Housing Bubble Bursting

Colonel Sanders

maybe I'm being a tad simplistic but so far builders seem to have moved heaven and earth to shift houses without reducing asking prices, Delgany was different in this sense. How long can other builders afford to have properties for sale at unrealistic levels before they cave in also and reduce selling prices?

Or is it a situation where profit margins are so high on new developmenst that builders can leave a significant portion of houses in a new development vacany and stil make money by selling the rest at what is still an inflated price? The fact that 100k can be knocked off the asking price of a house over night suggests that this may be possible as I assume the developer in Delgany didn't lose mony by knocking 100k off the price.

Plissken1

Even though I own property I am happy that prices are dropping, simply because the current prices are just completely unrealistic, the properties are not worth that much, not in a million years !. It is just a pity that alot of the houses built over the last few years are butt ugly shoe boxes.

SkepticOne

Colonel Sanders wrote:

maybe I'm being a tad simplistic but so far builders seem to have moved heaven and earth to shift houses without reducing asking prices, Delgany was different in this sense. How long can other builders afford to have properties for sale ay unrealistic levels before they cave in also and reduce selling prices?

Or is it a situation where profit margins are so high on new developmenst that builders can leave a significant portion of houses in a new development vacany and stil make money by selling the rest at what is still an inflated price? The fact that 100k can be knocked off the asking price of a house over night suggests that this may be possible as I assume the developer in Delgany didn't lose mony by knocking 100k off the price.

The dropping 100k off the price simply means that the build is being realistic about what he can get for the houses in the current market. Even if he were to make a loss (very unlikely) on those particular houses, he still has to get rid of the houses. He only loses money sitting on them in a falling market. Whatever money he spent building them is now a sunk cost and should play no part in what price he needs to sell them at.

I think builders are still trying to squeeze as much as possible out of those who think houses are a good investment and either rise, or at the very least, don't fall in value much. Consequently they are not dropping prices, but rather throwing in incentives.

This will change as the last of these buyers who haven't realised what is going on have bought. Then builders will start selling on the basis of value.

silverharp

It will be over when the rental yield goes to about 6-7% for apartments with current interest rates. If an investor was looking to buy an apartment today he would have to assume no capital growth for 5-10 years so would need 2-3% over the mortgage rate just to breakeven. There are no new drivers for the Irish market, taxes are as low as they will go, real income growth will be stagnant for the next few years, and by irish standards lending is as loose as it will get. On the downside, interest rates could keep going up, if unemployment starts to creep up then you will get a feedback loop where less migrants come to Ireland and reduce rents even further also banks will tighten lending standards thus reducing credit and prices.

patrickolee

The Delgany developer might be losing money on the 100k cut, but he might happy to do so in order to reduce his exposure. If he had a few hundred properties on which there were very few bites and suppliers demanding money, he might have felt overexposed and be willing take a slight loss. Cash flow.

Plissken1

I don't think the Delgany developer is losing out here, he is just trying to shift his houses more quickly. But, it has made the news, and about 90% of the population will only read the part which says "price dropping 100k", now everyone thinks that prices are sliding at a high rate, which isnt true. This will only lead to more trouble down the road.

Tom123

SkepticOne wrote:

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.

This makes absolutely no sense.
If you interested in buying an average FTB house in Dublin, lets say currently priced at €375k. There is a very strong possibility that the same place could be down to €325k in a years time. Over the course of the 20 year mortgage that extra €50k is going to cost you close to €100k.
Why would any want to give away maybe 3-4 after tax income to some body else? Thats money that could be put towards a pension, spent on holidays, enjoying life etc. etc.....

Looking at it outside the realms of house. If you were buying a replacement car for €25k but were told there was a possibility that you could have it next month for €20k would you wait?

SkepticOne wrote:

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.

This I agree with

miju

indeed it will but its like i said before the herd will operate in the exact same way when prices are falling as when prices where rising.

re Delgany. the developer (most other ones as well for that matter) are financing these builds through the banks. theres only so long you can put the bank off for before they turn up the heat and when they adopt the "**** you pay me" approach with more developers its then we'll see the end of offering incentives and actual hard cash price drops will be more the norm.

iguana

SkepticOne wrote:

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.

However many people will feel that if they wait 6 months and house prices drop by €50k then they can have an 18 year mortgage instead of a 25 year one. And then they might think well I'll hold on another 6 months and if prices drop by a further €40k I'll save another 4 years of re-payments. So by waiting 1 year to buy they will have paid it off 10 years faster than they would pay it by buying now.

There are plenty of people who would choose 1 more year of waiting and a 14 year mortgage over buying now and 25 years of mortgage repayments. Different people will have different priorities and as long as each person is fully aware of all the possible pros and cons of their decisions and makes an educated choice then there is no right or wrong about what they choose to do.

SkepticOne

iguana wrote:

However many people will feel that if they wait 6 months and house prices drop by €50k then they can have an 18 year mortgage instead of a 25 year one. And then they might think well I'll hold on another 6 months and if prices drop by a further €40k I'll save another 4 years of re-payments. So by waiting 1 year to buy they will have paid it off 10 years faster than they would pay it by buying now.

There are plenty of people who would choose 1 more year of waiting and a 14 year mortgage over buying now and 25 years of mortgage repayments. Different people will have different priorities and as long as each person is fully aware of all the possible pros and cons of their decisions and makes an educated choice then there is no right or wrong about what they choose to do.

I would personally choose one year of waiting because for me owning a house would be partly for investment purposes. I think I would be like most people in that respect. I don't want to buy an depreciating asset.

I believe what I said is correct but only for those who by for strictly non-investment reasons. For them they get the house and once they have the house they measure its value in terms of what the house provides them, not its resale value. They still get the same amount of shelter, for example, whether the market value goes up or down. So what if other people now are getting the same sort of house for less. Good for them. Their gain is not my loss since, as I said, I am not selling the house.

I admit this is a rare view and not one shared by myself at this point in time, but it is valid in its own way and I think people will return to this way of thinking once the bubble has run its course.

It is because people diverged from this view and started buying houses on the basis that they would continue to increase in value rather than considering its intrinsic worth that the bubble started to inflate in the first place.

nesf

SkepticOne wrote:

I believe what I said is correct but only for those who by for strictly non-investment reasons.

It works for people who never plan to sell (at least on the medium to long term) and who put a high value on owning where they live.

Strictly, in such a situation, the price of the house a year or two on shouldn't bother the person. Most people don't work like that though.

expediateclimb

Pure bulls***. Why the heck would you wan't to buy a house whether to live in or for investment when six months down the line you could get it for 30 or 40 thousand less than buying it now.

The best time to buy a house is when prices stop falling and start rising, it's that simple. I mean jesus christ guys, this ain't rocket science :mad:

nesf

expediateclimb wrote:

Pure bulls***. Why the heck would you wan't to buy a house whether to live in or for investment when six months down the line you could get it for 30 or 40 thousand less than buying it now.

The best time to buy a house is when prices stop falling and start rising, it's that simple. I mean jesus christ guys, this ain't rocket science :mad:

Because value is a purely subjective attribute. The nominative value of a house in euros isn't the only component, though for the majority of people it's by far the biggest one.


Think of it this way, there is a perfect house for me. It's in a very specific location and owning a house elsewhere would leave me less happy. Now, say these houses don't come up on the market often and are generally very sought after and can be hard to buy. One of them comes up now when the market is a bit shaky and most likely the average house price will drop over the coming months and years, yet if I go for it now I'll probably get it because there's lower demand.

Now, assuming I can easily afford the house price and wouldn't be stretching myself financially, what should I do? If I don't buy now I might spend years waiting for another chance to buy one (and not succeed) and live less happily somewhere else or I can buy now and most likely pay a premium for the lack of uncertainty and getting what I really want right now.


Buying a home and buying an investment property are fundamentally different things, the same house might have a very different value as a home as it would as an investment property.

Zambia

expediateclimb wrote:

Pure bulls***. Why the heck would you wan't to buy a house whether to live in or for investment when six months down the line you could get it for 30 or 40 thousand less than buying it now.

The best time to buy a house is when prices stop falling and start rising, it's that simple. I mean jesus christ guys, this ain't rocket science :mad:

whatever house you are looking at may not be availible in 6 months.

There is no solid marker in time that says All houses will stop falling and start rising ... wait for it ... wait for it ...now! go buy a house!

Victor

In April, I did a snag list for a friend who was looking to buy at €415,000 in the current phase of a development. Delays from the builder (paperwork) has him looking at a second hand place in the same developemnt for €60,000 less.

expediateclimb wrote:

Pure bulls***. Why the heck would you wan't to buy a house whether to live in or for investment when six months down the line you could get it for 30 or 40 thousand less than buying it now.

The best time to buy a house is when prices stop falling and start rising, it's that simple. I mean jesus christ guys, this ain't rocket science :mad:

The problem with prices at rock bottom is there is no supply.

SkepticOne

expediateclimb wrote:

Pure bulls***. Why the heck would you wan't to buy a house whether to live in or for investment when six months down the line you could get it for 30 or 40 thousand less than buying it now.

I know people who own property but don't particularly care whether their property increases or decreases in value over the next few years. Since they are not selling, the increases of the last few years have been of no benefit to them. Likewise, a drop in value is not going to hurt them. The market value has no bearing on the use they are getting out of the house.

In the current bubble this attitude is very much in the minority. People forgot in the bubble that the real value of property is shelter, comfort and so on and so we got people queuing up to buy investment boxes in the middle of nowhere and paying 700,000 for tract housing in Delgany, Wicklah and then being upset by a drop of 100,000.

When the bubble is over and prices have dropped by the amount they are going to drop then the idea of buying to live rather than speculative investment will return.

Supercell

SkepticOne wrote:

In the current bubble this attitude is very much in the minority. People forgot in the bubble that the real value of property is shelter, comfort and so on and so we got people queuing up to buy investment boxes in the middle of nowhere and paying 700,000 for tract housing in Delgany, Wicklah and then being upset by a drop of 100,000.

When the bubble is over and prices have dropped by the amount they are going to drop then the idea of buying to live rather than speculative investment will return.

My "dream home" is a house surrounded by long green fields, preferably high in the Wicklow Mountains with a view.
I could probably get what I want for the prices these Delgany "investors" or new home owners paid.
Yet I think they are completely bonkers, why pay so much to live in a terraced house with a tiny garden and your neighbours will moan every time you turn up the telly to watch a movie? I wouldn't pay half of what they did for these homes.
Who calls living in a small terraced house their "dream home" ??

So it comes down to utility value, places like this have far less utility value than the prices being advertised, then again so does my house in the mountains, but I know which one I rather be stuck in negative equity in.

BendiBus

Longfield wrote:

Who calls living in a small terraced house their "dream home" ??

For some people a "dream home" is one that's worth lots of money. Simple as that. People really do dream of living in "million euro" homes regardless of what or where they are. Sad ****ers

Glenbhoy

Longfield wrote:

My "dream home" is a house surrounded by long green fields, preferably high in the Wicklow Mountains with a view.
I could probably get what I want for the prices these Delgany "investors" or new home owners paid.
Yet I think they are completely bonkers, why pay so much to live in a terraced house with a tiny garden and your neighbours will moan every time you turn up the telly to watch a movie? I wouldn't pay half of what they did for these homes.
Who calls living in a small terraced house their "dream home" ??

So it comes down to utility value, places like this have far less utility value than the prices being advertised, then again so does my house in the mountains, but I know which one I rather be stuck in negative equity in.

You know the attitude of some people to this Delgany incident is quite worrying, why patronise these people, can we not just be glad that it's not ourselves.
Delgany is a nice village, the people paid the going rate, they obviously felt that the utility achieved was sufficient to justify the price, you don't, that's your choice and that's why you didn't/wouldn't buy it.

ionapaul

It's interesting to go back and read the first few pages of this thread, written last December. Now that most, if not all of us, bulls and bears together, can recognise that prices are no longer increasing and are drifting back slowing, is it time for some reflection on this thread? Popular sentiment finally became negative over the summer I think - only 3 months ago most people in Ireland would have been closer to the 'property only goes up' side of the argument rather than the 'we are in serious trouble' side, whereas now that is no longer the case I feel.

What I would love to read is people's thoughts on where the market is headed and what timeframe they can see*, just as an exercise to gauge sentiment. Perhaps the place to be asking these questions is not in this thread, where the bears rule, but in AH or somewhere?

*For my part, as a bear of many years at this stage, I see a slowly deflating bubble, continuous downward movement on house prices and drying up of property transaction over the next 3 years. Can't see real prices matching those achieved at the top of the market (12 months ago? 8 months ago?) for long, long years - it will even be years before nominal prices get there I think!

Tom123

ionapaul wrote:

It's interesting to go back and read the first few pages of this thread, written last December. Now that most, if not all of us, bulls and bears together, can recognise that prices are no longer increasing and are drifting back slowing, is it time for some reflection on this thread? Popular sentiment finally became negative over the summer I think - only 3 months ago most people in Ireland would have been closer to the 'property only goes up' side of the argument rather than the 'we are in serious trouble' side, whereas now that is no longer the case I feel.

What I would love to read is people's thoughts on where the market is headed and what timeframe they can see*, just as an exercise to gauge sentiment. Perhaps the place to be asking these questions is not in this thread, where the bears rule, but in AH or somewhere?

*For my part, as a bear of many years at this stage, I see a slowly deflating bubble, continuous downward movement on house prices and drying up of property transaction over the next 3 years. Can't see real prices matching those achieved at the top of the market (12 months ago? 8 months ago?) for long, long years - it will even be years before nominal prices get there I think!

I think the market will continue to fall for the remainder of the year but the pace of drops will pick as the year continues.

The ESRI/TSB report is about 3 months behind the actual market and looking at asking prices on http://www.irishpropertywatch.com/ the pace of drops has been pretty constant.

I expect falls of 7% nationally by the end of the year and closer to 10% for Dublin. I also expect falls in 2008 of around 15%.

I see no reason for prices to stop falling until the inventory has dropped below 30,000 properties nationally. Currently standing at around 52,000 according to DaftWatch.

gurramok

Agree with Tom123 there, this deflating in my view will go on for a few years yet, how long is anyones guess.

And yes, i was strictly in bear camp at start of this thread, we bears were laughed at back then at 'lu-la's', how tide has changed since then.

Bulls would blame RTE future shock programme for the housing recession

One other thing that is forgotten about fallen values is people's ability to release that perception of 'free money' (equity) in their house is vanquished, this is why some who would never sell are concerned about fallen values.

faceman

i think its early to become complacent. i was a bull in the earlier days of this thread (I grew tired of it tho!) but im not a full fledged bear yet.

prices are going down, and in general its a slow decline so far. regardless of what people's opinions were on this thread, scaremongering about very short term crashes was just plain silly.

As a one time strong bull (who i would like to thing had his view respected, even if not accepted, by some of the debaters on this thread), i can easily say that no one really knows what is goin to happen next year or the year after. 3 years of decline / 5 years of decline? we just dont know, nobody does. things could change for better or worse at any time The days of short term high investment are over though, and frankly, thank goodness.

in saying all this, i plan on buying a new home in the near future all things going well and i plan on buying a place that i can live in for 10-20 years. price drops off for the next 5 years dont really bother me, its a buyers market at the mo and if im clever and bargain hard (im only interested in a second house, its mad to want a new one at the mo), i may get what i want.

anyway who cares, we're all goin to heaven lads yay!

D'Peoples Voice

Not sure about house prices falling by much,
but I foresee substantial easing of house prices:D

Pa ElGrande

We ain't seen nothin' yet. We've passed the peak of a text book asset bubble and we are now on the downside and following the plot of a script that has been written in every other bubble. The graph above may be somewhat extenuated but you can closely correlate it to Ireland's situation. You can see where David McWilliams and others fell into the bear trap in 2001, right through to Dan McLaughlin's new paradigm in 2006.

From now the angle of decline will depend on how the Government reacts, if they withdraw market support and do not intervene then this will be over in two to three years, it would be sharp and very painful, but we would be able to dust ourselves off and start on the road to recovery. However, they won't do this and will do their best to keep it afloat even if that means running huge deficits only it will take at least five years maybe more (see Japans 16 years) to get to the bottom, in effect drawing out the pain for a decade.

My expectation is that since we borrowed the money and securitised it (several times over in case of some banks) then the economy will continue to haemorrage money for some time to come. We have not yet seen the blow out from the current investment banking crisis take full effect, should this follow the worst case scenario then the government will be rendered impotent and we have an economic depression on our hands.

SkepticOne

faceman wrote:

in saying all this, i plan on buying a new home in the near future all things going well and i plan on buying a place that i can live in for 10-20 years. price drops off for the next 5 years dont really bother me, its a buyers market at the mo and if im clever and bargain hard (im only interested in a second house, its mad to want a new one at the mo), i may get what i want.

What about your invesment properties?

liberty 2007

ionapaul wrote:

It's interesting to go back and read the first few pages of this thread, written last December. Now that most, if not all of us, bulls and bears together, can recognise that prices are no longer increasing and are drifting back slowing, is it time for some reflection on this thread? Popular sentiment finally became negative over the summer I think - only 3 months ago most people in Ireland would have been closer to the 'property only goes up' side of the argument rather than the 'we are in serious trouble' side, whereas now that is no longer the case I feel.

What I would love to read is people's thoughts on where the market is headed and what timeframe they can see*, just as an exercise to gauge sentiment. Perhaps the place to be asking these questions is not in this thread, where the bears rule, but in AH or somewhere?

*For my part, as a bear of many years at this stage, I see a slowly deflating bubble, continuous downward movement on house prices and drying up of property transaction over the next 3 years. Can't see real prices matching those achieved at the top of the market (12 months ago? 8 months ago?) for long, long years - it will even be years before nominal prices get there I think!

Hi have only just looked at this thread but i'm inclined to agree with you. House prices have not fallen much yet because no one is willing to drop their asking price YET.

faceman

Pa my old compadre, you're still throwing text book stuff out! Somethings dont change!

skepticone, i still have my investments (minus the one i sold) but they were literally that, investments. Wouldnt be my dream home! They're pretty much paying for themselves. Ive never however owned a home that i was 100% mad about that i wanted to live in for decades. the age im at now, im startin to look more long term and not just the cash return which is all a bit mad actually

arctictree

Pa ElGrande wrote:

We ain't seen nothin' yet. We've passed the peak of a text book asset bubble and we are now on the downside and following the plot of a script that has been written in every other bubble. The graph above may be somewhat extenuated but you can closely correlate it to Ireland's situation. You can see where David McWilliams and others fell into the bear trap in 2001, right through to Dan McLaughlin's new paradigm in 2006.

So are we still to experience the 'bull trap'?

A

whizzbang

arctictree wrote:

So are we still to experience the 'bull trap'?

A

That will probably come when the government intervenes to try an prop up the market. Maybe it was the Stamp duty reforms, maybe it will be extensive mortgage interest relief in the next budget, we will only know in hindsight.

Chances are the EAs and bank economists will talk it up for all its worth though, thus making it worse