Housing Bubble Bursting

Glenbhoy

faceman wrote:

the ECB failed to consider irish culture and dismissed any emotive responsibility for the long term goals of irish people.

Indeed, as was their remit - there was however another organisation who one would have imagined would be in a position to understand the above, that being of course the government who oversaw the disaster.

Colonel Sanders

Victor wrote:

the houses aren't available without the extras.

disagree, the example i made of a development in wexford was on the mkt without the 20k car for 6 months, not one sold so rather than drop prices the developer added a new car to the 'package'.

Firetrap

Glenbhoy wrote:

Indeed, as was their remit - there was however another organisation who one would have imagined would be in a position to understand the above, that being of course the government who oversaw the disaster.

Just wondering..what could the government have done? Can they control the banks and their lending practices? Can they make landowners and developers release land they're sitting on?

It strikes me that a lot of the blame falls on us, the Irish people. There's something in our DNA which makes us want to own our own house. I believe that prices are set by what the market is prepared to pay and we in Ireland have proved that we are prepared to pay an awful lot of money just to have a roof over our heads.

iguana

Firetrap wrote:

Just wondering..what could the government have done? Can they control the banks and their lending practices? Can they make landowners and developers release land they're sitting on?

Look just 5 posts above yours, Glenbhoy points out many things the government had the power to do.

Duckjob

iguana wrote:

There were plenty of things the government could have, and should have, done to stop the house price boom. They introduced higher levels of taxation for investors, which they almost immediately went back on. They could have made it law that banks had to stress test borrowers for IR rises of 3/4/5%. It was no secret to anyone that the IRs were artificially low to stimulate the German economy and it was our governments responisibilty to ensure that the country was prepared for the time when they would rise.

Good point. Ok so the government couldn't control interest rates but surely they could have have introduced stricter stress testing to 'simulate' higher rates and put a tighter rein on what people could borrow?

Should they have had the foresight to see that the low interest rates were not suited to our booming economy ? or were they too busy getting drunk at the SD party?

Glenbhoy

Firetrap wrote:

Just wondering..what could the government have done? Can they control the banks and their lending practices? Can they make landowners and developers release land they're sitting on?

It strikes me that a lot of the blame falls on us, the Irish people. There's something in our DNA which makes us want to own our own house. I believe that prices are set by what the market is prepared to pay and we in Ireland have proved that we are prepared to pay an awful lot of money just to have a roof over our heads.

Yes, they could have controlled lending practices, it's not something I'd be particularly keen on, but some simple controls could have been put in place involving affordability levels, or perhaps they should have decided that banks must have certain reserve to lending ratios - that way the banks would have been more careful about the amounts they lent.
There were several changes made in 1999 which if they had been retained may have prevented the market reaching the heights it subsequently did. Chief amongst these was the undeductability of mortgage interest for tax purposes for investors, if this had been retained we would have seen a massive decrease in demand from this sector. There were also changes to CGT which allowed for 20% CGT for developers releasing development land until 2001, afterwhich CGT for development land would increase to 40% (this didn't work, as developers knew that it would never happen).
Government are also in charge of the most important factor influencing house prices, planning permissions - what percentage of land is used for housing in this country?
Whilst we say that not having control of interest rates left the govt. immasculated, it's just not true, they could easily have decreased the amounts of mortgage interest relief for buyers, at present they are increasing this in an effort to alleviate the effect of interest rate rises, did they forget they had this power when rates were decreasing??
Stamp duty could have been increased for investors, thus dampening demand here too.
There are many other things that could have been done, but they didn't want to, and why would they, construction was massively important, it didn't matter that it could not last, as long as it lasted until the election they were happy, the increased revenues could be given away, the feelgood factor could be maintained, people would vote for them, then have a couple of bad years post election, another bad local election but in 5 years times Joe Public will have forgotten about who created the mess and they'll vote us in again (except I think they've miscalculated, I think this hangover will last a helluva long time, so get your passports updated everyone).

Afuera

Firetrap wrote:

It strikes me that a lot of the blame falls on us, the Irish people. There's something in our DNA which makes us want to own our own house. I believe that prices are set by what the market is prepared to pay and we in Ireland have proved that we are prepared to pay an awful lot of money just to have a roof over our heads.

I disagree with this argument. I think that the Irish obsession with owning our own property stems from the lack of adequate security of tenure while renting. The legislation we have is very poor and nowhere near to what is generally found in the rest of Europe. Our government passed very biased reforms which favour the landlord in the Residencial Tenancies Act 2004.

Glenbhoy

Firetrap wrote:

I believe that prices are set by what the market is prepared to pay and we in Ireland have proved that we are prepared to pay an awful lot of money just to have a roof over our heads.

Just another quick point on this, I think that people everywhere will pay whatever they are allowed to pay, the difference being that in most of europe lending is done on an extremely conservative basis, in many countries the norm was for a mortgage to be 70% and then 2 times income etc. This has changed in recent years and has been the main factor in price increases in Ireland, Spain and Italy (and probably more besides).
In fact the fact that such a situation exists in the domestic markets of France, Germany etc makes it all the more ridiculous that they allowed themselves to become exposed to US Sub-prime debt where virtually no vetting of applicants was carried out.

TJM

Victor wrote:

House price indicators are like poverty indicators - both suffer specification inflation. Expectations change. 100 years ago, someone with a car was rich. These days its normal.

Twenty years ago, having an en-suite was the exception, now it is normal. Alarms were uncommon, now they are practically mandatory. Most of what has changed is specification inflation - the houses aren't available without the extras.

That's true over a long term period. It doesn't explain price inflation between 1997 and 2007 though.

SkepticOne

Probably worth looking at the latest PTSB/ESRI figures which show an overall fall over the past 12 months. This is the first time year on year figures have gone negative.

Property bulls, however, might take encouragement from the fact that the monthly drops seem to be slightly less now than a few months ago.

Via PropertyPin

http://www.rte.ie/business/2007/0903/houses.html

RTE Business

House prices down 3% so far in 2007

Monday, 3 September 2007 11:09

New figures show that average house prices have fallen by more than €9,000, or 3%, in the first seven months of this year.

The house price index, compiled by the ESRI and Permanent TSB, shows that prices fell by 0.4% in July alone, after a 0.5% drop in June. This means that prices have fallen by 0.7% over the past 12 months.

The average price paid for a house in July was €301,267, almost the same as the average for June last year.

A breakdown showed that house prices in Dublin fell by 1.9% in July, while the drop was just 0.2% outside Dublin. House prices in the commuter counties around Dublin were down 0.3%, but these show a 4.2% fall in the first seven months of 2007.

House prices for first-time and second-time buyers fell 0.4% and 0.7% respectively in July. New house prices declined 0.4% in July, while second-hand prices were down 0.3%.

fishfoodie

I'd recommend taking a look at Shane Ross's comments on the PTSB/ESRI methodology before getting too attached to the numbers

Its like 78.2% of all statistics....made up to suit what the deliverer wants !

faceman

when will be the best time to buy a home (to live) given the doom and gloom on this thread?

Zambia

Its been said before but this thread is so long everything has been said before.

The price you pay for your house should be based on what you can afford per month taking possible interest rates rises into account.

If you do that a drop in the value of your home while disturbing is not affecting you. Granted Mr X who bought recently gets to pay less per month but that is simply his/her good fortune. You can still afford your mortgage and eventually your property value will crawl back up over the course of years. However your faced with the hard facts that a few luxuries in life are now pipe dreams to you.

As for investors pulling out all the smart money is gone. The remaining investors can either easily afford the slump or will have to pull out as rents they are earning are not covering the mortgages.

The papers in my opinion are still down playing the slump slightly , prices have been falling all year.

Colonel Sanders

I'm probably sounding lie a broken record but €301,267 was not the average paid for a house. it was the average handed over to an existing homeowner/ developer for a house + in many cases 'extras' ,especially in new developments. Add these 'extras' in and where does that leave the index?

Zambia

faceman wrote:

when will be the best time to buy a home (to live) given the doom and gloom on this thread?

Investment or To live...?

SkepticOne

faceman wrote:

when will be the best time to buy a home (to live) given the doom and gloom on this thread?

If you plan to live in your house over an extended period and don't care about negative equity or drops in price and you can afford the price taking into acount all possible increases in interest rates, then there's nothing wrong with buying now.

Otherwise, perhaps the best thing might be to hold out for better prices in the future.

seamus

Wait till next year at the earliest.

The bulls/economists/banks have been going on all year that everything will pick up and be ok when the Autumn selling season hits. In reality, you're looking at a big increase in property for sale over the next three months as people who had been holding off can no longer afford to hold off, and estate agents continue to advise people that it was just a Summer lull and the market is due to boom again.

Assuming that the stock markets stay in crap shape, there's a chance we won't see any more interest rate rises. So if you take this into account, and look at some significant drops in house prices, there's a chance this correction may be severe, but very quick. We'll probaby land OK, but it won't be soft.

As it stands, you can offer 5-10% less than the asking price for a house now in Dublin, and many agents will actually go to the seller with it. They'll probably tell you where to go, but this time 6 months ago you would have been laughed out of the place.

The Indo also reported over the weekend that a developer in Delgany broke ranks and launched a new phase of houses at €100k less than the previous phase. Granted, these particular houses were farcically overpriced to start with. Up to now, they've been offering cars and/or big furnishing/decorating packages on €500 - €900k houses, but it's not shifting them. So I think we'll see more developers suck it in and revise their house prices down to sane levels.

SkepticOne

Colonel Sanders wrote:

I'm probably sounding lie a broken record but €301,267 was not the average paid for a house. it was the average handed over to an existing homeowner/ developer for a house + in many cases 'extras' ,especially in new developments. Add these 'extras' in and where does that leave the index?

The true figures taking into account extras are not recorded. Also as was pointed out, the PTSB figures are based on estimated house price values for mortgage purposes. Anecdotally, house prices are down approximately 10 to 15% from the top.

SkepticOne

Colonel Sanders wrote:

I'm probably sounding lie a broken record but €301,267 was not the average paid for a house. it was the average handed over to an existing homeowner/ developer for a house + in many cases 'extras' ,especially in new developments. Add these 'extras' in and where does that leave the index?

The true figures taking into account extras are not recorded. Also as was pointed out, the PTSB figures are based on estimated house price values for mortgage purposes. Also, the ESRI/PTSB figures don't report volumes of sales or inventory build up. Anecdotally, house prices are down approximately 10 to 15% from the top. With more and more unsold houses on the market it would appear that this is only the beginning.

faceman

seamus wrote:

As it stands, you can offer 5-10% less than the asking price for a house now in Dublin, and many agents will actually go to the seller with it. They'll probably tell you where to go, but this time 6 months ago you would have been laughed out of the place.

The Indo also reported over the weekend that a developer in Delgany broke ranks and launched a new phase of houses at €100k less than the previous phase. Granted, these particular houses were farcically overpriced to start with. Up to now, they've been offering cars and/or big furnishing/decorating packages on €500 - €900k houses, but it's not shifting them. So I think we'll see more developers suck it in and revise their house prices down to sane levels.

Re delgany, thats pretty shockin! Believe it or not, there are still plenty of gobsheens goin in and biddin at the asking price. Not worth biddin on those houses if that happens.

Re the developers, they said they were goin to limit supply so im not sure how much of a whack on price they are willin to take.

TwoShedsJackson

seamus wrote:

They'll probably tell you where to go, but this time 6 months ago you would have been laughed out of the place.

So what's the difference between being told where to go and being laughed out of the place??

Zambia

faceman wrote:

Re the developers, they said they were goin to limit supply so im not sure how much of a whack on price they are willin to take.

Limit supply , me hole they will dump them all for the lower price praying they don't have any left. They will re-make there money even with a further 100k off.

faceman

Zambia232 wrote:

Limit supply , me hole they will dump them all for the lower price praying they don't have any left. They will re-make there money even with a further 100k off.

they were talkin about future builds

Zambia

faceman wrote:

they were talkin about future builds

Interesting if they do have future builds they may need to let them on the market for even less next year. How gutted would the 700,000 delgany group be then.

seamus

TwoShedsJackson wrote:

So what's the difference between being told where to go and being laughed out of the place??

My point being, the agents would have laughed at you. Now they'll say, "Alright I'll say it to the vendor, but I'm pretty sure they'll say no". I've seen a few cases in the last few months where someone has offered 6-10% less then the asking, been initially told "no way", only to be approached a few weeks later asking if the offer still stands.

faceman

seamus wrote:

My point being, the agents would have laughed at you. Now they'll say, "Alright I'll say it to the vendor, but I'm pretty sure they'll say no". I've seen a few cases in the last few months where someone has offered 6-10% less then the asking, been initially told "no way", only to be approached a few weeks later asking if the offer still stands.

i know a few people who benefitted!

patrickolee

faceman wrote:

when will be the best time to buy a home (to live) given the doom and gloom on this thread?

Personally, I'd think now is a good time to start looking. Aiming to be bidding in late Nov/Dec when things have slowed right down and sellers might be a little more desperate. That's presuming you are buying to live in it yourself over the next 10 years. If you're investing, I'd wait a while.

But if you think that there is major bubble (I don't), then you'll probably be waiting 4-5 years as that is how long these things take to play out. I think a previous poster said "there's a chance this correction may be severe, but very quick". I think that is highly unlikely, if there is to be a correction, it will be slow and painful. Could anyone wait 4-5 years?

seamus

patrickolee wrote:

I think that is highly unlikely, if there is to be a correction, it will be slow and painful. Could anyone wait 4-5 years?

Even though I said it, I do agree. If you're holding out for a house to start being a good investment again, then you're going to be holding out for longer than 6 months
For a home to live in for ten years, you're not going to be in negative equity in ten year's time - though if you bought in Delgany, you may just break even

SkepticOne

patrickolee wrote:

But if you think that there is major bubble (I don't), then you'll probably be waiting 4-5 years as that is how long these things take to play out. I think a previous poster said "there's a chance this correction may be severe, but very quick". I think that is highly unlikely, if there is to be a correction, it will be slow and painful. Could anyone wait 4-5 years?

It is very easy to wait while prices are falling. The hard thing to do is wait will prices are still rising.

Even if you think it will take 4-5 years if the house your buying is strictly not for investment purposes and you don't intend to move for many years and you can afford the house now taking into account interest rates then there's no reason not to buy now. You should have no interest in the future movement of prices. You have still got the house you bought and you are still able to live in it. You have not lost anything from this point of view.

Realistically though, I think the vast majority of people when they buy, don't buy just for a place to live, they buy for both living and investment purposes. Otherwise, why would people have bought all those investment boxes outside of the main urban areas and why are people angry that the builder lowered the prices in Delgany and why did the bubble develop to such an extent.

As prices continue to fall, people will feel that there's no point in buying until they believe that houses have stopped falling in price. This, of course, will cause prices to drop faster than they otherwise would.

SimpleSam06

seamus wrote:

For a home to live in for ten years, you're not going to be in negative equity in ten year's time - though if you bought in Delgany, you may just break even

In fairness, unless you are in dire straits looking for a place to live (and I can't imagine conditions that would lead someone to be forced to spend in excess of €300,000), you'd be much better advised to wait for three years at least, probably closer to five.

You'll save money by renting, you are a lot more mobile to take advantage of a changing work situation, you'll save money by not burning it on a mortgage and high interest rates on that large mortgage, and you'll own a lot more of your house initially.

All good things come to those who wait.

SkepticOne wrote:

It is very easy to wait while prices are falling. The hard thing to do is wait will prices are still rising.

Exactly.