Second property dip is coming

jetski

By Cormac Murphy
Wednesday July 23 2008

MONEY guru Eddie Hobbs has warned that property prices are in danger of suffering a "double dip" before the market begins to recover.
The Rip-Off Republic star said the first sharp drop has already happened but he feels a second one is on the way.
"The only reason why prices are staying where they are is that developers are not yet themselves being pushed over the line. Banks have much bigger problems -- the last thing they need is for developers to go bankrupt," Eddie told the Herald.
"There is a Mexican stand-off in the property market," he said.
Banks and developers are "clinging to the same lifebuoy" but eventually one of them has to let go, Eddie said.
"When that happens there is a risk we will see a double dip. It is when you get stress coming in, when you get foreclosures," he warned.
While no one knows for certain when it will happen, he expects to see the second dip in the next year or so.
He described Irish investors as being in a state of high anxiety and unwilling to part with their money.
"People who have cash are hanging on to it, waiting for this turbulence to pass," Eddie said.
But they could be missing out on some good deals.
Eddie feels "there are quite good deals to be done" in Germany, where Brendan Investments, the property vehicle he has backed, is investing.
The company is currently in "negotiations over prices on different deals" there.
"Different deals are now being done," the financial expert told the Herald.
"We were very lucky in one sense as the shutters were beginning to come down when we started. We were cash rich in a market where cash puts you in a strong position," he said.
TARGET
The company raised just €13m compared to its original target of over €50m.
"If we had gone a year before we would have raised more money but we would have been subject to the difficulties which began to arrive in the fourth quarter of last year," Eddie said.
"The ideal time to invest in certain property markets is now -- there is a lot of value at the moment," he added.
However, Ireland is not one of these markets.
Eddie Hobbs, the company's managing director Vincent Regan and chairman Dermot Flanagan invested €1.8m of the €13m.
The personal finances expert became a national celebrity in 2005 when his RTE show Rip-Off Republic highlighted a series of damning issues concerning the high level of taxes and alleged business monopolies throughout the country.
His previous programme, Show Me The Money, saw the former non-executive director in financial services firm Taylor Asset Management give similar advise to the public.
The Corkman is a TV and radio regular.
- Cormac Murphy

http://www.herald.ie/national-news/second-property-dip-is-coming-says-hobbs-1438810.html

astrofool

I'd say the banks will let the developer's hang on until such time as the credit crunch's effects are over. It'd be a bit stupid of them to let their developer debt go to the wall, when it was their own recklessness that allowed it to get that way.

Senna

but can the banks just sit on such huge debt? They know that the longer they give developers, they less they will get back from seizing their assets (unsold houses,shops, land banks etc)

And really we're not in a 'credit crunch' were just returning to normal lending criteria. It will never go back to the 100% mortgages, soon 80% will be the highest LTV available and 3% ECB levels might come back but i wouldn't hold my breath. All that coupled with mortgages of 3/4x income will hopefully bring the market back to normality.

Developer will go to the wall and when banks start selling houses........:eek:

jimmycrackcorm

Eddie feels "there are quite good deals to be done" in Germany, where Brendan Investments, the property vehicle he has backed, is investing.

Brendan Investments "Free advertising", nothing to see here.

The_Conductor

Without commenting on Eddie Hobbs and his investment vehicle- Shane Ross did a very good writeup on it a few months back that makes for interesting reading for anyone considering what he is proposing.........

Link here

Mr. Presentable

smccarrick wrote: »

Without commenting on Eddie Hobbs and his investment vehicle- Shane Ross did a very good writeup on it a few months back that makes for interesting reading for anyone considering what he is proposing.........

Link here

Illuminating, thanks

BigglesMcGee

Eddie Hobbs - VI .

I met him once. Should have heard him going on about buying property in Cape Verde.

jmayo

astrofool wrote: »

I'd say the banks will let the developer's hang on until such time as the credit crunch's effects are over. It'd be a bit stupid of them to let their developer debt go to the wall, when it was their own recklessness that allowed it to get that way.

Persish the thought, we are now actually back to the days when people buying actually need some savings and a savings history.

As Senna stated earlier the recent years of very cheap credit and 100% mortgages was not the norm, it was the abnormal and it is not going to return or at least not for a very long time.
So don't hold your breath that in few years you will be able to get 100% mortgage @ 3%.
It ain't going to happen.

Banks won't care if developers go to the wall, if is it in their own interests.
It doesn't matter if the banks were reckless, they will just want to recoup someof their lent money and as in the case of someone like PTSB they don't have the savings to match their lending and their own credit rating has taken a hit.

BigglesMcGee wrote: »

Eddie Hobbs - VI .

I met him once. Should have heard him going on about buying property in Cape Verde.

Sure didn't you know, Cape Verde is different, just like the Irish property boom was different :rolleyes:

johnnyskeleton

Two things that strike me about that article (apart from the glaringly obvious "property is great rant") are that the german property market is stagnant at the moment and that the Irish banks don't "foreclose" on properties. There hasn't been a foreclosure in Ireland for hundreds of years - instead banks get orders for possession and sale. While not knowing this technical decision may be forgiven in joe soap, it is a bad sign in an investor as it means that they don't fully understand the risks they are taking.

Great article smccarrick, one thing I'd say about Eddie Hobbs that sets him apart from the other VIs is that the interests of Austin Hughes, Dan McLoughlin and the like were always known, whereas Eddie Hobbs came to prominence as the friend of the consumer and has now betrayed the very people he once claimed to help.

jetski

Thats certinly a bold statement there johnny

astrofool

There's a credit crunch when the euribor rate is vastly exceeding the ECB base rate, signifying that banks aren't lending to each other or trusting each other, this is not "normal". As long as the banks are causing this, and they link this with the falling property price, they will see it as a folly to repossess from the developer. Which is why they will wait as long as possible, and hope that lending rates become more reflective of the ecb base rate before letting developers go to the wall (hoping that easing of credit, will lead to a recovery in property), even if that means the developer selling one property a month to service a proportion of the interest on that debt.

The banks will sit on the debt as long as possible, as the debt is backed up by the properties as an asset, by letting a developer go bang, the asset price will drop significantly, and the debt will have a very low rate of return on the principle.

I'm not saying that property won't drop more (after all, property started to drop before the credit crunch hit), but it will be drawn out for a long time.

SkepticOne

Regarding Eddie's article:

So we're over the first dip but there's a "danger" of a second one. I see...

I think Hobbs is correct to a certain extent that we're still in a stand off phase of the crash. Inventory, according to Daft, is still building up but the flow of properties onto the market is very low. Inventory is not building up because sellers are dumping properties but because buyers are not buying. The capitulation phase is yet to come.

SimpleSam06

astrofool wrote: »

I'm not saying that property won't drop more (after all, property started to drop before the credit crunch hit), but it will be drawn out for a long time.

Property started to drop before the media got wind of credit difficulties, you mean...

astrofool

SimpleSam06 wrote: »

Property started to drop before the media got wind of credit difficulties, you mean...

No, property started to drop in price before credit started getting restricted. As recently as December 2007, when Mortgage Interest Relief went up and stamp duty went down, people were able to take out larger mortgages at low rates of interest (compared to ECB base rate).

Otherwise, you would be suggesting returning to a 2% base rate (with Euribor rate returning to historical norms above this), would see a return to double digit price growth.

SkepticOne

astrofool wrote: »

No, property started to drop in price before credit started getting restricted.

I agree with this. The first drops of the current market date back to March 2007 and these probably represent actual drops three to four months earlier. Many people believe that the peak for the housing market was mid-2006.

While the seeds of the credit crunch had been planted at that stage in the US through sub-prime lending, actual tightening of lending in Ireland over and above the ECB rate did not really start until Q3 2007 at the earliest and it is really only in the last six months or so that things have got really tight.

Of course the bursting of the Irish property bubble also leads to a tightening of credit in Ireland independent of the international credit crunch. A lot is being blamed on the international credit crunch that could easily be explained by banks not wanting to lend for overpriced substandard property in a falling market.

SimpleSam06

astrofool wrote: »

No, property started to drop in price before credit started getting restricted. As recently as December 2007, when Mortgage Interest Relief went up and stamp duty went down, people were able to take out larger mortgages at low rates of interest (compared to ECB base rate).

What we call the "credit crunch" is only the most visible element of what has been going on for years, as early as 2006, sub prime lenders in the US were filing for bankruptcy. This also coincides with what skeptic is saying, in that 2006 was the peak of the market. In so far as it relates to specifically Irish lending conditions, a case could be made that lending criteria among Irish banks didn't start to tighten appreciably for some time after that, although it is debatable at best, since they timed the peak of the market well.

Or to put it another way, there probably weren't easier ways for them to get the money than to sell and leaseback their own premises.

astrofool wrote: »

Otherwise, you would be suggesting returning to a 2% base rate (with Euribor rate returning to historical norms above this), would see a return to double digit price growth.

Assuming it came with an associated loosening of lending criteria, and the banks learned nothing from recent events, yes it would.

SkepticOne wrote: »

I agree with this. The first drops of the current market date back to March 2007

You mean thats when the Irish property watch blog started. According to that, there were 799 drops in March. To assume there were no drops prior to this is innacurate at best, I would say.

SkepticOne

SimpleSam06 wrote: »

You mean thats when the Irish property watch blog started. According to that, there were 799 drops in March. To assume there were no drops prior to this is innacurate at best, I would say.

Sorry, no I meant first month the flawed ESRI/PTSB index started falling meaning that the actual falling market started some months prior.