The bubble....

shnaek

stepbar wrote:

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****...

Seeing as how SkepticOne hasn't stepped in here I am going to suggest that by the tone of his post and by his handle that what he wrote was in jest - sarcasm if you will.

FillSpectre

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?

He is no longer an economist but a media figure. His goal now is to sell stories. Eddie Hobbes is equally as useless, it doesn't matter what they actually know the objective is to entertain and sell.

They may on occasion tell the truth but it is not their objective. The Big Bite is enough reason not to listen to Mc Williams.

dochasach wrote:

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...

Quite silly. Yes it is possible on paper but then again so is Superman:p
Property can go below cost of construction but not that often and for long periods of time. THe property has value unlike the shares. A 50% drop would be a more pluasable. You are foregetting the fact the investor may actually be able to afford to pay the mortgage and ride it out. I'll wait for the hurricane that will eliminate all property value in Ireland so:D Are there any other property crashes than bring it down to 10%?

Gegerty

dochasach wrote:

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...

It depends when he bought it and it depends if there is a serious correction in the prices or just a stallment. If you've bought your property 3 years before a sharp correction a reckon you're safe (just my opinion I've no facts).

dochasach wrote:

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.

Granted some rent is cheaper than paying a mortgage but not by much. Maybe 100-200 less. And how anyone can consider paying someone elses mortgage as a smart option is beyond me.

People are forgetting that most people buy a house because the time is right to move out and start your own life. It's not about investing your money and so long as its affordable people will make sacrifices if thats what it takes to pay the mortgage. For me and my friends all we had to do was sacrifice our social life, that saved us enough money to afford the mortgage/bills etc. And anyway who wants to go out and get sloshed every weekend when every day is a free gaf

dochasach

Gurgle wrote:

You're assuming that:
a) House prices go down and keep going down indefinitely

No I'm not assuming that at all, I'm only assuming a 10% drop and that that's enough to scare the mortgage holder and/or bank into deciding to cut their losses.

b) Interest rates go up and keep going up indefinitely

No, they only need to go up enough to eat the mortgage holder's disposable income. The way buyers are stretching today, it wouldn't take more than a percent or two (less than the return to mean!) to put recent buyers in a world of hurt.

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)

You're right, in everywhere except (possibly?) central Dublin, rents are falling and even in Dublin rents are lower than they were 3 years ago.

SkepticOne

shnaek wrote:

Seeing as how SkepticOne hasn't stepped in here I am going to suggest that by the tone of his post and by his handle that what he wrote was in jest - sarcasm if you will.

My apologies to those who took my post seriously.

"New Era": This term was popular during the boom that led to the 1929 crash.
"New Paradigm" and "New Economy" were used in the run up to the "Dot Com" unpleasentness of 2000.

I think "Soft Landing" will be the phrase that comes to be ironically associated with the upcoming property crash.

dochasach

I'm not talking about 3 years ago, I'm talking about now...

Gegerty wrote:

...Granted some rent is cheaper than paying a mortgage but not by much. Maybe 100-200 less. And how anyone can consider paying someone elses mortgage as a smart option is beyond me.

You should really run through the numbers on this, that hasn't been true for quite some time. I know of several properties which rent for almost exactly 1/2 what the 35 year mortgage payment would be at current interest rates. Chances are good that rates will rise at least another .5% before December.

Yeah I might be subsidizing part of the landlord's mortgage for a few years but for recent owners, the landlord is losing more every month than his tenants are and betting on capital appreciation to eventually make up the shortfall.

People are forgetting that most people buy a house because the time is right to move out and start your own life. It's not about investing your money and so long as its affordable people will make sacrifices if thats what it takes to pay the mortgage.

True and if someone decides they want that particular house for the next couple of decades and their job will definitely stay here to allow them to continue the payments... then it's probably the best time to buy. But how many people do you know who are buying 2Br apartments in the dodgey hinterlands and hoping to 'sell up' to move back in. The problem is, if Dublin follows the Tokyo trend, far flung property will drop even faster than inner city property so selling up doesn't work.

FillSpectre

SkepticOne wrote:

I think "Soft Landing" will be the phrase that comes to be ironically associated with the upcoming property crash.

What do you think will actually remove demand seeing as you are so sure of a crash? Is it you think fear will curb the demand rather than eliminate it? I am still waiting for people to come out and say they have no desire at all to buy property. It appears the only thing stopping people buying is price. If the price drops are you suggesting they still won't buy?

Fear is a valid reason I just want to see what you are thinking. Somebody is going to get hurt but I am not sure it will be everybody and all consuming as some predict.

dochasach

FillSpectre wrote:

...
Quite silly. Yes it is possible on paper but then again so is Superman:p
Property can go below cost of construction but not that often and for long periods of time.

Only for periods where overstock far exceeds demand.

THe property has value unlike the shares. A 50% drop would be a more pluasable. You are foregetting the fact the investor may actually be able to afford to pay the mortgage and ride it out. I'll wait for the hurricane that will eliminate all property value in Ireland so:D Are there any other property crashes than bring it down to 10%?

My rough estimate of punter B's losses were based on a 10% drop, not a 90% drop to 10%! If you really think a 50% drop is more plausible, then PunterB loses his 20,000 downpayment, any interest, stamp duty and legal fees he paid (I forgot maintenance costs) and another 130000 euro he will still owe after selling the money pit^H^H^H I mean house.

dochasach

FillSpectre wrote:

What do you think will actually remove demand seeing as you are so sure of a crash? Is it you think fear will curb the demand rather than eliminate it?

I can answer this one:

Fear will remove nearly all demand from speculators. (We could argue all day whether this represents 2% or 40% of the market, but I don't think anyone believes that no one took advantage of this time when momentum and tax laws favored speculators.)

The removal of fear will remove demand from buyers who are buying in order to avoid their fear of being "priced off the ladder." Now to me this includes anyone who is buying a house they don't really intend to keep, in order to get on the ladder.

Do you want to hear from someone who doesn't want to buy property? Regardless of price, if I can rent the same property over the same time period and never have to deal with maintainence, and have money left over, I have no interest in buying property. The raw house price isn't important, but the ratio between house prices and income and rent yields is a crucial variable that is being ignored.

Gurgle

dochasach wrote:

and another 130000 euro he will still owe after selling the money pit^H^H^H I mean house.

I'm not going to spend the effort dis-assembling all your other ridiculous statements (again) but this ones just too mis-informed.

When you take a mortgage for a house, the house itself is the full and complete security against that loan.

Even if everyone decided to go and live in trees, and houses values dropped by 90% :rolleyes:, it is the bank that loses the negative equity. The bank can seize your house but they cannot seize anything else you own, or sue you for the shortfall. If the house is worth less than you owe them, thats basically just their tough sh`it. Thats why banks have rules on how much they will lend people.

Thats what security on a loan means.

(The only exception is if you were stupid enough to take a loan that you couldn't get by the bank's rules, e.g. using your parents house as security then they'll lose that too.)

FillSpectre

dochasach wrote:

I can answer this one:

Fear will remove nearly all demand from speculators. (We could argue all day whether this represents 2% or 40% of the market, but I don't think anyone believes that no one took advantage of this time when momentum and tax laws favored speculators.)

Actually it will remove speculators not property developers and property investors. The governemnt favours investment and the people who vote and contribute to their parties

dochasach wrote:

The removal of fear will remove demand from buyers who are buying in order to avoid their fear of being "priced off the ladder." Now to me this includes anyone who is buying a house they don't really intend to keep, in order to get on the ladder

.
It won't get rid of the people in ther 30s who are getting on and want a place of their own.

dochasach wrote:

Do you want to hear from someone who doesn't want to buy property? Regardless of price, if I can rent the same property over the same time period and never have to deal with maintainence, and have money left over, I have no interest in buying property. The raw house price isn't important, but the ratio between house prices and income and rent yields is a crucial variable that is being ignored.

That is a massive "if". You aren't actually saying you don't want to buy just if you know it is cheapper to rent for the rest of your life you will rent. YOu seem to be missing the finacial realities of age where your income will diminish yet you will be treated as if you are fully employed. I know all the ratio stuff and it really doesn't match up in the long term unless ther is rental control of a nature that is unlikely here.
So are you actually saying you don't want to own your own place? As I said price is controlling demand supply may reduce the price to match demand at price. You need demand to stop and I think it is only leashed at the moment

SkepticOne

Gurgle wrote:

I'm not going to spend the effort dis-assembling all your other ridiculous statements (again) but this ones just too mis-informed.

When you take a mortgage for a house, the house itself is the full and complete security against that loan.

Even if everyone decided to go and live in trees, and houses values dropped by 90% :rolleyes:, it is the bank that loses the negative equity. The bank can seize your house but they cannot seize anything else you own, or sue you for the shortfall. If the house is worth less than you owe them, thats basically just their tough sh`it. Thats why banks have rules on how much they will lend people.

How do you interpret this paragraph from PermanentTSB?:

1. Irrespective of how the property is repossessed and disposed of, the borrower will remain liable for the outstanding debt, including any accrued interest, charges, legal, selling and other related costs.

[emphasis mine]

dochasach

Gurgle wrote:

I'm not going to spend the effort dis-assembling all your other ridiculous statements (again) but this ones just too mis-informed.

Uhhh, thanks but its kind of fun to read these disassemblies.

When you take a mortgage for a house, the house itself is the full and complete security against that loan.

Even if everyone decided to go and live in trees, and houses values dropped by 90% :rolleyes:[/QUOTE]

You and Fill both seem to be confusing my back-of-the-envelope calculation of drop of 10% with a drop to 10%. If such basic calcuations are so confusing, it's no surprise there's a bit of irrationality in this economy.

, it is the bank that loses the negative equity. The bank can seize your house but they cannot seize anything else you own, or sue you for the shortfall. If the house is worth less than you owe them, thats basically just their tough sh`it. Thats why banks have rules on how much they will lend people.

Thats what security on a loan means.

Have you read the fine print on a mortgage? If you take out a 300,000 Euro loan, you owe the bank 300,000 Euro + interest. It doesn't matter if you sell the house for 500,000 or 10,000, it doesn't matter if you walk away from the security, the paper you signed says that you owe the bank 300,000, payable over the next 15-35 years. Walking away is an interesting option in theory, but I doubt banks would just roll over and let you go merrily about your business while leaving them holding the bag. And even if the bank lets you get away with this, are you certain that the Irish government doesn't treat debt forgiveness as taxable income (as other countries do?)

(The only exception is if you were stupid enough to take a loan that you couldn't get by the bank's rules, e.g. using your parents house as security then they'll lose that too.)

Don't be silly, no one ever does that here ;-)

shnaek

SkepticOne wrote:

My apologies to those who took my post seriously.

"New Era": This term was popular during the boom that led to the 1929 crash.
"New Paradigm" and "New Economy" were used in the run up to the "Dot Com" unpleasentness of 2000.

I think "Soft Landing" will be the phrase that comes to be ironically associated with the upcoming property crash.

Don't apologise. I thought it was obvious enough, but I know some heads didn't get it. Alas it's the nature of written communication that sometimes irony doesn't really come accross. I have been victim myself de temps en temps.

shnaek

double

SkepticOne

dochasach wrote:

Have you read the fine print on a mortgage? If you take out a 300,000 Euro loan, you owe the bank 300,000 Euro + interest. It doesn't matter if you sell the house for 500,000 or 10,000, it doesn't matter if you walk away from the security, the paper you signed says that you owe the bank 300,000, payable over the next 15-35 years. Walking away is an interesting option in theory, but I doubt banks would just roll over and let you go merrily about your business while leaving them holding the bag. And even if the bank lets you get away with this, are you certain that the Irish government doesn't treat debt forgiveness as taxable income (as other countries do?)

To be fair to Gurgle, many of those held by a mortgage will be insured against having to pay the outstanding amount in the event of repossession. I read somewhere that most lenders automatically insure FTB and those with above 90 (or something) percent mortgages. The situation with buy-to-let and IO mortgages is I don't know.

But check with your lender regardless. Ask them if you are covered in this situation. Also ask if you are covered in the event of voluntary repossession, i.e., where you hand your key to the lending institution. I would be surprised if you are covered in this situation tbh as it creates a moral hazard.

MrJones

my 50 cent:::->>>
i don't think we are going to have a property crash.

i think we will have a levellling off of price increases (down to 0% increase with little or no decrease) over the next 24 months
Properties that are exorbitantly over-priced will see decrease in price of 25% or more.
Some property owners with big mortgages will be forced to sell up by the banks ,because they are unable to meet repayments.
This will bring fear-factor into the market and people think long and hard before taking out a mortgage.
i think people will have to get used to paying 250-300+ k for a house on average. i think house prices of 300k + in major cities will stay and are realistic to a point. The days of buying a house for 100k are long gone.

i think there is a culture change happening with alot more people willing to set up home in apartments.

SkepticOne

MrJones, I would be keen to see your reasoning behind the 0% growth prediction. To me this seems unlikely but I could very well be wrong.

Afuera

MrJones wrote:

my 50 cent:::->>>
i don't think we are going to have a property crash.

i think we will have a levellling off of price increases (down to 0% increase with little or no decrease) over the next 24 months
Properties that are exorbitantly over-priced will see decrease in price of 25% or more.
Some property owners with big mortgages will be forced to sell up by the banks ,because they are unable to meet repayments.
This will bring fear-factor into the market and people think long and hard before taking out a mortgage.
i think people will have to get used to paying 250-300+ k for a house on average. i think house prices of 300k + in major cities will stay and are realistic to a point. The days of buying a house for 100k are long gone.

i think there is a culture change happening with alot more people willing to set up home in apartments.

But if people have a fear of entering the market and there are many new properties coming on stream then how can prices stay stable? Low demand, high supply can really only push prices in one direction.

MrJones

well ECB due to raise interest rates by 1.25 % over next 12 months. after that who knows? maybe .5% the following year. This will curb the demand, which will means a decline in the price increases of houses. also inflation will play a negative factor.
i dont think there will be a crash but people will gradually feel the noose of the banks tightening around thier necks over next 24 months with interest rates increasing. This will cut out alot of the extra cirricular spending on fancy cars and several holidays per year. Suddenly it will make sense to buy a toyota corolla again instead of a bmw x5 jeep!!
Agree? Diagree? Opinions?

SkepticOne wrote:

MrJones, I would be keen to see your reasoning behind the 0% growth prediction. To me this seems unlikely but I could very well be wrong.

Gegerty

SkepticOne wrote:

MrJones, I would be keen to see your reasoning behind the 0% growth prediction. To me this seems unlikely but I could very well be wrong.

Surely its the most likely outcome if people stop buying and people stop selling? It may quiver a bit but overall a stagnant 0% growth is the inevitable outcome when nobody is buying or selling.

Afuera

Gegerty wrote:

Surely its the most likely outcome if people stop buying and people stop selling? It may quiver a bit but overall a stagnant 0% growth is the inevitable outcome when nobody is buying or selling.

I don't think the enormous amount of supply of new houses is being taken into consideration here. The builders will hardly walk away with a few thousand unsold houses without trying to shift them one way or another.

MrJones

there will still be a certain percentage of the population that can afford to enter the housing market. for example couples who are both working ,both on 35k+.
it will make sense for these to buy houses.
also the high supply will not continue. it like increasing house prices will gradually fall-off which is bad news for government coffers.

Afuera wrote:

But if people have a fear of entering the market and there are many new properties coming on stream then how can prices stay stable? Low demand, high supply can really only push prices in one direction.

Afuera

MrJones wrote:

there will still be a certain percentage of the population that can afford to enter the housing market. for example couples who are both working ,both on 35k+.
it will make sense for these to buy houses.

Ok, granted that for somebody that can afford it and needs a house it would still probably make sense for them to buy. But rising interest rates would affect the amount of a mortgage they could get. The level of a mortgage they could get might simply be too low compared to the prices that people were paying for houses before interest rate rises.

MrJones wrote:

also the high supply will not continue. it like increasing house prices will gradually fall-off which is bad news for government coffers.

Not only would it be bad for the governments coffers, I'd say that it would also be quite bad for the level of employment. This would seem to open up the possibility of a very negative spiral.

MrJones

Afuera wrote:

Ok, granted that for somebody that can afford it and needs a house it would still probably make sense for them to buy. But rising interest rates would affect the amount of a mortgage they could get. The level of a mortgage they could get might simply be too low compared to the prices that people were paying for houses before interest rate rises.

remember wages are rising all of the time and there has been a culture shift in ireland with 2 incomes more often than not coming into a middle-class household. i think these people will still be able to afford a mortgage of approx 300k.

Not only would it be bad for the governments coffers, I'd say that it would also be quite bad for the level of employment. This would seem to open up the possibility of a very negative spiral.

this is worst case scenario where employment sharply decreases along with government revenues. the hope is that employment for alot of construction people can be found elsewhere.There is still plenty of infrastructural building the government need to carry out country-wide. The government should be looking at new initiatives to create employment now, such as electronics, more telecoms and other sources.

SkepticOne

Gegerty wrote:

Surely its the most likely outcome if people stop buying and people stop selling? It may quiver a bit but overall a stagnant 0% growth is the inevitable outcome when nobody is buying or selling.

I think you may be correct in that a sort of standoff may characterise the top of the market.

A couple of points though:

1. There will always be some selling (and therefore buying) if only because of repossessions, estates being split up and such. In these situations, the selling will be done by banks and solicitors.

2. If the market is overvalued (as I believe it is), then the price movement will tend to be downward. After a period of percieved flatness there will be less upward price speculators and potential investors will tend to view the property on a more fundamental basis.

In other words, the flat period (if any) won't be stable.

I'm not predicting any timescale for this. It could be years from now or it could be happening now. The only way I think you could have stability is if the fundamentals somehow caught up with prices at exactly the right time. I don't think stable prices are possible in an over- or undervalued market.

SkepticOne

MrJones wrote:

remember wages are rising all of the time and there has been a culture shift in ireland with 2 incomes more often than not coming into a middle-class household. i think these people will still be able to afford a mortgage of approx 300k.

Tbh, I think that shift already occurred many years ago and is already reflected in prices. The idea of the husband going out to work and the wife staying home on a permanent basis and the couple buying a house has long gone.

SkepticOne

MrJones wrote:

well ECB due to raise interest rates by 1.25 % over next 12 months. after that who knows? maybe .5% the following year. This will curb the demand, which will means a decline in the price increases of houses. also inflation will play a negative factor.

Agree? Diagree? Opinions?

The only thing I would say here is that there seems to be an assumption that price growth is somehow built in and that things like interest rates rises and such merely moderate that growth. You often hear this type of thing from banks and estate agents and such. e.g: "a tightening of fiscal policy will lead to more moderate growth in the coming year".

Tbh, I don't understand it. Everything else being equal, if you increase interest rates then prices should adjust downwards. Not the growth in price but the actual price level. If you decrease interest rates they should go back up again. Obviously there would be a lag. It would not happen immediately.

For any sustainable growth over the long run the market has to be out of equilibrium on a continuous basis. Some underlying factor must be causing the fundamenal value of houses to increase over time but no one ever says what that is. Population is increasing but this is more than being matched by increased supply. Wages are increasing, but house prices are rising far faster. Rents are decreasing or flat. Interest rates are going up. Indebtedness is at an all time high and moreover rising at an unprecented rate.

Yet all anyone will say is that growth will moderate to a more sustainable level. The prospect of prices actually going down can't even be considered.

Can the current growth be accounted for by anything other than speculative demand?

MrJones

SkepticOne wrote:

Can the current growth be accounted for by anything other than speculative demand?

that is the key question. this will determine the severity of the cooling off period that is sure to happen over next few years in housing market.

Ipso_facto

All thing's being equal ....etc ! . I have penciled in - Springtime 07 - as the moment of truth...whatever !

Sort the "Boy's out from the Girls" so to speak - investors having to, start selling bigtime.

The "oul" unemployment thing increasing, future anouncement of new jobs bleak...etc.