Anyone watch prime time last night about house prices?

nahdoic

Anyone watch prime time last night about house prices?

I still felt the same way afterwards - I think that very shortly after mortgage interest rates go up to around 6% then the property bubble in Ireland will crash.

But then the next question, when are interest rates likely to rise to 6%? Or will they ever be that high again?

If interest rates stay at their current level, then I still feel that the bubble could be maintained indefinitely - so you should buy now.

BigEejit

The other thing that could burst that bubble is supply and demand ... some places (like Dublin) maintain a high demand for new housing ... but there are other regions where the demand is very low, but the builders are still putting up estates in the belief that they can continue to make millions like they have been doing for the last several years ... right now there are several properties that i know of quite close to me that have been up for rent for 4 or more months ... not great if you are an investor .... the house across the road from me is empty for at least that long if not longer .. (dunno if it is up for rent, was bought early summer and has been vacant since) .....

So, builder builds house, sells to investor, investor tries to rent it out, fails to do so for an extended period, sells the freaking thing to try and get his money out to buy a house that will make him money (or at least pay the mortgage). Multiply this by X amount of investors and there could be a drop in prices and rents.

PS I heard a strange thing the other day ... basically builders like to keep their money ploughed into new investments to minimise their tax debt (i.e. they pay less tax if they are constantly building new properties) ....

secret_squirrel

Originally posted by nahdoic
If interest rates stay at their current level, then I still feel that the bubble could be maintained indefinitely - so you should buy now.

And your qualifications for sayin this are?

For rates to go to 6% the ecb would have to make a decision that the whole of the eurozone would benefit from a hike like that.

Whats far more likely is a crash due to oversupply. Rents are already dropping all over dublin.

History has shown that the housing market is very cyclical..what goes up at silly rates eventually corrects itself with a big drop. And a crash in rental income usually preceeds this...and buy-to-renters are usually the first to feel it since many over extend themselves.

Victor

Originally posted by nahdoic
If interest rates stay at their current level

They can't they are at 50 year lows.

nahdoic

And your qualifications for sayin this are?

It's called intuition, a gut feeling that's why i said 'i still feel'. Notice how I didn't recommend this as advice - too subtle for you?

They can't they are at 50 year lows.

Yeah. But when do you think a rise in interest rates will occur? On the prime time show they were suggesting in 2 years time, I don't know how they came to that conclusion though.

It will more than likely be a combination of over-supply (reducing rental income) and a rise in interest rates (increasing mortgage expense). The buy-to-rent investor is already starting to feel a squeeze from a slight drop in rental income. But if interest rates still stay at their current level - then I still feel that the current bubble can be sustained.

But I still feel the nail in the coffin will be when interest rates go up to around 6% - making mortgage affordability exceed rental income very suddenly across the board. Investors will very suddenly be losing money hand over fist from an already difficult rental market. Forcing them to flood the market with property to sell all at once with one big huge property crash.

spongebob

Mortgage rates will not hit 6% in this decade !

Good ole oversupply could do do it though. Expect first in the newer outer suburbs of the large cities and watch. Some crummier rural areas will get it too.

M

pork99

This guy really hits the nail on the head

Thus both wages and profits could rise simultaneously.This, surely, is the point of the exercise, is it not? If Irish workers get paid more per hour of work because we are producing more, then we can have more free cash to spend in our free time.

But no, we do precisely the opposite. We invest all we can in land and houses.The opportunity cost of this is lower productivity per worker. This means relatively lower wages than our German neighbours. Lower wages and a much higher proportion of our after-tax take home wage going to rents and mortgages (historically, low interest rates notwithstanding), means less disposable income.

Equally, the huge rise in land prices causes a huge transfer of cash from workers to landlords, for doing nothing and, more egregiously, from the young, who shoulder the debts to the old and middle-aged who own the land. This is not how a modern, sophisticated economy works; it is demographic feudalism.

McWilliams Article

secret_squirrel

The buy-to-rent investor is already starting to feel a squeeze from a slight drop in rental income.

I moved rented houses 2 months ago in swords. And from personal experience I could have rented several houses of a similar size for €200 less a month. Thats a 17% drop in a year. More than slight methinks. The top end of the housing market is already stagnating..some houses have been on the market months. Admittedly N County Dublin contains some of the biggest volumes of new houses around Dublin..but from this evidence the market has hit plateau locally, which suggests a crash might be very near indeed.

But I still feel the nail in the coffin will be when interest rates go up to around 6% - making mortgage affordability exceed rental income...

And you got this figure from where - read it in your tea leaves perhaps??
Predicating a sentence with I feel and then going on to quote precise figures is pointless unless you are going to back it up with either personal experience or fact. Whats your basis for pulling 6% out of the air? Was this value on Primetime or do you hold a PHd in Economics?

sceptre

Originally posted by nahdoic
But then the next question, when are interest rates likely to rise to 6%? Or will they ever be that high again?

The ECB will sacrifice anything to keep interest rates low. It's one of the core targets for the Eurozone to keep the cost of borrowing low. I wouldn't have a team of hundreds running a breath-holding relay to wait for the rate to hit 6%.

For mortgage affordability to exceed rental income, the rate doesn't have to hit 6% anyway. All that has to happen is that rental income falls. Then the figure can be anything at all. In other words, my breath-holding relay team may find that the market crashes before they are allowed take a breath at all. All that's required is a lot more sellers than buyers - that's what a crash is.

jd

Not scientific but same development...
nov 2002
http://archives.tcm.ie/businesspost/2002/11/10/story331023.asp
Santry Demesne apartments in demand
Sunday, November 10, 2002

By Gillian Nelis

A total of 115 apartments valued at €30 million have been sold at the Temple Court apartment development in Northwood, Santry Demesne, since show apartments opened two weeks ago
.....
.
.
.
The firm is now taking deposits for the second phase at Temple Court, which comprises 30 one, two and three-bedroom apartments and penthouses, due to be completed next summer. Prices start at €230,000 for a 46 square metre one-bedroom apartment, with 61 square metre two-beds priced from €265,000.
.
.


Oct 2003 same development
http://www.unison.ie/irish_independent/stories.php3?ca=303&si=1062846&issue_id=9919
LYMEWOOD MEWS,

Santry Demesne.

From €229,000

Stylish apartments in convenient location

THE designs for different sections of Santry Demesne
.
.

The one-beds start from €229,000, the two-beds from €269,000 and the three-beds from €309,000.

High quality Alno German fitted kitchens incorporate timber units individually designed for each apartment layout.

All kitchens will have integrated electrical appliances as standard including Washer Dryer, Oven Hob and Extractor, Dishwasher and Fridge.
.
.


note now throwinging kitchen whiteware.. also i believe new two bedrooms start at a larger size.

flangeman

I think whats more interesting about this issue is the social context.

I'm 25(soon 26), I live in London, no kids and an ok job. I know that I will never own property in this city. For two reasons, I always see myself as going home and thus(stupidly) won't purchase here(also no credit history). But at home(small town an hour from Dublin in the North East), people are buying houses like they are peanuts. Nearly all members of my family(some younger and cousins) are purchasing houses. I'm getting pressured by my mother to buy something, even cousins living as aliens in New York(who haven't been home in years)are sending home money to buy houses in estates. Doesn't it all stink? doesn't something sound wrong? Considering everybody has a lot less to spend, car insurance/food/drink costing more.

I think that Ireland will learn what the term 'negative equity' means, just like this country did.

I believe it will come, but I dare not say a thing, not a single word about what I think, because so many have made purchases. I hope I'm wrong for their sake, but right for my sake.

Reminds me of an interview I read about a stockbroker who pulled everything out of stock exchange days before the crash(that started the first great depression). The reason was, as he explained. "When I left my apartment the lift operator was asking me for stock tips, when I left my building the doorman was wasking me for stock tips, when I got in my car, my driver was asking for stock tips. So I went to work and sold everything because too many people were winning and nobody was losing, and this time would come"

I can't help but feel if everybody is telling me to invest in Land and houses then its already too late.

nahdoic

Originally posted by flangeman
Reminds me of an interview I read about a stockbroker who pulled everything out of stock exchange days before the crash(that started the first great depression). The reason was, as he explained. "When I left my apartment the lift operator was asking me for stock tips, when I left my building the doorman was wasking me for stock tips, when I got in my car, my driver was asking for stock tips. So I went to work and sold everything because too many people were winning and nobody was losing, and this time would come"

I can't help but feel if everybody is telling me to invest in Land and houses then its already too late.

I totally agree. When everyone is doing it, it's time to get out. But wasn't it the shoe shine boy who was giving the stock broker a tip that made him sell everything before the crash?

From McWilliams Article
So why does the price not adjust downwards?

Well for a variety of short-term reasons, but mainly because the cheap credit keeps the whole game in business. Yes, there is demand, but this only explains the direction of prices, not the extent of price increases.

I still feel the same way, as long as we have cheap credit then this boom can still be maintained. Although house prices may stop rising or face a very small reduction. But I can't see a crash happening while money is so easily available.

mollser

One reason why they may fall is 'mass emigration'. Once people realise what a sh*te quality of life is offered by Dublin they would go if the right opportunity came up.

Family reasons aside, why do people still want to live there??????

BTW, in an international context, house prices appear to be remarkably over valued, a correction is iminent. Agree with posts above, when everyone is saying what a great investment it is its time to get out. Panic buying is also supporting them, of that I'm convinced.

pod

You'd think people would have learned lessons from the dot com boom - some apparently have not...

Victor

Originally posted by jd
note now throwinging kitchen whiteware.. also i believe new two bedrooms start at a larger size.

It is also a year later and prices are always lower for the first phase of a development (to encourage people to put up cash up front and help the marketing "frenzy").

jd

1 bedrooms now at a lower price than a year earlier-with the appliances thrown in..
mmm

ur mentor

Interesting thread what about the fundamental laws of economics
supply and demand?
Anyone see any more of Bacon lately?
are experts stillright with expected need for c 50,000 houses per year?

sceptre

Originally posted by flangeman
The reason was, as he explained. "When I left my apartment the lift operator was asking me for stock tips, when I left my building the doorman was wasking me for stock tips, when I got in my car, my driver was asking for stock tips. So I went to work and sold everything because too many people were winning and nobody was losing, and this time would come"

It's that attitude more than anything else that kept me away from buying any dotcom shares (back when I had money before I went back to college:)). Every idiot seemed to be popping money into the stock market in one way or another.

Originally posted by pod
You'd think people would have learned lessons from the dot com boom - some apparently have not...

People never learn. They didn't remember the late 80s crash when the dotcom frenzy started either. The attitude always seems to be "this is so totally different to that". I tend to think of tulips.

Victor

Originally posted by sceptre
I tend to think of tulips.

When was there a crash in the tulip market?

spongebob

Originally posted by Victor
When was there a crash in the tulip market?

c. 1620, nearly bankrupted Holland.

The British had the South Sea Bubble a century later. The great thing about búbbles is that every bubble bursts. You should consider that to be as immutable as the laws of physics whether you 'own 'a home or not.

My favourit book about such events is the short but detailed "Funny Money" by Spicer , published about 20-22 years ago. It details the meteoric rise and crash of a bubble in Gas prices in Oklahoma. The book is a howl once you understand the basic premise behind the bubble which was that a ridiculous amount of gas could be found at a ridiculous depth and that by the time you got it topside it would be wortha ridiculous amount. It was allegedly about 8 miles down. Nobody has ever drilled more than 2 miles and produced hydrocarbons, even now, but off the whole thing went . It crashed the 13th largest bank in the US and forced the 9th largest into a merger.

The dot com boom did nothing of the sort, the pain was felt on the stockmarket instead. The banks did grand this time.

M

pod

I think it was 1637, but don't quote me on it...

It sounds strange now that people paid absolute fortunes for tulips, but I suppose is it really any stranger than when people paid fortunes for an internet site/name?

(Or a one-bed flat in Dublin?)

jd

Originally posted by Muck
c. 1620, nearly bankrupted Holland.


The dot com boom did nothing of the sort, the pain was felt on the stockmarket instead.

M

anf your pension fund too, unfortunately

nahdoic

Interesting article by Clif Droke about the real estate market in america at the moment. There seems to be a lot of parallels with our own at the moment.

He doesn't believe interest rates will have to rise in order to cause the crash. Just like what many of you are saying - basic supply and demand will do it.

Anatomy Of A Real Estate Crash

...

That brings us to the next point in this dissection of a real estate crash. According to the Wall Street Journal, a mere half-point rise in interest rates would price two million households out of the market for the media-priced home. Many analysts insist that interest rates must spike before the housing market begins to collapse, but is this necessarily so?

In the not-too-distant past, a generational bubble in stock prices was hinged, in part, on low interest rates and credit growth and the experts at that time were proclaiming that a major increase in interest rates would pop the stock market bubble, yet interest rates continued their overall decline even as stock prices peaked and the bear market in equities got underway. The stock bubble ended simply because there was too much supply relative to demand, which is to say that buying power from the general public dried up at some point after being dominant for the better part of the late 1990s.

The real estate bubble is no different, with the widespread public buying responsible for pushing housing prices above and beyond reasonable valuations. The '90s stock market bubble and today's real estate bubble both shared the same pivot from the declining trend in interest rates, as the extremely low interest rate was used in both cases to justify reckless buying on the part of the general public.

...

spongebob

In the US they often allow 95-100% Mortgages. The Yanks even have a system whereby the person selling the property can Subsidise the buyer by giving the Down Payment to a charity that then 'donates' it to the buyer.

This allows some extremely dodgy people to get mortgages, there is an interesting artcile on the matter Here .

Sometimes the Builder donates the down payment via these charities.

The Irish Equivalent will be those estates and developments where the builder offered vast allowances to those who scrape together the 10% and therefore have no money left over for furniture or kitchen appliances.

These incentives were fairly common in the summer of 2001 and will be common again by next spring. They will also provide a good lead indicator of the areas where property will be dumped on the market in the initial stages of a a slump and where negative equity will pose a greater hazard going forward. Do look that gift horse in the mouth !

M

mollser

Just had a thought about another VERY plausible reason for a crash - TIGHTENING OF CREDIT

The banks are practicing very liberal terms of credit of late. They have already received a slap on the wrists for this, with no effect. In effect, the boom has been created by cheap and affordable credit. There is more debt out there than there has ever been.

If the banks are forced to tighten their lending policies, less money available for property, correction happens.

Also, a rise in taxes (not at all an impossibly) will restrict peoples repayment abilities there.

While i'm on this, how many more avenues of credit can be exploited? Lets look at this for a moment:

20 years ago, the norm was for one income families to really really stretch and buy a house.

For the last number of years, it has 2 incomes (in the case of young couples, mates whatever) which need to really really stretch to afford a house.

Nowadays, its 2 incomes + renting out rooms to afford to buy a home, while also borrowing the deposit from the CU or another financial arm. (miguel42 shocked me as to how easy this was to do - couldn't believe it!)

What further lines of credit are available??? It looks like we are at the absolute limit as to what desparation tactics people have to exploit to make a house in any way affordable. This is not sustainable, and nor should it really be tolerated.

On the flip side, a bit bitter I know, but if the benchmarking goes ahead, probably expect to see another nice surge in the $%#*&# house prices.:mad:

yankinlk

Not even close to the end of financing options available to Irish House buyers.
How about 50 year mortgages, nothing wrong with that - hell, people move after 7 years (average) anyway. Interest only loans could be more common. 100% financing isnt here yet really.

Glad I didnt listen to the people prediciting the crash three years ago when I bought my house at the "top end" of the market. This year I bought my second house (thanks to a proper american credit card I was able to put the downpayment of 8% on two credit cards.).

Who says the housing market HAS to crash anyway. Its cyclical sure, it will ease up and become a BUYERS market for a while (signs it already has in some areas) and when I mean a while we are talking 10 years or so. The housing market is slow to change either direction normally.

jd

Originally posted by yankinlk
This year I bought my second house (thanks to a proper american credit card I was able to put the downpayment of 8% on two credit cards.).

!!!
downpayments uing CRedit Card debt..
sorry-/me goes off shaking head...

mollser

Originally posted by jd
!!!
downpayments uing CRedit Card debt..
sorry-/me goes off shaking head...

Unbelievable!

You see, its lads doing that that the developers and banks love - keep the whole thing perched up there nicely while doing yourself over!

i'm still laughin away here at that....


50 year mortgages???? ffs!

seamus

Originally posted by yankinlk
Who says the housing market HAS to crash anyway. Its cyclical sure, it will ease up and become a BUYERS market for a while (signs it already has in some areas) and when I mean a while we are talking 10 years or so. The housing market is slow to change either direction normally.

It's not necessarily cyclical.

As has been pointed out by many, many departments recently, Irish birth rates are dropping. About time probably. But in 30-40 years time, there's going to be an oversupply of housing, especially in Dublin, as people retire/move on/die, and there's no-one there to take their house.

I think we'll see vast housing estates, like those in Lucan, with loads of vacant houses. On the upside, it means there'll be more council housing.

Victor

Originally posted by mollser
50 year mortgages???? ffs!

In Japan they have (had?) 100 years mortgages that you would end up passing onto grandchildren.

And look where that got them.

star gazer

In Japan they have (had?) 100 years mortgages that you would end up passing onto grandchildren. And look where that got them.
Victor

That point was well put in David MacWilliams article, the Japanese model should have been a warning to our policy makers on housing and the price of land.

http://www.sbpost.ie/web/Sitemap/1.2did-322681372-pageUrl--2FBusiness-2FComment-and-Analysis.asp

One has to wonder why we didn't learn from the mistakes of japan...