The bubble....

dochasach · 12-07-2006 12:40pm

I've been a housing bear ever since I looked into buying a house here and found that the fundamentals are just wrong. Because is nearly impossible to predict the timing and playout of a psycology driven market pheonenon (e.g. bubble or a panic), it's easy for infinite boom believers to point to those of us who believe that fundamentals win out long term and say "see, you're wrong, you were wrong last year and the year before!" Bertie said something very similar to this which leads me to believe he wants the bubble to last until after the election or he truely believes it is everlasting.

In any case, housing inventory is probably rising now but the only organizations with an accurate measure of this have a vested interest in maintaining the bubble.

About 6 months after its no longer possible to hide the fact that inventory is rising, the speculators will begin their exodus. Prices will stagnate or fall in the sectors where speculators were heavily invested.

6 months later there will be a "dead cat bounce", the believers will buy in, believing that property has bottomed out and will quickly recover.

6 months later the decline will continue and probably follow the Tokyo model of falling slowly (rapidly in inflation adjusted terms) for a decade or more.

That is my optimistic view. But a friend recently spoke to a property investor in a pub. This man owned 80 properties, he said it was easy money and he was trying to get others to join his failsafe investment (aka ponzi) scheme. It occured to me that there might just be one of these guys in just about every pub in Ireland. Surely there are at least a thousand pubs in Ireland, wouldn't that be 80,000 houses. How many houses were constructed last year? 80,000. No, I don't think 100% of our demand is from speculative investors, but my guess is that it is high enough that when these guys are frightened, things will go pear-shaped rather quickly. Stay tuned.

stepbar · 13-07-2006 12:18am

The "speculative investor" with loads of houses might be able to weather the storm. Theres a good chance that he will have the mortgages paid on some of his properties and therefore might be able to sell off one or two to keep cash flow stable. Its the "second home owners" with holiday homes down the county / abroad, is the ones I'd be more worried about. These houses are not producing any economic value as most of them are not being rented. The only "value" they are producing is "capital appreciation", which IMO is absolute ecomomic fraud. Aparently in the north west regions including cavan, 1 in 4/5 houses (I cant seem to find exact fiqures but they are def out there) remain unoccupied for over half the year. Most people seem to forget that until the day the cheque for the house is in ur back pocket that ur house is nothing more than a liability. There is always goin to be a risk that something will happen in the world ecomomy that will cause an upset to global markets e.g terrorist attack etc. Such events have the potential to increase inflation / interest rates and leave people unemployed. The generally lead to a contraction of the market. Its like an accident on the M50 that happens during rush hour, it leaves absolute chaos for the whole day except in reality were something like this to happen we could be talking about more than a few days, years maybe....

shnaek · 13-07-2006 10:58am

Here is an interesting article by David Mc Williams on the Bank of Ireland study earlier in the week which claimed that we are the second richest nation in the world:

http://www.davidmcwilliams.ie/Articl...&ArticleID=376

It is certainly food for thought. If it looks and smells like a bubble then it is a ........

daveirl · 13-07-2006 11:08am

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SkepticOne · 13-07-2006 11:25am

daveirl wrote:

This post has been deleted.

Yes, and he's been saying that for the last five years and he's been wrong wrong wrong.

miju · 13-07-2006 11:29am

ah sure if he's been wrong for the last five years then he obviously doesn't know what he's talking about

Gegerty · 13-07-2006 11:33am

shnaek wrote:

Here is an interesting article by David Mc Williams on the Bank of Ireland study earlier in the week which claimed that we are the second richest nation in the world:

http://www.davidmcwilliams.ie/Articl...&ArticleID=376

It is certainly food for thought. If it looks and smells like a bubble then it is a ........

Which article is that your link insn't working

whizzbang · 13-07-2006 11:34am

We all know that if you make a statement and are proven to be wrong in the short term, it will never ever prove correct in the long term.

whizzbang · 13-07-2006 11:35am

Gegerty wrote:

Which article is that your link insn't working

linky

shnaek · 13-07-2006 11:50am

whizzbang wrote:

linky

Thanks, whizzbang. That's the one.

SkepticOne · 13-07-2006 12:04pm

whizzbang wrote:

We all know that if you make a statement and are proven to be wrong in the short term, it will never ever prove correct in the long term.

Stands to reason.

I think what the likes of McWilliams, the IMF, the OECD and foreign investors are failing to take into account is that a new laws of economics are in operation in Ireland.

We in Ireland have entered a new era. A new paradigm is required for this new economy of ours.

But the likes of McWilliams can't see this. They are too obsessed so called "fundamentals" and the idea that we have to make stuff that others want in order to become wealthy. This excellent report from BOI proves the wrong once and for all.

The only thing I can't understand is how McWilliams is allowed to get away with what he is saying. Surely it is a form of economic treason what he is doing? Where were the police when he was writing this dangerous nonsense?

whizzbang · 13-07-2006 12:13pm

SkepticOne wrote:

The only thing I can't understand is how McWilliams is allowed to get away with what he is saying. Surely it is a form of economic treason what he is doing? Where were the police when he was writing this dangerous nonsense?

Next he's going to say the Emperor has no clothes... silly man.

Gegerty · 13-07-2006 12:18pm

shnaek wrote:

Here is an interesting article by David Mc Williams on the Bank of Ireland study earlier in the week which claimed that we are the second richest nation in the world:

http://www.davidmcwilliams.ie/Articl...&ArticleID=376

It is certainly food for thought. If it looks and smells like a bubble then it is a ........

Just because BOI say we are the 2nd richest nation in the world does not mean that people are going to go out and borrow more money just so they can look rich. He doesn't really have a grasp on the mentality of young Irish people. People are still buying at the moment because with a bit of help (in some cases alot of help) from their parents and a stern word with their boss about their cr*ppy salary they can be brought up a gear financially and CAN afford the mortgage. Are there people out there who cannot afford their mortgage? I don't see it in my circle of friends.

If anyone is to blame for the so called bubble its parents who are making up the 10K-20K shortfall so their children can fly the nest. After all if it wasn't for this lump sum there are hundreds, maybe even thousands I don't know, of young people who would be forced to either live at home or rent.

stepbar · 13-07-2006 1:07pm

SkepticOne wrote:

We in Ireland have entered a new era. A new paradigm is required for this new economy of ours.

Please explain.

I seem to remember Micheal Porter was proven correct during the Internet boom. How can you say the housing market is any different.

shnaek · 13-07-2006 1:19pm

stepbar wrote:

Please explain.

I seem to remember Micheal Porter was proven correct during the Internet boom. How can you say the housing market is any different.

You from the US by any chance?

Gegerty · 13-07-2006 2:33pm

stepbar wrote:

Please explain.

I seem to remember Micheal Porter was proven correct during the Internet boom. How can you say the housing market is any different.

I don't think you can compare it to the internet boom. It didn't take an economist to see that the internet boom was destined for disaster. Anyway there are plenty of success stories from the internet boom, it was only the ridiculous and the stupid that crashed and burned. Compare it to a natural forest fire if you will, it may look devastating but its actually really healthy for the forest in the long run. I don't see a comparison with the housing market.

lomb · 13-07-2006 4:11pm

stepbar wrote:

Please explain.

I seem to remember Micheal Porter was proven correct during the Internet boom. How can you say the housing market is any different.

the difference is property will still be sought after in 25 years, internet boom shares were worthless the day they floated the companies even though people thought they werent.

ronbyrne2005 · 13-07-2006 4:28pm

lomb wrote:

the difference is property will still be sought after in 25 years, internet boom shares were worthless the day they floated the companies even though people thought they werent.

will still be a demand but what will supply be like? we're building 100k house a year,that wud be 2.5million properties in 25 years time if the rate continued(obviously wont continue at that rate!),we'd have more houses than people at that rate.if people have massive mortgages and houses are worth half what they paid( including interest ) then the demadn at a lower price level wouldnt be too much of a consolation.

daveirl · 13-07-2006 4:55pm

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lomb · 13-07-2006 6:15pm

ronbyrne2005 wrote:

will still be a demand but what will supply be like? we're building 100k house a year,that wud be 2.5million properties in 25 years time if the rate continued(obviously wont continue at that rate!),we'd have more houses than people at that rate.if people have massive mortgages and houses are worth half what they paid( including interest ) then the demadn at a lower price level wouldnt be too much of a consolation.

supply is the big thing. that will change the curve very quickly. personally i hope they keep building(and they will). nothing like the smell of freshly poured cement:D
however good quality 4-8 houses per acre ended along time ago. the only question is is the excess high density stuff going to reduce the value of the good stuff?
either way good stuff today will be good stuff tomorrow and will be sought after/sell quickly.

most internet companies were run by fraudsters with no track record and were worthless. for every ebay and amazon there were 100-250 dot bomb shares. i dont think we are at that point with property. even suburban high density will still be livable in and maybe even desirable by the young in 20 years. but with high supply rates who knows?

stepbar · 13-07-2006 8:16pm

Id still love to know what the answer is to this "new paradigm" that SkepticOne talks about..... :rolleyes:

"We in Ireland have entered a new era. A new paradigm is required for this new economy of ours"

What a load of bull****...

And I just looked through the rest again, this statement is ridiculous

"But the likes of McWilliams can't see this. They are too obsessed so called "fundamentals" and the idea that we have to make stuff that others want in order to become wealthy."

So, do we go out and buy more property and all become "paper" millionaires? :rolleyes: Its like one big giant legal pyramid scheme. The internet boom was caused by people who forgot about the "fundamentals". There are alot of people doing the very same when it comes to property.

"This excellent report from BOI proves the wrong once and for all."

According to BOI we are all worth €105k!! (Im still searching for mine...) and 75% of our wealth is in Property!!!! All it proves is that we all all up to a necks in debt

mhenness · 13-07-2006 8:24pm

katrien_ie wrote:

So does most of the third world.

The third world may have favorable demographics but it has very weak economic structures so you can't make that comparison meaningful.

mhenness · 13-07-2006 8:30pm

chump wrote:

oh and my opinion...

Bubble will fizzle downwards within the next 9-12 months and then be at a stage of slight negative or 0 growth for the next 5+ years before eventually rising again at a similar rate to wage increases.

The fizzle over the next 9-12 months I believe will affect different areas differently and would amend Cantabs view as follows

PRICE DECREASES
25+% commuterland apartments 1.5+ hr dublin city commute and commuterland belt in other cities/town
15+% commuterland houses 1.5+ hr dublin city commute and commuterland belt in other cities/town
~10% apartments on DART/LUAS/within less than 1 hr drive from city
~5% houses on DART/LUAS/within less than 1 hr drive from city
0% embassy belt, established even number postcodes, top-drawer, and also south side enclaves on the northside

I see particular issues with the apartment and small house complexes that aren't fed by any train lines and where driving into dublin city in the morning takes more than 1.5 hours, and often considerably more.

I also see the fizzle not being as spectacular a burst as some might expect, and instead see a longer more drawn out period of decline.
I also see some right awful politcal turmoil and a possibly ugly enough economic period come the next election.

And yet another expert gives us their valuable opinion. I'd love to know where you get your crystal ball...or maybe you're an economist?

miju · 13-07-2006 8:33pm

so prices are just going to keep going up then mheness ?? is that your wild prediction?

daveirl · 13-07-2006 9:11pm

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mhenness · 13-07-2006 9:13pm

daveirl wrote:

This post has been deleted.

Does anyone believe economists?

miju · 13-07-2006 9:16pm

well given the choice of an economist or an irrational exuberant property bull then i vote for the economist every time

mhenness · 13-07-2006 10:00pm

miju wrote:

well given the choice of an economist or an irrational exuberant property bull then i vote for the economist every time

Agreed. However, have you ever known an economist to be right except in some quite general way and some "property bulls" as you put it are quite good investors and know when to get in and out of a market. And the answer is NO to your previous comment. I don't think property prices will keep going up. I just find the opinion that was given by chump "interesting" in it's apparent exactness.

dochasach · 14-07-2006 1:15am

lomb wrote:

the difference is property will still be sought after in 25 years, internet boom shares were worthless the day they floated the companies even though people thought they werent.

Here's another difference:

Punter A: invests 20,000 in bubblestock.com.
Stock drops 100% to 0
Punter A loses 20,000, he doesn't have to sell.

Punter B: invests 20,000 in bubblehouse
Convinces bank to float him another 280,000.
Bubblehouse drops only 10% in value. (come on, if it rises 200%, it could certainly drop 10%)
If punter B sells:
He loses his initial 20,000
He loses another 10,000 he still owes to the bank after the sale.
He loses his stamp duty
He loses the interest he already paid in his front-loaded mortgage
He loses the legal fees for the transaction...

If Punter B doesn't sell:
He's stuck with a depreciating asset which
Thanks to rising EU interest rates, this depreciating asset costs him more with each passing year.

Housing is leveraged (geared) and so it is more like an option than it is like a stock.

Punter C rents, pays less than 1/2 what punter B pays to keep the same roof over his head and puts the other 1/2 into a savings account, SSIA or other appreciating asset.

Gurgle · 14-07-2006 9:00am

dochasach wrote:

If Punter B doesn't sell:
He's stuck with a depreciating asset which
Thanks to rising EU interest rates, this depreciating asset costs him more with each passing year.

You're assuming that:
a) House prices go down and keep going down indefinitely
b) Interest rates go up and keep going up indefinitely
c) Rents stay the same indefinitely
tbh, thats much stupider than the people who think house prices can keep raising at current rates indefinitely. (And they're stupid)

The bubble....

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