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Property Market 2020
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I'm sharing what I've learned through listening to experts and friends working in a number of different sectors of the financial industry as well as reading a lot of stuff.
Instead of attempting a bit of oneupmanship how about you address the points I've made if you disagree.
I'll have a go...
You (and others) keep mentioning that it is different this time because the banks are in much better health now, but I fail to see how that will cushion any drop a prices.
The state of the banks balance sheets right now is more relevant to how well they are able to cope with loans they have already issued . i.e the mortgages drawn down and spent into a rising market.
It is the mortages that they issue in the future that will be those that influence the future direction of the market.
They are not going to think "Wahey, carry on lending just as we were last year, sure we can afford the losses this time if it goes tits up."
Particularly not if the Central Bank are breathing down their necks:It is understood the Central Bank will monitor the provisions banks make for estimated losses stemming from the Covid-19 shut down to include taking a view on the medium-term effect the crisis may have on house prices and jobs...
...Regulators are understood to be anxious to avoid a repeat of the last crash, when banks allowed mortgage arrears to increase for years among a huge numbers of borrowers and only belatedly put operations in place for large-scale mortgage arrears engagement and to offer debt cure solutions.
Regulator wants banks prepared for arrears spike
'Anxious to avoid a repeat of the last crash', banks will not only lend less money to less people, but their valuers will be instructed to be ultraconservative.
And it won't matter jot if both vendor and buyer are prepared to do a deal at €400k, the bank will set the price and if the bank says they are only prepared to lend at a valuation of €320k the vendor has to either take it or leave it.
This will put very significant pressure on prices irrespective of how well the banks are capitalised, as far as I can see.
Given they'll be once bitten, twice shy, I just can't get my head around how the relative strength of banks balance sheets means a soft landing. Am I missing something?0 -
I'll have a go...
You (and others) keep mentioning that it is different this time because the banks are in much better health now, but I fail to see how that will cushion any drop a prices.
The state of the banks balance sheets right now is more relevant to how well they are able to cope with loans they have already issued . i.e the mortgages drawn down and spent into a rising market.
It is the mortages that they issue in the future that will be those that influence the future direction of the market.
They are not going to think "Wahey, carry on lending just as we were last year, sure we can afford the losses this time if it goes tits up."
Particularly not if the Central Bank are breathing down their necks:
Regulator wants banks prepared for arrears spike
'Anxious to avoid a repeat of the last crash', banks will not only lend less money to less people, but their valuers will be instructed to be ultraconservative.
And it won't matter jot if both vendor and buyer are prepared to do a deal at €400k, the bank will set the price and if the bank says they are only prepared to lend at a valuation of €320k the vendor has to either take it or leave it.
This will put very significant pressure on prices irrespective of how well the banks are capitalised, as far as I can see.
Given they'll be once bitten, twice shy, I just can't get my head around how the relative strength of banks balance sheets means a soft landing. Am I missing something?
Not sure about a soft landing, but if the banks have relatively strong sheets then it means their risk appetite will not be as curtailed as if they had low room to negotiate. Not saying it will make things better, but it would give them breathing room.
Getting nearly 300bps with a buying cost substantially under that is still lucrative to them, especially if competitors don't close up shop..0 -
I've read your post. Here are some questions.schmittel wrote:I'll have a go...
If money is worth less do house prices drop?
If there is a massive lack of supply do house prices drop?
Where do you envisage the large supply of houses appearing from?
In the last crash the banks were in bad shape and there was lots of houses. Those are two key ingredients which are missing this time around.0 -
The banks are nowhere near as leveraged as they were before. Loan to deposit ratios for both banks are less than 100% when they would have been circa 150% before the crash. Basically the market for lending in Ireland never picked up the past ten years (once bitten, twice shy).
The biggest issue facing banks is how many of these people on loan breaks will need more than the time that the central bank defines as a once off dig out. I.e. the ones Whoes jobs might not be waiting for them at the end and a slow jobs market. Once these people are determined to be in financial difficulty it’ll cost the banks a lot more in provisioning etc. That combined with a huge fall off in lending will create large losses.
That being said where in the crash they might have been dealing with someone with multiple properties in negative equity, it is probably more likely that these people will have borrowed for the one house and if they borrowed in the past few years the 3.5 salary cap should mean that their repayments aren’t unsustainable in the short term.
The banks will also still be desperate to lend as they don’t make money otherwise. The problem is where they’ve given e.g. Jimmy Smith, a hotel manager approval and he’s now now out of work but reckons he’ll be back by June or July but who knows whether his hotel will have guests or not etc. That’s where they are rolling back on approvals.0 -
I've read your post. Here are some questions.
If money is worth less do house prices drop?
If there is a massive lack of supply do house prices drop?
Where do you envisage the large supply of houses appearing from?
1) No, if we see inflation prices will rise.
2) If there is a corresponding lack of demand then yes, they will drop. If demand stays the same, no.
3) There does not need to be a large supply fro prices to drop.In the last crash the banks were in bad shape and there was lots of houses. Those are two key ingredients which are missing this time around.
I think my blindspot on this bank thing might be what constitutes a soft landing. I agree it is different this time in that we won't see such dramatic falls like 50-60%, but equally I don't think we are in for a soft landing.
What do you consider to be a soft landing from peak to trough - less than 5%?0 -
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Experience_day wrote: »Not sure about a soft landing, but if the banks have relatively strong sheets then it means their risk appetite will not be as curtailed as if they had low room to negotiate. Not saying it will make things better, but it would give them breathing room.
Agree and understand this re banks strengths, but as you say you are not sure it makes for a soft landing.
Neither am I.0 -
The level of FDI into Ireland and associated jobs has inflated prices beyond what the real economy could ever realistically sustain. Successive governments have failed to properly define short, medium and long term models which people can connect with. This was the case with stamp duty and more recently corporation tax.
The one dimensional model of FDI has left us very exposed. A failure to really support a model of developing indigenous industries will come home to roost as the horizon shows at best significant downside risk. I would personally not enter into a mortgage which couldn’t be paid off in 15-20 years as a rule of thumb. You need to make a considered personal decision on borrowing as much as I can get v just as much as you need. Globally the acceptance of debt is what’s really keeping this asset Ponzi scheme going.0 -
The level of FDI into Ireland and associated jobs has inflated prices beyond what the real economy could ever realistically sustain. Successive governments have failed to properly define short, medium and long term models which people can connect with. This was the case with stamp duty and more recently corporation tax.
The one dimensional model of FDI has left us very exposed. A failure to really support a model of developing indigenous industries will come home to roost as the horizon shows at best significant downside risk. I would personally not enter into a mortgage which couldn’t be paid off in 15-20 years as a rule of thumb. You need to make a considered personal decision on borrowing as much as I can get v just as much as you need. Globally the acceptance of debt is what’s really keeping this asset Ponzi scheme going.
All correct. But and it's a big but, interest rates are zero for deposits so money has to go somewhere. If your like me buying a house for 450 then interest is 850 per month . If you include insurance, life insurance, property tax then that's 1k a month. Try renting a house in Kildare /Meath for that. As long as the principle is safe then the rest is a savings plan.
It's also a good hedge on inflation long term. You can't print houses. The rebuild cost to the latest building regs on the one I'm buying is more than I'm paying and that doesn't even include the site cost. Builders aren't getting any cheaper. I read somewhere can't build a 2 bed apartment for less than 400k which means if your buying a 2 bed today for 250-300 then your quids in with a safety margin.
Also why 15-20 years?A house is a durable asset that odds on will outlive both you and your kids and probably your kids kids.Why shouldn't you pay it over your working life. If that's 40 years then what's wrong with that if its 20 then that's ok too.0 -
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The level of FDI into Ireland and associated jobs has inflated prices beyond what the real economy could ever realistically sustain. Successive governments have failed to properly define short, medium and long term models which people can connect with. This was the case with stamp duty and more recently corporation tax.
The one dimensional model of FDI has left us very exposed. A failure to really support a model of developing indigenous industries will come home to roost as the horizon shows at best significant downside risk. I would personally not enter into a mortgage which couldn’t be paid off in 15-20 years as a rule of thumb. You need to make a considered personal decision on borrowing as much as I can get v just as much as you need. Globally the acceptance of debt is what’s really keeping this asset Ponzi scheme going.
Just to note as well that there was an €155 billion drop in FDI from Europe last year before the current crisis even started!
https://www.irishtimes.com/business/economy/fdi-gain-from-us-offset-by-155bn-slump-in-flows-from-europe-1.41036900 -
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The level of FDI into Ireland and associated jobs has inflated prices beyond what the real economy could ever realistically sustain. Successive governments have failed to properly define short, medium, and long term models that people can connect with. This was the case with stamp duty and more recently corporation tax.
The one dimensional model of FDI has left us very exposed. A failure to really support a model of developing indigenous industries will come home to roost as the horizon shows at best significant downside risk. I would personally not enter into a mortgage that couldn’t be paid off in 15-20 years as a rule of thumb. You need to make a considered personal decision on borrowing as much as I can get v just as much as you need. Globally the acceptance of debt is what’s really keeping this asset Ponzi scheme going.
The jobs going or most at risk after this are mostly in hospitality the sort young people do so unlikely to affect price long term but who knows.
Another interesting aspect of the FDI model is how it has filtered down to career choices by young people biomedical science would have been a medium to low-level choice for 18 years going to college now its become really popular0 -
mariaalice wrote: »The jobs going or most at risk after this are mostly in hospitality the sort young people do so unlikely to affect price long term but who knows.
Another interesting aspect of the FDI model is how it has filtered down to career choices by young people biomedical science would have been a medium to low-level choice for 18 years going to college now its become really popular
I disagree with this statement and it's been made many times on this thread. Hospitality (bars, restaurants, nightclubs, hotels, tourism etc) and retail are the biggest employers by far in this country.
You can't simply write them off as "jobs young people do" and say it will have little to no effect.
It's going to have a huge effect. People are jumping the gun by miles if they expect to see any tangible changes already, or even for the next 8 weeks.
Mortgage approvals are down 10% for March, so expect 20-30% for April and May. That's a whole lotta houses not getting bought. Granted, we're in lockdown so this will hopefully bounce back somewhat for June and July, but I expect the end of the year could be rough on house sales and prices will start to drop then.0 -
BPFI has published its 2020 Q1 Mortgage Drawdowns and 2020 March Approvals reports.
2020 Q1 Mortgage Drawdowns are mainly pre-Covid, with minor impact of Covid in March.
In overall there are no much change:
"Mortgage drawdown activity rose in volume terms by 1.8% year-on-year and increased in value terms by 6.0% over the same period."
Where as highest increase comming from FTB:
"First-time buyer (FTB) mortgage drawdown volumes increased by 8.4% year-on-year to 4,400"
Highest decrease from Investment:
"Residential investment letting (RIL) mortgage drawdown volumes decreased by 14.7% year-on-year to 232."
2020 March Approvals has Covid lockdown impact, not yet a full scale.
Overall decrease:
"Mortgage approval activity decreased in volume terms by 9.9% year-on-year"
Lower decrease from FTB&STB
"First-time buyer(FTB) mortgage approval volumes decreased by 7.9% year-on-year to 1,946 while mover purchase approval volumes decreased by 6.3% year-on-year to 970"
Highest decrease from Investment:
"Residential investment letting(RIL) mortgage approval volumes decreased by 37.8% year-on-year to 79."0 -
I'll have a go...
You (and others) keep mentioning that it is different this time because the banks are in much better health now, but I fail to see how that will cushion any drop a prices.
The state of the banks balance sheets right now is more relevant to how well they are able to cope with loans they have already issued . i.e the mortgages drawn down and spent into a rising market.
It is the mortages that they issue in the future that will be those that influence the future direction of the market.
They are not going to think "Wahey, carry on lending just as we were last year, sure we can afford the losses this time if it goes tits up."
Particularly not if the Central Bank are breathing down their necks:
Regulator wants banks prepared for arrears spike
'Anxious to avoid a repeat of the last crash', banks will not only lend less money to less people, but their valuers will be instructed to be ultraconservative.
And it won't matter jot if both vendor and buyer are prepared to do a deal at €400k, the bank will set the price and if the bank says they are only prepared to lend at a valuation of €320k the vendor has to either take it or leave it.
This will put very significant pressure on prices irrespective of how well the banks are capitalised, as far as I can see.
Given they'll be once bitten, twice shy, I just can't get my head around how the relative strength of banks balance sheets means a soft landing. Am I missing something?
Banks will not set the price of houses what they may do is require higher deposits and only lend at Central bank multiples. They were allowed to lend a certain amount at rates above the 3.5 time wages multiples.
It also interesting that people are spending less at present and even when bars and restaurants open there will be less spending in them. It may mean that come year end people will have a little nest egg.
Many younger couples with children if they are working from home are saving childcare and travel to work costs. Al in all this group which would be the main part of the mortgage stress group may get through this easier than many think.
Another thing to factor is people saving for a house at present if employed will be saving substantially more than usual.
Construction will be back at 70-100% capacity in 2-3 weeks. Over the next 4-8 weeks the economy will start to wind up. I can see rental costs in larger urban areas fall but this may not stress Investors as much as 2010 remember borrowing to equity ratio was quite changed for them after last crash most had to have 30%ish equity.
I actually think lower priced property will not be impacted to the extent many think. It's the mid and higher end where borrowing restrictions hit most that may struggle a bitSlava Ukrainii
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I'll have a go...
You (and others) keep mentioning that it is different this time because the banks are in much better health now, but I fail to see how that will cushion any drop a prices.
The state of the banks balance sheets right now is more relevant to how well they are able to cope with loans they have already issued . i.e the mortgages drawn down and spent into a rising market.
It is the mortages that they issue in the future that will be those that influence the future direction of the market.
They are not going to think "Wahey, carry on lending just as we were last year, sure we can afford the losses this time if it goes tits up."
Particularly not if the Central Bank are breathing down their necks:
Regulator wants banks prepared for arrears spike
'Anxious to avoid a repeat of the last crash', banks will not only lend less money to less people, but their valuers will be instructed to be ultraconservative.
And it won't matter jot if both vendor and buyer are prepared to do a deal at €400k, the bank will set the price and if the bank says they are only prepared to lend at a valuation of €320k the vendor has to either take it or leave it.
This will put very significant pressure on prices irrespective of how well the banks are capitalised, as far as I can see.
Given they'll be once bitten, twice shy, I just can't get my head around how the relative strength of banks balance sheets means a soft landing. Am I missing something?
the difference is the banks went gun-ho trying to repossess at the end of the last recession putting themselves through a lot of expense and not realising that putting people out of their home was more or less impossible in this country. With this knowledge banks will do everything they can to try and help mortgage holders as they realise that if they dont play nice the owner has the option of just not engaging and living rent free for years. On the flip side of this there were no 100 or 100% mortgages given out in the last decade or so. So a high % of people will have a lot of skin in the game as in equity (not all) So it is in their interest to play nice as well. This is different to last time. We will not be borrowing anywhere near as much for this bailout either. The vender in your analogy has the option of saying thanks but no thanks I will just live here rent free paying no mortgage for the next 10 years. Thanks mr bank manager. That is probably the biggest difference this time around people know how to get around the banks0 -
I disagree with this statement and it's been made many times on this thread. Hospitality (bars, restaurants, nightclubs, hotels, tourism etc) and retail are the biggest employers by far in this country.
You can't simply write them off as "jobs young people do" and say it will have little to no effect.
It's going to have a huge effect. People are jumping the gun by miles if they expect to see any tangible changes already, or even for the next 8 weeks.
Mortgage approvals are down 10% for March, so expect 20-30% for April and May. That's a whole lotta houses not getting bought. Granted, we're in lockdown so this will hopefully bounce back somewhat for June and July, but I expect the end of the year could be rough on house sales and prices will start to drop then.
Well already since the start of this last month properties available on myhome are down 12% and they will continue to come down as no one can sell at the moment in this environment so demand and supply going down at roughly the same rate in the last month0 -
It would be nice if posted were the segments where the price drops are happening.
e.g......
0 -250k - 2%
2501k - 300k - 8%
300k - 400k - 4%
401k- 500 - 10%
501k - 750k - 20%
I have been keeping an eye on 275 - 350k houses in D3 & D5, I have not seen any drops. I don't expect to for another 6 months.0 -
I'm not sure what a soft landing would be myself but I'd imagine if you are not plunged into negative equity it's an acceptable landing. I'd guess that anybody over two years into a mortgage could swallow a 15% drop. I'm not sure about that but I can't see any major repercussions if we get a15% drop. The big unknown is the position of newer mortgage holders and how leveraged they are.schmittel wrote:I think my blindspot on this bank thing might be what constitutes a soft landing. I agree it is different this time in that we won't see such dramatic falls like 50-60%, but equally I don't think we are in for a soft landing.
What do you consider to be a soft landing from peak to trough - less than 5%?0 -
ebayissues wrote: »It would be nice if posted were the segments where the price drops are happening.
e.g......
0 -250k - 2%
2501k - 300k - 8%
300k - 400k - 4%
401k- 500 - 10%
501k - 750k - 20%
I have been keeping an eye on 275 - 350k houses in D3 & D5, I have not seen any drops. I don't expect to for another 6 months.
It would be nice if there was an actual full stat on this as in if 8 houses drop an average of say 10% you cannot only take 8 houses into account if there are 80 houses available, this would make the drop only 1% not 10%. the dooms dayers on here keep skewing that figure and forget to factor in property that have not dropped or ones that have actually risen0 -
fliball123 wrote: »Well already since the start of this last month properties available on myhome are down 12% and they will continue to come down as no one can sell at the moment in this environment so demand and supply going down at roughly the same rate in the last month
Not quite roughly the same rate, viewings down almost 100%.0 -
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I'm not sure what a soft landing would be myself but I'd imagine if you are not plunged into negative equity it's an acceptable landing. I'd guess that anybody over two years into a mortgage could swallow a 15% drop. I'm not sure about that but I can't see any major repercussions if we get a15% drop. The big unknown is the position of newer mortgage holders and how leveraged they are.
Ok well we are closer in opinion than we may have thought, its just I would think 15% is a fairly significant correction, rather than a soft landing.
i was taking your posts to mean that the relative health of the banks would cushion the drops to less than 5%, and I don't think that is likely.0 -
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ebayissues wrote: »
I have been keeping an eye on 275 - 350k houses in D3 & D5, I have not seen any drops. I don't expect to for another 6 months.
I reckon you are right in thinking that if we see any drops it will be down the road a fair bit.
Anyone who had their mortgage application sorted and ready to buy are still in a good position to do so once things get moving again.
What about all of those that were saving towards the idea of securing a mortgage next year though? People being on furlough and reduced incomes will inevitably result in people having to delay their plans for months, if not longer.0 -
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fliball123 wrote: »there are virtual viewings going on at present
Virtual viewings have been online for years, no-one buys a house from a virtual viewing!0 -
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Ok well we are closer in opinion than we may have thought, its just I would think 15% is a fairly significant correction, rather than a soft landing.
i was taking your posts to mean that the relative health of the banks would cushion the drops to less than 5%, and I don't think that is likely.
I would not consider 15% a significant correction/drop. That would not cause consternation in the market. Last recession there were properties that dropped 75-80% some are still only 30-40%of there original price in some area's. I think outside of larger urban centers hoses prices have not skyrocketed as well there was a good few doer uppers still around.
15% would only be an issue to forced sellers and even then you have to be forced to sell for it to be a huge issueSlava Ukrainii
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ebayissues wrote: »It would be nice if posted were the segments where the price drops are happening.
e.g......
0 -250k - 2%
2501k - 300k - 8%
300k - 400k - 4%
401k- 500 - 10%
501k - 750k - 20%
I have been keeping an eye on 275 - 350k houses in D3 & D5, I have not seen any drops. I don't expect to for another 6 months.
It all depends on what you are looking. If it's Average Asking price on Adds, or change on existing Adds, or actual sales transactions? This would give very different results.0 -
Sierra Oscar wrote: »I reckon you are right in thinking that if we see any drops it will be down the road a fair bit.
Anyone who had their mortgage application sorted and ready to buy are still in a good position to do so once things get moving again.
What about all of those that were saving towards the idea of securing a mortgage next year though? People being on furlough and reduced incomes will inevitably result in people having to delay their plans for months, if not longer.
On the other hand you have people saving extra because of reduced social outings ( not having a wedding or stag to have to attend would say 1500-2k for a couple), no childcare or transport costs if working from home and working from home will continue into the long termSlava Ukrainii
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lomb wrote:Also why 15-20 years?A house is a durable asset that odds on will outlive both you and your kids and probably your kids kids.Why shouldn't you pay it over your working life. If that's 40 years then what's wrong with that if its 20 then that's ok too.
You know your in a bubble when we are talking about repaying loans over 40 or more yearsmariaalice wrote:The jobs going or most at risk after this are mostly in hospitality the sort young people do so unlikely to affect price long term but who knows.
Alot of small business owners in this segment, who may have significant loans with Knock on effect on future lending
These jobs are performed by people who rent, without an income rent levels are unsustainable.
These jobs may be the difference between a young person getting through college or not, cutting student let's and and negatively impacting ftb incomes of the futureBass Reeves wrote:Another thing to factor is people saving for a house at present if employed will be saving substantially more than usual.Bass Reeves wrote:I actually think lower priced property will not be impacted to the extent many think. It's the mid and higher end where borrowing restrictions hit most that may struggle a bit
This could be seen before covid 19 due to affordability, , in a recession people switch to lower priced options pulling demand away from premium priced itensfliball123 wrote:the difference is the banks went gun-ho trying to repossess at the end of the last recession putting themselves through a lot of expense and not realising that putting people out of their home was more or less impossible in this country. With this knowledge banks will do everything they can to try and help mortgage holders as they realise that if they dont play nice the owner has the option of just not engaging and living rent free for years. On the flip side of this there were no 100 or 100% mortgages given out in the last decade or so. So a high % of people will have a lot of skin in the game as in equity (not all) So it is in their interest to play nice as well. This is different to last time. We will not be borrowing anywhere near as much for this bailout either. The vender in your analogy has the option of saying thanks but no thanks I will just live here rent free paying no mortgage for the next 10 years. Thanks mr bank manager. That is probably the biggest difference this time around people know how to get around the banks
The banks never went gun ho on reposseions, they had a policy of sitting on their hands waiting for prices to improve, knowing they had someone in the asset to maintain it for free.
This policy has back fired as they have normalised the behaviour of obtaining a loan and not repaying it.
This, long term, can only be negative for an asset class who's value is determined by how much a bank will lend to purchase it
The cost of the bailout last time was 60 billion, we are currently estimated to be at half that due to spending on virus control plus lost revenue in taxes
Most of debt racked up last time was due to unsustainable public spending. The govt have been spending the past 8 years in bringing that public spending back to unsustainable levels. Of course the debt mountain of the last crash is still there0
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