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Housing bubble starting to pop?

SimpleSam06

Here in Galway, one of the most expensive places to buy property in Ireland, there are still a lot of real estate agents trying to move 3 bedroom houses at €450,000 or so, but Remax property about a week ago was advertising three bedroom houses in good areas for €320,000, or in a couple of cases, €250,000.

I've been looking at property around town for the last six months, and I have to say this is the first time I have seen property anywhere under the 300k mark. Now with that said, there are still places going for looney tunes money, a two bedroom penthouse apartment for 1.4 million last week, but thats getting pretty rare (probably why it made the news).

Can this be the beginning of the end of the property bubble? And does this mean FTB actually have a chance over the coming year? Should first timers wait until the prices bottom out?

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Cantab.

redspider wrote:

The staggering House Price growth in this country hasn't halted and reversed as yet. Its as fast as it ever was, if not ever:
http://www.rte.ie/business/2006/0731/houses2.html

But there are a couple of figures out today which give a dimension as to how big the 'frenzy' has become.

According to this:
http://www.rte.ie/business/2006/0731/houses.html
90,000 homes will be built this year, up more than 10% on last year and also another record year.

Last year (2005), 108,000 mortgages were paid out (a record) and a record amount was taken out on loan, 21.5 billion. The forecast for 2006 is a rise to 120,000 mortgages resulting in total new mortgage lending of €26.5 billion. Thats a 5 billion 23% increase.

Our economy is about (edit: 136) billion pa in GNP terms. So, nearly a fifth of the economy iis propped up by mortgages (residential) loans, and more is propped up by other credit facilities not to mention commercial mortgages. So the country/people are benefitting now with cash that is borrowed and will have to be paid back!

Although this country may be in a property asset frenzy, less and less of it is actually paid off (percentage wise) and our loan ration is getting larger and larger on a per capita basis. And as our population ages and the demographic trend swings to an aging population that must be supported, the 'game' may change.

But would we live anywhere else ????
http://www.economist.com/theworldin/international/displayStory.cfm?story_id=3372495&d=2005

And also as mentioned, Ireland isnt the only place where property prices have increased substantially. If you look at in global terms and over a long time, property prices have been increasing ever since the end of the 2nd world war. Looking back even further, 1850 was not a good time to buy, or was it 1820, as property prices remained stagnant and dropped in Western Europe for most of 80 years during a long period of deflation. Global deflation may happen again at some point, although as the planet is 'enjoying' a population growth boom, it may not happen.

They may not be making land anymore, as is oft quoted, although in Dubai and in Holland that is of course possible, but the property on that land and the land itself is not always a sure fire bet for investment, no matter what everybody is saying in Ireland and down the pub or the Taoiseach. However, the markets in short cycles (5-10 years) move in certain ways, as they do in 50-100 year cycles.

But we are in uncharted territory. Whilst we can look at the lessons from the past, and from other countries, each time and place and economic situation, each day even, is unique, and what we all do as a society/economy which has a 'mind of its own', is unknown.

Signs are not looking good though, and there is a lot of blind optimism out there, and people buying, and borrowing, and lending, etc .... ie: frenzy ! All we can do is sit and watch and observe whilst 3-bed semi-D's that cost 150k to build (in terms of resources) are selling for 1 million in Dublin, and the same house if built say in the middle of a mountain a bog or a field somewhere would only cost 160k. That is a sign of a land/property bubble if ever there was one, an imbalance.

redspider

Yeah, we've entered a new paradigm of economics...

Sponge Bob

The new econonmy again ...begad

SimpleSam06

Begrudgers and jealousy, I hear? Ten to fifteen times the national median income, thats the price of a house. Soft landing my muscular buttocks, I was watching a world war two documentary last night, and the sound of the Stukas dive bombing reminded me of the Irish property market. All that property has a high value in one place and one place only, and thats in peoples' brains. How fast do you think that can change? Anyway I found this rather good article / news / blog thing complete with caustic commentary on the BoI release...

Dr Dan McLaughlin, well known economist, said he was increasing his predictions for house price increases for 2006 up to 12%, saying that wage increases, good employment levels, and a rapid increase in population levels fuelled this increase. Dr McLaughlin however fails to account for the fact that most wage increases were in the public sector, not the far larger private sector, and that a good deal of population growth can be attributed to transient immigrant population, currently estimated to comprise 10% of the population, or 400,000 people.

CiaranC

SimpleSam06 wrote:

How fast do you think that can change?

You tell us, as you seem to know everything about the market. (Even though your anecdotal evidence of a collapse already starting flies in the face of the BoI report yesterday, but we'll ignore that, shall we?) When and how fast is this change going to happen?

lomb

will we have another 20 % increase in property next year as well as this?
its looking like it.
one question why have the banks not passed the interest rate rises to customers. they are still around 4%, we need to see 5-6% to stabilise things. people have too much money at the moment and too much confidence.

whizzbang

lomb wrote:

one question why have the banks not passed the interest rate rises to customers.

waiting until they have sold off their own land?

SkepticOne

lomb wrote:

will we have another 20 % increase in property next year as well as this?
its looking like it.

If it is a bubble then it could easily go up by this amount. In a bubble all rationality goes out the window. Nobody knows though because bubble, by their nature, are unpredictable.

Pa ElGrande

lomb wrote:

will we have another 20 % increase in property next year as well as this?
its looking like it.
one question why have the banks not passed the interest rate rises to customers. they are still around 4%, we need to see 5-6% to stabilise things. people have too much money at the moment and too much confidence.

Not with soaring costs

Killala Precision Components in Co Mayo is a fairly typical small Irish business which is being hammered by rising fuel and energy costs.
The precision engineering sub-contractor employs 40 people and is aiming for turnover of €3m in the current year.
General manager Deirdre Irwin is battling rising energy costs year after year.
"In the 12 months between July 2005 and June 2006 our ESB bills went from €39,000 to €46,000 - an increase of 18pc," Ms Irwin says. A similar increase is on the cards from January 1 next.

'Our ESB bills went from €39,000 to €46,000'
http://www.unison.ie/business/stories.php3?ca=80&si=1660325 [free registration required]

It's going to be a tough winter for Irish business as fuel costs and the price of oil-based raw materials go through the roof.
ESB is expected to seek a price increase of up to 20pc which will come into effect on January 1 next. That's on top of increases in each of the last three years as follows: 10.27pc in 2004; 3.5pc in 2005 and 5.2pc in 2006.
<snip>
Bord Gáis has been provisionally allowed increase its prices by 34pc with effect from October 1 next - the onset of the winter heating period in this country. That's on top of a 25.2pc increase in 2005 and a 16pc rise in 2004.

OUR BURNING ISSUES . . .
http://www.unison.ie/business/stories.php3?ca=80&si=1660349 [free registration required]

DELL confirmed yesterday that some of the 3,000 workers in its Limerick plant have been asked if they would be prepared to move to a new computer manufacturing facility they want to build in Poland.

Dell’s Limerick workers needed for Polish plant
http://www.irishexaminer.com/irishexaminer/pages/story.aspx-qqqg=business-qqqm=business-qqqa=business-qqqid=9628-qqqx=1.asp

I don't see any costs for business or consumers coming down next year, either they have to pass on costs, absorb them and reduce employment or go out of business. There are several multi-nationals in this country implementing migration plans to Eastern Europe, some will close outright, others will cap or cutback any expansion plans.
Mortage repayments are not going down either (unless fixed) and even more introductory offers are going to end. Oil has been over $70 for a long time and shows no sign of reducing substantially. Public sector wage inflation and numbers are increasing - this increases the cost of transport and medical care still further. It should also be instructive that Tesco are no longer advertising "permanently low prices" like they did over a year ago, so much for repeal of the groceries order

.
The squeeze on everybody's margins is going to put the brakes on general house price increases.
I would go so far as to say if what Dan McLaughlin (Bank of Ireland) is predicting comes true (3% growth) then we are most likely to be heading into a period of stagflation, where economic growth stagnates, and inflation increases above growth, along with unemployment and taxes to meet the shortfall in government revenue.

SimpleSam06

CiaranC wrote:

You tell us, as you seem to know everything about the market. (Even though your anecdotal evidence of a collapse already starting flies in the face of the BoI report yesterday, but we'll ignore that, shall we?) When and how fast is this change going to happen?

So you're going to tell me that the single group that stands to make by far the most money out of an ongoing bubble, the bank, released a report saying all would be just fine, and you believed it? Theres a reason they say lies, damned lies, and statistics.

If it looks like a duck and quacks like a duck, well...

I won't be making any solid predictions as to when and how fast, I'm not a respected financial institution.

If I was a gambling man I'd say early next year at the latest, and slow starting, then accelerating.

redspider

TheBigLebowski wrote:

That's assuming there is a bubble. A bubble is only a bubble if it bursts, otherwise it's just a steep rise.

Various labels can be put on market price changes, but if there are significant price increases, and if that is followed by many years of price stagnation, it leaves some purchasers of those assets losing money. It doesnt have to be a drop in nominal values/prices, all that is required is a drop in real (inflation adjusted) values. If prices drop at all in those terms, it is a bubble of sorts. No-one is expected a house price crash, not unless everyone wants to leave the country.

The price graph of property prices in Dublin city/county, adjusted for inflation, is an interesting graph I expect. Does any one have it for the last 50 years, and compare it with effective salary changes in the same timeframe?

The trend is that people have been willing to pay more and more of their salaries for loans on assets, and all goes well in a market where those assets are rapidly increasing in price. In a way, its analagous to a pyramid scheme, everyone keeps making money in the early days of the scheme. But now and you make money, keep buying, you keep making money, as long as there are willing buyers.

At some point people will be able to go no further in what they are willing to pay, especially if there is no guarantee of a price increase. People in Ireland today are buying property 'blind' as it will go up in value - guaranteed. Thats a superheated market. The bubble in effect is being blown up/fuelled if you will, by the confidence of the purchasers. That confidence is remaining so the growth is remaining.

As Bertie said, people who didnt buy last year were fools! An extension of that is that people who didnt buy 10x properties last year and rent them out, hoping to make their money in capital gains, were also fools. But like a pyramid scheme, it cant go on for ever. The whole country cant buy 10x properties each and rent them out, it would take a lot of Poles, Lithuanians and others to sustain that.

There is no such thing as a property-only economy, as much as we like to think there is. It just doesnt work. But Ireland's economy is now at 25% involved in property, which is well above any long term standard norms ever since we humans started to build straw huts in the savannah.

We dont know where we are going, all we can do is forecast, as house prices are a direct consequence of buyers confidence, not on actual brick/mortar value. Like in the dot-com days, people threw out the economic guidelines learnt from the past and said we were in a new paradigm. Well, that didnt pan out for most. It remains to be seen what happens - as no-one really knows!

redspider

D'Peoples Voice

SkepticOne wrote:

No party looking for votes is going to deliberately take action to lower house prices.

Agreed, which is why I believe the media should take a more critical view on politicians suggestions at fixing house prices.
The fact is, and the figures prove this point, the removal of the FTB grant reduced the growth rate of house prices. Yet the media were skeptical of the Government when they did it.
When the Government reduced stamp duty for FTB, they KNEW it was akin to giving FTB thouands of euro into the hands of FTB to outbid one another, so they KNEW it would increase the growth in house prices. Yet the media complimented the government.
The fact is, the media should be shouting at parties like fine gael for ever contemplating reducing stamp duty further, the fact that they don't, encourages politicians to come up with half-arsed suggestions like reducing stamp, because they know they will get positive media coverage and the electorate don't understand the consequences.

SkepticOne wrote:

If you really wanted to collapse the market quickly (this is totally politically unrealistic, of course) then a pre-announced raise in capital gains tax six months in the future would cause a dumping of investment properties onto the market as speculators try to take profit prior to rise.

I can see this coming back in, first on development land, then houses. It will be phased in and if you think of it, it's ingenius. First you get all the stamp when they buy the house, then you get the higher rate of CGT when they sell.

SkepticOne wrote:

I think this bubble is going to burst naturally without intervention in the next few years. Whatever political party holding power when that happens is going to be in trouble. If I was running FF, I would be looking to have the opposition in power for the crash itself.

I think you'll find the government will blame the lack of control over monetary policy as the cause, and say they did all they could:mad: Of course they can say that the Bacon report believed increased supply was the answer, but the report also said that you have to handicap investors at the same time, something our government refuses to take serious in my opinion!

lomb

anyone here think that raising stamp duty to 15 or 17% across the board even for ftbs is the solution?
banks cant lend for it and people will have to save for it. will bring in more revenue meaning they can cut employers prsi which is needed to be cut from 10% to keep multinational jobs in ireland.
i cant see any other solution, the one and only lever the interest rate lever is not in the hands of the prudent central bank.

chump

I'd be inclined to think we should leave everything as it is. To change the rules now is unfair. The market will eventually reach an equilibrium, and whatever shape that takes - so be it

:eek:

gearoidmm

Duplicate

gearoidmm

Sorry, duplicate

gearoidmm

House Price Growth Slows
annual growth of asking prices was 6.2% in June
2006, down from a high of 14% in April 2006 -
preliminary figures from July suggest that the
slow-down in house price inflation has continued
into the summe

....................................2005............2006
January..........................89.0.............104.7
February.........................95.1.............108.3
March............................96.9.............109.3
April..............................97.1..............110.5
May..............................98.3..............107.8
June..............................100.4............106.6
July...............................100.3............105.4
August...........................99.7
September.....................103.0
October.........................104.7
November......................106.5
December......................109.0
Asking Prices, Residential Sales
Base: 2005 = 100 (includes preliminary figure for July)

Apologies to poster on AAM from whom I cogged this idea. This is the latest DAFT report for house prices for Q2 2006. The media have reported these figures like this - "House price inflation of 14% for the year from April to April but house price inflation slowed to 6% yoy in July". However, another, far more interesting way of looking at it is that there has been a fall in asking prices as recorded by the mix of properties on the DAFT website of 5% over the past 4 months. Admittedly, some of this represents the slowdown of the summer season but it is still the first hard evidence that the interest rate hikes are starting to have an effect.

How do the bulls here explain this?

Sponge Bob

I had a feeling that the insanity peaked in the spring and thats good evidence I was right .

Pa ElGrande

Ireland has overtaken the United States as the single largest cross-border investor into UK commercial property - accounting for almost 22% of total overseas purchases in 2005. According to a report from chartered surveyors DTZ, called Overseas Acquisitions into UK Commercial Property, pounds 12.3bn was invested in UK commercial property from overseas investors in 2005 - representing a fall on 2004.
<snip>
The lion's share of overseas investment is dominated by five sources: Irish, US, Middle East, German and Dutch capital.

Irish investors represented the largest single source of cross- border capital into the UK with more than pounds 2.7bn of purchases in 2005 - this figure mirrors the levels achieved in 2004 which stood at pounds 2.8bn.

In keeping with historic trends, around 75% of this activity was attributed to private investors.
<snip>
Dan Griffiths, head of investment at DTZ's Cardiff office, said, 'Whilst some Irish investors are looking elsewhere for commercial property investments due to the recent movement in yields, overall there appears to be little sign of a fall-off in demand from Irish investors who are looking to take advantage the growth prospects for the UK. 'The drivers for this demand continue to include the positive rental growth story. 'There is a lack of available product in the Irish market, there is available finance from Irish lending institutions for UK property transactions and it is a familiar market.'

Ireland Top Foreign Investor in Commercial Property
http://feed.insnews.org/v-cgi/feeds.cgi?feedid=149&story_id=2034903

The data lags by about a year, but its clear we can't get enough of property, especially if we lead the US, Middle East, & Germany (not all combined).
Interesting to note the omission of a key word as in "due to recent downward movement in yields."

Swathes of new developments are under way, with two-bedroom flats still two years from completion selling for £30,000 to £150,000 for seafront views. A couple of years ago they would have cost half that.
<snip>
The Irish have started to pour cash into the local market, with firms such as Cape Verde Development taking their projects to property fairs across Britain and Ireland.

For years the islanders fled the archipelago in search of work, but now the 460,000 locals are hoping to cash in on the thirst of overseas investors for the once drought-ridden former slave trading post.
<snip>
Downsides for investors and developers include water supply issues, volcanic activity and the occasional shark. Upsides include year-round sunshine and political stability, great beaches, clean seas and beautiful natural scenery.

A similar rush on Bulgarian property began two years ago, urged on by the extension of budget airlines to the former Eastern Bloc country, and the Black Sea was tipped as the affordable 'new Mediterranean'.

Remote islands the new hotspot
http://www.thisismoney.co.uk/mortgages/buy-to-let/article.html?in_article_id=411319&in_page_id=56

Droughts, volcanos and the occasional shark (what are the odds of attack compared with getting killed or maimed on Irish roads), you'll never beat the Irish for spotting a once in a lifetime opportunity like this. :rolleyes:

SkepticOne

Sponge Bob wrote:

I had a feeling that the insanity peaked in the spring and thats good evidence I was right .

So are you going to call top? Is the bubble burst?

Pa ElGrande

SkepticOne wrote:

So are you going to call top? Is the bubble burst?

see previous comments.

SkepticOne

Pa ElGrande wrote:

see previous comments.

Looking through that thread it is clear that many people think there a bubble. Some people think the crash is near. Nobody has so far called the top however as far as I can see. Is anyone prepared to call the top yet based on those figures from Daft? Is it just a temporary downturn with the real crash next year, for example?

coolhandluke

SkepticOne wrote:

Looking through that thread it is clear that many people think there a bubble. Some people think the crash is near. Nobody has so far called the top however as far as I can see. Is anyone prepared to call the top yet based on those figures from Daft? Is it just a temporary downturn with the real crash next year, for example?

The daft figures are "asking prices" and a load of rubbish,i know for a fact that a house that was advertised at 410,000 on daft was looking for 390,000 in the local papers,a lot of the provincial estate agents are inflating the asking prices on daft knowing that the "dubs" are looking at it.
It's a bit like the foreign property prices,one for the locals,one for the foreigners and one for the irish.

gearoidmm

coolhandluke wrote:

The daft figures are "asking prices" and a load of rubbish,i know for a fact that a house that was advertised at 410,000 on daft was looking for 390,000 in the local papers,a lot of the provincial estate agents are inflating the asking prices on daft knowing that the "dubs" are looking at it.
It's a bit like the foreign property prices,one for the locals,one for the foreigners and one for the irish.

True, but given that Daft is a well-established site at this stage, you would expect this effect to be relatively consistent across the last couple of years. Unless there has been a sudden upsurge in activity by canny country EAs.

SkepticOne

The asking price reduction could be a response to DNG's remarks a while back that the market was slowing down and houses are staying on the market longer. EAs, since they make money on volume, are going to encourage more realistic expectations on the part of sellers and value houses lower.

coolhandluke

SkepticOne wrote:

The asking price reduction could be a response to DNG's remarks a while back that the market was slowing down and houses are staying on the market longer. EAs, since they make money on volume, are going to encourage more realistic expectations on the part of sellers and value houses lower.

The point is daft at least say where their figures are coming from and where there getting their alleged % rises,as in asking prices.
BoI and aul Dan's figures are a total joke,and how the media just present them as fact is a total joke if not a fraud.
I'm sure if i picked the top 20 selling property's in dublin at auction and worked out the difference between the AMV or whatever their calling it now and the actual selling price i could come up with price rises of 16%+.
The whole independent research thing is non-existent in the irish market !.

lomb

i would say the rises as percentages are very real. apartments where i am in dublin 22 went from 200 to 280 in a little over a year. i reakon the solution to stop speculators and everyone else is jacking up the stamp duty.

D'Peoples Voice

lomb wrote:

i reakon the solution to stop speculators and everyone else is jacking up the stamp duty.

There is anecdotal evidence to suggest that when Mcgreevy increased stamp duty for investors up to 9% in 2001, many of them started to invest in foreign property. Hence you would think increasing it further would have a dampening effect on demand.
As regards increasing it for FTB, the effect of this would be to offset the belief that thousands of maturing SSIAs will provide the deposit for FTB to buy houses. This would send out the signal that demand from FTB is going to fall because they won't have the deposit to buy that house or bid up against other FTBs.
Seeing as how FTB usually buy 3-bed starter homes/2-bed appartments, this would make it more difficult for people selling these properties to complete the sale without lowering their price so that both stamp duty and deposit will be lower and more affordable for FTB.
The knock-on effect of this is that the sellers who are trading up will have less money to trade with, so their demand for more expensive houses falls, until the price of the expensive houses falls.
The next effect is that although everyone is paying more in stamp duty, they will be paying less to the vendor/developers. Hence there is a re-distribution of income from the private sector to the government. It would also ensure that our borrowering levels are gradually reducing.
However as someone said earlier, it's political suicide because you will get bad publicity and the politicians are too close to an election for bad publicity.

lomb

D'Peoples Voice wrote:

, it's political suicide because you will get bad publicity and the politicians are too close to an election for bad publicity.

probably:D

Pa ElGrande

The value of Dublin pubs which changed hands in the first six months of the year reached €78m, as an increasing number of premises were sold for redevelopment.

Around 18 Dublin pubs were sold in the first half of 2006 and a further five premises changed hands in July.

In the same period in 2005, 17 individual pubs sales took place with a value of about €67m, while in 2004 ten pubs changed hands in the half-year with a value of €27m.

Tony Morrissey, of commercial property auctioneers Morrissey's, said that the total value of pubs has been buoyed by the growing interest from developers in suburban pubs. Most are being redeveloped as residential projects.

However, Mr Morrissey said that pubs were generally fetching better prices than had been seen in recent years. "Confidence is back in the market," he said. "But the biggest trend to emerge in the last 12 months has been the arrival of 'alternative use' buyers."

These buyers are targetting valuable sites with large car parks in residential areas.

Developers pay well for pubs in Dublin area
http://www.unison.ie/business/stories.php3?ca=80&si=1663129

Would the owner of the last Irish run business please turn out the lights. I am joking of course, but it almost feels like every business is selling out to property, there won't be pub or a petrol station left inside the M50, if this madness continues much longer.

daveirl

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