Housing Bubble Bursting

SimpleSam06

Is that not saying that house prices are up 7.4% nationally, year on year?

gurramok

Its so discredited and out of date, all those already in negative equity would agree.

If only we had real transaction price data like in most countries instead of a small sampling, then we would know the truer picture.
As said, evidence from widespread price drops just shows how inaccurate the index is.

whizzbang

SimpleSam06 wrote: »

Is that not saying that house prices are up 7.4% nationally, year on year?

Last march they were up 7% YOY (ie Mar 06 - Mar 07), now they are down 2.8%

Latest results are on the left (its a bit confusing)

SimpleSam06

whizzbang wrote: »

Last march they were up 7% YOY (ie Mar 06 - Mar 07), now they are down 2.8%

Latest results are on the left (its a bit confusing)

Aha, I see, they put it bass ackwards there, I'd normally look at the far right column for conclusions. It will be interesting to see the final yoys for 2007, if they are in the negative, thats the pebble that will cause the avalanche. The pace of the slide is definetely picking up, though.

DubiousDude

You wouldn't think house prices are in decline looking at this ad on Daft:
Terraced House: €220,000
Overall Floor Area: 34 Sq Meters !!!!!!!!!!!!
Between Pearse Street and Hogan Place

"would ideally suit those who enjoy a small renovation project. Alternatively it would also suit someone looking for immediate city centre storage. The property is situated in a very strong rental location.

wow!
some photo!

damn near a quarter of a million for some storage space! what are we talking about storing? gold? uranium?

:eek:

Victor

Deleted User wrote: »

damn near a quarter of a million for some storage space! what are we talking about storing? gold? uranium?

Something more valuble

land

.

Cantab.

The ESRI are a joke of an organisation: full of overpaid idiots whose primary motivation is their own well-being. The CSO should pull their socks up and make this institution redundant.

SkepticOne

The ESRI figures are still the most widely reported set of figures on the market and generally reported without question. Although no one here is going to take them at face value, they are important from the point of view of knowing what the general population is receiving as information on the market. These drops are no longer making front page news. RTE did not report them at all. Gradually people are coming around to the idea that house prices are going down in value and this is not just a temporary blip. I don't think there will be much reporting of house prices until January.

Firetrap

Colonel Sanders wrote: »

Must say if I was paying an economist who was this far off the mark he'd already be gone!!!

Maybe even 'Comical' Austin knows that he's talking rot but knows who his paymasters are.

robd

Cantab. wrote: »

The ESRI are a joke of an organisation: full of overpaid idiots whose primary motivation is their own well-being. The CSO should pull their socks up and make this institution redundant.

In fairness these figures are from PermanentTSB not ESRI. They use an ESRI model which allows them to publish the report in conjunction with ESRI. This gives the report some credibility which it simply shouldn't have.

I am in full agreement that we need real sales data ala UK and US. There's no reason (other than corrupt self interest) why this type of data is not gathered as part of the legal transfer of title process.

D'Peoples Voice

Who do you think seems right about the property market now?
these guys

http://www.boards.ie/vbulletin/showpost.php?p=52118848&postcount=842

http://www.boards.ie/vbulletin/showpost.php?p=52100481&postcount=796

http://www.boards.ie/vbulletin/showpost.php?p=51858556&postcount=184
or these guys

http://www.boards.ie/vbulletin/showpost.php?p=52124431&postcount=859

http://www.boards.ie/vbulletin/showpost.php?p=52108176&postcount=822

For many people losing out on a falling market, they have only have themselves to blame, look at the date on some of these posts!

http://www.boards.ie/vbulletin/showpost.php?p=52015674&postcount=440

http://www.boards.ie/vbulletin/showpost.php?p=52032956&postcount=569

http://www.boards.ie/vbulletin/showpost.php?p=52027885&postcount=525

http://www.boards.ie/vbulletin/showpost.php?p=52197821&postcount=1004

http://www.boards.ie/vbulletin/showpost.php?p=52015713&postcount=441

http://www.boards.ie/vbulletin/showpost.php?p=52193152&postcount=993

http://www.boards.ie/vbulletin/showpost.php?p=52178401&postcount=966

http://www.boards.ie/vbulletin/showpost.php?p=52065149&postcount=737

http://www.boards.ie/vbulletin/showpost.php?p=52042169&postcount=615

http://www.boards.ie/vbulletin/showpost.php?p=52038437&postcount=596

http://www.boards.ie/vbulletin/showpost.php?p=51851137&postcount=147

http://www.boards.ie/vbulletin/showpost.php?p=51853804&postcount=158

http://www.boards.ie/vbulletin/showpost.php?p=51853804&postcount=158

http://www.boards.ie/vbulletin/showpost.php?p=51850033&postcount=135

gurramok

Good research on the mammoth thread there D'Peoples Voice.

Faceman's declaration that 'this thread, that awful rag the indo and AAM is to some degree fueling negativity'made me laugh as back then they didn't want the truth to be known about the bubble and how wrong they proved to be on it, whether intentional or not.

I asked the question a few months after some of the dates of those posts along the lines of..
Where have all the bulls gone? (bar Gurgle who i reckon is now half-bullish but still a bit of way to go:))

It's a serious question, without checking the last access dates on boards for those vociferous bulls, have they ran off with their horns cut off and their tails between their legs?

nesf

20/20 hindsight etc.

Supercell

I stand my my sentiments back in summer 2006, still seems to be heading in the same direction.

Pa ElGrande

Does it matter today who was right or wrong in 2006? that's all in the past now. Hopefully, the information posted then helped educate people about what was and is happening and they were able to evaluate and make a better informed decision as regards property. In the end we make our own decisions and we live with the consequences, good, bad or indifferent.

In hindsight my predictions have been waaay too conservative. I was not anticipating the scale of the ongoing meltdown in global credit markets that occurred this Summer. As one on the most open economies in the world, we are all going to take the full brunt of the ongoing collapse, whether you hold a mortgage or not, now is not a good time to be holding debt.
If you accept that inflation is an increase in the supply of money and credit, then the withdrawal and destruction of credit must surely lead to an economic depression ala the 1930's great depression. I'm not sure the ECB can inflate its way out of this since the magnitude of the problem, it is too big and there will be a reluctance among people to take on more debt when they can't service it and it does have a mandate to keep its index under 2%. But I'm re-evaluating this and will post when I have more definitive conclusions.

One thing I am certain about is the order in which this will happen, first more of the builders will go to the wall, unemployment will continue to rise and gather pace and eventually the banks are going to end up with substantial bad debts on their books and some are inevitably going to collapse. This credit crunch is global so there is no escape and the present Government does not have a plan B and will likely collapse in either 2009 or 2010. You don't need to be a fortune teller to see what's going to happen, it's all been done before and documented extensively, all you need to do is apply the lessons learned.

Gurgle

Pa ElGrande wrote: »

first more of the builders will go to the wall

Go to the wall or quit while they're ahead.
I expect the builders who have made insane money over the last 15 years to wrap up their businesses, pocket the cash and sit back for a nice early retirement.

unemployment will continue to rise and gather pace

Or the migrant workers affected by the building slowdown will move on to the next building boom. London's olympic village is looking like a good bet.
The unskilled Irish workers will find themselves back behind the counter in McDonalds, or in a factory running machines.

eventually the banks are going to end up with substantial bad debts on their books and some are inevitably going to collapse.

It will be a cold day in hell when the proper banks collapse. I wouldn't bet on the sub-prime lenders though. As I pointed out before they will have been taking their profits out year-on-year as dividends while the going was good. If they find themselves in a loss-making situation they'll pull the plug and walk away to an even more comfortable retirement than the builders.

Pa ElGrande

Gurgle wrote: »

Go to the wall or quit while they're ahead.
I expect the builders who have made insane money over the last 15 years to wrap up their businesses, pocket the cash and sit back for a nice early retirement.

Manor Park homes have been trying to exit the market for the last few months having missed the top.

No longer. He has read the property market wrong. Jim shrewdly bought 49 per cent of Manor Park Homes way back. He held on to the asset until earlier this year when he put it on the market. His timing was woeful. He has lost his touch.
The initial asking price was over €700m. Then it dropped to €600m. Today there is only one buyer in the frame at around €500m. Developer Liam Carroll is twisting Jim Flavin on a spit.
Hand back your bonus, Jim

A former employer of mine is also winding up his construction business, his son is not interested in the business so he's selling. He's laid off 200 workers since August and is wrapping up his last project now. Most of the over 60's age developers I know are also wrapping up their projects and will close down in the new year. Not all developers will exit so easily and the receivers have already moved in on several. The fall in cashflow and outstanding debts to purchase land and fund the startup has caught them short and the banks are moving in.

A high-profile housing scheme in Kilkenny went into receivership yesterday after the developer was forced to abandon the project. The news came as one economist said the Republic's house market is weakening at a faster rate than originally expected.
Receiver appointed for housing scheme in Kilkenny

Also changes are underfoot in company formations with new companies still being formed in construction

On a sectoral basis, the real estate sector has overtaken the construction and civil engineering industry as the most popular sector for business start-ups with an increase of 5% in new businesses (1,505). Despite there being 20% fewer companies in the sector, construction and civil engineering remains a close second with 1,482 companies formed this year. Consultancy is also a popular start up choice with 716 new businesses established in the first ten months of 2007.
New Irish companies formed in 2007 rises to 15,381

To summarise, yes some will escape through an increasingly narrow exit, but, those with outstanding debts and cashflow problems will fold.
With over a fifty percent drop in residential construction projected for 2008 over the peak in 2006 and continued falloff in the number of house sales, expect to witness more developers going to the wall over the next few months. You can look to the United States who are a year ahead of us to see what will happen here.

Gurgle wrote: »

Or the migrant workers affected by the building slowdown will move on to the next building boom. London's olympic village is looking like a good bet.
The unskilled Irish workers will find themselves back behind the counter in McDonalds, or in a factory running machines.

If you look the unemployment rate is falling in countries such as Poland as manufacturing and assembly continue to move there and there is a skills shortage in areas such as construction, with Poland having to import workers from the Ukraine and Kazakhstan. Granted the wages are not as good as present day Ireland, however, there is something to return to. The effect of the London Olympics is overestimated in my opinion since there are already enough construction workers in the UK itself and the UK is also heading into the same cyclical downturn in housing and will also be in recession driven by the fallout from the weakening dollar and ongoing credit crunch on city of London. All that needs to happen now is disruption of the oil supply and its 1973, or 1980 all over again.
Most immigrants do not work in construction, they have been keeping the pubs, hotels, McDonalds, SPAR's, warehouses and Irish manufacturing operational. What employer will get rid of his most productive workers simply to make way for unskilled Irish people? Undoubtably some will leave, but, many have nothing to return to in their native countries and will stick it out here.

Gurgle wrote: »

It will be a cold day in hell when the proper banks collapse. I wouldn't bet on the sub-prime lenders though. As I pointed out before they will have been taking their profits out year-on-year as dividends while the going was good. If they find themselves in a loss-making situation they'll pull the plug and walk away to an even more comfortable retirement than the builders.

Finland boomed after oil was discovered off the coast in the mid-1980s. With low interest rates and loans available for the asking, house prices soared. Then, as the Soviet Union collapsed, unemployment rose and house prices started to fall, creating problems first for builders, then for home owners, and finally for banks. The Finnish banking system effectively disintegrated under the weight of bad housing loans, and had to be rescued, at huge expense, by the state. Unemployment rose from 5 to nearly 20 per cent. The real price of houses fell by over 40 per cent.
Irish House Prices: Gliding into the Abyss?

With the benefit of hindsight, the banking crisis was an "accident waiting to happen". And sure enough, when the economy was hit by a strong negative shock and a cyclical downturn, loan losses and non-performing loans soared, wiping out the capital of many banks.

The negative shock came in the form of a sharp fall in oil prices in the beginning of 1986. This led to a run on the Norwegian krone and a devaluation of the currency. Fiscal policy was then tightened sharply and interest rates were raised to restore credibility. Subsequently, the private sector consolidated its financial position through debt repayments, resulting in the deepest recession in Norway since World War II.
A Norwegian perspective on banking crisis resolution

I hope you have really some really warm clothing. Hell already froze over for the Norwegian and Finnish banks after the credit booms of the 80's. It will happen here and all it will take to trigger the crisis is 5,000 to 10,000 people to default on their loans in one year, I'm expecting this to happen about 2009/2010, though events may move quickly if there is a prolonged oil supply disruption.

Supercell

Pretty scary stuff Pa ElGrande

What scares me in particular is the murmurings from the EU about corporation tax. I work for an American company and the pain from on high is audible already, and thats just to do with Irish labour/land/transportation costs.

If tax incentives/dues become equalised over any of their EU markets my job is history.

2008 is the beginning of the end.

I fully expect to either be self employed or emigrated come 2009.

nesf

Pa ElGrande wrote: »

It will happen here and all it will take to trigger the crisis is 5,000 to 10,000 people to default on their loans in one year, I'm expecting this to happen about 2009/2010, though events may move quickly if there is a prolonged oil supply disruption.

Speculation or do you have some figures to back that up?

miju

Pa ElGrande wrote: »

It will happen here and all it will take to trigger the crisis is 5,000 to 10,000 people to default on their loans in one year, I'm expecting this to happen about 2009/2010, though events may move quickly if there is a prolonged oil supply disruption.

in fairness i think you are wildly over estimating the amount of defaults that will occur in a year.

http://arandomwalk.com/forums/index.php?showtopic=121
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Our banking system is heading for serious trouble.

Someone will pay for this literally. And I think gurgle is right with the references to early retirements - it wont be the boys who made all the money thes past few years, the top bankers and the developers but the people at the bottom.

The brickies and people who hold bank accounts.

Gurgle

Gurgle wrote: »

It will be a cold day in hell when the proper banks collapse

http://www.boards.ie/vbulletin/showthread.php?t=2055162526&page=2

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
http://www.thepropertypin.com/viewtopic.php?t=3797


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I think hell is getting chilly

Pa ElGrande

nesf wrote: »

Speculation or do you have some figures to back that up?

I'm projecting an 8% unemployment rate by 2009/2010 which based on today's numbers would be about 170,000 people. The major job losses are going to come from the construction and finance sector, the multinationals are also going to continue to reduce. I reckon at least 18,000 of that number would be in the 25 to 45 age group, within that it's possible to get 5,000 couples or individuals who bought at peak and can no longer service their mortgage debt.

miju wrote: »

in fairness i think you are wildly over estimating the amount of defaults that will occur in a year.

And I thought I was being conservative. Ireland has never experienced a credit bubble on this scale before, the last time we experienced a bubble was in the 70's for agricultural land and that only affected one sector of the economy. This time almost every sector of Irish society has a hand in the property market and there has been massive speculation based on leveraged money. The consequences of the withdrawal of credit are only now being felt, the most recent public exposure being the five solicitors (2 named in public) that the banks are not chasing for money.

My projections do not take account of a worst case scenario *if* the American's bomb Iran and the value of the dollar disintegrates like the Weimar Republic.

nesf

Pa ElGrande wrote: »

I'm projecting an 8% unemployment rate by 2009/2010

On a presumption of a "substantial" downturn in the US economy dragging Ireland's with it?

Or at least that's the scenario I've seen bounced around when people talk of "almost double digit" unemployment figures towards the end of the decade.

miju

Pa ElGrande wrote: »

I'm projecting an 8% unemployment rate by 2009/2010 which based on today's numbers would be about 170,000 people. The major job losses are going to come from the construction and finance sector, the multinationals are also going to continue to reduce. I reckon at least 18,000 of that number would be in the 25 to 45 age group, within that it's possible to get 5,000 couples or individuals who bought at peak and can no longer service their mortgage debt.

quick factoid for you (as I dont really wanna discuss unemployment). the unemployment figures are up some 10% from 2006 however at the moment there is still more jobs being created than lost (granted most of the jobs are service sector)

you have to take this into account when talking about unemployment. personally i dont see unemployment that high but i do see Ireland getting savaged on the high qaulity jobs front while they continue to be replace by "low level" jobs.

Pa ElGrande wrote: »

And I thought I was being conservative. Ireland has never experienced a credit bubble on this scale before, the last time we experienced a bubble was in the 70's for agricultural land and that only affected one sector of the economy. This time almost every sector of Irish society has a hand in the property market and there has been massive speculation based on leveraged money. The consequences of the withdrawal of credit are only now being felt, the most recent public exposure being the five solicitors (2 named in public) that the banks are not chasing for money.

My projections do not take account of a worst case scenario *if* the American's bomb Iran and the value of the dollar disintegrates like the Weimar Republic.

I really dont think that there will be between 5000 - 10000 families every year who cannot afford their mortgages. interest rates are going to rise a bit more but they will not rise to the extent that it will cause significant pain to these mortgage holders to cause them to default. it will however suck out massive amounts of liquidity in this economy.

investors are a different kettle of fish altogether but again it all depends on how many of these investors are having their payments fully covered by their tenants. i still dont think there'll be between 5000-10000 of these a year either.

Victor

Pa ElGrande wrote: »

If you look the unemployment rate is falling in countries such as Poland as manufacturing and assembly continue to move there and there is a skills shortage in areas such as construction, with Poland having to import workers from the Ukraine and Kazakhstan. Granted the wages are not as good as present day Ireland, however, there is something to return to.

There is concern that the Polish figures aren't accurate - that Poles working in other parts of the EU are included in their unemployment figures.

Separately, there is concern at the emigration of construction workers from Poland at a time when they are needed.

miju wrote: »

I really dont think that there will be between 5000 - 10000 families every year who cannot afford their mortgages. interest rates are going to rise a bit more but they will not rise to the extent that it will cause significant pain to these mortgage holders to cause them to default. it will however suck out massive amounts of liquidity in this economy.

investors are a different kettle of fish altogether but again it all depends on how many of these investors are having their payments fully covered by their tenants. i still dont think there'll be between 5000-10000 of these a year either.

As it is, repossessions are probably in the order of 1,000 per year. Up from 20 per year 5 years ago.

SimpleSam06

miju wrote: »

it will however suck out massive amounts of liquidity in this economy.

Indeed, and thats the twist in the tail thats not being focused on enough, in my opinion. While there might not be a vast amount of defaulters, there will be an enormous amount of people who choose to sit at home and not spend their money on anything except servicing their debt. That could cause more damage to the economy than any amount of construction slowdown. All those new service and retail jobs? Good luck.

miju

Victor wrote: »

As it is, repossessions are probably in the order of 1,000 per year. Up from 20 per year 5 years ago.

they wouldn't be that high even if we were to extrapolate the recent monthly figures of cases being brought to court looking at the courts.ie diary your talking about no more than 600 cases per annum. This is basiing it on an average of 50 cases per month which has only been a trend for about the last 2-3 months

I also know from reading a good few articles on this in the papers that not all of the cases brought before a judge are successfull. So for that 50 case average your really only getting about 40 repossesion orders.

this is just mainly a sub prime thing at the moment in the courts but if prime lenders start ending up in there at the same levels , then all bets are off as to amount of defaulters in a year (though still prob wouldnt peak past 2,000 a year)

The_Conductor

I would be inclined to agree- reposessions and bankruptcy orders will be used as measures of a last resort. Its in neither the banks nor their customers for a panic to ensue. According to recent surveys over 36% classify themselves as having difficulty in making their mortgage repayments at present- but interest rates are near the top of their cycle, so inflation will eat into those repayments. Thank god that the subprime sector never really took off here- we'd really be up the creek if it did. In the current economic climate- its improbable that mortgage interest relief will be increased in the upcoming budget, in the same manner that demand led schemes are going to take a big hit. I read in today's SBP that transport commitments in T2016 are already years behind and likely to be revised- we're on a slippery slope. No more additional services anywhere- and a deflator factor may be applied for the maintenance of current services, as per the estimates. It looks like its not even going to be the consumers who deflate the economy- the government is making a go of doing it all on its own......