Housing Bubble Bursting

Balbriggan to me would be the epitome of dublin city commutersville. An oversubscribed and illegular train service. A long lasting and infrequent bus service. A long auld arduous trek in the car. And regarding the bus and train service, add on the distance to the station/stop in both town and in Balbriggan.

Also some of the houses out there are tiny, sinfully so IMO considering the distance from the city etc.

Of course I'm purely being negative here. It just seems like trekking into work day in day out would be a real burden - and to arrive home to a house-by-numbers wouldn't do it for me.

Even if stamp duty was removed overnight prices would simply move to reflect the extra buying power of buyers. Sellers would benefit but lose out if they went on to buy. Stamp duty is a tax on sellers as it generally reduces the amount they get for their property. If a house was selling at 350k today and stamp duty was removed it would rise(ceteris paribas) by about the amount of the previously payable stamp duty as potential buyers had more to spend. Obviously in a falling market prices may not rise by amount of stamp duty but may fall less than they otherwise would have. Anyway prices have fallen in real and/or nominal terms over last 9 months by a sum more than stamp duty so waiting for stamp duty to be removed even at high end of market is a weak argument. Plus as pointed out above 90% of FTBs dont pay stamp duty due to being under 317k or buying a new stamp duty free property. Does anyone think FF will remove stamp duty on 2nd hand houses when they get little benefit from them? They are gonna encourage new house sales as they make 50% on every new property and their developer buddies make money on only new properties too. I think they have made the new build property sector too important in this economy and have set us up for a hell of a beating. FFs history since 1960s is inextricably linked to property development as they got their funding from it and it was usefull for employment and tax revenue, but now they are addicted to it and its rapidly being withdrawn as the housing starts decline indicates.

DublinWriter wrote:

Both nesf and smccarrick have hit the nail on the head here.

A slump in the Irish property markets will be dictated by macro, not micro economics.

I don't understand what you mean by this.
For example if the US economy begins to rebound, there will be further scope to leave the IR unchanged, and in time raise them to keep a hold of inflation.
This in turn will allow the ECB to continue to raise rates and keep a tight hold over EU growth.
This is going to lead to all sorts of grief in Ireland, as IR seem to be the catalyst to much of our woes.

Alternatively the US economy begins the slide, the US slash rates, the ECB must stall and depending on the severity of the contraction in the US perhaps begin to cut. This is ultimately good, with respect to IR for Ireland, but negative in terms of global trade, in particular our reliance on US multinationals.

Conclusion: of course macro economic conditions are going to affect our housing market, it's the grounds for most of the arguments that have been put forward.

But the strength/weakness of the Irish ecomony/housing market isn't pegged to the performance of the wider economies. In fact there is a very real possibility that if scenario one arrives the Irish economy will hit the rocks while much of the world carries on without us.

At the moment the most vocal and actve people in the natonal media are papers with a property interest and obviously estate agents/bank economists.
Yesterdays indo had the piece about estate agents laying off staff tucked into a one page article on FG/Labour. It was coloured grey as well so you would think it was just a little further editorial comment on the FG/Labour piece.
Andrew Carnegie used to say "Watch what people do not what they say"
The key things people who are thinking of buying should ignore if they are wondering about direction of house prices.
Things people say:
1. "Immigrants as renters, get more in, house prices will rise" - Not true, record levels of immigration have already occured stregthening the rental market. However this is massively diluted as a positive factor when current rental yields and immigrants per house are taken into account.
2. Immigrants as buyers - A myth, a large percentage of these immigrants who are buying are nurses/doctors with the remaining being immigrants who've managed to secure high paying employment. Immigrants simply don't earn a high enough average wage as a buying sector.
3. Wage inflaton - Only in Ireland would economists think that wage inflation will give us our soft landing. With the state of the dollar, wage inflation is making us look terrible on the international competive stage. This may be a positive factor now, but a further three years will lead to a flood of Multi nationals exiting.
4. "Our young demographics." Positive factor for house formation as people get married in the 25-35 bracket. However in the cities family houses in nice areas are massively overpriced, causing people to finally start to hold off on purchase.
5. "Houses in nice areas will fall the least." I used to think this would be somewhat true. The truer statement is houses in nice areas will fall to a higher capital worth than places in bad/okay areas. Look at the flood of properties coming on the market in the really top areas. As Dutch auctioning sets in prices wll fall by hundreds of thousands depending on initial capital value. ie houses at 1.2 million now, going for 800,000 next year 30% drop. Some people have a view nice areas will only drop by 10%. Similar lets think, nice place in Rathfarnham, asking 800,000 now, next year 550,000.
6. "Stamp duty is the issue." Who is telling you this? Bank economists - they need a healthy bank, Brendan O'Connor of Sunday Indo - he's got an investment property, estate agents - They need to sell houses, colleagues at work - the most vocal are often people fond of repeating the Irish Times,
The Irish Times - Marc Coleman stated as if proven beyond all doubt, stamp duty was the issue. IRISH TIMES OWNS MYHOME.IE it also makes huge money from property advertising.
Who is telling you stamp dury is not the issue, People like myself who make no money from the property market.
7. "Our fundamentals are sound" - They were only sound when interest rates weren't rising and inflation of goods was low. Now ECB rates are rising and Gas/Oil/ESB/Services(childcare/taxis) are more expensive. Also house prices were lower when compared to average wages.
8. "House prices are falrly valued for our circumstances" No they are not. People wanted to buy the share that is called the Irish house market. It went up. But then affordability suffered so the banks lent more. Everyone bought everywhere, so now certain shares of Irish market have a extremely low P/E. ie Massive valuation vs. low rent. For examples of this think of all those 1000,000+ red bricks in Dublin. Some places don't even have a P/E as they don't rent.
9. "We will get a pick up in prices after election/some term it dead cat bounce." As every day passes I can't see how investors with empty propertes along the West coast are not going to tank the market from West to East with a flood of unsaleable property. Most of this property still makes a profit if you sell it at 30-40% below current askng prices. The next rate rise in June is the tipping point. It may even happen at the conference in Dublin n May (Trichet might want to be remembered on pages of European history) . Do the maths on it any way you like, with a further 0.25% rise, the case to sell up and bank money becomes even stronger. People are forgetting about the banks savings rates price war. Banks savings rates are at/near inflation for goods.
10. Houses will match inflation. Not if there is no market force to make them match inflaton. Do the maths on a 650,000 3bed in Rathfarnham matching 3% inflation for ten years. We haven't got the capacity to raise wages by that degree. People with cash are the fundamental factor of house prices, this has really gone askew here in last three years with high earning people stretchin for a three bed in Dublin. People talk about supply, just because Dublins populaton rises does not mean we can afford more 600,000 3-beds. Most of the new population work in low paid retail/catering/medium paid construction.
11. "Hold off buying now I did that in 2002" - Look at your calendar its 2007, and we are 7 months into price falls.
12. "Do you think banks will lend you money if prices crash"
The banks will be more than happy to lend you money in two years time to buy a family home at a far lower price than today aided by the savings in you high interest savings account built up over two years renting.
13. "Ye all want a crash so that ye can buy, but then everyone loses their job"
Isn't it better to not own and be unemployed, than to be unemployed and declared bankrupt. Bankruptcy will be a big danger for skilled tradesmen used to earnng 1200euro+ a week who bought big family homes in last two years.

Things that people are doing,
1. Far more sellers than buyers. Go onto Daftwatch. It has been stated on this board ad nauseam that first counties to really be oversupplied would be Mayo/Roscommon etc. That was proved correct. There is now no other course for the market there than large scale price drops.
2. Banks are selling property. The latest Bank of Ireland sale of branches is beng pitched at a lower price. AIB will soon have sold one billion worth of property in 2006/2007. Permo TSB are a little late on the scene and have barely sold anything. This could prove very costly for them.
Watch out for Permo TSB having a large scale branch/office sell off. Now alot of this property has been owned for decades. It was all explained away with "we are using it as capital for more loans".
Well, let's just hope the head in the sand hopefullness does not go too far into the banks economic thinking, if we don't have the green the banks better have or we're talking bank collapses.
3. Property advertisements hiring models.
It started with Belmayne development and now a few others are at it. These ads are expensive. These ads have been running every day for weeks in several papers. Why is this happening? Developers are struggling to sell property and are even having agreed sales fall through.
4. Estate agents letting go staff. They can't sell property.
5. Polish government is seeking planning permission for huge capital investment in infrastructure and stadiums for Euro 2012. This is a chance to show off to rest of Europe. Right now alot of their skilled tradesment are living in UK/Ireland. As things start to tighten up here in the Autumn and as wages rise in Poland (which they are especially in construction) our Polish builders will head home. By Autumn some of them wll have three years savings and three years good experiences. Also alot of them having been working as engineers. They are really needed at home.

Watch what people do not what they say,
P.J.

Do-more wrote:

OK here you go!

"I think worldwide economic chaos could occur during May 2007- Nov. 2010, during the last 3 1/2 years of the End Times Period when the Four Horsemen of the Apocalypse ride."

I scoff in your general direction.

The four horsemen won't be seen until we run out of oil and everyone goes back to using horses.

Thats at least another 6 months away.

Of course, various studies have presented the case that the prophecy actually refers to the four bikers of the apocalypse so it may occur before the end of the oil.

patrickolee wrote:

Can you? I tried to find something like this 2 years or so ago, but couldn't find one. There was one for illness, but couldn't find the redundancy one, which was what I was really looking for. There was an insurance you could get to pay your mortgage for 1 year if you were made redundant and went on social welfare. iguana, could you post back where you got that income protection policy, I'd be v interested in that. Thanks

They still exist. It is normally only offered when you get a new mortgage. I had one when I was made redundant. Very useful. Didn't work for 6 months because I didn't need to. The payment on mine was up to a year not 18 months though. Through AIB which use London General Holding.

As for all the glom and doom it is no surprise that something would change but I think people are jumping all over it too quickly.
Stamp duty is certainly an issue right now but how it has had an effect thus far is debatable. Stupid political fighting is likely to have a negative impact. I must admit I would resent the removal of stamp duty in an abrupt manner. There are certainly more equal ways to remove a tax that many have paid in recent times. I actually don't see why somebody who boughht a a year ago should have poaid a huge amount of tax and get nothing for it with somebody a year later not having to pay tax. It makes more sense to introduce a property tax giving credit to those who have paid stamp duty so as to eliminate stamp duty but maintain government income. I doubt it would be well recieved by the public.