Buyers know that the longer they delay the less they will pay

mastermind2005

The economy may be about to enter a period of prolonged recession, writes Prof Morgan Kelly, the economist who predicted the property slump.

http://www.ireland.com/newspaper/opinion/2008/0118/1200596995499.html

Quotes:

"My forecast has turned out to be wildly optimistic. In the past year Irish house prices appear to have fallen by around 10 to 15 per cent. While still short of the 20 per cent fall in Finland in 1991, this is on a par with the largest falls experienced during the Dutch and Swedish collapses."

"However, the Irish property market is giving signs of approaching a critical point where vague individual anxieties coalesce into a general panic and prices collapse. Should a collapse occur in 2008, it is most likely to start among heavily-indebted builders, many of whom have not sold a house in over a year, coming under pressure from banks to liquidate their large amounts of unsold inventory. "


"..with the recent bankruptcy of McEnaney Construction, banks have sent a definite signal to developers that their patience and liquidity are finite. Despite their understandable reluctance to initiate a downward price spiral, in the next few months increasing numbers of developers will be forced to follow the lead of Capel Construction and cut prices by 20 per cent and more."

"However, just as expectations of price rises were self-fulfilling, so now are price falls. Buyers know that the longer they delay the less they will pay, and have the added fear of negative equity to keep them out of the market. It is appearing increasingly unlikely that builders will be able to move their inventory at any price that can remotely cover their borrowings, making a wave of bankruptcies inevitable. "

johnnyskeleton

mastermind2005 wrote: »

"However, the Irish property market is giving signs of approaching a critical point where vague individual anxieties coalesce into a general panic and prices collapse. Should a collapse occur in 2008, it is most likely to start among heavily-indebted builders, many of whom have not sold a house in over a year, coming under pressure from banks to liquidate their large amounts of unsold inventory. "

It's interesting to see this point of view - i.e. that of small to medium developers - as the media seems to focus on the big developers (i.e. the ones who can weather the storm). I don't like to see jobs lost or anyone getting into financial trouble, but any developer who borrowed significantly more than they could comfortably expect to repay kinda deserve what's coming to them. As, I suppose do people who bought at a ridiculous price, but I can feel sorry for them because they just wanted somewhere to live.

SimpleSam06

Already done in the bubble bursting thread.