The housing bubble has burst

PDelux

....in Australia.

http://www.smh.com.au/news/national/slump-hits-home/2006/02/06/1139074171442.html

Maxwell

Is Australia's housing situation not similar to Ireland's over the past 10 years.

One major difference is Irish people appetite for house/property ownership - keeps the demand for any kind of property high......or does it.

Any economists on here want to make a prediction of Ireland's property market for the next 3-5 years?

Merrion

Two houses in my estate have been for sale for the last 3+ months. One was just taken off the market and it didn't seem that they had many people looking around...I'd say that either (a) they were wildly overpriced or (b) the market is shifting in favour of the buyer.

* Note : this is one small sample and doesn't necessarily indicate the trend for the whole of Ireland; just the vastly overpriced area I live in...

ronbyrne2005

prices will rise for at least next 3 years but after that with higher interest rates and a slowing of our economy with many jobs heading to india etc the outlook is less rosey.mainsteam economic commentators like damien kiebard in sunday times are calling an asset price bubble and our economys future is uncertain (read this http://www.finfacts.com/irelandbusinessnews/publish/article_10004162.shtml)

Nuttzz

Mortgage Interest rates down there are a lot higher, about 7.5% compared to our 3.5-4%, has to be a big factor down there

D'Peoples Voice

Nuttzz wrote:

Mortgage Interest rates down there are a lot higher, about 7.5% compared to our 3.5-4%, has to be a big factor down there

I assume thats a typo, you meant to say 5.5% not 7.5% in Australia.
and in the euro area, interest rates are only 2.25%.
http://www.bba.org.uk/bba/jsp/polopoly.jsp?d=141&a=627
Does anyone have an up to date measure of the number of dwellings in Ireland per thousand for late 2005? I'm guessing we were getting closer to 400 dwellings per thousand before the recent influx in immigrants. The last I heard was 378 per thousand, still a long way off the rest of Europe(420), although we were closing in rapidly before our immigrants came along.
Of course dwellings per thousand completely ignores the demographic profile of the population, but it's a very very loose measure of excess supply.
Some economists use this measure, but it ignores the fact that Irish catholic households tend to be bigger, so on average we'd need less houses than our european counterparts. It also ignores the fact that if you have loads and loads of kids/pensioners in your population, then the number of houses is not a great measurement for obvious reasons.

Nuttzz

http://www.interestrate.com.au/index.asp
http://www.national.com.au/downld/int_rates_pers_lending_13022006.pdf

all in the 7% range

BrianD

Maxwell wrote:

Is Australia's housing situation not similar to Ireland's over the past 10 years.

One major difference is Irish people appetite for house/property ownership - keeps the demand for any kind of property high......or does it.

Any economists on here want to make a prediction of Ireland's property market for the next 3-5 years?

It's hard to compare countries but I think the situation in Australia is quite similar. Big boom in development and typical houseprices many multiples of the avergage industrial wage. Like the Irish, the Aussies have a healthy desire to own their own place and invest in properties.

MG

D'Peoples Voice wrote:

Does anyone have an up to date measure of the number of dwellings in Ireland per thousand for late 2005? I'm guessing we were getting closer to 400 dwellings per thousand before the recent influx in immigrants. The last I heard was 378 per thousand, still a long way off the rest of Europe(420), although we were closing in rapidly before our immigrants came along.
Of course dwellings per thousand completely ignores the demographic profile of the population, but it's a very very loose measure of excess supply.
Some economists use this measure, but it ignores the fact that Irish catholic households tend to be bigger, so on average we'd need less houses than our european counterparts. It also ignores the fact that if you have loads and loads of kids/pensioners in your population, then the number of houses is not a great measurement for obvious reasons.

I posted this on another thread about two weeks ago but it answers yours question:

"Interesting stat from the CIF website today:

“Ireland has a stock of 391 houses per 1000 of population. The EU average number of houses per 1000 population is 428.”

Interestingly, if Ireland’s population were to increase by 100,000 every year for the next ten years, we would need to build an average of about 54,000 houses p.a. to be at the EU average above (based on a current population of 4.2m). In 2005, we built 80,957 houses so that’s a decrease of about a third on our current output.

Given that about 12% of the population are involved in construction and about 2/3s of these are in housing that could equate to an additional 2.5% of the workforce looking for work (which in turn lead to a lower population growth vicious circle.) Except it would probably be worse as output would probably go 70,70,60,60,50,50, 45, 45, 45, 45.

And given that we are our economy is supposedly driven largely by consumer spending, imagine the knock on effects.

Current Pop 2006 Say 4,200,000 at 391 houses per th. 1,642,200
Proj pop 2015 Say 5,100,000 at 428 houses per th. 2,182,800

Houses needed 540,600
Annual average 54,060


P.S. The CSO only predict a population of 4.8m by 2021 so the above is actually quite optimistic."

If the population were to increase by 100,000 per year and we were to maintain the rate of 80,000 new units pa then we would be at the EU average in 4 years.

If the pop were to increase by a more realistic 60,000 pa and housebuilding was to continue at a more realistic rate of 70,000 pa then we would be at the EU average in 3 years.

My prediction - house prices to stabilise (ie fall in real terms) within 18 months.

MG

I was reading a report from the ECB recently which listed the factors which probably explain house prices most. It was interesting that from an Irish viewpoint many, indeed all, of thee factors are at the top of their cycle – they can’t get any better fromm the point of view of inflating house prices. Usually above average returns are based on expectations of future growth. If these factors are at the top of their cycle it is hard to see where this growth could come from. I don’t see any upward pressure for house prices.

The factors are:
1. Household income – obviously this has exploded in Ireland in the last ten years with both wage growth and employment growth. But is their any more room for improvement? Unemployment is already extremely low and any more wage growth threatens competitiveness. At the top of the cycle IMO.

2. Interest rates (real & possibly nominal too) – Real interest rates have been very low, close enough to zero as the interest rate is being set for the slower economies, not for our tiger economy. Nominal interest rates are at historic lows. Outlook is for interest rate rises. Cycle topped out last year.

3. Household formation/demographic factors – Household formation and housing averages are fast approaching the EU average. Baby Boom peaked in 1981 so native population growth in the key 25ish age category is peaking. Immigration has surged but is it sustainable? If cost of living keeps increasing, low cost eastern European economies boom, etc then net immigration may slow. Dependent on many factors and the most open of these questions.

4. Supply side variables – housing supply has probably peaked but is at unsustainable level, accounting for probably 8-9% of employment. The effect of lower supply on housing prices may be more than offset by the economic impact of lower employment levels.

5. Financial market institutions & credit availability – never easier to get money. Maybe too easy.

6. Taxes, subsidies & public policies – tax policies have been very generous to property development but the climate seems to be changing here.


So in my opinion, all these factors have peaked (possibly possibly possiblywith net immigration continuing at a reasonably high level for a while yet), so where is a continuance of the housing boom going to come from? And given its disproportionate effect on the economy, can there be anything but a crash (real or nominal) around the corner?

D'Peoples Voice

MG wrote:

can there be anything but a crash (real or nominal) around the corner?

You must remember there are thousands of 'couples' waiting for the crash to move in and buy, therefore in my opinion, there will be no crash.

I see prices weakening, perhaps a fall of 15% - 20%.
However after that, my guess is they won't rise for many years ahead,
because rents will continue to remain weak,
which will mean more investors selling and young couples buying.

Having said that, I find the most interesting statistic in the Irish property market, is in the last census. Look up the amount of appartments that are owner occupied as a percentage of the total appartment population. Then think, that was in 2002, by 2007, the figure will be even more worrying!

lomb

I dont think that report has alot of relevence to ireland. interest rates are only 3.5% here up to 3.75% , rental yields are about 4.75%. banks are happy to advance money interest only...
also the germans never payed alot to borrow money and there is a political will there that they never will and they basically control europe.
i can gaurantee if interest rates rise here to 8% the market will bomb. the fact is that in times of low interest rates property becomes very very attractive.

MG

D'Peoples Voice wrote:

....... therefore in my opinion, there will be no crash.

I see prices weakening, perhaps a fall of 15% - 20%.
However after that, my guess is they won't rise for many years ahead,

You don't think this constitutes a crash?

MG

lomb wrote:

I dont think that report has alot of relevence to ireland. interest rates are only 3.5% here up to 3.75% , rental yields are about 4.75%. banks are happy to advance money interest only...
also the germans never payed alot to borrow money and there is a political will there that they never will and they basically control europe.
i can gaurantee if interest rates rise here to 8% the market will bomb. the fact is that in times of low interest rates property becomes very very attractive.

Don't misunderstand my hypothesis. This report names the dynamics of house prices. My point is that all these factors have aligned extraordinarily in the past few years causing the price increase. All the factors influencing prices have - household income increases, low interest rates, favourable demographics, relaxed lending criteria etc have been in the optimal position/cycle for rapid house price increases. But most of the factors have peaked, they cannot continue to improve and drive expectations of above average returns. Once the market acknowledges this, we could be on a vicious downward circle due to our overdependence on the construction (especially housing) sector.

Zynks

MG's argumentation is very logical and I tend to agree with most points. However, there is one point not being considered: the age distribution piramid is changing fast. Until a few years back 50% of the population was under 25. This youth block is getting slimmer fast. This means that there still is a supply of new buyers that will probably peak by 2010-5. So, until then, it is not just the imigration figures that will influence the demand, and even if the population in Ireland did not change, there would still be demand for new houses, albeit at a lower level than now.

On another note, the market is only driven by one true factor: people's willingness/ability to buy. I doubt a drop in willingness to buy will happen soon in Ireland, but the ability to buy may be very close to the limit...

ronbyrne2005

MG wrote:

I was reading a report from the ECB recently which listed the factors which probably explain house prices most. It was interesting that from an Irish viewpoint many, indeed all, of thee factors are at the top of their cycle – they can’t get any better fromm the point of view of inflating house prices. Usually above average returns are based on expectations of future growth. If these factors are at the top of their cycle it is hard to see where this growth could come from. I don’t see any upward pressure for house prices.

The factors are:
1. Household income – obviously this has exploded in Ireland in the last ten years with both wage growth and employment growth. But is their any more room for improvement? Unemployment is already extremely low and any more wage growth threatens competitiveness. At the top of the cycle IMO.

2. Interest rates (real & possibly nominal too) – Real interest rates have been very low, close enough to zero as the interest rate is being set for the slower economies, not for our tiger economy. Nominal interest rates are at historic lows. Outlook is for interest rate rises. Cycle topped out last year.

3. Household formation/demographic factors – Household formation and housing averages are fast approaching the EU average. Baby Boom peaked in 1981 so native population growth in the key 25ish age category is peaking. Immigration has surged but is it sustainable? If cost of living keeps increasing, low cost eastern European economies boom, etc then net immigration may slow. Dependent on many factors and the most open of these questions.

4. Supply side variables – housing supply has probably peaked but is at unsustainable level, accounting for probably 8-9% of employment. The effect of lower supply on housing prices may be more than offset by the economic impact of lower employment levels.

5. Financial market institutions & credit availability – never easier to get money. Maybe too easy.

6. Taxes, subsidies & public policies – tax policies have been very generous to property development but the climate seems to be changing here.


So in my opinion, all these factors have peaked (possibly possibly possiblywith net immigration continuing at a reasonably high level for a while yet), so where is a continuance of the housing boom going to come from? And given its disproportionate effect on the economy, can there be anything but a crash (real or nominal) around the corner?

i agree with all above but then there is the speculative element with people buying as "prices can only go up". rental yields are so low- below 3%in many places-and this is an indication of the belief that prices will rise further,people are prepared to accept low rental yield as they beleive they will make their money on capital appreciation.

ronbyrne2005

lomb wrote:

I dont think that report has alot of relevence to ireland. interest rates are only 3.5% here up to 3.75% , rental yields are about 4.75%. banks are happy to advance money interest only...
also the germans never payed alot to borrow money and there is a political will there that they never will and they basically control europe.
i can gaurantee if interest rates rise here to 8% the market will bomb. the fact is that in times of low interest rates property becomes very very attractive.

rental yields are below 3% nearly everywhere! even lower when you take expense into account.my friends rent a house in ranelagh for 1600 a month and its worth 800k! as for the germans not paying much for borrowing,the bubdesbank used to beleive in higherr interest rates and would raise rates now if it wasnt for italy and france,the new guy joining ecb board from the bundesbank is in favour of higher rates policy.forget about rates having to hit 8% or even 5% if prices are excessive and any shock from supplyside or demand side occurs prices could drop significantly as the psychology changes.people who plan to buy will see prices falling and will consider buying but will then think but prices are falling why should i buy now? prices will fall further then i will buy,then we get caught in a negative spiral where house prices fall further and the rest of the economy gets affected and then jobs are lost and then economy suffers further.

chump

are rental yields based on the price of the house when purchased or current estimated market value?

If tis on current values no way could it be 5odd percent. Not in Dublin CC anyway!

nlgbbbblth

edit

ronbyrne2005

chump wrote:

are rental yields based on the price of the house when purchased or current estimated market value?

If tis on current values no way could it be 5odd percent. Not in Dublin CC anyway!

retal yields are based om current house prices and current rents.if you take the expenses of being a landlord (insurance maintenace etc)from the rent you get an even lower rental yield

lomb

Rental yields in office and retail are accepted to be just under 5%. as regards residental, i viewed a house in ranelagh the other day(not that i have the money but anyway) with a guide of 1.4 mill, and it went under the hammer at 2.2 million. and to be honest i wasnt very impressed. it was an end of terraced 4 or 5 bed with a small side garden, no front garden but had parking out the back. it was divided into 2 shoddy pre 63 apartments and needed a total refit, and i mean total. if that was rented u wouldnt see 1% return on it. absolutely mentally overpriced but it was sought after and sold..
anyway when i say yields are just under 5 i mean for rentable type stock, like apartments in D1 or maybe houses in certain cheap suburbs.
there is no way ul ever see anything like 5% on family type homes and i would accept that the prices are very very high for them. but there is value out there.

ronbyrne2005

lomb wrote:

Rental yields in office and retail are accepted to be just under 5%. as regards residental, i viewed a house in ranelagh the other day(not that i have the money but anyway) with a guide of 1.4 mill, and it went under the hammer at 2.2 million. and to be honest i wasnt very impressed. it was an end of terraced 4 or 5 bed with a small side garden, no front garden but had parking out the back. it was divided into 2 shoddy pre 63 apartments and needed a total refit, and i mean total. if that was rented u wouldnt see 1% return on it. absolutely mentally overpriced but it was sought after and sold..
anyway when i say yields are just under 5 i mean for rentable type stock, like apartments in D1 or maybe houses in certain cheap suburbs.
there is no way ul ever see anything like 5% on family type homes and i would accept that the prices are very very high for them. but there is value out there.

any professional long term property investors will not invest in residential unless they get rental yields of around 8-10%.i dispute your contention that there is value in the rental market,give me an example and links maybe to homes on myhome.ie and daft.ie.
a lot of landlords bought their properties at far lower prices than now so their yields are higher but current yields would be an indicator to "take profits" to me.

lomb

value is buying a 3 bed semi in say clonsilla for 330-380 and it getting 3%-3.5% and it increasing 15-20% in one year.
value is buying a commercial prime retail property that yields 4-4.5% and has a virtual 100% rental gaurantee. prime retail went up a surprising amount last year.
value is not buying office space that yields 5% because there is an excess of it and ul find if its old tat it wont let once the lease runs out. people want glass palaces with parking these days.
value is this http://194.46.8.213/search/property.asp?id=257990
should yield what 4-5%?
the problem is capital appreciation isnt as strong there in that location as in say rathgar, donnybrook, blackrock etc, u wont see 1-1.5% in these places.
the thing is professionals look not only at rental yield, but capital increase, and better locations appreciate at a higher rate, but conversely have a lower yield.
many people buy family homes to live in not to let. so low yields in family locations can be explained by this but i have seen clever investors buying on ailesbury road, and period redbricks in d6, when they never intended living there themselves. they never bought for rental return, with them having to cover interest themselves for years out of their pocket, but they bought for capital increases which they have done very very well out of..

ionapaul

Those people are clever speculators, not clever property investors! Property investors follow the fundamentals with regard to yields - there are a lot of people who are happy to accept poor, below average, or even negative yields (I know people relatively happy to have an unoccupied property that is achieving strong capital growth) and who have made huge paper gains, but lets be fair: they are speculators

JimmySmith

Oh ...... This again.
I wish the Irish Property market wasnt going to collapse every single f*cking year. I hate it when everyone on here predicts a crash is wrong every few months.

Can we make a rule that anyone who predicted a property crash in the last, say 5 years not be allowed to predict it again. And anyone who predicted it more than once just be shot.

Lets just agree that it will possibly happen one day and admit that none of us has a clue when, how or if.

dmeehan

JimmySmith wrote:

Lets just agree that it will possibly happen one day and admit that none of us has a clue when, how or if.

totally agree!

not too sure about the shooting people part though

JimmySmith wrote:

And anyone who predicted it more than once just be shot.

lomb

ionapaul wrote:

Those people are clever speculators, not clever property investors! Property investors follow the fundamentals with regard to yields - there are a lot of people who are happy to accept poor, below average, or even negative yields (I know people relatively happy to have an unoccupied property that is achieving strong capital growth) and who have made huge paper gains, but lets be fair: they are speculators

well there is alot of science to it, i think its more than speculation when there is a thought process involved. speculating is betting or something like that, investing is putting money into something to reap a return, that return is profit.
there is a lot of clueless speculating going on out there and on this thread. there are reasons property rises, virtually everyone agrees that over 20 years it will always rise by the rate of inflation or more.

ionapaul

Loads of people predicted the dotcom bubble bursting numerous times...they were all right in the end. Why should they have been shot for saying it more than once (i.e. in 1998 dotcom stocks were overvalued, in 1999 dotcom stocks were overvalued, in 2000 dotcom stocks were overvalued)? Obviously no-one has any idea when, how or if there will be a housing market crash, but it is ok for people to say 'based on fundamentals the housing market was in a bubble in 2000, based on fundamentals the housing market was in a bubble in 2001, based on....' etc etc

How many people who have predicted a crash, correction or anything given specific dates for this? Point and those people and shoot them, if you like.

ronbyrne2005

lomb wrote:

well there is alot of science to it, i think its more than speculation when there is a thought process involved. speculating is betting or something like that, investing is putting money into something to reap a return, that return is profit.
there is a lot of clueless speculating going on out there and on this thread. there are reasons property rises, virtually everyone agrees that over 20 years it will always rise by the rate of inflation or more.

lomb when yields are ultra low by definition people are speculating that prices will rise further therefore they dont mind the low yields.As for science involved,maybe psychology is involved but psychology is a very inexact science when dealing with crowds/herds.

as for your assertion that over 20 years property will always rise by above inflation-yes on average it will(over last hundred years prices have risen by 0.9% per year after inflation) but there can be and has been periods where property is flat/declining after inflation over 20 years ,its all about timing,but property prices cant increase (on average) more than real increase in wages ceteris paribas.

Pa ElGrande

Once the money stops blowing into our debt bubble, the bubble bursts, and no financial intervention can restore it. Its interesting to note that nobody I've spoken to actually wants the price of houses to go down, they just want to get on the ladder and get their slice of the pie. They only complain because the cost of entry to this market is beyond them.
I have yet to see a discussion about buying a house or apartment that takes the following costs into account over the lifespan of the person or their family.

1. Cars - Road tax, insurance, fuel, maintainence, servicing car finance/loans
2. House - Mortgage payments, Home insurance, Maintainence, furnishings, Home heating, appartment maintainence fees.
3. Family & personal - Child care, Food & clothing, education, health insurance & other bills
4. Services - Electricity, telephone & internet access, rubbish collection, water services
5. Government - income tax, stamp duties, benefits, PRSI & other taxes
6. Employment - income growth, pension provision, unemployment, retirement.

As one of the most open economies in the world, our economic survival depends on being competive, this puts downward pressure on our wages (unless we continue to improve productivity), and, must at some point put a brake on our abilty to take on debt. The major ecomonies in €uroland (Germany, France, Poland) will not remain in the doldrums forever and when they get their act together money will not flow into this country unless we are willing to pay a higher price for the privelege by way of interest rates.

lomb

normally id agree with you guys except ireland is in a very very special position. its english speaking, has a large young population that can pay taxes, has net immigration of young people that pay taxes, is in euroland with low interest rates, and finally has a very very low corporation tax rate. did u know microsoft pumps its entire european revenue thru ireland and the government gets 10% of the profit in tax off that. and microsoft arent the only ones.

whats happening is foreigners are coming here like microsoft, hp, xerox, intel ,xilinx ,symantec, ebay. they provide the innovation and the irish pump the profits of the innovation into a dead asset property, which goes up.

these are very strange times, but there are reasons that explain what is going on here.

and u are right no one is complaining about property prices except if they cant get on the gravy train. every one wants them to keep going. if they didnt then all they have to do is tighten the capital requirements that banks need to hold before lending money, that would stamp out 100% and 92% mortgages overnight! why dont they do it? because the politicians have no reason to stop the train, they are the one with their feet on the acclerator!!

lomb

ronbyrne2005 wrote:

lomb when yields are ultra low by definition people are speculating that prices will rise further therefore they dont mind the low yields.

or they actually want to live in the houses and have no interest in yields!
yields are only for people who want to rent, most who pay say 4 million for a house in orwell park rathgar have zero interest in yields, rent, etc etc. they buy because they want to live there. its a brave investor that pays 4 million to watch the capital increase. that end of the market is very very risky but not if u arent going to sell and u want to live there and have the money!. buying 3 bed semis in clonsilla, or cheap apartments in city areas that are not seen as desirable are not risky, the yield is good relatively speaking, and prices are on the up everyday.

Pa ElGrande

lomb wrote:

. . . . . . . . . . . . . . . except ireland is in a very very special position . . . . . . . . . . a very very low corporation tax rate . . . . . . . . .

This measure has a limited shelf life and will not be allowed to continue by other governments in the medium term, as more countries get the idea we will be priced out of the market and the countries who perceive they are loosing out will figure how to implement measures to close this tax "loophole".

Swiss cantons offer corporate taxes as low as 6.6% compared with Ireland's 12.5%; US plans to reduce Ireland's attraction as tax haven.
http://www.finfacts.com/irelandbusinessnews/publish/article_10004879.shtml

Once this tax advantage is gone the infrastructural problems we have created as a result of this boom start to seriously hinder our competiveness, Ireland vs Britain or Germany (roads, telecommunications).

Also any companies that remain will be even more sensitive to wage costs, so there is not much long term scope for wage growth in the multinational sector or our econmy to underpin growth in the housing market.

lomb

Pa ElGrande wrote:

This measure has a limited shelf life and will not be allowed to continue by other governments in the medium term, as more countries get the idea we will be priced out of the market and the countries who perceive they are loosing out will figure how to implement measures to close this tax "loophole".

Swiss cantons offer corporate taxes as low as 6.6% compared with Ireland's 12.5%; US plans to reduce Ireland's attraction as tax haven.
http://www.finfacts.com/irelandbusinessnews/publish/article_10004879.shtml

Once this tax advantage is gone the infrastructural problems we have created as a result of this boom start to seriously hinder our competiveness, Ireland vs Britain or Germany (roads, telecommunications).

Also any companies that remain will be even more sensitive to wage costs, so there is not much long term scope for wage growth in the multinational sector or our econmy to underpin growth in the housing market.

they are all good points, and u are right thats the risk, the question is will they go elsewhere after they have invested here. thats the 10 million dollar question.

Pa ElGrande

lomb wrote:

. . . . the question is will they go elsewhere after they have invested here. thats the 10 million dollar question.

Multinational Corporations (MNC's) are all about productivity , as long as Irelands workforce delivers this then we are ok. When we can't compete with other countries they leave, simple as that.
The IDA's approach of attracting firms that require a highly skilled workforce has been the correct one in this regard as we have a better chance of competing and maintaining jobs against similiar ecomomies even without tax exemptions.
We are also exposed to to downturns in our international trading partners.

Those 10 million dollars would be better spent finding out how exposed indigenous companies are to a property market collapse and taking action to direct them from this cul-de-sac in the long term.

lomb

Pa ElGrande wrote:

Those 10 million dollars would be better spent finding out how exposed indigenous companies are to a property market collapse and taking action to direct them from this cul-de-sac in the long term.

how is an indigenous company in a non property area going to collapse if the property market collapses?
rent on offices/factories is only a small input in total costs and ireland seems to be competitive in terms of cost per sqare foot of industrial and office property.

u are very correct in asking whether/if multi nationals will leave. they and the combination of 10% corporation tax, shift to lower interest rates on joining euro, led in tandem to a hugh construction boom partly led by government spending, leading to net immigration from eastern europe and former irish emigrants.
the knock on spending and confidence have fuelled the economy on spending loads of money on complete tat like 50 euro for a dinner in a restaurant etc.

confidence is a very intangible thing, but there are tangibles like low interest rates and demographics, and corporation taxes. personally im very interested to see how irelands future plays out and the furthur play of globalisation. all very interesting stuff..
personally im an investor and im going to keep investing in property as and when i can afford it. but i am very select in what i will buy, and i think that attitude will stand me well.

Pa ElGrande

You are right companies that have nothing to do with non-property areas should not be affected - in theory! My concern is that rather than investing in their core business they are speculating in the property market and tying their capital in construction companies, land or property. We have also seen a handful of high profile cases where viable businesses (Jury's, Killiney Hotel, Bewleys) have sold some or all of their assets to take advantage of the buoyant property market.

ronbyrne2005

if property prices fall people cut their spending as they feel less wealthy as their primary asset isnt increasing in price,plus many jobs lost in construction would mean less money/wages being spent in economy,this would hit nearly all companies in ireland.

lomb

ronbyrne2005 wrote:

if property prices fall people cut their spending as they feel less wealthy as their primary asset isnt increasing in price,plus many jobs lost in construction would mean less money/wages being spent in economy,this would hit nearly all companies in ireland.

u are talking about confidence there, an intangible item. no one knows how much this contributes to the economy but it is probably sizable. peoples expectations are going up and confidence or no confidence they want them fullfilled.

u are forgetting the government is getting ready to spend billions on infrastructure in the coming years. they are the biggest customer of all, and a property crash wont affect their long term plans and contracts.

its not as simple as what it seems like on the surface. the truth is no one knows but it looks as if prices will level off with inflation within 3-4 years. but until then expect double digit growth. if u want to sit around watching them go up fine, but i intend to get on the gravy train. every thing ive seen and heard is that the politicians want to keep it going. there is no political motivation to see house prices come down. in fact the opposite is true. measures like reducing the capital adequecy ratios, removing/reducing stamp on second hand homes, allowing 100% mortgages, this are the signs of a government who is interested in prices increasing. no one on the gravy train (77% of adults)wants them to stop. and those who cant get on the gravy train get free or cheap social housing at the cost of everyone else to get a leg up on to it. sure look at adamstown, 280 grand for a one bed apartment, just laughable. probably 45 grand of that price is covering the social element! scandalous..

MG

lomb wrote:

normally id agree with you guys except ireland is in a very very special position. its english speaking, has a large young population that can pay taxes, has net immigration of young people that pay taxes, is in euroland with low interest rates, and finally has a very very low corporation tax rate. did u know microsoft pumps its entire european revenue thru ireland and the government gets 10% of the profit in tax off that. and microsoft arent the only ones.

........... but there are reasons that explain what is going on here.

and u are right no one is complaining about property prices except if they cant get on the gravy train. QUOTE]

This is my very point that there are very special circumstances which have aligned to push property prices up. Whether these circumstances will stay that way is the moot point which I quesyion is my post.

As for noone except those on the gravy train complaining, I disagree to an extent. There is a real benefit to a few, there is a psychological benefit to many and there is no benefit to others. Moreover, it is unbalancing the economy to a frightening degree which threatens our long term economy. IMO it only takes one flat year in house prices to cause a recession because of the overreliance on debt funded housebuilding to drive the economy.

I also think the rent yield is a good indicator of the fundamentals of the market and when the capital appreciations outstrip yields, then the fundamentals do not support the appreciation and speculation is at play. Without wanting to draw direct comparisons with the dotcom bubble, the capital appreciations of the dotcoms were out of sync with their fundamentals (i.e. profitability).

ronbyrne2005

lomb wrote:

u are talking about confidence there, an intangible item. no one knows how much this contributes to the economy but it is probably sizable. peoples expectations are going up and confidence or no confidence they want them fullfilled.

u are forgetting the government is getting ready to spend billions on infrastructure in the coming years. they are the biggest customer of all, and a property crash wont affect their long term plans and contracts.

its not as simple as what it seems like on the surface. the truth is no one knows but it looks as if prices will level off with inflation within 3-4 years. but until then expect double digit growth. if u want to sit around watching them go up fine, but i intend to get on the gravy train. every thing ive seen and heard is that the politicians want to keep it going. there is no political motivation to see house prices come down. in fact the opposite is true. measures like reducing the capital adequecy ratios, removing/reducing stamp on second hand homes, allowing 100% mortgages, this are the signs of a government who is interested in prices increasing. no one on the gravy train (77% of adults)wants them to stop. and those who cant get on the gravy train get free or cheap social housing at the cost of everyone else to get a leg up on to it. sure look at adamstown, 280 grand for a one bed apartment, just laughable. probably 45 grand of that price is covering the social element! scandalous..

the governemtns infrastructure plan is 21 billion over many years ,hardly much when gdp is 120billion or something.i dont think governemtn can spend its way out of any downturn.
as for the psychological wealth effects of house price rises there is much empirical evidence by economists in uk that shows when house prices rise consumer spending rises and vice versa when prices fall,dont underestimate the importance of this,people are on a credit binge and this WILL come to a slowdown eventually as damien kiebard said recently as we are rapidly approaching the status as most indebted nation on earth with 35% private credit growth per annum.
when everybody starts seeing it as a gravytrain you know its not gonna last long.
for prices to remain high everything has to stay right,consumer spending,undersupply of homes ,international economy,construction sector,interest rates,multinational companies location here etc etc if any of this change -as happens frequently in economic history- our house price bubble will burst.

Pa ElGrande

This party will never stop........:eek:

December 2005 tops the year for record loans
http://www.businessworld.ie/livenews.htm?a=1365435;s=rollingnews.htm

Central Bank Credit, Money and Banking Statistics
http://www.centralbank.ie/frame_main.asp?pg=nws%5Farticle%2Easp%3Fid%3D181&nv=nws_nav.asp

Pa ElGrande

ronbyrne2005 wrote:

. . . . . . . . for prices to remain high everything has to stay right,consumer spending,undersupply of homes ,international economy,construction sector,interest rates,multinational companies location here etc etc if any of this change -as happens frequently in economic history- our house price bubble will burst.

Everytime I take the train or bus around this country almost every town I pass through has a new housing estate under construction.

If you have a window seat next time you are flying into Ireland and have a the good fortune to have a clouldless day, have a look down below, everywhere you look, you will see houses being built. The urban sprawl is really evident around Dublin.

There are no shortage of properties on offer in any estate agents windows.

I pay less on rent than the guy paying the mortgage on this house.

If there is an undersupply of homes in this country, tell me what signs I should be watching out for?

D'Peoples Voice

Pa ElGrande wrote:

Everytime I take the train or bus around this country almost every town I pass through has a new housing estate under construction.

Yes, but how many of them are being bought by owner occupiers?

Pa ElGrande wrote:

There are no shortage of properties on offer in any estate agents windows.

And why wouldn't there be, we have almost 2 million properties in this country, people move jobs everyday, their family size changes over the years and they want to move, etc.

I pay less on rent than the guy paying the mortgage on this house.

If there was a shortage of houses in the country, you could be damn sure your rent would be jacked up very quickly. Your landlord sole reason for buying such a property is based on short-term unsustainable capital gains.

If there is an undersupply of homes in this country, tell me what signs I should be watching out for?

Rising rents, queues of people outside houses when they are advertised for letting. Houses for sale being bought within hours of first going on sale. The size of each household increasing in size, that is going from the current 2.1 average persons per house to 3 or 4 people per house. Gardens being ripped up, and extensions being built, and sub-let to tenants. Parts of the Irish Sea being reclaimed to support housing. Derelict buildings suddenly becoming worth enough for their landlord to redevelop into appartments. People building shelters out of corrugated iron on the side of roads. The age of people being admitted to nursing homes plummeting. More flat roof houses like in Cyprus, to allow the children build their future house upstairs when they get married. The number of people homeless rising by astronomical proportions.

daveirl

This post has been deleted.

replytohere2004

David McWilliams had an interesting article in the Indo yesterday. This is the third or forth time he has visited this subject in as many weeks.

http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=341

Property buzz may yet have nasty sting in tail
22/02/2006
Irish Independent

Property booms do not so much create wealth as redistribute it. In the past few years, the great Irish housing frenzy has done more to reallocate wealth in this country than any government initiative on tax and social welfare since the foundation of the State.

The transfer has been monumental. Arguably, we have to go back to Lenin's persecution of the Kulaks to see one section of the population forced into giving so much of its wealth to another.

The major difference in Ireland is that the redistribution of wealth via property has made the old richer and, more depressingly, the young poorer.
It has created a drone class of the over-45s - Ireland's accidental millionaires - who have seen their wealth increase enormously as their houses have soared in value. These drones are financed and indulged by a worker-bee class of the under-35s who are first-time buyers and renters.

For every four first-time buyers who are fretting in the traffic, working long hours, pinned to their collars by mortgage payments and creche fees and being bullied to part with money they don't have by the threat of "mandatory" pensions, there is a healthy 50-something couple drinking vino verde on the Algarve, sun at their back and not a care in the world.

In financial terms, Ireland is now sitting on a demographic faultline. Bubbling away underneath the tectonic surface is the overheated property market, stoked up by cheap credit, irrational expectations and the corrosive psychology of the property-ladder tyranny.

As the property mania reaches fever pitch, this rumbling instability - like its geological equivalent - naturally leads to political, financial and social tremors.

Like the citizens of San Francisco, we know our economic San Andreas fault-line is vulnerable, but all of us ignore the possibility that the next one could be the "Big One".

At the moment, there is an uneasy truce between the competing demographic of haves and have-nots but the problem for society is that, while an unforgiving meritocracy governs the lives of the worker-bee generation, the drones live in a pampered world based on equity releases and rental income.

This is not sustainable. Take, for example, a not-untypical middle-of-the-road office worker of the 1970s and 1980s. Although he now plays golf off seven, like the Monty Python sketch of old he reminds his office juniors how hard times were in the 1970s, how people had little money and few expectations.

He probably bought his house in 1975 for £10,000; it is now worth €1.3m . He has no debts, a well-financed pension, annual clean bills of health, a subsidised VHI Plan A scheme and an early retirement scheme that is just about to kick in.

With his enormous pile of equity, he took advice from an accountant mate and bought a couple of places off plans in the late 1990s. The (only recently declared) rental income nets him €3,000 a month, which more than covers his mortgage on the golf resort town house in Quinta da something. He is one of Ireland's accidental millionaires and he is not alone.

According to the census in 1990, there were just over one million private households in the country. For these people, as prices have risen, the most telling indicator of wealth is not brains, hard work or entrepreneurial ability but the year they were born. Those 1990s households born in the late 1940s, 1950s and early 1960s are on the right side of the demographic faultline and are likely to be sitting on enormous property wealth.

Those worker bees, born in the late 1970s and 1980s - the productive core of the economy - are now the ones paying exorbitant house prices via 35-year 100pc mortgages or they are renting. A major determinant of whether you are a drone or a worker-bee is the date you were born.

So the main redistributive mechanism in our economy works like a demographic lottery which is heavily weighted against the young. It is, of course, natural that the 50s generation will be the ones in power, but because of our population structure, they are much less representative of the general population than they would be, for instance, in Britain, where they constitute 27pc of the population, or in France and Germany, where they're over 30pc.

Here, those in their 50s only represent 11pc of the population and yet they are being enriched constantly every time house prices rise. Each notch upwards in house prices adds to the wealth of the drone class and the worker bees' debts. We live in a society where the young work to excess to make the middle-aged rich via house prices.

The big banks tell me that house prices are going to rise by 10pc this year. Quite apart from being a grotesque scam which lines the Government's pockets, enriches developers and drives up the share price of our money-lending banks, it is sowing the seeds of a demographic civil war.

Every 10pc rise in the price of houses is equivalent to a 10pc tax hike for the young who are trying to get into the housing market.

Another way to look at it is that every 10pc increase in the price of houses adds an extra 10 miles of commuting on to the day of the next batch of the dormitory-town-dwelling tribe. In contrast, the same 10pc price hike adds 10pc to the wealth of the drone generation and 10 more days in the Algarve.

What does this mean for politics? Well, if the outcome of government policy has been to enrich one section of the population at the expense of another, it isn't surprising that the hardest working sector of society opts out politically. By stoking up the property market at the behest of its paymaster - the construction sector - this government has engineered the progressive indebtedness of our under 30s and the relentless enrichment of our over 50s.

In the last election, the worker bees did not turn up. They see what is happening and are profoundly cynical about national politics. They couldn't be bothered.

So a bachelor farmer from Achill or a 50-something from Sandycove, Foxrock, Terenure or Clontarf is twice as likely to vote as a suburban, double-income worker-bee family with kids.

In fact, the two areas of Ireland where the under-35 worker bees are present - the new suburbs and the inner cities - vote least. This opting-out trend contrasts with the rest of Europe where voting patterns follow education.

In Ireland, it's when you were born, rather than letters after your name, that's much more likely to determine whether you vote or not.

This is because the older you are the larger your stake in society and the more the present status quo suits you.

So the worker bees who toil hardest, commute longest, pay most taxes, have the biggest mortgages, have children, pay exorbitant creche fees and keep the profits of multinationals operating in Ireland sky-high, participate least in politics. But they won't remain docile forever.

This vacuum is potentially explosive because, when you live on a faultline, the potential for eruption is never far below the surface.

ionapaul

I think most of you also visit the excellent Askaboutmoney website - check out the last few days' posts from the 'Future Price of Irish Properties' thread there:
http://www.askaboutmoney.com/showthread.php?t=14317&page=16
Very interesting reading.

D'Peoples Voice

daveirl wrote:

This post has been deleted.

PERHAPS!
We are building 80K houses p.a. at present,
many of the people building these houses are renting themselves(self-fulfilling demand),
and many of the houses built built are bought to rent(especially Section 23).

Now forgive me for being simplistic,
but what happens if when section 23 houses are no longer allowed after 2007?

Will the housing output fall?

Will the construction industry then require fewer immigrants?

Will there then in turn be less accomodation needed for those immigrants?

What effect will this have on rents, which at present have fallen in real terms since 2000? If rents continue to fall, in real terms, at a time real interest rates are being increased by the ECB, will people still rush in to buy houses as an investment?

If they don't, and if the drop in construction reduces the number of immigrants needed in construction, people will BELIEVE that 'future demand' for housing will fall.
Then we could have a serious problem!

PDelux

The number is job vacancies in construction has already dropped. (sorry cant remember the source).
Also we've seen this week more manufacturing jobs going. Less manufacturing jobs could reduce immigration.

jdivision

Re: McWilliams. It's very easy to keep writing that house prices will collapse and then if and when they do fall saying I told you so. Unfortunately McWilliams has been saying this for years and if house prices were to fall 20 per cent tomorrow (which I don't think they will, I think we're looking at 8-10 per cent price increases until 2008 at least) then they would be back to level of around September 2004, meaning most people will still have made huge amounts of money from their property.

PDelux

...meaning most people will still have made huge amounts of money from their property.

...if they sell!:)