Unless Central Bank rules change we can't have a bubble

flashforward

All this talk about property price increases, next bubble, out of control and only going to get worse.... I don't see how this is possible unless the central bank changes its rules. Namely the 3.5x Loan to income.

No matter what, any person/couple can only borrow so much. Property prices will increase to the point where everyone will be borrowing the max amount they can - 3.5x salary. But it has to stop once this is reached (unless foreign investors take over). The issue with the last bubble was people were getting 100% mortgages at 5x+(?) times salary, basically meaning house prices rose until people were uncomfortable with what they could borrow.

I don't see how this point has not been discussed on any of the discussion around this topic? Seems like scare mongering

TLDR:
Unless salarys grow at the same rate as the house prices there has to be an end to these rises...

noodler

Household formation (demographics) require more houses per annum than we are planning to build for the next five years.

This implies further increases on the way. The 3.5 thing just stops people having unaffordable mortgages.

beauf

Unless the people/business who don't have to borrow, buy them.

The Govt is over inflating the market putting it out of reach of borrowers, and probably locals, and perhaps even Irish People. You're seeing a transfer of ownership into foreign investment. Its not just housing, its also going to be farms, shopping centers etc.

Its already happened elsewhere.

Earlier this year, the Guardian revealed how a 50-storey block of 214 luxury apartments by the river Thames in Vauxhall was more than 60% owned by foreign buyers. In one of the starkest examples of the impact of foreign investment, it found that a quarter of the flats were held by companies in secretive offshore tax havens, and many were unoccupied.

https://www.theguardian.com/cities/2016/sep/29/london-mayor-sadiq-khan-inquiry-foreign-property-ownership

There are ways to circumvent the limits. But its very risky and its probably how people got into trouble in the Tiger. So that's likely happening now. If anything its probably going to happen faster this time.

Theres probably a lot of people locked into negative equity properties and they will want the increases so they can get out of the property, but they won't or can't sell until they get back in the black.

johnnyskeleton

Large residential investment vehicles borrow money at low rates from banks who get it at even lower rates internationally and then buy up a load of property. If this were to cease, demand would drop significantly and supply would increase significantly.

So theres that

noodler

johnnyskeleton wrote: »

Large residential investment vehicles borrow money at low rates from banks who get it at even lower rates internationally and then buy up a load of property. If this were to cease, demand would drop significantly and supply would increase significantly.

So theres that

That would imply there is an abundance of rental properties though and we know that's not true. Quite the opposite in fact.

johnnyskeleton

noodler wrote: »

That would imply there is an abundance of rental properties though and we know that's not true. Quite the opposite in fact.

It doesnt imply that. It implies that large companies, such as IRes own thousands of properties which they can buy without residential mortgages so the suggestion that a bubble could not be caused in the current market because of central bank rules does not reflect this significant sector of the market

emo72

Our kids won't be able to afford to live near us, if we live in a major city. Everything is fooked up lads. Everything.

flashforward

johnnyskeleton wrote: »

It doesnt imply that. It implies that large companies, such as IRes own thousands of properties which they can buy without residential mortgages so the suggestion that a bubble could not be caused in the current market because of central bank rules does not reflect this significant sector of the market

Scary stuff.
Wouldn't this mean the bubble would be limited to the large city's? And to a lesser extent nearby commuter towns?
We would see prices in Dublin continue to rise with no end in sight essentially pricing the PAYE couple out of the market very shortly (again due to the 3.5 rule) creating more demand for rental properties further driving up the cost of rent....
Dublin becomes impossible for the average person to even consider owning a home.

Looking outside dublin or the other large city's/ major commuter towns then my original point (3.5x rule limiting price increase) must stay true to a large extent as the IRes like company's will not be inflating the prices. Prices will reach a natural cap based on what's affordable?

Samuel T. Cogley

flashforward wrote: »

All this talk about property price increases, next bubble, out of control and only going to get worse.... I don't see how this is possible unless the central bank changes its rules. Namely the 3.5x Loan to income.

3.5 combined salary + equity from the previous place, plus an inheritance plus a gift from the in laws + the pent up saving having not been able to move for ten years. It's possible to have these restrictions and a bubble, the proof of that statement being the situation on the ground.
<mod snip>

Yourself isit

flashforward wrote: »

All this talk about property price increases, next bubble, out of control and only going to get worse.... I don't see how this is possible unless the central bank changes its rules. Namely the 3.5x Loan to income.

No matter what, any person/couple can only borrow so much. Property prices will increase to the point where everyone will be borrowing the max amount they can - 3.5x salary. But it has to stop once this is reached (unless foreign investors take over). The issue with the last bubble was people were getting 100% mortgages at 5x+(?) times salary, basically meaning house prices rose until people were uncomfortable with what they could borrow.

I don't see how this point has not been discussed on any of the discussion around this topic? Seems like scare mongering

TLDR:
Unless salarys grow at the same rate as the house prices there has to be an end to these rises...

It looks like the banks are getting laxer. In general that sentiment is correct though. Any increases will depend on supply being constrained. But that's not politically viable.

Yourself isit

Samuel T. Cogley wrote: »

3.5 combined salary + equity from the previous place, plus an inheritance plus a gift from the in laws + the pent up saving having not been able to move for ten years. It's possible to have these restrictions and a bubble.

Simon Coveney is that you? :pac:

No. Simon wants a bubble.

He's right. If supply catches up prices have to fall. Or to put it another way the prices are a reaction to constrained supply.

All the other stuff you mention is symptom not cause. I mean if prices fall people won't need their pent-up savings, inheritance etc.

brady23

A bubble could also occur as a result of increases in unemployment or increased interest rates for whatever reason if it was wide ranging enough.

There are obviously no indicators of why this would occur but unemployment with 3.5 times an income/combined income on a mortgage of 90% could still lead to a bubble. It obviously won't cause what happened in 2008 but a mini bubble could happen.


Additionally I personally think people are blinded by the value of the HTB scheme and it could cause issues if things went south. Given that it is limited to brand new homes, the scheme is essentially causing a disproportionate increase in the price of new homes relative to the overall increase in house prices.


Essentially it means that new homeowners are entering into negative equity immediately. This isn't an issue now but when the HTB scheme ends, increases/decreases in the overall price of homes will lead to those who used the HTB scheme not experiencing the benefit of an increase in equity but those who were already homeowners or those who bought without the HTB scheme will.


In turn in the event of a mini bubble etc those who used the HTB scheme will experience the largest reduction in equity.

beauf

Yourself isit wrote: »

So 30 years ago nobody could buy in your area? Yet we know that house ownership was much higher then and the age people bought housing was much lower.

Look at the interest rates....

http://www.moneyguideireland.com/history-of-mortgage-rates-in-ireland.html

beauf

Yourself isit wrote: »

No. Simon wants a bubble.

He's right. If supply catches up prices have to fall. Or to put it another way the prices are a reaction to constrained supply.

All the other stuff you mention is symptom not cause. I mean if prices fall people won't need their pent-up savings, inheritance etc.

It really does seems like they want to strip people of their pensions, saving and inheritance. Well from the middle/working classes at least.

Yourself isit

beauf wrote: »

Look at the interest rates....

http://www.moneyguideireland.com/history-of-mortgage-rates-in-ireland.html

Interest rates didn't stop a higher level of house ownership. If the banks apply a proper criteria (% of income) the monthly costs will be the same for somebody buying at a 2% as at 14% interest.

Except in the latter case the price relative to income for the house is lower. Even better it's probably a time of high inflation reducing your real payments dramatically over time. And interest rates go down reducing payments further. And prices go up increasing your equity.

Buying a house at a historically high rate of interest is good news.

beauf

Yourself isit wrote: »

Interest rates didn't stop a higher level of house ownership. If the banks apply a proper criteria (% of income) the monthly costs will be the same for somebody buying at a 2% as at 14% interest.

Except in the latter case the price relative to income for the house is lower. Even better it's probably a time of high inflation reducing your real payments dramatically over time. And interest rates go down reducing payments further. And prices go up increasing your equity.

Buying a house at a historically high rate of interest is good news.

The point is people are buying them now at a historically low rate of interest. And when income vs price of housing is lower.

Its not a great time to be stretching to your limit to buy an inflated property.

Yourself isit

beauf wrote: »

The point is people are buying them now at a historically low rate of interest. And when income vs price of housing is lower.

Its not a great time to be stretching to your limit to buy an inflated property.

Right. I didn't get you meant that you the first time.

If interest rates go back to 1982 levels we are all doomed. However people who bought in 1982 were buying much cheaper houses - and plenty were being built.

beauf

The problem is limited supply. Also the jobs are all focused on Dublin. The Govt seems to be fuelling both.

Samuel T. Cogley

Yourself isit wrote: »

No. Simon wants a bubble.

He's right. If supply catches up prices have to fall. Or to put it another way the prices are a reaction to constrained supply.

All the other stuff you mention is symptom not cause. I mean if prices fall people won't need their pent-up savings, inheritance etc.

Of course, it's the only way to get building going again. The problem is that I don't see the other side. If it's had to get to €250K for a 1 bed apartments to be built in Swords why do people think that as soon as there is supply prices will come down - they won't. The cartel will continue and prices will, at best, stabilise. The only hope is that developers and banks will recoup their losses and prices might reduce that way. Until then, I 100% agree - the bubble is policy.

noodler

johnnyskeleton wrote: »

It doesnt imply that. It implies that large companies, such as IRes own thousands of properties which they can buy without residential mortgages so the suggestion that a bubble could not be caused in the current market because of central bank rules does not reflect this significant sector of the market

The problem is supply.

The problem isn't that all the houses being built are being sold to funds.

If we are still only building half of what we need each year then it doesn't really matter who owns them for bubble purposes.

Houses being bought with cash can't create a credit bubble.

beauf

It creates a bubble for those buying them without cash.

Yourself isit

Samuel T. Cogley wrote: »

Of course, it's the only way to get building going again. The problem is that I don't see the other side. If it's had to get to €250K for a 1 bed apartments to be built in Swords why do people think that as soon as there is supply prices will come down - they won't. The cartel will continue and prices will, at best, stabilise. The only hope is that developers and banks will recoup their losses and prices might reduce that way. Until then, I 100% agree - the bubble is policy.

Surely you realise that if supply meets demand prices have to fall, right? The prices now indicate that demand exceeds supply.

Samuel T. Cogley

Yourself isit wrote: »

Surely you realise that if supply meets demand prices have to fall, right? The prices now indicate that demand exceeds supply.

Surely you realise that if supply meets demand prices will stay exactly the where they are. You need supply to exceed demand for prices to fall.

You reckon there is a carefully contrived bubble but you reckon they won't continue to control supply in a way that would put De Beers to shame?

beauf

Supply has to exceed demand to make any real difference.

Yourself isit

Samuel T. Cogley wrote: »

Surely you realise that if supply meets demand prices will stay exactly the where they are. You need supply to exceed demand for prices to fall.

No you don't. You just need increases in supply.

You reckon there is a carefully contrived bubble but you reckon they won't continue to control supply in a way that would put De Beers to shame?

I doubt the political ability to do that. Coveney is at least pretending to try to increase supply.

Yourself isit

Samuel T. Cogley wrote: »

:pac:

<mod snip>

It's basic economics that the price level is set linearly in most cases by how much supply exceeds, meets or doesn't meet demand. It's generally shown as a line on a graph. ( Sometimes two with supply sloping in the opposite direction to demand).

Price is not a step function that goes from Very Expensive to Very Cheap the minute there is a supply of one extra item (house in this case) more than demand.

If there is enough supply to satisfy 20% of the potential market then you get a certain price level dependent on what the top 20% can afford.

Increase supply so that it's now meeting 80% of demand and the price will be cheaper because in theory now the top 80% of the potential market. can afford it. You don't need supply to be 101% of demand to budge prices.

beauf

Many of the funds buying up housing will leave once they start to see the shortage dissipate. As there won't be enough margin in it for them. But there may be still enough margin for those not trying to make a fast buck.

Wanderer78

Yourself isit wrote:

It's basic economics that the price level is set linearly in most cases by how much supply exceeds, meets or doesn't meet demand. It's generally shown as a line on a graph. ( Sometimes two with supply sloping in the opposite direction to demand).

Market equilibrium models are currently being stripped to pieces and have been shown to fail badly at predicting markets at times, I wouldn't put too much faith in them

Samuel T. Cogley

Yourself isit wrote: »

<mod snip>

It's basic economics that the price level is set linearly in most cases by how much supply exceeds, meets or doesn't meet demand. It's generally shown as a line on a graph. ( Sometimes two with supply sloping in the opposite direction to demand).

Price is not a step function that goes from Very Expensive to Very Cheap the minute there is a supply of one extra item (house in this case) more than demand.

If there is enough supply to satisfy 20% of the potential market then you get a certain price level dependent on what the top 20% can afford.

Increase supply so that it's now meeting 80% of demand and the price will be cheaper because in theory now the top 80% of the potential market. can afford it. You don't need supply to be 101% of demand to budge prices.

<mod snip>
However housing is not a singular commodity like gold or coffee, is segmented. You need to exceed the demand in a given segment, 4 bed houses in Howth for example for the price to change, while there is two buyers for a single property prices will continue to rise. Now one buyer might move they might not however it's no where near as simple as you're trying to suggest. If it were there would be no middle class people looking for houses, they'd have bought in Finglas and Kilbarrack because they could afford to.

Until a buyer has a choice on a couple of different properties and competition is introduced the best we can hope for is stagnation.

Wanderer78

PREG1967 wrote:

Houses are like any product, and should if FG can resist interfering operate in an fairly efficient way. As prices rise so more will be built to satisfy demand, bringing prices back to an equilibrium

We truly need to ditch these ideas of market equilibrium hypothesis, they are fundamentally flawed in relation to complex markets such as housing

jamesthepeach

I hear lots of friends in positive equity now are remortgaging just for the cash.
This wouldnt have happened last year or the year before.
I think thats a bad sign.

beauf

Samuel T. Cogley wrote: »

<mod snip>
However housing is not a singular commodity like gold or coffee, is segmented. You need to exceed the demand in a given segment, 4 bed houses in Howth for example for the price to change, while there is two buyers for a single property prices will continue to rise. Now one buyer might move they might not however it's no where near as simple as you're trying to suggest. If it were there would be no middle class people looking for houses, they'd have bought in Finglas and Kilbarrack because they could afford to.

Until a buyer has a choice on a couple of different properties and competition is introduced the best we can hope for is stagnation.

We used to sell houses. I can remember a time probably late 80s and 90s when it took months to sell a house. We stopped building them and moved to other types of building work. We had houses for sale at 30-40k and they didn't sell easily.

I was always curious how the price of houses since then has been completely out of line with any rises in the average income. Especially when you consider we've moved from a single income being able to afford a house, to not even joint incomes being enough.

It's not just an Irish problem either.

April 73

jamesthepeach wrote: »

I hear lots of friends in positive equity now are remortgaging just for the cash.
This wouldnt have happened last year or the year before.
I think thats a bad sign.

What are they doing with the cash?

jamesthepeach

I dont know what they are doing with the cash.
One has a daughter with a wedding coming up. I suppose some might be going on that.
Another just bought a new car.
Im sure some just want cash on had.
But tbh they dint tell me about what they do with the cash.
It just comes up in conversation where they tell me about this great deal wheer you can remortgage and get cash.
I was never into it myself.

Poulgorm

If house prices are a simple supply / demand issue, how come prices kept going up and up when we were building 80,000+ units per annum?

quadrifoglio verde

Poulgorm wrote: »

If house prices are a simple supply / demand issue, how come prices kept going up and up when we were building 80,000+ units per annum?

Because there was demand for in excess of 80K due to cheap and easy money chasing it.

noodler

Poulgorm wrote: »

If house prices are a simple supply / demand issue, how come prices kept going up and up when we were building 80,000+ units per annum?

Credit with less restrictions on LTV or income


Credit which is no longer available at such levels.

seamus

The last bubble was mostly down to investment lending. Building more properties than were needed and people buying them up as investments.

While investment lending is currently running away with itself, we still have less houses than we need.

So in the event of another credit issue, investment purchasing may collapse but there will still be residential purchasers to take up the slack. Prices will drop to meet higher interest rates but we won't see the same problem before of people being stuck with private homes that are worth half what they paid and with nobody looking to buy.

The government needs to get a grip on investment purchasers and make it expensive for them to enter the market.

They ****ed it up last time and will **** it up again if we let them. Because investors don't learn. It's all a game for them, win some, lose some, and they'll come back and play the game again even after they've lost before.

MrDerp

Poulgorm wrote: »

If house prices are a simple supply / demand issue, how come prices kept going up and up when we were building 80,000+ units per annum?

Over half the market was investors, and there was schemes for buying in certain areas, along with 20% (low) capital gains tax and 10% year on year capital appreciation.

At the end of the boom over half the market was speculators leveraging to buy property, on the promise of low tax gains without even needing to rent out the property. As such, flipping was rampant on new property.

Hence about half of demand left with investors alone, and another chunk of demand evaporated as people saw what was happening, or lost jobs and/or a portion of their income. This is what caused demand and therefore prices to drop.

Also remember how many of those units were in speculative ghost estate locations. The section 23 stuff in places like Leitrim, for example. Those 80,000 units weren't all in cities and big towns

Samuel T. Cogley

Incidentally this talk of investors - surely they rent the units so while I agree property needs to stop being this default way to pump a few 100K into 'for the craic' is this not how there's a rental market? Is the suggestion that investors where leaving units empty?

dev100

jamesthepeach wrote:

I dont know what they are doing with the cash. One has a daughter with a wedding coming up. I suppose some might be going on that. Another just bought a new car. Im sure some just want cash on had. But tbh they dint tell me about what they do with the cash. It just comes up in conversation where they tell me about this great deal wheer you can remortgage and get cash. I was never into it myself.

Expensive way to pay for a wedding and car

UsBus

jamesthepeach wrote: »

I dont know what they are doing with the cash.
One has a daughter with a wedding coming up. I suppose some might be going on that.
Another just bought a new car.
Im sure some just want cash on had.
But tbh they dint tell me about what they do with the cash.
It just comes up in conversation where they tell me about this great deal wheer you can remortgage and get cash.
I was never into it myself.

If this craic is going on again, it's only a matter of time. We just can't help ourselves..😒

beauf

Samuel T. Cogley wrote: »

Incidentally this talk of investors - surely they rent the units so while I agree property needs to stop being this default way to pump a few 100K into 'for the craic' is this not how there's a rental market? Is the suggestion that investors where leaving units empty?

Its not that clear cut. Most are. Others are renting them out and maximizing the rent. Some dont want the hassle of renting it out. As the property is appreciating enough that they don't need the rent to make money. In the UK though they have a problem of it happening a lot.

Samuel T. Cogley

beauf wrote: »

Its not that clear cut. Most are. Others are renting them out and maximizing the rent. Some dont want the hassle of renting it out. As the property is appreciating enough that they don't need the rent to make money. In the UK though they have a problem of it happening a lot.

We really need to tax empty units very heavily along with unused land.

beauf

Tax is not the answer to every dang thing in this country.

You have to ask why do they not want to rent or build. Fix that problem.

jamesthepeach

beauf wrote: »

Tax is not the answer to every dang thing in this country.

You have to ask why do they not want to rent or build. Fix that problem.

I think many people think it is. Remember they wanted to tax text messages. That will probably make a comeback too.

Samuel T. Cogley

beauf wrote: »

Tax is not the answer to every dang thing in this country.

You have to ask why do they not want to rent or build. Fix that problem.

It's arguably the answer to this though. People will always be anti-tax, but this is an easy fix, it's more units vs. charging a fee to keep units empty thus making that option less financially viable. It's a win/win here.

It's easy to answer the not build question - it's more profitable to wait - remove that. Building regs play into this but there is no point throwing up a load of ****e or creating ghettos either.

Now on the renting side I'm all for a holistic approach, radical changes need to be made to address the balance however no matter how pro-LL the laws become there will always be people who work out it's better to keep the unit empty - disincentive that.