Housing Bubble Bursting

johnnyskeleton · 04-01-2009 6:30pm

Gurgle wrote: »

Given that this thread has been going for just over 2 years, during which time the average house price has fallen by less than 15%, is everyone at last ready to concede that it was in fact a soft landing ?

In addition to what the other posters have said about:
1) a soft landing was supposed to be house price increases come back in line with inflation, not dropping
2) the market can't be said to have landed if almost no one is buying
3) the real level of house price drops is unknown because of lack of information
4) we are only in year 2 of a potential decade of declines,

why are you saying that house prices have fallen by less than 15%? Even the most conservative estimate (ERSI/PTSB index) puts drops for 2007 at 7.3% & to November 2008 at 8.3%. That's exactly 15%, and another VI source says that prices have already dropped 30-50% with more to follow. If you were the proud owner of a redbrick pile bought for €10 million in 2006 and were to sell it now for €5m, I'd say that's one hell of a crash. But as gurramok quite rightly points out is that this is just the beginning.

Gurgle wrote:

And of course, any further reductions are due to the global recession, not that houses were really that much over-priced for the times and circumstances (i.e. the boom)

No, any futher reductions are due to the fact that when property is valued rationally, it is only worth a fraction of what people were paying for it in 2006.

tedstriker · 04-01-2009 11:20pm

Here are 3 very simple charts worth a glance:

The current ESRI/Permanent TSB house price chart from 1996 to present:

http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/3/Irish-House-Prices-Since-1996.html

The Japanese Urban Land Index (showing the Japanese crash of the early 90's):
http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/26/Japan-Urban-Land-Index.html

Finland's house price. Showing there crash in the late 80's to early 90's:
http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/25/Finland-House-Price-Index-1970-to-2002.html

The Finnish crash is probably going to be the example closest to the Irish crash, however, we will be a little longer and deeper. The Japanese example is an example of what can happen if the banks are not carefully dealt with.

Currently both country's house prices are in decline again and both are representative of all housing bubbles bursting. Expect 40-60% drop from peak. We are currently at about 16%.

ronbyrne2005 · 05-01-2009 6:14am

http://www.tribune.ie/news/home-news/article/2009/jan/04/the-road-to-nowhere/

Michael Grehan, MD, Sherry FitzGerald

"It's exceptionally difficult to call the bottom of any market, but particularly so in property. You can only do it with hindsight. The astute buyer now has it all their own way because they can bargain. The investors have gone and people can negotiate on price – that was unheard of even a year ago. In many cases, the difference between original asking price and final selling price is 50%. Buyers now have sellers where they want them. The buying opportunity of a lifetime presents itself in 2009. Of course there is a herd mentality – 'no-one else is buying so perhaps I shouldn't either'. But I don't think Irish people are going to stop wanting their own homes."

Blackjack · 05-01-2009 3:43pm

ronbyrne2005 wrote: »

http://www.tribune.ie/news/home-news/article/2009/jan/04/the-road-to-nowhere/

Michael Grehan, MD, Sherry FitzGerald

"It's exceptionally difficult to call the bottom of any market, but particularly so in property. You can only do it with hindsight. The astute buyer now has it all their own way because they can bargain. The investors have gone and people can negotiate on price – that was unheard of even a year ago. In many cases, the difference between original asking price and final selling price is 50%. Buyers now have sellers where they want them. The buying opportunity of a lifetime presents itself in 2009. Of course there is a herd mentality – 'no-one else is buying so perhaps I shouldn't either'. But I don't think Irish people are going to stop wanting their own homes."

I did read something from Sherry Fitzgerald some time back saying pretty much the following "it's easier to buy on the downward curve when there is less competition rather than leave it to the upturn when competition increases".

Nice Spin line in fairness.

Duckjob · 05-01-2009 8:36pm

spockety wrote: »

I don't think that is true. There are loads of buyers, but they are being wiser with their money. Every house in the country has a value that the market will pay for it. If a seller offers their house at the price, it will shift very quickly.

Nothing is shifting at atmoment because sellers are not asking market value for their properties. Simple as!

I think it's quite bemusing to hear would-be sellers bemoaning the fact that they can't sell.

I had a converstaion with a workmate last week who was bemoaning the fact that she "couldn't" sell her shoebox despite having reduced her price to 320K.
I put it to her that if she were to consistently lower her asking price, somewhere between 320k and 0 she would find interested buyers. Her answer was "I'm not going to sell for a ridiculous price though"

Calina · 05-01-2009 8:47pm

Well I'm not going to buy for a ridiculous price and 320K for an apartment qualifies as ridiculous for most of Ireland.

Mont · 05-01-2009 9:17pm

Lets hope it bursts a lot more - if the prices drop by another 40% - 50% only then will we be realistically getting to the true worth of property.

For the past 10 years people have been ripped off by the banks, property developers and estate agents and the thing is they didnt care. Once they saw the value of their property rise on a weekly basis they thought yippee, arent i the smart one - ya seriously smart alright.

Anyone thinking of buying property now should offer approx 50% of the asking price as this is what its worth in real terms- let it drop further - i would buy an apartment for 100k, no probs.

AARRRGH · 09-01-2009 4:08pm

Tiny, but close enough to Dublin city centre and less than 100k -

http://www.myhome.ie/residential/search/brochure/3-irvine-cottages-east-wall-dublin-co&-city/UHVVU384934

Uncle Junior · 10-01-2009 2:04am

Part of the problem in analysing where we're at in a housing slump is the lack of up-to-the-minute and accurate data; the permanentTSB/ESRI index is no longer relevant as pTSB residential lending is at a very low level so its data are drawn from a very shallow pool. The DOE house price index is based on mortgage approval data from all the main lending institutions so it's more accurate but there's usually a timelag of one Quarter for that particular publication. Without precise data, misinformation and rumour thrive and those considering buying will hold off in the expectation of further price drops.

However there are some conclusions that can be drawn from the DOE data (check out www.environ.ie), chief among which is an awareness the significant differences in the rates of price decline between different sectors of the market, e.g. between new and second hand houses, between Dublin and the rest of the country. If one looks at the average second-hand house price in Dublin in Q3 2006 (€549k) and compares it with Q2 2008 (€455) there has already been a decline of 17% in nominal terms and closer to 25% in real terms when one takes inflation in the intervening period into account. Expect to see further steep declines when the Q3 2008 figures come out which will allow us to do a full 2-year comparison. My bet is that, inflation included, this will show about a 33% fall in real terms in the two years since the peak of the second hand market.

10-01-2009 11:30pm

I stole this from the pin, it gives a good representation of house prices relative to the price of a pint

http://www.thepropertypin.com/viewtopic.php?f=4&t=17090&view=unread#unread

11-01-2009 12:29pm

Howard Old Pebble wrote: »

I stole this from the pin, it gives a good representation of house prices relative to the price of a pint

http://www.thepropertypin.com/viewtopic.php?f=4&t=17090&view=unread#unread

Taking wage inflation into account pints have never been cheaper than now either. You get more pints for your buck now than you did in 1996.

Surprising, i know. And How much is a pint of guinness in Dublin? Surely not €4.20

Blackjack · 11-01-2009 1:05pm

321654 wrote: »

Taking wage inflation into account pints have never been cheaper than now either. You get more pints for your buck now than you did in 1996. Surprising, i know. And How much is a pint of guinness in Dublin? Surely not €4.20

Not a huge difference on the average wage - remarkably similar in fact according to the table on the same webside:

Year Wk Wage €Pint Dublin House No. Pints
1996 348.38 2.5 82,400 32,960
1997 360.01 2.52 98,800 39,206
1998 374.83 2.65 124,400 46,943
1999 396.54 2.74 165,800 60,511
2000 423.24 2.88 192,600 66,875
2001 456.97 3.01 236,700 78,638
2002 483.05 3.24 237,900 73,426
2003 511.78 3.41 278,500 81,672
2004 534.95 3.54 314,100 88,729
2005 557.95 3.63 339,900 93,636
2006 597.66 3.74 384,200 102,727
2007 600.24 4.03 429,100 106,476
2008 600.24 4.2 390,000 92,857

as regards the price of a pint in Dublin, it's anywheter between 4.20 and 5.60 depending on where you go.

11-01-2009 2:10pm

Blackjack wrote: »

Not a huge difference on the average wage - remarkably similar in fact according to the table on the same webside:

Year Wk Wage €Pint Dublin House No. Pints
1996 348.38 2.5 82,400 32,960
1997 360.01 2.52 98,800 39,206
1998 374.83 2.65 124,400 46,943
1999 396.54 2.74 165,800 60,511
2000 423.24 2.88 192,600 66,875
2001 456.97 3.01 236,700 78,638
2002 483.05 3.24 237,900 73,426
2003 511.78 3.41 278,500 81,672
2004 534.95 3.54 314,100 88,729
2005 557.95 3.63 339,900 93,636
2006 597.66 3.74 384,200 102,727
2007 600.24 4.03 429,100 106,476
2008 600.24 4.2 390,000 92,857

as regards the price of a pint in Dublin, it's anywheter between 4.20 and 5.60 depending on where you go.

Id be interested to know where they got the average wages in this table from. Does anyone know?

11-01-2009 9:52pm

321654 wrote: »

Id be interested to know where they got the average wages in this table from. Does anyone know?

http://www.finfacts.ie/Private/bestprice/guinnessindex.htm

From "Rupert" on thepropertypin

dny123456 · 12-01-2009 9:57am

Blackjack wrote: »

as regards the price of a pint in Dublin, it's anywheter between 4.20 and 5.60 depending on where you go.

I got charged 6.10 the other night... 6 blumming 10.

12-01-2009 9:41pm

Howard Old Pebble wrote: »

http://www.finfacts.ie/Private/bestprice/guinnessindex.htm

From "Rupert" on thepropertypin

Oh right. About as reliable as his research on the price of a pint then

MicraBoy · 13-01-2009 12:10pm

From The Irish Times today:

Warning that house prices may fall by 80%

Whatever about the prediction on house prices I did enjoy the following quote:

Mr Kelly wrote:

Mr Kelly said Ireland’s “reputational capital” had been damaged by “chancers” such as ex-Anglo Irish Bank chairman Seán FitzPatrick, who had been abetted by “buffoons” such as former financial regulator Patrick Neary, Minister for Finance Brian Lenihan and the Taoiseach.

bill_ashmount · 13-01-2009 12:32pm

Great quote

mrgaa1 · 13-01-2009 12:35pm

I would like Mr Kelly to go and price building a new house to current regulations. A standard 3 bed house at lets say 1200 square feet. I think he'll find that his 80% reduction is so laughable its not even funny anymore. Materials are still rising in price - labour costs have gone down a bit but all in all no matter where in the country you are it will costs more or less the same to build.
These predictions are rubbish. he's saying that if a house was worth 1 million its going to be worth 200k and if a house was worth 500k its only going to be 100k and that a 200k house is going to be worth 40k????
Catch a grip. We all know that houses were over priced - thats called supply and demand. now prices are correcting as supply and demand has changed. When the supply becomes less we will see a correction. I can't see many houses being built this year - one-offs will happen but there will not be the large scale 100's of houses in sites being started. There are a lot of people looking to buy and they are doing what all good shoppers do - look around, bargain and wait until its the right time for them

gurramok · 13-01-2009 12:57pm

He's not going to build a house

In rough translation of what he is saying, it is possible for a 80% drop in some cases due to money supply problems(credit), unemployment(bad economy), demographics and the old supply and demand problem.

Below cost comes to mind on an overshoot downwards, whether it will go down that far remains to be seen.

Eglinton · 13-01-2009 1:06pm

mrgaa1 wrote: »

I would like Mr Kelly to go and price building a new house to current regulations. A standard 3 bed house at lets say 1200 square feet. I think he'll find that his 80% reduction is so laughable its not even funny anymore. Materials are still rising in price - labour costs have gone down a bit but all in all no matter where in the country you are it will costs more or less the same to build.
These predictions are rubbish. he's saying that if a house was worth 1 million its going to be worth 200k and if a house was worth 500k its only going to be 100k and that a 200k house is going to be worth 40k????
Catch a grip. We all know that houses were over priced - thats called supply and demand. now prices are correcting as supply and demand has changed. When the supply becomes less we will see a correction. I can't see many houses being built this year - one-offs will happen but there will not be the large scale 100's of houses in sites being started. There are a lot of people looking to buy and they are doing what all good shoppers do - look around, bargain and wait until its the right time for them

I think in terms of new houses in popular areas you are certainly correct. There is a minimum cost for materials and labour so the lowest they would sell for is maybe a slight loss to the builder.

But for old houses you have to remember that they were built for a fraction of the cost. Take a 4 bed in South Dublin on sale last year for 1 million. This house could be 50 years old so whatever it cost to build then was tiny and now irrelevent to the current sale price. A house like this could easily drop 50% or more if the market dictated.

I doubt most houses could drop 80% but then again, you never know. It is possible for somewhere like Leitrim where there is a MASSIVE oversupply of crappy houses that may never sell. I would think that you could buy for way under 100K there is you pushed you luck with the hard-up developers and agents. These houses would have been adverstised at around 200K last year but I think it is possible to go down to 40k-50K. Remember there are houses in the UK for sale for a lot less in rural or deprived areas.

MicraBoy · 13-01-2009 2:58pm

Eglinton wrote:

I doubt most houses could drop 80% but then again, you never know. It is possible for somewhere like Leitrim where there is a MASSIVE oversupply of crappy houses that may never sell. I would think that you could buy for way under 100K there is you pushed you luck with the hard-up developers and agents. These houses would have been adverstised at around 200K last year but I think it is possible to go down to 40k-50K. Remember there are houses in the UK for sale for a lot less in rural or deprived areas.

I'd tend to agree, there are locations this could happen, but across the board it won't.

I thought it was interesting that he mentioned there could be a net demolition of properties. Imagine developers knocking down perfectly good houses to reduce supply and increase demand :eek:

mrgaa1 · 13-01-2009 6:18pm

Eglinton wrote: »

But for old houses you have to remember that they were built for a fraction of the cost. Take a 4 bed in South Dublin on sale last year for 1 million. This house could be 50 years old so whatever it cost to build then was tiny and now irrelevent to the current sale price. A house like this could easily drop 50% or more if the market dictated.

Agree with what you are saying - however they may have been built for a fraction but not necessarily bought at that price certainly in the past 2-7 years.

Eglinton · 13-01-2009 6:33pm

mrgaa1 wrote: »

Agree with what you are saying - however they may have been built for a fraction but not necessarily bought at that price certainly in the past 2-7 years.

Indeed, but I don't think the buyers will care what the current owner paid. If they have to sell it for less, that's their own problem. If they don't want to sell it for less, they'll have to reconsider their options and perhaps not sell until the market goes on the 'up' again. It sucks for them but that's business. Any investment (if you think of a house as an investment!!) can go up or down.

MG · 13-01-2009 9:21pm

I wouldn't dismiss an 80% fall in real terms out of hand. Stats like unemployment are back at 1998 levels and likely to go to 95 levels or earlier, national debt is accelerating at an alarming rate, ISEQ is down 65% (property related stock by even more), taxes bound to rise etc. Why should house prices be immune to such dramatic falls? Seems to me that the only thing propping up prices is denial.

The peak to trough period could be 5-10 years which at 3% inflation per year could add 15-30% to the nominal fall. A 50% nominal fall is by no means implausible (maybe even likely) so an 80% fall in real terms is possible.

BraziliaNZ · 14-01-2009 8:23am

all these property price arguements seem to be divided between the people with huge mortgages saying there's no way the bottom will fall out of the housing market and really wanting to believe this is the case and people with no mortgages saying it's definitely going to happen. I don't have a house so I hope it all collapses so I can rent/buy somewhere decent when I go back to Eire.

14-01-2009 12:22pm

BraziliaNZ wrote: »

all these property price arguements seem to be divided between the people with huge mortgages saying there's no way the bottom will fall out of the housing market and really wanting to believe this is the case and people with no mortgages saying it's definitely going to happen. I don't have a house so I hope it all collapses so I can rent/buy somewhere decent when I go back to Eire.

It's the ones who bought several houses in recent years as as an investment for their pension who will suffer the most.

ascottdub · 15-01-2009 8:13pm

Hello,

There seem to be some smart people on here so here's one for you.
They keep going on about how much prices will fall, but can anyone at all tell how much prices are likely to fall in a certain area?
More to the point, a nicer area in Nth County Dublin. I'm looking at the possibility of bidding on a 3 bed, older council, terraced house, that would need to be gutted, and I mean gutted. It's a shell at the moment and the asking price is just laughable.
I'm not expecting an exact amount but how much have houses come down in the area since last July(2008) until now, and how much more to go?
Much appreciated,
Ascottdub

Eglinton · 15-01-2009 8:49pm

ascottdub wrote: »

Hello,

There seem to be some smart people on here so here's one for you.
They keep going on about how much prices will fall, but can anyone at all tell how much prices are likely to fall in a certain area?
More to the point, a nicer area in Nth County Dublin. I'm looking at the possibility of bidding on a 3 bed, older council, terraced house, that would need to be gutted, and I mean gutted. It's a shell at the moment and the asking price is just laughable.
I'm not expecting an exact amount but how much have houses come down in the area since last July(2008) until now, and how much more to go?
Much appreciated,
Ascottdub

Would you be buying to sell as an investment or live in it?

If it's an investment, you will really have to buy for rock bottom. I would suggest circa 150K and then put another 50K into it to modernise it. I don't think you'll be able to sell that sort of a house for a huge amount more than 220 -250K in a year or two. I'd say this is the bottom end of the scale though. If the market bottoms out soon enough you might get a bit more. But the way things are going I'm not so sure.

If you're buying it to live in, you could spend a bit more initially as you'll be able to spend money on the improvements over a longer period.

Be cheeky and offer a really low price though. You never know what will be accepted these days.

oceanclub · 15-01-2009 8:56pm

mrgaa1 wrote: »

I would like Mr Kelly to go and price building a new house to current regulations. A standard 3 bed house at lets say 1200 square feet.

Umm, where do I start? OK, let's start with the fact that we're not talking about houses yet to be built - we're talking about houses that have already been built. In fact, there's 300,000 of them empty right now. If you built a 3-bed house today that costs €200,000 to build, it's doesn't matter; you'll be in competition against houses that have already been built whose owners will be looking for less. Buyers don't care whether or not you're making a profit.

P.

Housing Bubble Bursting

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