Housing Bubble Bursting

Zambia · 24-09-2007 9:00am

Victor wrote:

The Sindo headlines seemed rather desperate yesterday.

It's a case of boom not bust, say the real experts
I blame DINKY generation for sowing despair
Gloomy predictions on RTE shows hitting house sales

Hmm

1st up the article quoting the high street sales mogul is correct but I wionder how much of his upward sales are coutesy of Plastic. He is correct Kids Today dont know what a recession is. But the real wake up is when they cant pay of that must have top come two years time.

2nd Article re Dinky , the housing market was in trouble way before RTE made either George Lee or David McWilliams where being heard.

3rd Article is like the first prices floundered before RTE stuck their oar in.

However I do agree with the sentiment the whole country is not arse invaded because the value of Houses is falling. However its not nice simply ask the delgany residents mentioned earlier.

patrickolee · 24-09-2007 9:36am

Zambia232 wrote:

2nd Article re Dinky , the housing market was in trouble way before RTE made either George Lee or David McWilliams where being heard.

Poor George and David have been noisily beating their drums since the late 90s. That's why I didn't buy a house back then! doh.

Zambia · 24-09-2007 10:49am

patrickolee wrote:

Poor George and David have been noisily beating their drums since the late 90s. That's why I didn't buy a house back then! doh.

True you would be forgiven for harming them slightly.

But as far as property goes they are right. It is falling so everyone should adjust there investments accordingly.

There is a financial storm coming but if your Financial house is battened down you have no need to worry.

In my opinion is not the time for living pay check to pay check like I did from 2002 to 2006.

But hey I am no retail industry mogul or Property whiz I just take the views of people around me and try and make safe choices on what may come.

SkepticOne · 24-09-2007 10:59am

patrickolee wrote:

Poor George and David have been noisily beating their drums since the late 90s. That's why I didn't buy a house back then! doh.

I think the lesson is that we have to think for ourselves. I think the mistake a lot of people made was that they assumed that because McWilliams was wrong in the late 90's, that he would continue to be wrong and therefore it was a good time to buy houses.

patrickolee · 24-09-2007 11:01am

SkepticOne wrote:

I think the lesson is that we have to think for ourselves. I think the mistake a lot of people made was that they assumed that because McWilliams was wrong in the late 90's, that he would continue to be wrong and therefore it was a good time to buy houses.

True, there is an element of the boy who cried wolf.

SkepticOne · 24-09-2007 11:12am

patrickolee wrote:

True, there is an element of the boy who cried wolf.

Yes if you imagine the people themelves as the the sheep in that story. And of course, McWilliams was quite correct in pointing out the risks associated with purchasing property for the last several years. What I think he should have done is explained that you can never time the crash in a bubble once you have identified it as such. Everyone wants to be told exactly when the crash will happen so that they can get out ahead of everyone else. Logically, I think we can see that that is impossible. The crash always happens when the majority of people aren't expecting it, otherwise there would be no crash.

Zambia · 24-09-2007 12:05pm

SkepticOne wrote:

Yes if you imagine the people themelves as the the sheep in that story. And of course, McWilliams was quite correct in pointing out the risks associated with purchasing property for the last several years. What I think he should have done is explained that you can never time the crash in a bubble once you have identified it as such. Everyone wants to be told exactly when the crash will happen so that they can get out ahead of everyone else. Logically, I think we can see that that is impossible. The crash always happens when the majority of people aren't expecting it, otherwise there would be no crash.

True but you could look at it another way , when the majority of People think its going to happen they can create it. By suddenly off loading property , increasing supply and driving down prices causes a Snowball effect.

SimpleSam06 · 24-09-2007 12:24pm

SkepticOne wrote:

I think the lesson is that we have to think for ourselves. I think the mistake a lot of people made was that they assumed that because McWilliams was wrong in the late 90's, that he would continue to be wrong and therefore it was a good time to buy houses.

Yes but if interest rates hadn't been unexpectedly floored in 2001, would he still have been wrong? Don't forget, there are reports going around from the central bank saying houses were overvalued back in 2000.

gurramok · 24-09-2007 1:40pm

Zambia232 wrote:

Hmm

1st up the article quoting the high street sales mogul is correct but I wionder how much of his upward sales are coutesy of Plastic. He is correct Kids Today dont know what a recession is. But the real wake up is when they cant pay of that must have top come two years time.

High street sales were and probably are still being affected by the SSIA's, they forgot to mention that what was holding ALL sales up.(not just some excluding pricey antiques

)
Average SSIA payout was €14k, common sense that some of it will be spent on a huge range of items.
Question is, how soon will the SSIA affect wear off?....now as summer is over or maybe by xmas??
Nobody knows

...but the volume of sales are not sustainable by the time it does wear off and that would mean downward pressure on sales, nevermind what happens in the wider economy.

SkepticOne · 24-09-2007 2:20pm

Zambia232 wrote:

True but you could look at it another way, when the majority of People think its going to happen they can create it. By suddenly off loading property , increasing supply and driving down prices causes a Snowball effect.

And of course, it doesn't even take a majority. A significant minority can change the direction of a market.

With regards to predicting crashes, I agree there is no way to do this short of actually causing one. Even the most sophisticated economic models, to my knowledge, only calculate overpricing and the probability of a crash within a given period. They can't say for sure that a crash will occur within that period.

I'm not sure McWilliams ever predicted that a crash would happen in a particular period, but when people hear of a bubble they assume it is going to burst within a relatively short timescale. When this does not happen, the predictor loses credibility and people make the mistake of diving in to the market prior to crash.

The clever people wait till they believe the crash is in it's early stages yet still not widely known, to "predict" the crash e.g. Morgan Kelly at the start of the thread and, even then, they still just talk about the risk of a crash and stop short of predicting the actual crash.

thewing · 25-09-2007 2:13pm

The words 'crash' and 'bubbles bursting' imply sudden actions. A property crash is never like that. If houses overall fall by 5% for this year, and 8%(predicted by some financial houses) next year and say 10% the following year, that's a decrease of 23% - looking back at the end of 2009 we would then say we'd experienced a property 'crash'. The 'boom' has taken 10 years, so the 'crash' would take a while as well....

patrickolee · 25-09-2007 2:44pm

I think they'd term that a soft landing... a crash would be more 5%, 10%, 20%, 10%, 5%... but you're point about the terms "bubble bursting" and "crash", I think, are correct.

iguana · 25-09-2007 3:54pm

patrickolee wrote:

I think they'd term that a soft landing... a crash would be more 5%, 10%, 20%, 10%, 5%... but you're point about the terms "bubble bursting" and "crash", I think, are correct.

A soft landing implies growth at a similar level to inflation, not drops of any kind.

http://www.investopedia.com/terms/s/softlanding.asp

whizzbang · 25-09-2007 4:06pm

It is interesting how the definition of a soft landing has changed over the last year.

1 year ago: "High single digit rises" (5% to 9% YOY)
9 months ago:"Rises in line with inflation" (3% to 5% YOY)
6 months ago: "flat" (0% YOY)
3 Months ago: "Low single digit declines" (-1% to -3% YOY)
now: "High single digit declines" (-5% to -10% YOY)

That is a 20% swing in the last year, all covered under the term "Soft landing"

anyone care to guess what next quarter's soft landing will be, -10% to -15% YOY?

Afuera · 25-09-2007 4:21pm

whizzbang wrote:

anyone care to guess what next quarter's soft landing will be, -10% to -15% YOY?

Sounds like we're getting into hard soft landing territory there

nesf · 25-09-2007 7:03pm

iguana wrote:

A soft landing implies growth at a similar level to inflation, not drops of any kind.

http://www.investopedia.com/terms/s/softlanding.asp

Or it can be interpreted as meaning "not a crash" depending on how you want to look at it. If the market's dropping but we're not seeing a sell-off etc then you could call it a soft landing (ie a slow correction to the mean versus a fast correction etc).

It's just semantics and spin really though.

whizzbang wrote:

anyone care to guess what next quarter's soft landing will be, -10% to -15% YOY?

"House prices dropped by 55% this year as our soft landing decelerates says leading economist"

iguana · 25-09-2007 11:06pm

nesf wrote:

Or it can be interpreted as meaning "not a crash" depending on how you want to look at it. If the market's dropping but we're not seeing a sell-off etc then you could call it a soft landing (ie a slow correction to the mean versus a fast correction etc).

Not really it's an economic term with an actual definition. That's like saying we can call the dog a cat as neither term defines a horse.

Dalfiatach · 26-09-2007 3:49am

iguana wrote:

Not really it's an economic term with an actual definition. That's like saying we can call the dog a cat as neither term defines a horse.

Well, it's not really an economic term because they don't actually exist, do they? Next thing we'll all be discussing the role of invisible pink unicorns in M3 growth, in particular the correlation with the orc population/GDP ratio over time with a six month lag, adjusted for the number of trolls currently living under bridges.

nesf wrote:

"The rate of house price increase reversal accelerated to 55% this year as our soft landing continues to strengthen positively, making this an ideal time to buy, says Desperate Dan"

Fixed that for ya.

miju · 26-09-2007 8:38am

Dalfiatach wrote:

Next thing we'll all be discussing the role of invisible pink unicorns in M3 growth, in particular the correlation with the orc population/GDP ratio over time with a six month lag, adjusted for the number of trolls currently living under bridges.

Rofl ,

D'Peoples Voice · 26-09-2007 12:53pm

Afuera wrote:

Sounds like we're getting into hard soft landing territory there

or perhaps an easing in house prices

Anyone else think that maybe our fundamentals are not what EAs would have us think- seeing as some VIs are looking to the Government to pump more money into the market!
http://www.businessworld.ie/livenews.htm?a=1848002

CIF calls on Govt to reform stamp duty

Wednesday, September 26 10:43:16

The Construction Industry Federation (CIF) today urged Government to restore confidence in the housing market and for a radical reform of stamp duty.
On the housing market, Fogarty said, 'while the medium-term requirement is for 65,000 houses annually, the market has stalled as a result of negative sentiment.

But some of the bears are telling us that there are queues again outside EAs.

Whats this
http://www.businessworld.ie/livenews.htm?a=1848007

Homes granted planning up 25.6pc in year

Wednesday, September 26 12:02:26

The number of homes granted planning permission was up 25.6pc in the second quarter of this year compared with the same period last year, new figures from the Central Statistics Office showed today.

Total floor area planned was 6,719 thousand sq. metres in the second quarter of 2007. Of this, 50.7pc was for new dwellings, 39.7pc for other new constructions and 9.6pc for extensions. The total floor area planned increased by 39.3pc in comparison with the same quarter of 2006.

Victor · 26-09-2007 4:33pm

I think those figures a badly distorted by low figures for the first quarter. The six month figure might be quite similar.

ronbyrne2005 · 27-09-2007 12:05pm

The construction industry is panicking and looking for their chums in FF to bail them out (at taxpayers expense) again.
And the industry and certain elements in media etc are mounting a McCarthy style witchhunt against the "doom-mongers" talking down the market and economy. These "doom-mongers" are generallt objective and rational people while the vested interests rely on spin and waffle to talk up the market.

D'Peoples Voice · 27-09-2007 1:35pm

House price survey by the Dept of Environment etc......
http://www.environ.ie/en/Publications/StatisticsandRegularPublications/HousingStatistics/FileDownLoad,2277,en.XLS
Look at worksheet titled 'hse prices % change year on yr'

Second hand houses fell by 8.3% in Quarter 2,
while prices of new houses rose by 7.4% in Quarter 2

Do you think that anomaly was because of people holding off until the outcome on Stamp duty was decided? Remember that stamp duty affects more second hand houses than new houses!

whizzbang · 27-09-2007 1:49pm

D'Peoples Voice wrote:

House price survey by the Dept of Environment etc......
http://www.environ.ie/en/Publications/StatisticsandRegularPublications/HousingStatistics/FileDownLoad,2277,en.XLS
Look at worksheet titled 'hse prices % change year on yr'

Second hand houses fell by 8.3% in Quarter 2,
while prices of new houses rose by 7.4% in Quarter 2

Do you think that anomaly was because of people holding off until the outcome on Stamp duty was decided? Remember that stamp duty affects more second hand houses than new houses!

Maybe it is because 2nd hand houses do not come crammed with new fitted kitchens, 42 inch TVs, gym membership and a year long contribution to the mortgage payments.

Or maybe these people signed up for those places 18 months ago, but only paid for them on completion. So the price increase is based on what people agreed to pay 18 months ago, before the the market turned. 2nd Hand houses tend to reflect the price now, rather than the price 18 months ago.

patrickolee · 27-09-2007 1:57pm

whizzbang wrote:

Maybe it is because 2nd hand houses do not come crammed with new fitted kitchens, 42 inch TVs, gym membership and a year long contribution to the mortgage payments.

Or maybe these people signed up for those places 18 months ago, but only paid for them on completion. So the price increase is based on what people agreed to pay 18 months ago, before the the market turned. 2nd Hand houses tend to reflect the price now, rather than the price 18 months ago.

It could also be because a lot of the second hand price is comprised of very expensive high end houses, which have dropped crazy amounts. From the spreadsheet the 2nd house price average was 371,000 whereas the new houses were 305,000. So we probably are not comparing like with like.

Western_sean · 27-09-2007 5:12pm

I would have thought that only better quality second hand homes would be selling in the current enviornment. That is buyers with a broad range of choices in a given price range would pick the best quality properties.

Could the broad 2nd hand market situation actually be a good bit worse than these figures suggest?

Tom123 · 27-09-2007 5:42pm

patrickolee wrote:

It could also be because a lot of the second hand price is comprised of very expensive high end houses, which have dropped crazy amounts. From the spreadsheet the 2nd house price average was 371,000 whereas the new houses were 305,000. So we probably are not comparing like with like.

I think it has more to do with the developers offering lots of discounts that don't show up in the falls.
Free TV, kitchens, furniture, cars, mortgage payments etc. etc.

ronbyrne2005 · 27-09-2007 8:12pm

New homes not selling, construction forum told
Barry O'Halloran

There is increasing evidence some newly built homes are not selling, a conference on the future of the Irish construction industry heard yesterday.

John Morris, chief underwriter for Ireland with payment protection insurer Atradius, which hosted the gathering in Dublin, told the meeting homes in new estates built on the fringes of rural towns and villages were increasingly lying idle.

After the conference Mr Morris told The Irish Times there was "anecdotal evidence at least" that many homes in estates like these were not attracting buyers.

Another speaker at the conference, Declan Flood, chief executive of the Irish Institute of Credit Management, said some figures showed one in six dwellings in the Republic were not occupied.

Atradius has written about €7 billion worth of business in the Republic, and €2.3 billion comes from the building industry.

However, while Mr Morris said the building industry was facing a tough period, he stressed the "carnage" many observers were predicting would not materialise. He added most of the firms at risk were small subcontractors or operators that had grown quickly with the boom and had management problems.

Another speaker, Tom Kavanagh of insolvency and corporate rescue specialists Kavanagh Fennell, echoed this, and said most of the construction-related cases with which his firm has been dealing are smaller operators or subcontractors.

Mr Flood said the slowdown is filtering through to development land prices which had fallen by about 20 per cent over the last year. He added that property in the Republic was overpriced.

Mr Flood said the Republic needed to shift policy to concentrate on developing high-value-added activities such as research and development, and on sectors such as technology, biotechnology and pharmaceuticals.

"We can't keep depending on construction," he warned.

© 2007 The Irish Times

iguana · 27-09-2007 8:45pm

Dalfiatach wrote:

Well, it's not really an economic term because they don't actually exist, do they?

Of course the theory of relativity is probably wrong but the term still defines one particular concept. A soft landing is a concept and it might be a concept that has never come to pass but it is still one particular concept and the term shouldn't be used to describe other things.

arctictree · 28-09-2007 8:51am

News report on RTE mentions a 15% drop by the year end:

http://www.rte.ie/news/2007/0928/economy.html

A

Housing Bubble Bursting

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