Housing Bubble Bursting

Do-more

Heard a story during the week of a couple trading up and going to the bank for the extra €100,000. Even though they qualified for approval, the bank manager told them that they would be mad to take on the additional €600 pm repayments in this economic climate and succeeded in talking them out of trading up!

Seems that the banks attitude to lending has changed considerably and if this type of thing is repeated around the country then it certainly doesn't hold out much hope for sellers at the moment!

chump

http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=MARKETS-qqqs=themarket-qqqid=25919-qqqx=1.asp

Under new rules being introduced by the regulator next month, lenders will be required to stress-test all mortgages to ensure a borrower can afford repayments if the rate they are charged increased to 2.75 per cent above the European Central Bank (ECB) rate.

ixoy

I'm somewhat surprised by the newer, heavier, stress tests given the volatility in the markets lately and the move to potentially curb rate rises in the US and (maybe) Britain.

When they stress test these releases, is it on the grounds that you'd be able to meet the payments right now or with the idea that the 2.75% increase would come (at the earliest) in a couple of years time, by which time your own salary would have risen to meet this?
As it stands, they're going to potentially block out those two people on the average industrial wage from even getting the shoe box in commutersville.

miju

im not suprised by it at all. its simply the banking system saying we realise we've been way to lax in our lending practices and now its time to be more stringent in order to secure our banks especially given the credit crunch occuring in the markets at the moment

SkepticOne

ixoy wrote:

As it stands, they're going to potentially block out those two people on the average industrial wage from even getting the shoe box in commutersville.

No, because prices will have to adjust to what people can afford. I'm not sure how many people are trying to by these boxes these days anyway.

Pa ElGrande

I really want to say so much but it's late and I have an early start tomorrow, so I'll be blunt - the cheap credit is gone and the collapsing credit bubble means much worse is to come. Do not depend on the newspapers or the bankers to explain what is happening right now, they do not know! and, they are likely pushing the agenda of those who want to exit with their profits intact.

jmayo

miju wrote:

im not suprised by it at all. its simply the banking system saying we realise we've been way to lax in our lending practices and now its time to be more stringent in order to secure our banks especially given the credit crunch occuring in the markets at the moment

Isn't it a bit like closing the stable door after the horse has gone twice around the track ?

If they done that two years ago maybe some people wouldn't have bought the overpriced shoeboxes in the commuter towns.

I know builders that are leaving to set up in London, builders that are now chasing council contracts and sellers that have sale agreeds falling through.
The market is not good but it has been masked so far, the descreasing prices have been massaged for a while. Eventually some pretty bad figures will start appearing.
It will be interesting to see the live regsiter figures for September and October.

eirmail

ixoy wrote:

they're going to potentially block out those two people on the average industrial wage from even getting the shoe box in commutersville.

Two people on an average industrial rage will always be able to buy a shoe box in commuterville. The price will drop accordingly.

Who else are you going to sell a shoe box in commuterville apart from two people on average salaries?

Lemming

eirmail wrote:

Who else are you going to sell a shoe box in commuterville apart from two people on average salaries?

Why, the magical mystical leprauchaun people who earn a much higher wage than three industrial average wages combined and decide that they'd like to live in joebox.commutersville.ie depsite being able to afford much better of course. They're just around the corner y'know and ready to pounce on those rising house prices!! *


* Please note the heavy dose of sarcasm

SkepticOne

At one point you may have had a lot of small-time speculators buying up these sorts of places in the hope of future capital appreciation.

stevedublin

http://www.breakingnews.ie/business/mhcweymhojcw/

“Overall, rental inflation looks to have peaked – and more than likely, so have rents, as the bounds of tenants’ ability to pay have been reached,” said Ronan Lyons, economist at Daft.ie.

“With interest rates back at normal levels, demand has contracted and people are looking very closely at what they can afford.”

looks like property prices will be on the way up soon!!

eirmail

stevedublin wrote:

http://www.breakingnews.ie/business/mhcweymhojcw/



looks like property prices will be on the way up soon!!

Have a proper look at daft rental index . it was 123.6 in June and 116.7 in july just one percent higher than January 2002. Rents are in fact going down!!

http://www.daft.ie/report/Daft-Rental-Report-August-2007.pdf

A third to a half way down the report

Afuera

stevedublin wrote:

http://www.breakingnews.ie/business/mhcweymhojcw/
looks like property prices will be on the way up soon!!

They say that there are 80,000 properties for sale on Daft at the moment and demand has contracted... And that's going to raise prices, how?

Afuera

eirmail wrote:

Have a proper look at daft rental index . it was 123.6 in June and 116.7 in july just one percent higher than January 2002. Rents are in fact going down!!

http://www.daft.ie/report/Daft-Rental-Report-August-2007.pdf

A third to a half way down the report

Well spotted. The figures don't lie.

SkepticOne

I'm pretty sure he was being sarcastic. The article referenced by stevedublin is a piece of blatent and badly written spin.

A Random Walk

ixoy wrote:

I'm somewhat surprised by the newer, heavier, stress tests given the volatility in the markets lately and the move to potentially curb rate rises in the US and (maybe) Britain.

You'll note too that the banks aren't raising any objections, whereas a year ago there'd be war.

What you're seeing is exactly what some of us have been saying will happen. Interest rates don't really matter any more, but the media and the property VIs are too clueless (or too clever) to mention this. What matters now is whether or not banks have the ability to loan money in the first place.

The costs for banks to loan money has risen dramatically in the past month and the gyrations in the stock markets is a symptom. A bank can't just create loans indefinitely, they need to raise finance somewhere.

What we're likely to see is tracker spreads increasing over the next 12 months and lending criteria being quietly tightened. Expect to hear that 100% mortgages become mysteriously harder to obtain.

Even if interest rates go down, the other side of the equation (liquidity) has been squeezed. We'll see a few headlines about any fall in IRs, but it won't make a blind bit of difference for housing in my opinion.

SimpleSam06

Bad news for many homeowners over in the US, with a whopping 93% jump in filings for repossessions on the same month a year ago.

"Companies are not surprised by what's happening, but the reality of the situation and the speed with which it occurred is shocking."

Some companies have yet to grasp the realities of the situation closer to home, however, with a new development in Galway city valued at €125 million being slated as a "massive confidence boost for the city property market" this week. I'm not sure whether that's funny or tragic.

The_Conductor

SimpleSam06 wrote:

Some companies have yet to grasp the realities of the situation closer to home, however, with a new development in Galway city valued at €125 million being slated as a "massive confidence boost for the city property market" this week. I'm not sure whether that's funny or tragic.

I laughed when I saw it tbh- who do they expect to buy those things....
The amount of development other than residential either already underway or planned in Galway city and its immediate vicinity is immense too- here is a short but by no means comprehensive list:

I take it the €125 million development is the Ceannt Quarter development- which also includes reclamation of of about 46 acres of sea, and has numerous high rise buildings (link to a CIE document on the proposed development here)


The Galway Clinic

Image 1

Image 2

Image 3


Galway Coach Station on Foster Street

Image


The New Briar Shopping Centre

Image 1

Image 2

City Point Building (Prospect Hill)

Image


Redevelopment of Galway Race Course

Image


North Point on the Tuam Road

Image

The redevelopment going on around Galway is astounding at the moment.......

Tom123

Irish property watch has just published details of all prices drops
http://www.irishpropertywatch.com/

SimpleSam06

smccarrick wrote:

I take it the €125 million development is the Ceannt Quarter development- which also includes reclamation of of about 46 acres of sea, and has numerous high rise buildings (link to a CIE document on the proposed development here)

Actually, no. What was most astonishing is that its almost completely a residential housing development beside Knocknacarra on the west side of the city. It was on the front page of the Tribune this week, I think. Hundreds of houses, apartments, a bar and a shop. Michael D was up in arms because the developers did an end run around the planning process.

tHE vAGGABOND

I don't want to go off on a wee tangent here. But I had some amazing times in Galway when I was younger, we would go down there for all kinds of weekends [adventure and just drinking]. Its the first place I sent tourists when folks in London asked me what they should do in Ireland. Folks always came back and said the pubs were great, but that was about it..

I was down there for the first time in about 5 years about 3 months ago with some mates from Australia and I was stunned by how different it was to the picture in my memory. The pubs were great [as always]. But I must say that the hotels [we were in 2 [great southern on eyre sq and other one just off sq - name escapes me, due to a booking mistake I made] were both dumps and the restaurants we ate in were all pretty bad I'm afraid to say [terrible food in one, and great food, but almost comical service in the other]. Now we could have been unlucky, but its something I have heard from Americans in work too, which is a pitty.

TBH Galway, as one of the tourist centers of Ireland [and it must be, or have the potential to be, one of the business centers of Ireland too], but it really needs money spent on it. I would think local's like Michael Twee would like that and would be pushing for more and more investment..

[All that said, reclaiming 46 acres of Sea seems like something from a futuristic sci-fi novel!]

SimpleSam06

tHE vAGGABOND wrote:

TBH Galway, as one of the tourist centers of Ireland [and it must be, or have the potential to be, one of the business centers of Ireland too], but it really needs money spent on it. I would think local's like Michael Twee would like that and would be pushing for more and more investment..

I agree with you actually, I find it hard to criticise the Ceannt development, we badly need more infrastructure and commercial / tourism development (once they don't try to fence off the cliffs of Moher) around Galway. Around Ireland generally in fact. Its the residential stuff that boggles the mind, which is what the leprechaun was shouting about.

Victor

The Ceannt Quarter is estimate at €1bn. It is separate from the docks development, which will see shipping move to a new location on reclaimed land and the existing docks area will be redeveloped with a marina, etc.

MonkeyWrench

Been following this thread regularly and thought I might add a bit of humour to this. Ever here of the Tulip mania in the 17th Century Holland...

Manias are a basic part of human nature. Whether it is a mania for the latest h1ot pop star or a mania to buy a sure thing financial asset, manias have exerted their influence for centuries. Unlike the lessening of the fervor directed towards a pop star, the end of a financial mania can often have devastating effects on its participants.
Tulips were first imported into Europe from Turkey in the mid 1500's. The flowers soon gained in popularity, and a demand sprang up for different varieties of the bulbs. The supply (and increasing popularity) of rare varieties of Tulip bulbs couldn't keep up with the demand, and prices soon began to rise sharply. Prices rose to such heights that by 1610 one rare bulb was considered an acceptable dowry for a bride. As prices soared ordinary citizens soon began to view tulip bulb speculation as a sure fire way to get rich (echoes of the stock market?). Holland, the largest producer of the bulbs, soon became the epicenter of the mania for tulips. People mortgaged their homes and businesses to buy the bulbs. The prices for many rare bulb types reached several hundred dollars each. One bulb of a very rare variety even changed hands at over $20,000. By 1637 people began to see that prices had reached an outlandish level. Distribution began to take place, and as often happens after the smart money has already sold, a crash soon followed. Many Dutch families lost the homes and businesses they had mortgaged to take part in this "sure thing" investment.

gurramok

Irish sub-prime rates to rise massively
http://www.independent.ie/business/irish/subprime-borrowers-face-massive-mortgage-rate-hike-1068261.html

This will have a big impact on the most vulnerable in the market, another accelerant in bursting the bubble

snippet of sindo wrote:

THE largest sub-prime lender in the Irish market, Start Mortgages, is set to increase the interest rate it charges its borrowers in a move that it set to put huge pressure on its customers.

It is understood Start is preparing to add between 0.75pc and 1pc to the interest it charges on all its homeloan products.

Adding 1pc to the high rates it already charges would be the equivalent to four interest rate rises by the ECB.
The Irish Independent has learned that Start is awaiting for approval from its majority owner, South African bank, Investec, before confirming the increase to its customers.

The Start move follows a decision by competitor Nua Homeloans to add 0.75pc to the rates it charges, as reported by this newspaper yesterday. Nua is a joint venture between Investec and Finance Ireland.

And Stepstone, which is a joint venture between IIB Homeloans and Merrill Lynch, is expected to charge an additional 0.5pc to its rates.

Loans from sub-prime lenders in the Irish market are typically 6.5pc, compared with 5.3pc for conventional homeloans. Adding .75pc to this rate will take it to 7.25pc.

mathie

MonkeyWrench wrote:

Been following this thread regularly and thought I might add a bit of humour to this. Ever here of the Tulip mania in the 17th Century Holland...

Manias are a basic part of human nature. Whether it is a mania for the latest h1ot pop star or a mania to buy a sure thing financial asset, manias have exerted their influence for centuries. Unlike the lessening of the fervor directed towards a pop star, the end of a financial mania can often have devastating effects on its participants.
Tulips were first imported into Europe from Turkey in the mid 1500's. The flowers soon gained in popularity, and a demand sprang up for different varieties of the bulbs. The supply (and increasing popularity) of rare varieties of Tulip bulbs couldn't keep up with the demand, and prices soon began to rise sharply. Prices rose to such heights that by 1610 one rare bulb was considered an acceptable dowry for a bride. As prices soared ordinary citizens soon began to view tulip bulb speculation as a sure fire way to get rich (echoes of the stock market?). Holland, the largest producer of the bulbs, soon became the epicenter of the mania for tulips. People mortgaged their homes and businesses to buy the bulbs. The prices for many rare bulb types reached several hundred dollars each. One bulb of a very rare variety even changed hands at over $20,000. By 1637 people began to see that prices had reached an outlandish level. Distribution began to take place, and as often happens after the smart money has already sold, a crash soon followed. Many Dutch families lost the homes and businesses they had mortgaged to take part in this "sure thing" investment.

Hilarious!

Sorry couldn't resist!
M

tHE vAGGABOND

IMHO lenders who get into the sub prime market generally get what they deserve

I just dont understand giving a mortgage to someone who does not qualify for a loan from a conventional bank. But what we will go is give them one at a higher interest rate and worse conditions, that will make it all better?

Glenbhoy

Sub-primes were originally introduced for those who didn't qualify for mortgages due to excessively strict lending criteria on the part of lenders. As such there was good reason for companies to start loaning to 'sub-prime' candidates, they were originally supposed to lend to people who may have had prior credit problems (that could be as simple as students defaulting on utility bills) or people who's income was never going to be guaranteed, but on the whole made good salaries or who supplemented their salaries by unconventional means (cash income from undisclosed sources).
Sub prime lenders thus could charge a premium and were still relatively assured of getting their money. The problem has been in recent years, that mainstream lenders have radically relaxed their criteria to the extent that they were practically giving money to anyone with a heartbeat, this meant that in order for sub-primes to exist they had to go even further to the margins, trouble was of course inevitable, but bonuses and salaries were based on sales, so who cared about what would happen in the future.
It's unlikely to be a huge problem in Ireland, as I don't believe that many specialist sub prime lenders existed, however what we may find is that our mainstream banks indulged in reckless lending (I once vetted mortgage application forms), and that peoples declared/verified income was not quite what they claimed it to be, I'm sure everyone has heard of some mortgage broker somewhere who'll get you the mortgage?

D'Peoples Voice

gurramok wrote:

Irish sub-prime rates to rise massively
http://www.independent.ie/business/irish/subprime-borrowers-face-massive-mortgage-rate-hike-1068261.html

This will have a big impact on the most vulnerable in the market, another accelerant in bursting the bubble

http://www.rte.ie/business/2007/0829/mortgage.html

Falling house prices help affordability
Wednesday, 29 August 2007 11:58
The average couple buying a first home is paying a slightly lower proportion of their income towards mortgage repayments than at the end of last year.

The latest affordability index from EBS Building Society and DKM Consultants shows that while interest rates have been rising, this has been offset by lower house prices.

By the end of June the average first-time buyer couple was spending 24.6% of their income on mortgage repayments, compared with 26.4% at the end of December.

More affordability fuel to house price fire?
Forget about the collapse of house prices, or indeed a soft landing. New research from economic consultants DKM suggests house prices could rise more than expected

http://www.rte.ie/business/2007/0131/businesstonight.html
No need then for the Government to increase Mortgage Interest Relief in the budget in December 2007, the market is working perfectly well as it is:)

Gurgle

tHE vAGGABOND wrote:

IMHO lenders who get into the sub prime market generally get what they deserve

Enormous profits?

I just dont understand giving a mortgage to someone who does not qualify for a loan from a conventional bank.

Its simple, they can't lose what they don't have.

In order for a lender to lose money on an investment secured on property, the borrower stops making the repayments & the property has to actually fall in value.

Despite years of this economic bubble, the celtic tiger is still alive and people are still paying their mortgages.

Despite years of this housing bubble, there are still no signs of a reduction in property values.

The sub-prime lenders are in the best position: limited companies, where the directors/shareholders have been taking great dividends for the last couple of decades. Profits are calculated on a year by year basis, so the value at the end of any given year allows the company to declare profits based on a risk factor based on the property value. If the property has risen in value they can calculate feck-all risk and pay dividends accordingly.

The company owns the debts secured by the properties. If the economic bubble bursts, followed by the housing bubble, the limited company finds itself in the position of bankruptcy and sinks like a rock. The directors/shareholders put their hands up and say 'oh well, **** happens' and retire. The money they have made already is not part of the limited company's assets.

Net result: Inflation. You, me and the guy next door absorb the losses.