Housing bubble starting to pop?

Gurgle

soma wrote:

Prices are set at the margin. If you do not understand this, you do not understand markets.

People who aren't getting offers at the money they need to move to where they want to go are not going to sell their house.

If you don't understand this, you don't understand people.

The housing market is not the IT bubble, its not the semiconductor industry, its not an automobile manufacturer, its not a printing press. Its not something the majority of investors can exit en-masse.

Someone selling their house is still planning to live somewhere. They're either planning to buy somewhere more expensive and increasing their mortgage or buying somewhere less expensive and reducing their cost of living.

If they aren't going to get the money they need for what they want to do, they are going to stay where they are.

Even the people waiting for a crash all have different ideas of what prices would have to drop to before they would/could buy. This itself will prevent a crash. I expect a slowdown as the amateur investors eventually cop on that there are other investments with better returns than the rental market, but there is no way the country will be left with significant negative equity.

Idleater

Gurgle wrote:

If you don't understand this, you don't understand people.

If they aren't going to get the money they need for what they want to do, they are going to stay where they are.

This is a very valid point.

Human nature (instinct and survival) always overrides economics.

L.

NCS

Gurgle wrote:

People who aren't getting offers at the money they need to move to where they want to go are not going to sell their house...

If they aren't going to get the money they need for what they want to do, they are going to stay where they are...

...but there is no way the country will be left with significant negative equity.

Umm, yes way. This viewpoint does not consider the case of stressed vendors - for example those who have to sell owing to a change of circumstances such as interest rate rises or unemployment. Stalling for time may not be an option for everyone and in a slowing market, the only option is to drop the price. Meanwhile investors are faced with potential budgetary CGT changes which may make disposing of property more tricky in 2007 - at least some will opt to cash in now and I'd say even a 20% drop in asking price versus early 2006 will see reasonable profit. If they can be sold.

I'm seeing evidence of both in the increasing number of asking price reductions on myhome.ie/daft etc.

Meanwhile, there are quite plausible scenarios which would see 'significant' negative equity - take your pick out of chronic housing oversupply, major employers shifting to Eastern Europe, outbreak of bird flu, conflict in the Korean peninsula rattling the world economies... I'd never say "no way".

Sponge Bob

dochasach wrote:

In Lausanne (on Lake Lemon/Genva) an apartment building. (less than 1.3 million euro)
http://www.viviun.com/AD-58857/

But Switzerland is not a filthy rich , stable and skanger free zone like Dublin is . Of Course Dublin prices should be at a considerable premium to Lausanne. Its only right

Arithon

Gurgle wrote:

Someone selling their house is still planning to live somewhere. They're either planning to buy somewhere more expensive and increasing their mortgage or buying somewhere less expensive and reducing their cost of living.

If they aren't going to get the money they need for what they want to do, they are going to stay where they are.

I came across this page a few weeks ago: http://www.itulip.com/housingnotlikeequities.htm

The following quote from the page talks about a sudden slowdown in transactions during a downturn:

The reason is a reversal in the psychology of buyers that developed at the top of a speculative housing market. Buyers had been buying at prices they knew were too high but on the assumption that they'd be able to sell if they needed to. The thought was: "Ok, maybe it's overpriced, but at least I'll be able to sell it later for at least what I paid for it, but likely more." What happens on the way down is that houses go on the market and just about no one shows up to look. That's because buyers weren't buying earlier primarily because they needed a place to live, but because they thought the price would likely rise and that, in any case, they'd be able to get out when they wanted with all of their money or more. On the way down, neither condition is true. So buyers stay home, so to speak.

Can't buyers be enticed by declining prices, by bargain hunting, you ask? No. Once housing sale transactions suddenly fall from, say, several hundred a month in a large community to, say, one or two a month, this creates fear and loathing about prices. Long periods of time pass when there are no transactions at all. Think of it this way. What's the comparable on your 3000 square foot home in San Mateo when the last sale was, say, seven months ago? Is it 10% less than the last sale of a similar home on the area? 30% less? This happened in Japan, and prices nationally are still more than 60% below peak prices in 1992, where real estate prices continued to climb for several years after their stock market bubble popped. Sound familiar?

The discussion is centered on the US market, but there could be something in it for here too. Just like Gurgle's suggestion that the illiquidity will prevent a crash, this is also speculation - and "the proof of the pudding is in the eating".

bill_ashmount

NCS wrote:

Meanwhile, there are quite plausible scenarios which would see 'significant' negative equity - take your pick out of chronic housing oversupply, major employers shifting to Eastern Europe, outbreak of bird flu, conflict in the Korean peninsula rattling the world economies... I'd never say "no way".

LMFAO
I've seen a lot of arguments on either side (Some good/Some bad) but the risk of bird flu affecting the market takes the biscuit. The one constant throughout human history is that there will always be death and disease. If you think people should wait until everything is 100% perfect then that will never happen.

NCS

bill_ashmount wrote:

LMFAO
I've seen a lot of arguments on either side (Some good/Some bad) but the risk of bird flu affecting the market takes the biscuit. The one constant throughout human history is that there will always be death and disease. If you think people should wait until everything is 100% perfect then that will never happen.

Wasn't suggesting that they were all equally likely nor probable. I was just providing a sample of scenarios which would be expected to cause negative equity in order to answer the suggestion that there is "no way" it could happen. Yes, there are plenty of ways.

conor_mc

bill_ashmount wrote:

LMFAO
I've seen a lot of arguments on either side (Some good/Some bad) but the risk of bird flu affecting the market takes the biscuit. The one constant throughout human history is that there will always be death and disease. If you think people should wait until everything is 100% perfect then that will never happen.

Really? Didn't foot-and-mouth coincide with a bit of a blip in the housing market in 2001? You could argue that the two were unrelated, but there's a possibility that the outbreak did cause uncertainty which affected sentiment, and therefore the market.

So does it really take the biscuit that a disease which affects humans rather than cattle could change the market? Nah, I'm just being silly now. People will always need that extra house for the pension, y'know!

EDIT: Cor blimey, the ISEQ dipped from about 6000 to 5000 in the second quarter of 2001, before climbing to 6300 or so by the start of September 2001.... I wonder why?

hi5

nereid wrote:

This is a very valid point.

Human nature (instinct and survival) always overrides economics.

L.

Nothing overrides the laws of economics,never has and never will,in fact instinct and survival are based on the laws of economics.The laws of economics have been there since the beginning of time,they've just been identified and documented by people for what they are.

This discussion is about the housing market,the market is made up of buyers and sellers,if either one is missing then you dont have a market.
If someone decides not to sell because the cant get the money they want then they are outside the market and the market simply moves to where there are buyers and sellers.

Similary first time buyers can not get priced out of a market,there may be a timeframe where a stand off exists between buyers and sellers but eventually the sellers (highly leveraged developers)cave in and reduce their prices,the buyers cannot cave in as they simply have'nt got the money.We're seeing this at the moment as increasing interest rates have taken from the amounts FTB can borrow,FTB propertie prices will have to fall to the max that can be borrowed which is less than previously.This is already happening.

hi5

nereid wrote:

This is a very valid point.

Human nature (instinct and survival) always overrides economics.

L.

Nothing overrides the laws of economics,never has and never will,in fact instinct and survival are based on the laws of economics.The laws of economics have been there since the beginning of time,they've just been identified and documented by people for what they are.

This discussion is about the housing market,the market is made up of buyers and sellers,if either one is missing then you dont have a market.
If someone decides not to sell because the cant get the money they want then they are outside the market and the market simply moves to where there are buyers and sellers.

Similary first time buyers can not get priced out of a market,there may be a timeframe where a stand off exists between buyers and sellers but eventually the sellers (highly leveraged developers)cave in and reduce their prices,the buyers cannot cave in as they simply have'nt got the money.We're seeing this at the moment as increasing interest rates have taken from the amounts FTB can borrow,FTB propertie prices will have to fall to the max that can be borrowed which is less than previously.This is already happening.

Sponge Bob

The slump will occur when all those investors who bought 'To Let' and never let at all....preferring to sit on their 'gains' on paper decide that there are no more gains to be had. Then, in my opinion, they will pretty much dump 100k units in a very very short space of time and there is nothing to stop them what with Daft considering the punters money is as good as any estate agents any day of the week.

In the past the estate agents , of whom there were far fewer than today please note , controlled the entry of property on the market and would not allow a localised glut as it was bad for business .

'Its those EMPTIES stoopid'

D'Peoples Voice

Its difficult to disagree with the sentiments in this post, that is house price on AVERAGE are falling everywhere.
http://www.askaboutmoney.com/showpost.php?p=292154&postcount=5780
At this point in the property market, people should think back to the Bacon reports commissioned by Bobby Molloy on behalf of the Depart of Environ.

Quote from page 66 of
http://www.environ.ie/DOEI/doeipub.nsf/0/3f3ff45854888bbb80256f0f003db97f/$FILE/baconreport.pdf#search=%22bacon%20report%22

In effect, gathering momentum in demand, based on price expectations appears to have become more important in the past few years....., for example, demand being brought forward in the expectation of avoiding house price inflation as well as purchases for the purposes primarily of capital growth in both the short and long term.

This means that a pronounced correction may be possible, but also implies that the price falls could easily overshoot a target level and fall below the mortgaged value of some properties. In other words, getting the supply response wrong might have very serious implications, in the sense that supply overshooting underlying demand growth could result in significant price reversal.
In any market increasing the quantity supplied (in this case, housing) will cause prices to ease... ... However, in addition when individuals buy a product (typically an asset such as housing) in anticipation of a capital gain the price they are willing to pay today will be related to the price last period and to the expectations of prices in future periods.
However, just as this exuberance can drive a market forward when prices are increasing the
reverse is also possible in a downturn. Individuals anxious to avoid making a capital loss sell for a lower price than they would otherwise do.

At least rental yields increase in a falling property market:D

soma

Gurgle wrote:

People who aren't getting offers at the money they need to move to where they want to go are not going to sell their house.

If you don't understand this, you don't understand people.

Who are these "people"?. In dicussion of a market there can be no discusion of 'people' without a context. Now put that variety people in different contexts, and then we have the different players in the situation. Then you can consider what they can/cant/may/may not do.

Gurgle wrote:

The housing market is not the IT bubble, its not the semiconductor industry, its not an automobile manufacturer, its not a printing press. Its not something the majority of investors can exit en-masse.

I find it hilarious that you are trying to present the illiquid nature of a housing market, as a reason why it will not suffer the same fate as other speculative asset bubbles! Experience has been that the bulk of speculators cannot escape the market, as the new lower prices are set at the margin by the lucky few to escape. Comps will take a battering when it comes time for the next EA to set the price.

Gurgle wrote:

Someone selling their house is still planning to live somewhere.

In a normal, rational market we can say that property transactions are roughly covered by two groups. Those moving homes, and landlords. But the players in a speculative mania are now not viewing these assets as 'homes' but as giant gambling chips. The 'someone' you mention above can a trader-upper, new-build contract flipper, existing property flipper/renovator, amateur builder, professional BTL, amateur BTL. In this scenario, rationality has long ago exited stage-left.

Gurgle wrote:

Even the people waiting for a crash all have different ideas of what prices would have to drop to before they would/could buy.

Personally I stay out by choice, I'm fortunate to be in a position where I can still afford Dublin prices as a single person, however I have no inclination to take part in what is simply the latest speculative mania.

As for what prices would need to drop by. I fully expect prices to fall over a period of 2-5 years by 50% in many Dublin suburbs. Falls outside Dublin/Cork (where the jobs/salaries are just not there) could be more severe.

I know the current mentality is to look at a figure like 50% and think 'no way'. If you fall into this category, then ask yourself who is closer to having a 'shortage' of land, the Irish or the Japanese..? And then swallow the cold hard fact that japanese property values fell by up to 80%.

Gurgle wrote:

I expect a slowdown as the amateur investors eventually cop on that there are other investments with better returns than the rental market

*LOL* and yet you expect no price declines during an exit, keep 'em coming gurgle, you're hilarious mate

bill_ashmount

conor_mc wrote:

Really? Didn't foot-and-mouth coincide with a bit of a blip in the housing market in 2001? You could argue that the two were unrelated, but there's a possibility that the outbreak did cause uncertainty which affected sentiment, and therefore the market.

So does it really take the biscuit that a disease which affects humans rather than cattle could change the market? Nah, I'm just being silly now. People will always need that extra house for the pension, y'know!

That's not my point. I could list off a million different world events that could possibly have the potential to effect the Irish housing market. Ranging from wars to disease to terrorism. These have always existed and always will.

I never mentioned anything about "extra houses for pensions", I don't know why you bringing this into it????
My point is there is plenty of valid economic arguments to both sides without having to resort to extreme/ off the wall/ highly unlikely scenarios in order to make your argument seem more valid.

conor_mc

bill_ashmount wrote:

My point is there is plenty of valid economic arguments to both sides without having to resort to extreme/ off the wall/ highly unlikely scenarios in order to make your argument seem more valid.

Fair enough.

It was NCS's point initially, and I think he was using the example to make a "never say never" point rather than highlighting a specific threat to the property market.

NCS

conor_mc wrote:

Fair enough.

It was NCS's point initially, and I think he was using the example to make a "never say never" point rather than highlighting a specific threat to the property market.

Exactly.

In terms of likely reasons for getting caught in negative equity, IMHO believing it could never happen is top of the list.

Gurgle

soma wrote:

*LOL* and yet you expect no price declines during an exit, keep 'em coming gurgle, you're hilarious mate

Glad I'm amusing you.

soma wrote:

Who are these "people"?. In dicussion of a market there can be no discusion of 'people' without a context.

These people are, as I described, homeowners who are considering moving.

soma wrote:

I find it hilarious that you are trying to present the illiquid nature of a housing market, as a reason why it will not suffer the same fate as other speculative asset bubbles!

I find it hilarious that you find it hilarious.

soma wrote:

Comps will take a battering when it comes time for the next EA to set the price.

I don't even know what that line means.

soma wrote:

Personally I stay out by choice, I'm fortunate to be in a position where I can still afford Dublin prices as a single person, however I have no inclination to take part in what is simply the latest speculative mania.

Ah there we go!
So either:
a) thirty-something, lives at home with parents
b) thirty-something, has spent enough on rent in the last 10 years to cover any likely drop in a property value anyway

soma wrote:

As for what prices would need to drop by. I fully expect prices to fall over a period of 2-5 years by 50% in many Dublin suburbs. Falls outside Dublin/Cork (where the jobs/salaries are just not there) could be more severe.

And there you demonstrate that you've never even left Dublin
Theres more and better engineering jobs available in Connacht now than in Leinster.

miju

love the rationale (or lack of) behind your counter arguments gurgle :rolleyes:

el diablo

Gurgle wrote:

Theres more and better engineering jobs available in Connacht now than in Leinster.

I suggest you cut down on thoes mind bending drugs........:rolleyes:

2nz

My two cents is that yes it's popping. How far it falls for houses who knows, but apartments are doomed.

I found a number of examples of drops on the site: AskAboutMoney collated here irishhousepricesfalling

miju

2nz wrote:

My two cents is that yes it's popping. How far it falls for houses who knows, but apartments are doomed.

I found a number of examples of drops on the site: AskAboutMoney collated here irishhousepricesfalling

aye, that blog was set up by one of the lads on askaboutmoney becuase in that monster thread i started it theres that many posts it's incredibly hard to keep track of new information or price drops so it's all been nicely condensed to that blog

Gurgle

miju wrote:

love the rationale (or lack of) behind your counter arguments gurgle :rolleyes:

He didn't make any arguements, hence the lack of counter arguements.

My opinions and rationale are stated in detail in previous posts.

tbh the concept of a bubble starting to pop doesn't even make any sense. Bubbles either pop or they don't.

I would compare the housing market to a baloon which seems to have stopped being inflated. It may be deflating slowly now, but it hasn't burst and there is no reason why it should.

There are loads of people who wish it would, as they would like to own their own homes but aren't willing to give up a spend-happy lifestyle to buy them.
They will always be priced out of the market by their counterparts who are willing to make the required sacrafices.

So, again - barring global recession there will be no sudden catastrophic drop in housing prices.

Sponge Bob

Gurgle wrote:

There are loads of people who wish it would, as they would like to own their own homes but aren't willing to give up a spend-happy lifestyle to buy them. They will always be priced out of the market by their counterparts who are willing to make the required sacrafices.

LOL , is the oul ladder that painful to climb ?????

So, again - barring global recession there will be no sudden catastrophic drop in housing prices.

You have never addressed the uniquely Irish issue of oversupply , let me give you yet another chance to have a carefully composed tilt at reality .

soma

Gurgle wrote:

These people are, as I described, homeowners who are considering moving.

Yup, and as I said they will make up a percentage, far from the total, of the players in a speculative asset market.

Gurgle wrote:

I don't even know what that line means.

Apologies if I used U.S.-centric Real Estate terms, it's what I'm used to in my family! In the states Real Estate agents/investors say 'comps' when they mean the most recent accepted price of 'comparable' property to the one you are currently trying to price. I dunno if If Irish EAs use that term or have their own lingo.

Gurgle wrote:

Ah there we go!
So either:
a) thirty-something, lives at home with parents
b) thirty-something, has spent enough on rent in the last 10 years to cover any likely drop in a property value anyway

Ah here comes the old attack the poster not the post approach - A fav of property bulls the world over! Nope I'm still in my 20s but yeah that big 3-0 is closing fast (damn you gurgle for reminding me! ). I currently rent my house in D6 for 30% of the equivalent mortagage cost (I *still* cant get over that..) and the cash I'm saving by not buying is doing rather well for me on deposit & in investments thank you very much.

And Gurgle this may be hard for you to understand.... but I actually don't *need* to own a house (shock/horror). Especially not in this rather poor city, which feels less appealing to me each year.

Gurgle wrote:

And there you demonstrate that you've never even left Dublin

Really making assumptions about people on an internet bulletin board is silly? I've lived & worked in the US & Asia.

Gurgle wrote:

Theres more and bett
er engineering jobs available in Connacht now than in Leinster.

Ok that's just officially crazy talk..... I wish that was the case!

jesus_thats_gre

Talk about being unlucky in choosing who to make assumptions about..

chump

jesus_thats_gre wrote:

Talk about being unlucky in choosing who to make assumptions about..

hah

I just can't believe the amount of people I know/ have come across, who are in their mid 20's or lower and in the last year they've moved or put a deposit on a home. In many cases completely unnessecarily but due to the push factor of 'must get on the ladder'.

It'll be sad to see them get stung, but at the same time the herd mentality and utter unbelieveablness of the sitution of some of the punters is shocking.

Shane™

Gurgle wrote:

People who aren't getting offers at the money they need to move to where they want to go are not going to sell their house.

*snip*

Someone selling their house is still planning to live somewhere. They're either planning to buy somewhere more expensive and increasing their mortgage or buying somewhere less expensive and reducing their cost of living.

If they aren't going to get the money they need for what they want to do, they are going to stay where they are.

Someone selling a house is still planning to live somewhere, and if prices crash that somewhere will also be worth less, e.g. I want to sell my house for 400k to buy the house across the road for 500k - prices drop 50% - I manage to sell my house for 200k, how much more do I need to buy that house across the road?

I don't think movers dictate the market. FTBs, investors and prices of new builds do.

Gurgle wrote:

Even the people waiting for a crash all have different ideas of what prices would have to drop to before they would/could buy. This itself will prevent a crash.

People waiting for a crash are waiting for two reasons

1/ Like Soma they know prices are a joke at the moment.

2/They don't have the money.

In the first case these people clearly have patience. The people in the second case will not find 100% mortgages at 5 times annual income for a house that is going to be worth less in the future. Overall this coupled with less panic, less investors and lower mortgages will set the new base for the market.

This all assumes that confidence in prices drops, then prices start to fall, and a chain reaction begins, but we all know this will never happen

Gurgle

Shane&#8482 wrote:

1/ Like Soma they know prices are a joke at the moment.

1.4 million for a 3 bed terraced house is a joke. Thats not the 'Irish housing market' thats stupidity no matter where it is.

300k for a 4 bed on an acre is not going to lose half its value

I know: location, location, location

but still

Shane™

Gurgle wrote:

300k for a 4 bed on an acre is not going to lose half its value

Why?

Gurgle

Shane&#8482 wrote:

Why?

Because 300k is a decent price for a decent house.
Its only in Dublin that the price of property has gone insane.

And btw:
in todays news

that there are signs of a slight easing in prices that will reduce the risk of a potential property crash.