Housing bubble starting to pop?

gurramok · 13-11-2006 09:01PM

Swiped from indo:
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ALMOST 90 per cent of Irish workers cannot afford to buy a house by themselves, according to new figures.

With the average house price hitting €308,000 last month, a single borrower would need a salary of at least €77,000 per year to qualify for a mortgage for the full amount. Latest research from the Revenue Commissioners shows that 1.94 million Paye and self-employed people in Ireland earn less than €70,000 per year.

Buying a property in Dublin is even more unattainable, with an average price touching €420,000 last month. With banks lending mortgages at about four times annual earnings, a buyer would need an annual salary of €105,000 to borrow the full amount by themselves.

This rules out 2.07 million Paye and self-employed workers, who earn under €100,000. The total workforce is about 2.16 million.

Last week the Central Bank warned that bank lending standards had fallen severely, leading to fears that large numbers of recent home buyers could face major difficulties repaying loans if interest rates continue to soar.

Based on current guidelines, a couple would need a combined €160,000 income to be given a loan of the full €420,000 needed to buy a house in Dublin. Just 33,100 single people in the country could afford that.

One in every nine self-employed taxpayers will earn over €100,000 this year. This compares to just one in every 29 Paye workers.
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Ok, 1 in 9 people are very wealthy to afford a house nationally and extremely wealthy to afford one in Dublin on their own.
Now, for a FTB couple using 4.5x total income rule as applied by banks, i'd say they need to be earning total at least €60k+ to afford a decent place outside Dublin.
For Dublin, that would not buy them literally anywhere, maybe a 1 bed in a 'bad' area, they would need a huge deposit to make up the difference to even reach €317.5k before stamp duty and as we all know, the only places available at €317.5k in dubland are in 'undesirable' places which makes a mockery of affordability.
To conclude, the body numbers just don't add up to buy all these FTB properties being built unless you target the very wealthy.

Blackjack · 13-11-2006 11:50PM

Apparently you can get some sort of a foam insulation pumped into hollow or "Breeze Block" walls, in order to give them further insulation.

Do-more · 14-11-2006 07:56AM

antoinolachtnai wrote:

Well, then they're trying to talk down the property market by getting people to invest in other types of long-term investments (which is mostly what they sell).

To be honest, I thought they were more heavily involved in the mortgage lending side of things than they are, my mistake!:o

CiaranC · 14-11-2006 09:45AM

Now, for a FTB couple using 4.5x total income rule as applied by banks, i'd say they need to be earning total at least €60k+

Lots of people have been bemoaning the fact that banks are lending way over 4.5x total income.

And why do people think €60k is a lot of money? Two people earning equal amounts on €60k between them would both be under the average industrial wage. Its almost as if the economic boom never happened for some people.

BigEejit · 14-11-2006 11:11AM

CiaranC wrote:

Lots of people have been bemoaning the fact that banks are lending way over 4.5x total income.

And why do people think €60k is a lot of money? Two people earning equal amounts on €60k between them would both be under the average industrial wage. Its almost as if the economic boom never happened for some people.

I know loads of people who dont earn anything near the average industrial wage, and i am sure that any young family with one or two kids would not be able to afford mortgage + childcare ...

I'm in London now and some of the lenders are offering 5 times wages mortgates which is really stretching it i think ... but no-one is talking about 50 year or longer morgates yet

CiaranC · 14-11-2006 11:20AM

I know loads of people who dont earn anything near the average industrial wage

Surely its unrealistic for these people to buy property in any first world economy? I mean is it the norm for a single income family below the average wage to buy a three bedroom house in leafy suburbia anywhere?

hmmm · 14-11-2006 11:43AM

CiaranC wrote:

Surely its unrealistic for these people to buy property in any first world economy? I mean is it the norm for a single income family below the average wage to buy a three bedroom house in leafy suburbia anywhere?

You've hit the nail on the head - large parts of our population are living way beyond their means, and while I'm strong on personal responsibility the banks, our society and the government have to take some of the blame for allowing the financially naive to get into this position. Interest rates will rise further, maybe not in the near term but over the medium term they will. People have been suckered into taking out huge amounts of debt at historically low variable interest rates.

BigEejit · 14-11-2006 11:54AM

CiaranC wrote:

Surely its unrealistic for these people to buy property in any first world economy? I mean is it the norm for a single income family below the average wage to buy a three bedroom house in leafy suburbia anywhere?

No-one said three bedroom anything, we are talking basic 2 bed flats in the arse end of nowhere here...

but as you mentioned it, 3 years ago my brother bought a 2 bed detached house with a decent front and rear garden with garage within 200 yards of the beach in New Jersey on a single wage (average wage that is) ...

DonalMcTavish · 14-11-2006 08:55PM

BigEejit wrote:

I know loads of people who dont earn anything near the average industrial wage, and i am sure that any young family with one or two kids would not be able to afford mortgage + childcare ...

So do i, but I know loads of people who earn way above the average industrial wage too. About 50/50.

For the ones below a mortgage is a pipe dream. For those above it their mortgages are peanuts to them.

15-11-2006 03:51AM

RTE.ie are having a poll on house prices if you go to their website

D'Peoples Voice · 17-11-2006 02:42PM

Deleted User wrote:

RTE.ie are having a poll on house prices if you go to their website

Yesterday's book of estimates has confirmed there will be no changes to stamp duty.
Assuming that the government is already runing a deficit this year of EUR €136 million in late Septemer (http://www.finance.gov.ie/viewdoc.asp?DocID=4272&CatID=1&StartDate=1+January+2006&m=n), according to the Dept Of Finance, then increasing spending by another EUR 4 billion as outlined in the Book of Estimates yesterday means two possibilities

the government are expecting hugh growth in future tax revenues to cover the EUR 4 billion increase in spending

the government plan to increase taxes in the budget to pay for the spending We know the first point is not the case, because our GDP is estimated to slow next year, as the worldwide economy slows. Therefore as I see it, taxes need to rise to cover our expenditure. The chances of reducing stamp duty at a time when we need to increase taxes to cover this EUR 4 billion increase in spending, is on a par with Charlton chance of wining the Barclays premiership this year.

Arithon · 17-11-2006 03:03PM

There was an article in the Irish Independent this morning at http://www.unison.ie/irish_independent/stories.php3?ca=303&si=1725418&issue_id=14900 (registration required):

PADDY POWER bookmakers are offering generous odds of 6 to 1 to the doom sayers that house prices will rise by less than 3% next year. Such odds also cover those who are willing to bet that prices will fall.

Nice odds... I thought

But by the time I found the bet details (about 10:30), the odds were 4 to 1. Factor in some problems with getting my credit card registered with paddypower.ie, and I still hadn't gotten a bet in by 13:00. By then, the odds were 2 to 1, not enough of a payout, I think.

The current details can be seen at http://www.paddypower.com/bet?action=show_type_by_main_market&category=SPECIALS&ev_class_id=45&id=7583&selectvcgrp=40854

Think it shows that property bears ARE stumping up the money for their beliefs

Do-more · 17-11-2006 09:47PM

Arithon wrote:

There was an article in the Irish Independent this morning at http://www.unison.ie/irish_independent/stories.php3?ca=303&si=1725418&issue_id=14900 (registration required):

Nice odds... I thought But by the time I found the bet details (about 10:30), the odds were 4 to 1. Factor in some problems with getting my credit card registered with paddypower.ie, and I still hadn't gotten a bet in by 13:00. By then, the odds were 2 to 1, not enough of a payout, I think.

The current details can be seen at http://www.paddypower.com/bet?action=show_type_by_main_market&category=SPECIALS&ev_class_id=45&id=7583&selectvcgrp=40854

Think it shows that property bears ARE stumping up the money for their beliefs

I just checked it and it seems like they have closed the book on "less than 3%" damn, I was going to put the house on it!

Sponge Bob · 17-11-2006 10:15PM

The next logical step was odds on, they did not want to go there

D'Peoples Voice · 22-11-2006 02:07PM

Sponge Bob wrote:

The next logical step was odds on, they did not want to go there

http://www.businessworld.ie/rankednews2.htm?s=index.html;s2=rankednews2.htm;r=3;a=1568988

'House price fall due to pace of build'

Wednesday, November 22 07:23:50

The recent softening in house price growth is down to the rapid building pace and not an underlying trend, according to IIB Bank economist, Austin Hughes.
IIB Bank's chief economist believes there is little doubt that there has been some softening in the housing market in recent months.

You think Austin!

"However, 'hard' statistical data point to only a marginal slowdown from an exceptionally rapid pace of increase. Arguably, the recent easing in prices testifies more to a surge in supply rather than a softening in demand," Mr Hughes said.

Mr Hughes said that while uncertainties like Government policy on Stamp Duty have clearly weighed on sentiment, the sequence of mortgage rate increases seen through 2006 is the key driver of the emerging slowdown in housing market growth.

Anyone else see any contradiction here with respect to his previous point

Although higher borrowing costs will limit some borrowers access to the market, strong population and employment together with a generous budget and maturing SSIAs will provide a significant offset.

Austin, so these factors will cause an increase in demand in excess of the excess supply you say we have at the minute

Reflecting exceptional demographic influences and a generally healthy economy, we expect house price growth to moderate from around 15pc at present to about 12pc by end 2006 and to around 7pc by late 2007," he said.

so Austin, you see growth slowing to half it's current rates, yet you see the above factors significantly offsetting supply.

Sponge Bob · 22-11-2006 03:15PM

But austin knew all along about the build rate being c 90k or 100k very early on this year and did not think it was a factor then.

http://www.daft.ie/report/austin-hughes.daft

Love that URL

Signs of strong and rising house price inflation in the face of another record year for house building underscores just how strong the demand for property is in Ireland. In general terms, this reflects the health of the economy but there are a couple of important factors at work that have ensured the housing market remains notably stronger than most than most other economic sectors.

Ireland's population profile remains particularly supportive. Numbers in the key 25-34 age grouping are increasing at almost 5 per cent per year. This is in stark contrast to other Euro area countries where numbers in the key household formation age groups are growing by around a quarter of a percent. The recent surge in immigration suggests this divergence will remain a uniquely favourable support for the Irish housing market in coming years. The exceptional trend in demand should also be seen in the context of a still relatively low housing stock in Ireland. The number of dwellings per 1,000 inhabitants at 404 is now 30 below the European average.

So from a position of stonking demand and not enough houses in March 2006 we now have oversupply sez Austin.

Why should anybody pay any attention to the man

??

D'Peoples Voice · 23-11-2006 02:18PM

Sponge Bob wrote:

So from a position of stonking demand and not enough houses in March 2006 we now have oversupply sez Austin. ??

Sponge bob,
Read that piece that report again, and count the number of times he talked about affordability amongst young couples and rental yields.
Austin clearly thinks that anyone can buy a house, saying that our populaiton is growing and the number of immgration are increasing is one thing, but saying they have the finances to add to the demand for a new house is another thing.
Also saying that interest rates have peaked is one thing for investors, but comparing those same interest rates that with low rental yields at a time when capital appreciation is flat is another thing.
When houses were being sold off the plans across the country, we were told demand for houses is soaring, but when houses are taking longer to sell.....Austin still thinks demand for housing is very strong! :rolleyes:

Sponge Bob · 23-11-2006 02:51PM

Austin sure can talk

Demand was so strong between April 2002 and April 2006 (census dates) that 100,000 homes were bought for capital appreciation/tax breaks or both and simply left empty , see.

Assuming that these are worth an average of €200k each we have €20bn of housing sitting there surplus to immediate requirements. Phew

Now that capital appreciation has stopped they _may_ be put to better uses.

The minimum oversupply in the national market as I see it is those 100,000 units . This oversupply is most marked on the western seaboard and in the north midlands/shannon basin where the empties are 20% or more of the total stock. They are the areas most at risk of a downturn.

SimpleSam06 · 25-11-2006 10:53PM

CiaranC wrote:

Lots of people have been bemoaning the fact that banks are lending way over 4.5x total income.

And why do people think €60k is a lot of money? Two people earning equal amounts on €60k between them would both be under the average industrial wage. Its almost as if the economic boom never happened for some people.

60k is a lot of money for more than half the population, and if more than half the population can't afford to live in their own houses, your economy is thoroughly borked. Take a look at France if you want to see what proper housing prices in a first world economy look like. Possibly Germany also, but I don't know a great deal about them.

Something else that almost everyone seems to miss out on is that two people earning between them 60k per annum AREN'T earning 60k per annum. They are pulling down 40k or so after taxes. Mortgage repayments were worked out before in this thread, but the upshot of that is that at the end of the day they have about €400 a week to live on between them, before factoring in childcare (since both parents are working), commuting costs, food and electricity, all the rest of it. And thats on current interest rates.

The banks are loaning irresponsibly, and its the rest of the population thats going to be hit when the house of cards falls down.

D'Peoples Voice · 27-11-2006 02:11PM

Ptsb/ESRI seurvey

new house prices fell by 0.4pc in October 2006

http://www.businessworld.ie/rankednews2.htm?s=index.html;s2=rankednews2.htm;r=3;a=1571838

Average house prices in October are growing at an annualised rate of 7.44% in October, down from 15.39% annualised in April.
Who is to say it won't be 1% annualised by the time the December report is issued at the end of Janaury?

gurramok · 28-11-2006 05:34PM

D'Peoples Voice wrote:

Ptsb/ESRI seurvey

http://www.businessworld.ie/rankednews2.htm?s=index.html;s2=rankednews2.htm;r=3;a=1571838

Average house prices in October are growing at an annualised rate of 7.44% in October, down from 15.39% annualised in April.
Who is to say it won't be 1% annualised by the time the December report is issued at the end of Janaury?

Remember, those stats are for mortgages drawn down and not sale agreed times.
That report is really reporting on August prices due to time lag of above

mad m · 28-11-2006 09:24PM

Just something I havent seen mentioned,I have noticed on one EA website that some houses look like they are up for sale but when you click in on them a little notice beside price stating *Withdrawn*.

D'Peoples Voice · 30-11-2006 02:54PM

http://www.businessworld.ie/livenews.htm?a=1574846;s=rollingnews.htm

IIB: Stamp Duty cut would up house costs

Austin Hughes, chief economist with IIB Bank, said that abolishing stamp duty could have the effect of pushing up house prices.
However, IIB Bank's Austin Hughes says this could actually push up house prices as buyers would probably use the money saved to pay more for the house in the first place.

"Unless there is a greater supply of housing, the likelihood is that they will bid against each other and the price of houses will increase," he says.

http://www.businessworld.ie/livenews.htm?a=1574846;s=rollingnews.htm
Has Austin being reading this post? That's what we have been saying for weeks! Well as John Maynard Kenes said in the 1940s, if I find I'm wrong, I change my mind, what do you do?
Maybe now others in the industry will see that a reduction in stamp duty will crucify first time buyers in the medium to long term.

Sponge Bob · 30-11-2006 05:48PM

Dunno about that, Stamp duty is only either 0% or 3% for the FTB and will make feck all difference if it is put onto the house prices . If house prices are essentially static now (month to month) and even if there is a 3% spike as the sellers take the money off the FTB themsleves , thats less than the rate of inflation nowadays .

It will make feck all difference TBH save where the natural market price FTB property is around €325k-340k it will remove downward pressure towards the €317k mark below which FTB stamp duty rate is 0%

It may cause DOWNWARD pressure because there is no incentive for the FTB to buy a NEW €350k property where there is no stamp duty as against asecond hand one where there is 3% stamp duty thereby producing a spike of unlettable SH properties onto the market hoping to cash in .

If Cowan wants to be noticed he should flat rate stamp duty for all PPR transactions whether new or second hand at 2% up to €1m and charge flat rate 9% thereafter ...I think thats what the rate is over €1m now so leave it.

Then he should maybe give the FTB a bigger tax allowance , €10k at the base rate or so .

DonalMcTavish · 02-12-2006 07:33PM

SimpleSam06 wrote:

Something else that almost everyone seems to miss out on is that two people earning between them 60k per annum AREN'T earning 60k per annum. They are pulling down 40k or so after taxes.

Actually they pull down over 51K after tax (before mortgage interest relief of about €1600

).

Thats over €4200 a month between them.

D'Peoples Voice · 06-12-2006 01:52PM

D'Peoples Voice wrote:

Personally I can see banks repeat what they did a few years ago, and that was to reduce the loan to value rates they are willing to give loans to, so instead og giving 100% mortgages they may move to 80%.

today Wednesday, December 6th, just as night follows day, we learn

Big lender cuts back on 100pc mortgages

http://www.businessworld.ie/livenews.htm?a=1579850

One of the country's major mortgage lenders has cut back sharply on its granting of 100pc home loans.

EBS Building Society says it will now only offer such loans to limited categories of borrowers such as civil servants and professionals, such as doctors.

whizzbang · 06-12-2006 02:29PM

D'Peoples Voice wrote:

today Wednesday, December 6th, just as night follows day, we learn

and this is why will will not have a recovery in the spring!

its all about the control of the money supply...

06-12-2006 02:34PM

no hope of "recovery" in the spring but maybe the real "recovery" is normalised house prices

Sponge Bob · 06-12-2006 05:39PM

whizzbang wrote:

its all about the control of the money supply...

Control the money supply or control the supply of property for sale. Nobody seems to be doing the latter ?? . Look at this graph here

Supercell · 06-12-2006 08:18PM

Sponge Bob wrote:

Control the money supply or control the supply of property for sale. Nobody seems to be doing the latter ?? . Look at this graph here

Jebus, didn't realise the inventory buildup was so high - since August nationally according to to Daftwatch there is twice as many properties for sale??, surely this cannot be right?

Twice as many properties for sale with ever increasing interest rates..surely this can only go one way ?

Housing bubble starting to pop?

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