Best/Worst Case Scenarios in Terms of House Prices... Your Predictions?

SimpleSam06

md23040 wrote: »

You think the impingement of wages through 1% levy is the end of it - it's just the beginning IMO. All problems stem from America which is only halfway through its natural credit unwind.

Agreed. The reflection of bad subprime loans on massively leveraged banks is just the start.

Over the next twelve to twenty four months we'll start to see the prime and alt-a defaults, which will knock the subprimes into a cocked hat. There isn't enough money in the world to cover whats coming, unless they print a hell of a lot more money, which will bring with it massive inflation, leaving us facing the nightmare scenario of stagflation.

md23040 wrote: »

In this weeks FT - Brussels relaxed accounting rules to allow banks to do this more easily!!

Unreal. The governments are apparently taking stop gap measures as the final fix and slapping each other on the back for having solved all the problems. This will end badly.

md23040

SimpleSam06 wrote: »

Agreed. The reflection of bad subprime loans on massively leveraged banks is just the start.

Agreed

SimpleSam06 wrote: »

unless they print a hell of a lot more money, which will bring with it massive inflation, leaving us facing the nightmare scenario of stagflation.

IMO all central governments are going to try and inflate their way out of this. But intervention never works and house price intervention certainly does not work. At least in Northern Ireland new developments are being forced to fire sale with 50% discounts. Belfast three bedroom semi were £199,000 now £99,000.

In ROI, there IMO seems to be collusion between government, banks and other vested groups that are all intertwined and do not want fire sales. The actions or inactions are like pissing into the sea and trying to change the tide.

The second hand housing market is in more denial but the reality after the last 24 months of inactivity will kick in when the mess within stocks and shares starts to shock in a real way the real economy in 2009. A draconian mini budget is on the Cards for February IMO where hopefully the bloated public service issue will be tackled. An analogy of the second hand market was summed up by another site in the UK.

Of course house sellers haven't been rushing to cut prices. All their hopes and dreams (and even pensions) are tied up in those fantasy asking prices, so you can understand why they've been slow to face up to the inevitable. If you're standing underneath the town hall clock, waiting for the girl of your dreams to meet you for a first date at 8.00pm, you don't immediately rush off if she hasn't shown up by 8.01pm, you wait a bit longer...and then a bit longer still...and after that you wait some more, just to be absolutely sure that she's not coming. But at some point you face facts that you've been dumped. Well, that's happening now, it's 8.35pm and all the fondly imagined excuses, like she missed her bus, are fast evaporating!

md23040

http://www.sbpost.ie/post/pages/p/whole ...

Quote:
Sunday, October 26, 2008 By David McWilliams

Sometimes it’s difficult not to laugh at the type of advice that is being thrown around Dublin by so-called financial experts. For example, the same lads who were telling you last year that Irish property was ‘‘fundamentally’’ sound and would experience, at worst, a ‘‘soft landing’’ are now telling you that the world is ending.

But like everything in investing, you have to be diligent and, most of all, patient in your research. A crucial dynamic in all these episodes is that markets overshoot. In good times, as we’ve seen to our regret in the Irish property market, markets overshoot on the upside, bringing prices up to ludicrous levels.

In bad times, like now, the same process occurs and asset prices overshoot on the downside, bringing prices down to levels where the assets are at bargain basement prices. We are seeing this now in stock markets.

Unfortunately, this is not happening in the Irish housing market which, on any rational basis, is still wildly overvalued. Last year, this column ran a simple financial model for where fair value might be in the Irish housing market. This is back-of-the-envelope stuff, but bear with me. The price of any asset must be related to the amount of money the asset generates each year.

In the US, analysts claim that, in the long run, house prices should be equal to between 12 and 14 times earnings. This means that if a house is generating a rent of $10,000 a year, it must be worth between $120,000 and $140,000 a year.

Apply this test to Ireland. A quick search of Daft.ie will reveal, for example, that a three-bedroom house in Co Wicklow - advertised as an investment property - is on sale for €289,000.

The same website tells us that the average rent for a three-bed in Arklow is €850. So let us say that, in the best possible case, this place is rented for 11 profitable months a year - the final month’s rent goes on various costs. The implication from the American model is that the house is worth about €122,000.

The implication from this, compared to the advertised price of €289,000, is that the house is still wildly overvalued. The Irish calculation means that the house is trading at 31 times its annual yield. This clearly needs to fall dramatically by close to 60 per cent for it to make any financial sense to buy.

So one of the factors impinging on Ireland’s recovery is that we have to see house prices fall dramatically for any investor in their right mind to get back into the market. As long as estate agents, banks and builders are in denial about where prices need to go, we will not have a platform for any recovery.

Spot on analysis - although my views differ from his in other circumstances, he's on the money and thoughts and sentiment exactly the same as my own.

The real value of money has returned!! For instance last year €100k would "on average" buy about 7000 bank shares, today it would buy 70,000. Now property will only buy 20% more leeway, but this dam has yet to fully burst.

The_Conductor

gally74 wrote: »

some of the experts on Bloomberg are predicting that ECB interest rates could get to 1.5% by mid next year.

The same experts are being listened to by currency speculators- which is why the Euro has fallen almost 35c against the dollar in the past 12 weeks.
A fall to 1.5% is wishful thinking in the extreme though- when you factor inflation into the equation- is a net negative rate (as Japan has had for most of the last 15 years).

The official mandate of the ECB has not changed- but they have honed their media skills somewhat- as they have discovered that the manner in which every utterance they give is dissected can have a positive influence, without their having to back it up with deeds.

What would really be interesting is further coordinated actions with the Fed, the ECB, BOE, Switzerland and the other members of the enlarged G20.......

Personally I think the coordinated manner of any actions will have reinforcing influences far stronger than the actual % fall in rates........

Time will tell.......

astrofool

smccarrick wrote: »

The same experts are being listened to by currency speculators- which is why the Euro has fallen almost 35c against the dollar in the past 12 weeks.
A fall to 1.5% is wishful thinking in the extreme though- when you factor inflation into the equation- is a net negative rate (as Japan has had for most of the last 15 years).

The official mandate of the ECB has not changed- but they have honed their media skills somewhat- as they have discovered that the manner in which every utterance they give is dissected can have a positive influence, without their having to back it up with deeds.

What would really be interesting is further coordinated actions with the Fed, the ECB, BOE, Switzerland and the other members of the enlarged G20.......

Personally I think the coordinated manner of any actions will have reinforcing influences far stronger than the actual % fall in rates........

Time will tell.......

Trichet keeps making a fool of you smcarrick, you can be sure that whatever you post about the ECB lately, the opposite has happened (and I would have called your posts on the money at the time)

SimpleSam06

astrofool wrote: »

Trichet keeps making a fool of you smcarrick, you can be sure that whatever you post about the ECB lately, the opposite has happened

Hrm, although you might be right (and I'm not saying you are), it will have zero effect on the property market in Ireland. And in fairness the main way he might be wrong in his post is about the currency speculators - theres a lot more going on as regards currency fluctuations than them.