up outside of this boom realize that there is no such guarantee.

The possibility of being locked into a negative equity mortgage while being forced out of the country by one of McDowell's latest witch hunts convinced me that this is not a good idea. In light of recent events I might have overestimated my fear of McDowell and underestimated my fear of negative equity. I'm a happy renter. In this new global economy where outsourcing is at an all-time high and employer loyalty towards employees is at an all time low, it pays to be mobile.

gurramok

uberwolf wrote:

re: latest index - this is an environment where FTBs were on the fence because of the election, with the stamp duty issue to be resolved.

We're all looking for signs, and there will always be scope for straws to clutch at, but the dust will have to settle on amendments made to stamp duty before we can assess properly

Err, a tiny minority of FTB's are affected by stamp duty, this fence talk is phoney.

http://archives.tcm.ie/businesspost/2007/05/13/story23515.asp

SBP wrote:

She pointed out that the total tax receipts last year was approximately €45 billion and of this only €1.3 billion came from residential stamp duty.

Only 5 per cent of this €1.3 billion came from first-time buyers

That makes about 2,500 FTB's if they choke up 26k each in duty.

uberwolf

given the average house price is under the price required to meet your proposed average levy, and the likelihood that first time buyers are not in the market for average priced homes - your figures are probably an underestimate of the numbers of FTBs affected.

I would also suggest to you that the majority of FTB have avoided stamp by purchasing an apartment. The only reason I bought an apartment was that very reason. If I had of been buying since McDowell first spoke I would have held off on my purchase of a stamp exempt new apartment, in the hope that I would be in the market for a house instead.

Every FTB is impacted, not just those who have historically bought homes, but those who would have preferred a level playing field between new and second hand properties.

gurramok

Average house price for FTB is not 'just' under 317, unless your only talking about Dublin prices?

From http://www.permanenttsb.ie/news/default.asp?nid=549
'The average price paid by a first-time buyer and a second-time buyer in March 2007 was EUR 279,795 and EUR 346,946 respectively.'

Would love to know how you know that majority of FTB's decided to buy new just to avoid stamp duty?

They bought new as 'new' is perceived as best quality(despite some not been) plus there was a shortage of 2nd hand homes at the start of the boom. Plus to avoid bidding wars, easier to buy off the plans.
Stamp duty rates are 0 for new and 2nd hand upto 317k for FTB.

You saying you could not afford a house because of stamp, even if stamp was removed, you reckon you would of afforded that place at the higher price?

Problem being most cannot afford the higher price, 66% of the workforce earn under 34k p.a.

uberwolf

I'm going to presume that I'm not being clear enough given your response.

I never even implied that I knew anything about the motivations of FTBs. I extrapolated from my own sentiments when I was making the decision to purchase.

Being a FTB myself, I know other FTB, and it is an issue that they all identified with

In my own position I could have afforded what ever I chose, stamp or no stamp. I had difficulty handing over a years wages (roughly) to the government, and then having to pay interest on the equivalent extra amount in my mortgage. So I elected to buy new, in Dublin city centre.


Your figures for the average price paid by FTBs suggest to me that very few FTBs exist in Dublin. Your comments re: affordability reflect the same issue.

This is presumably why the rental market is going banana's.

DonJose

Do-more wrote:

There are 3 houses for sale in a similar size estate up the road from me and there is no sign of movement, one is on the market since September last and hasn't had a viewing since January! The others are on since October and January.

I'm in Mullingar BTW.

Which estate is this. I've seen big drops in Ardmore Hills and Belvedere Hills.

JupiterKid

We are on the threshold of a major and probably very long slump in house prices - the market is now in an undeniable downturn and the possibility of a sudden crash in housing values is very real. Face it, folks, Irish housing values became ridiculously overinflated and overvalued whilst our economy became dangerously dependent on massive credit availability, the pushing of mortgage lending to reckless levels and the over dependence on construction employment and housing related purchases, also propping up the economy (white goods, furniture, cars etc.). I see it as an interconnected house of cards that will come tumbling down.

I myself bought a two bedroom terraced house in the inner suburbs of Dublin 6 years ago and stretched my finances in order to buy. A couple of years ago, I was thinking of buying a new place but decided to hold on. I won't be surprised that after the end of this massive slump, my house will be close to the same value it was in 2001 when I bought it (2001 was also when the house price bubble really started to inflate BTW). I really feel sorry for those who purchased on 100% or interest only mortgages in the last year or two - the seriously deteriorating market conditions will not be kind to them.

The stamp duty issue is really a red herring used by the political parties and govt. to divert attention from the basic problem of the housing market - supply is now exceeding demand and the slump or maybe crash is now beginning. All stamp duty reform will do would be to make some second hand property more attractive to FTBs and trade ups and stimulate some home purchase in more expensive areas but it would NOT change the overall supply/demand dynamic.

I think that the way this market slump will play out will be very much to do with location. As house prices fall, owners of houses out in the commuter belt will try to buy closer in to the city and thus a massive over-supply and price slump will happen in the commuter belt towns first, with values falling proportional to the distance of the housing form Dublin. Later, the rot sets in everywhere as interest rates continue rise and selling become frantic. Then, massive panic, negative equity and mortgage arrears and repossessions begin. It really amazes me that so many Irish people thought that the housing "boom " (sorry, for "boom" read bubble) would go on indefinitely or a "soft landing would occur". ALL house price inflation bubble since WW1 have ended in a crash or long-term slump - why did Ireland think that it would be different in our case?

Lastly, so many of those buy to rent investments by the Irish in foreign countries were financed by loans secured against Irish mortgages (usually the mortgage on the principal residence), as mortgage lending is in its infancy or non-existent in many Eastern European Countries. A housing slump here will have big negative ripples for these investment developments abroad and could suck their housing markets into a state of paralysis.

A Random Walk

JupiterKid wrote:

It really amazes me that so many Irish people thought that the housing "boom " (sorry, for "boom" read bubble) would go on indefinitely or a "soft landing would occur". ALL house price inflation bubble since WW1 have ended in a crash or long-term slump - why did Ireland think that it would be different in our case?

Good post. Why wouldn't they think that though when the airwaves and our newspapers are full of so called financial "experts" telling us that we will see a soft landing? There'll be fallout from this which will see a generation distrust those of us working in anything to do with finance - which is unfair on the honest ones (who are the majority).

Do-more

DonJose wrote:

Which estate is this. I've seen big drops in Ardmore Hills and Belvedere Hills.

Inspector Clouseau I presume! I'm on the Dublin Road myself and take a passing interest in prices in the estates nearby. Some of the increases in the last few years have been crazy so some "adjustment" in the market is inevitable.

The only drop I am aware of in Ardmore Hills is No. 100 it was originally priced well ahead of the market asking €600,000, I'm told the builder turned down an offer of €520,000 on it, late summer '06. Then when reality overtook greed the price was dropped to "excess €500,000" it finally sold Christmas week for €500,000. Currently there are 4 houses for sale in the estate 3 asking €510,000 and one €535,000. AFAIK nothing has sold since Christmas.

Given that there has been substantial price drops (approx. 10%) in Richdale Court and they are starting to drop in Ardmore Close (small drop as yet, €510,000 down to €495,000) I'd say the ones in Ardmore Hills could well be next.

The thing is I am not sure that dropping the price is going to be of any benefit, as far as I can see there is nothing selling around Mullingar in this price bracket anyway so it is unlikely that a price drop is going to flush any buyers out of the undergrowth!

I suppose if I was a potential buyer I would keep holding out a bit longer to see what the market will do, the question is when is the stand off going to end?

patrickolee

JupiterKid wrote:

Lastly, so many of those buy to rent investments by the Irish in foreign countries were financed by loans secured against Irish mortgages (usually the mortgage on the principal residence), as mortgage lending is in its infancy or non-existent in many Eastern European Countries. A housing slump here will have big negative ripples for these investment developments abroad and could suck their housing markets into a state of paralysis.

Goood lord how big do you think Ireland is??? We'll bring them all down with us! The end of something or other is nigh!

Gurgle

JupiterKid wrote:

We are on the threshold of a major and probably very long slump in house prices - the market is now in an undeniable downturn and the possibility of a sudden crash in housing values is very real.

We have had a slump in prices. Prices are slumped. Some estate agents are still catching up though, so they still price houses as though the market were still growing. Most estate agents here are as well trained as the guys in PC World.
The way the market has gone here over the last year will be the textbook definition of a soft landing for years to come.

SkepticOne

Gurgle wrote:

The way the market has gone here over the last year will be the textbook definition of a soft landing for years to come.

What is your reasoning behind this assertion? How do you define a soft landing?

SimpleSam06

SkepticOne wrote:

What is your reasoning behind this assertion? How do you define a soft landing?

I think the idea behind a soft landing is that house prices maintain at or just ahead of inflation. Not really enough to cover carraige costs or taxes, but you won't take too much of a hit if you have the mortgage paid off. Maintain positive equity, in other words.

In a situation where there are actual house prices drops, talk of a soft landing vanishes like a puff of wind.

Nureyev

The good thing is that banks don't kick you out these days when they repossess your house. They just keep the deeds and you become a tenant for life. Hurrah!

conor_mc

Nureyev wrote:

The good thing is that banks don't kick you out these days when they repossess your house. They just keep the deeds and you become a tenant for life. Hurrah!

These days they don't - but when they start to see enough bad debt that it starts to significantly affect their share price, you can be sure your friendly bank manager won't be so accomodating.

Gurgle

SimpleSam06 wrote:

I think the idea behind a soft landing is that house prices maintain at or just ahead of inflation.

A soft landing is correction of inflated prices by stagnating or slow falling until inflation catches up. If growth continues to exceed inflation, thats not a landing of any kind.

What we're seeing now is a soft landing. Predictably though, lots of people who expected a bubble burst are claiming that this is what they meant :rolleyes:

kippy

Jaysus, this is a massive post and I dont intend reading all of it but have read a few pages.
It was inevitable that the housing market would slow down. People have been predicting it for the last seven years so they eventually had to get it right however what we are seeing at the moment, I believe, is a natural slowdown which wont have much of an impact on those who have bought their houses primarily for living in (not for rental or investment)
You can talk figures all you like but at the end of the day it is much better to pay towards something you live in and own rather that some landords mortgage even if the value of your house is going down in the short term.

Whether we like it or not buying a house in todays environment is far easier (relatively speaking) than it was in the 80's. Higher wages, much lower interest rates and much lower income tax. I cant see things ever going back to those dark days.
FTB's should, in the next few months find it easier to buy a house due to changes in stamp duty and the seemingly huge amount of houses on the market at the moment.
But those who have bought as a means of making a profit will find it tough.
Things arent all doom and gloom as seems to be the general gist of this thread.

Open Window

Nureyev wrote:

The good thing is that banks don't kick you out these days when they repossess your house. They just keep the deeds and you become a tenant for life. Hurrah!

What land of fantasy do you live in?

Can you back it up? Or maybe its different this time :rolleyes:

Homes seized as property crisis worsens
Sunday February 25 2007 JODY CORCORAN, MAEVE SHEEHAN
EVIDENCE is emerging of a significant increase in the repossession of houses by financial institutions as owners struggle to meet their mortgage repayments and are finding it difficult to sell their houses at realistic prices.

http://www.independent.ie/national-news/homes-seized-as-property-crisis-worsens-122458.html

Successive interest rate rises have led to a worrying increase in the number of mortgage-payers in danger of losing their homes and advocates are concerned that borrowers under pressure are being forced to remortgage with 'sub-prime' loans.

http://forum.globalhousepricecrash.com/index.php?showtopic=18747

Judgements are now at their highest in a decade

Wednesday's expected hike in interest rates could see the number of judgements registered against people rocket 30 per cent this year. This represents the fastest growth in the number of people failing to pay back loans or bills in nearly a decade.
"It's the fastest rate I've ever seen," according to James Treacy, managing director of credit bureau BusinessPro, which maintains over 1.5m consumer credit risk scores.
"At the beginning of the year I predicted that there would be an increase of 20 per cent in the amount of judgments filed in the courts for 2007.
"Unfortunately, I was wrong and they are even higher than forecast. So far this year they are up 29 per cent in volumes and 41 per cent in value, and this trend looks likely to increase further in 2008," he said. Treacy predicts that the number of judgements against people could rise a further 35 per cent in 2008.
In the first five months of this year some 1,580 judgements have been registered against people failing to pay back loans or bills. In the same period last year, just 1,330 judgements were recorded. Judgements totalling €31.7m have been registered this year, compared with just €22.7m over the first five months of 2006. Unregistered judgements have also vaulted from 5,605 in the first half of 2006, to 7,402 this year, with overall sums increasing from €28m up to €40.3m.

http://www.independent.ie/business/judgements-are-now-at-their-highest-in-a-decade-690639.html

SimpleSam06

Gurgle wrote:

A soft landing is correction of inflated prices by stagnating or slow falling until inflation catches up. If growth continues to exceed inflation, thats not a landing of any kind.

Thats pretty much exactly what I said.

Gurgle wrote:

What we're seeing now is a soft landing. Predictably though, lots of people who expected a bubble burst are claiming that this is what they meant :rolleyes:

And through it all, one man walked alone... lollers, ah no seriously, I can't wait till you clap your eyes on the yoys for 2007. You represent the majority of Irish people, even the slightly more clued in ones at the moment.

kippy wrote:

Jaysus, this is a massive post and I dont intend reading all of it but have read a few pages.

I'd have put in a bit more work into it, if I were you.

kippy wrote:

People have been predicting it for the last seven years so they eventually had to get it right

Some people only started talking about it in May last year... I include myself among their numbers.

kippy wrote:

however what we are seeing at the moment, I believe, is a natural slowdown which wont have much of an impact on those who have bought their houses primarily for living in (not for rental or investment)

As long as they:
a) remain employed
b) don't have any serious sicknesses
c) don't have children, if they bought in the last three years
d) can keep up with the interest rate rises insitigated by the ECB
Double that if you bought with a partner, plus you'd better pray there are no marital difficulties. But yeah, if you are bound and determined to pay off a property for the next 20-30 years, you probably can. Thats hardly a revelation, nor will win any awards.

kippy wrote:

You can talk figures all you like but at the end of the day it is much better to pay towards something you live in and own rather that some landords mortgage even if the value of your house is going down in the short term.

Unless interest payments on a mortgage for a similar property are higher than or equivalent to the rent. In that case you'd be as well off to save and wait a few years.

kippy wrote:

Whether we like it or not buying a house in todays environment is far easier (relatively speaking) than it was in the 80's.

Only because the banks are throwing around money like shams in a hilfiger shop, a nasty bit of irresponsible lending which is making international lending institutions distance themselves from Irish banks. They'll have to rein it in whether they want to or not.

kippy wrote:

FTB's should, in the next few months find it easier to buy a house due to changes in stamp duty and the seemingly huge amount of houses on the market at the moment.

The changes in stamp duty will affect very very few people, and surprisingly few FTBs as well. Why do you think Bertie promised it?

Pa ElGrande

Nureyev wrote:

The good thing is that banks don't kick you out these days when they repossess your house. They just keep the deeds and you become a tenant for life. Hurrah!

Here's why they've been able to get away with that practice for the past few years of the boom

1. Employment has been high, so chances of picking up a new job are good and the process of going through the courts is cumbersome, especially if the property is your principal place of residence (PPR).
2. House price inflation has generally allowed both parties (banks & debtor) to recover most of their costs in worst case scenario.
3. The lenders have been using securitisation to offload the risk onto onto pension funds and other foreign institutions.
4. Interest rates have been exceptionally low leading to banks focusing on volume sales to maintain market share and revenue.
5. Irish Banks are reporting record profits for last year, so they have leeway to absorb some of the bad debts. Remember AIB shrugged off the $750 million losses its trader John Rusnak made.

Anecdotally their tune is changing this year and the attitude seems to be if you can't keep up payments then you are told put your house on the market and Nick Webb's report in the Sunday Indepemdent would seem to confirm that changes are underfoot.

In the first five months of this year some 1,580 judgements have been registered against people failing to pay back loans or bills. In the same period last year, just 1,330 judgements were recorded. Judgements totalling €31.7m have been registered this year, compared with just €22.7m over the first five months of 2006. Unregistered judgements have also vaulted from 5,605 in the first half of 2006, to 7,402 this year, with overall sums increasing from €28m up to €40.3m.

Judgements are now at their highest in a decade

Look past the spin that the salesmen such as BOI's Dan McLaughlin, IIB's Austin Hughes and UB's Pat McArdle put out. The lenders specialise in risk management, they know exactly what is happening in the Irish property market what the risks are and are acting accordingly. The question is who is most exposed to the downturn - EBS perhaps??

EBS cuts back on 100pc mortgages

Regulator notes EBS lowers stress testing

EBS tops league of lenders hauling clients to court

Tinney not optimistic on EBS vote

EBS Benefits are not mutual

As PJbrady cautioned in a previous post watch what they do, not what they say.

SkepticOne

Gurgle wrote:

A soft landing is correction of inflated prices by stagnating or slow falling until inflation catches up.

So how do you define "slow falling"? Would the current falls at an annualised rate of 10% be regarded as slow?

If growth continues to exceed inflation, thats not a landing of any kind.

But there has been no growth for six months and over the last two months prices have been falling at an accelerating rate. If this continues we will see a year on year drop reported in two month. May I ask you where you are getting your figures from that suggest that prices are still growing at a rate exceeding inflation?

Pa ElGrande

Open Window wrote:

What land of fantasy do you live in?

Can you back it up? Or maybe its different this time :rolleyes:

Nureyev is correct, if you read the article from the first link you posted gave you will see the following paragraph.

In Limerick, legal sources say that there is a trend whereby banks try to avoid adverse publicity in the courts by reaching agreement with house-owners to take possession by consent and then rent the property back to them.

Homes seized as property crisis worsens

Obviously banks don't make this public since it would ecourage a moral hazard among the public.

miju

Gurgle wrote:

What we're seeing now is a soft landing. Predictably though, lots of people who expected a bubble burst are claiming that this is what they meant :rolleyes:

whats your actual explanation for this soft landing being acheived when it has never been done bfore Gurgle so I'll again call you on it seeing as how you have fudged on this question so far and you will prob dodge this one too.

i can tell you one thing the 40,000 - 60,000 people that will lose their jobs in construction next year aint going to help a soft landing if anything they will be the trigger.