Housing Bubble Bursting

miju

smccarrick wrote: »

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......

if they are doing it intentionally (it is Fianna Failure after all :rolleyes: ) then they're doing the right thing IMHO. Inflation , costs and pretty much everything to do with / or costs money in this country has gotten ridiculously out of control with greed completely consuming some sectors (and i aint a begrudger ive a very health bank balance thanks very much)

Ireland Inc needs a good bout of deflation to give it a serious reality check.

SimpleSam06

smccarrick wrote: »

but interest rates are near the top of their cycle, so inflation will eat into those repayments.

What makes you say that, didn't inflation recently rise in the Eurozone?

smccarrick wrote: »

No more additional services anywhere- and a deflator factor may be applied for the maintenance of current services, as per the estimates.

Still plenty of money to give Bertie his pay rise though...

Pa ElGrande

miju wrote: »

Ireland Inc needs a good bout of deflation to give it a serious reality check.

The current house price crash is a symptom of that deflation. That "good bout" would mean 20% unemployment in a very short period of time. The last time we had a serious withdrawal of credit was circa 1980/81. Go ask anyone between the ages of 55 and over, if they remember how the banks treated them then. We've had financial crises before, this time it has gone wrong in a spectacular way.

When was the last time we saw a bank run in Ireland and Britain?
When was the last time Irish banks got caught for €100 million plus bad loans?
When was the last time we saw the biggest banks in the world commit overt fraud in full view in order to try and conceal the fact they are insolvent?
Why does gold keep rising in price?
Why has the ECB to make emergency loans to several European banks?

What we've done over the past six years is nuts, we've pumped more money into property than the multinationals ever did when the boom started in the 90's. And through securitisations and derivatives have blown the credit bubble way beyond what the productive sector of the economy can support. This is the key, house prices will fall to the level that production in our economy will support. This is why the export sector is absolutely critical and if our main markets Britain and the USA hit a recession over they same period (they will) then this in turn will magnify the downturn here.

Victor

Pa ElGrande wrote: »

When was the last time we saw a bank run in Ireland and Britain?

Not an outright run, but AIB has ned on and off problems over the last 25 years.

When was the last time Irish banks got caught for €100 million plus bad loans?

Not necessarily loans, but AIB seems to have a pattern of a €500m scandal every 5-10 years.

When was the last time we saw the biggest banks in the world commit overt fraud in full view in order to try and conceal the fact they are insolvent?

??

Why does gold keep rising in price?

Its priced in dollars and the dollar is falling. There is demand for all commodities. The gold market, like any, is subject to manipulation. And because people are being cautious.

JupiterKid

I'm over in Vancouver, Canada at the moment and their property boom seems to be continuing to surge ahead - which is pretty astounding considering that they have been booming for about 15 years at this stage.

The amount of construction, particularly of luxury high rise apartments (or "condos" as they call them) is just astounding. Reading a VI opinion piece about the housing market, they don't believe that the Canadian property market will be affected by the housing crash in the USA as their lending agencies were more "prudent" in issuing mortgages.

But surely the housing boom here will have to come to an end too?

Victor

JupiterKid wrote: »

The amount of construction, particularly of luxury high rise apartments (or "condos" as they call them) is just astounding.

In American terms, condos or condominiums are owner-occupied apartments. Apartments are typically rented.

Pa ElGrande

Victor wrote: »

Not an outright run, but AIB has ned on and off problems over the last 25 years.

Prior to Northern Rock, there have been no bank runs in Ireland in living memory. In fact you have to go back to the 19th century Sadlier's bank.

Victor wrote: »

Not necessarily loans, but AIB seems to have a pattern of a €500m scandal every 5-10 years.

True, AIB tends to have these incidents every few years. What's different this time is all the main banks have been caught out and there is more to come. Most loan officers did little or no checking when issuing loans at the peak of the boom, they were ordered to simply write the cheque's. Overstating earnings was common place and there are significant numbers of people who borrowed money from the credit union to fund the deposit, I even know parents who borrowed money for the children's deposit. No due diligence is certain recipe for disaster, and where I work at least 40% of my colleagues (in their 30's) are living pay cheque to pay cheque, and depending on credit cards to see them through the month. I don't believe this is untypical and this is a recipe for disaster.

Victor wrote: »

??

What's going to be revealed over the next few years is going to make ENRON look like a minor traffic infraction. The banks are currently being allowed by the authorities to override their own rules! Several commentators have already written about the fraud. There will be a very sharp contraction in financial services over the coming months - the losses that have been announced so far are a fraction of what is to come. This is no hyperbole - most of the securities which are most affected are still being marked in the books at cost price, and most of those are worth nothing. I mean this - not 20 cents in the dollar, nothing. At least, but probably more than, all the of the job growth in financial services of the last two years will be reversed in the next two years, and that is going to hurt not only the Irish property market, but the economy as a whole.

Merrill Lynch (MER): Better Living Through Cheating

More problems ahead for Citigroup

Federal Reserve's liquidity actions veiled "bailout" of distressed banks

Victor wrote: »

Its priced in dollars and the dollar is falling. There is demand for all commodities. The gold market, like any, is subject to manipulation. And because people are being cautious.

Exactly, the dollar is falling faster than the EURO and this is creating problems for Irish based firms exporting to the United States. It also reduces any Foreign Direct Investment (FDI) the American multinationals might throw our way. Combine that with a massive trade deficit and expensive war and empire to support, and with the start of the baby boomer mass retirement and rising energy costs. In a global economy and as one of the most open economies in the world, Ireland will not escape unscathed.

Simple fact is we go through cyclical upturns and downturns in any economy and as regular Joe's most of us are ill-prepared to cope with sudden or prolonged shocks to the system. I'm not even sure I'm going to escape unscathed. I reckon I am correct about the collapse of the Irish banking system over the next five years, while I cannot be certain I have my timing right, I believe I am correct in my assessment simply based on the outcomes of past speculative bubbles.

iguana

Pa ElGrande wrote: »

When was the last time we saw a bank run in Ireland and Britain?

2 months ago?

Glenbhoy

Pa ElGrande wrote: »

When was the last time Irish banks got caught for €100 million plus bad loans?

I'd be surprised if they end up out of pocket by this amount? Surely there must be a fair amount of collateral secured to these loans?

miju

if you keep abreast of current affairs Glenbhoy you'd see those solicitors over the last couple of weeks stung em for 70 million

Victor

iguana wrote: »

2 months ago?

I think he means before Northern Rock.

DublinDilbert

JupiterKid wrote: »

The amount of construction, particularly of luxury high rise apartments (or "condos" as they call them) is just astounding. Reading a VI opinion piece about the housing market, they don't believe that the Canadian property market will be affected by the housing crash in the USA as their lending agencies were more "prudent" in issuing mortgages.

But surely the housing boom here will have to come to an end too?

One of the reasons that Vancouver has boomed for the last 10 -> 15 years is that huge amounts of Asian People moved there after the property crash in Asian, the lucky ones go out early and re-settled in Vancouver, hence the large Asian communities around metro town / Burnaby..

Another reason for the demand for housing in Vancouver is that the weather is so mild compared to the rest of Canada, you don't freeze as much in winter and don't cook in summer time..

Glenbhoy

miju wrote: »

if you keep abreast of current affairs Glenbhoy you'd see those solicitors over the last couple of weeks stung em for 70 million

Well, I have been away for a few days alright, but my point is that the 70million didn't just vanish, surely the solicitors in question must have assets that will cover a fair bit of the missing money - not all obviously, but I'd be surprised if the banks end up taking a 100 million hit.

Do-more

Channel 4 tonight at 8pm Dispatches - The Housing Trap Will Britain's house-price boom create a new generation unable ever to afford a home of their own?

robd

Glenbhoy wrote: »

Well, I have been away for a few days alright, but my point is that the 70million didn't just vanish, surely the solicitors in question must have assets that will cover a fair bit of the missing money - not all obviously, but I'd be surprised if the banks end up taking a 100 million hit.

No. The solicitors in question where able to use the bank-solicitor trust relationship to secure multiple mortgages on the same properties. Thus there is no underlying asset that can be recovered.

Glenbhoy

robd wrote: »

No. The solicitors in question where able to use the bank-solicitor trust relationship to secure multiple mortgages on the same properties. Thus there is no underlying asset that can be recovered.

I knew that part, but I presumed the situation was that the banks had lent a total of €100m odd to these solicitors, some of the lending was unsecured because the same property had been put up as security on several occasions, however the majority of the lending must be secured. I also assumed that even the unsecured money has been used to purchase assets, thus presuming that can be traced (and it should be relatively easy to do so, unless the bank were handing out cash!!), then the banks can go after those assets, this will of course be a little more costly and time consuming than simply repossessing an asset and selling it off to the highest bidder, but my heart isn't exactly bleeding for them. (Open to correction on all the above btw).

robd

Glenbhoy wrote: »

I knew that part, but I presumed the situation was that the banks had lent a total of €100m odd to these solicitors, some of the lending was unsecured because the same property had been put up as security on several occasions, however the majority of the lending must be secured. I also assumed that even the unsecured money has been used to purchase assets, thus presuming that can be traced (and it should be relatively easy to do so, unless the bank were handing out cash!!), then the banks can go after those assets, this will of course be a little more costly and time consuming than simply repossessing an asset and selling it off to the highest bidder, but my heart isn't exactly bleeding for them. (Open to correction on all the above btw).

No, the majority of lending appears to be unsecured. There were proper deals done at the very start but not since then. There have been reports of proper title not being transferred. Without proper title there is no security. Solicitors are trusted where by the banks to say that title is in order. The fraud or breakdown occurred as title was not in order. The law society reported huge holes in the finances of these solicitors. It was reported that they were involved in foreign property dealings in the like of Spain and Bulgaria through separate companies. Trying to recover money in foreign counties through a web of limited companies would be nigh on impossible. Also given the bubble nature of the property markets here and in those foreign counties the money paid would be much greater than what the properties would realize in the current market. I'd estimate the totals loses to be in the 50-75% region. The banks the lent at the end will lose up to 100%. Thus total losses of up to 75 out of the 100m

D'Peoples Voice

robd wrote: »

No, the majority of lending appears to be unsecured. There were proper deals done at the very start but not since then. There have been reports of proper title not being transferred. Without proper title there is no security. Solicitors are trusted where by the banks to say that title is in order.

someone was telling me at the weekend, that everything would have been ok for the solicitors had the property market still been booming as the conveyancing fees that solicitors were getting in could cover the mortgage repayments, but with the fall-off in those same fees due to less houses being purchased, they became cash-strapped!
I blame the people talking down the economy:D
Bertie should have them tried for treason!

ionapaul

http://www.rte.ie/business/2007/1105/ryanair.html

So Ryanair says that the ongoing economic situation / car-crash might result in young people with mortgages not being able to travel by air as much as they currently do, but luckily this will be offset by all those lucky older people without mortgages...funny that, it seems the property mania's biggest cheerleaders (other than Dr. Dan, Austin and the rest of the VIs) were young people with their foot on the '1st rung of the ladder' (gonna be hard to move off that step!) who told the rest of us nay-sayers that high property prices were good for the economy and the country.

Sorry for that...I think I may be guilty of talking the country into the economic mess we're about to find ourselves in.

mastermind2005

WE ARE now in a full-blown property crash, with new house sales down 4 per cent, second hand sales down between 15-20 per cent since the start of the year, house repossessions soaring and the government doing nothing to stop it.

http://www.independent.ie/national-news/property-price-crash-is-now-in-full-swing-1210873.html

MrVostro

mastermind2005 wrote: »

WE ARE now in a full-blown property crash, with new house sales down 4 per cent, second hand sales down between 15-20 per cent since the start of the year, house repossessions soaring and the government doing nothing to stop it.

http://www.independent.ie/national-news/property-price-crash-is-now-in-full-swing-1210873.html

If its in the indo it must be true

mastermind2005

mastermind2005 wrote: »

the government doing nothing to stop it.

http://www.independent.ie/national-news/property-price-crash-is-now-in-full-swing-1210873.html

baffles me that the paper think the govt should try hold prices up! God forbid property gets cheaper for people!! Couldnt have that could we!

Glenbhoy

There are a few simple facts about the economy. Somewhere along the line, in its previous term, this Government became fixated by the notion that the property market needed to cool off, that property prices needed to go down. Their primary stated reason for this aspiration was to make it easier for first-time buyers to get on the property ladder.

The wellbeing of first-time buyers, a tiny percentage of the population, was put way up there above the financial wellbeing of the rest of us. Apparently they were the first generation ever to find it hard to get on the property ladder -- as if --and everyone else's housing boom was at their expense. And, of course, while tut-tutting at the property boom, the Government was simultaneously profiting hugely from it.

http://www.independent.ie/opinion/analysis/get-yourself-up-bertie-and-get-back-to-work-1210786.html

Speaking of the S/Indo, I felt an uncontrollable rage when reading the above, unsurprisingly it is an extract from Brendan (what the fcuk am I doing writing economic analysis) O'Connor.

The_Conductor

mastermind2005 wrote:

WE ARE now in a full-blown property crash, with new house sales down 4 per cent, second hand sales down between 15-20 per cent since the start of the year, house repossessions soaring and the government doing nothing to stop it.

http://www.independent.ie/national-news/property-price-crash-is-now-in-full-swing-.html

And why should they stop it?
Historically, houses have been priced at 3.5-4 times the average industrial wage of the day. In current terms- that would have an average price for a new house (not apartment) of about 130-140k, not the 260-280k level they are currently at. A 50% fall in house prices wouldn't even be a slump- it would only bring prices back to regular levels.

People pleaded with politicians not to implement the Bacon report and to stoke the market with revised stamp duty for FTBs- now they are pleading with the government to wheel in another life-support machine, because the current one is failing.

I wish there were more developers like Mick Wallace around.......

nesf

smccarrick wrote: »

Historically, houses have been priced at 3.5-4 times the average industrial wage of the day. In current terms- that would have an average price for a new house (not apartment) of about 130-140k, not the 260-280k level they are currently at. A 50% fall in house prices wouldn't even be a slump- it would only bring prices back to regular levels.

Historical levels are not necessarily "regular levels". This country, for better or worse, is very different to that of 20 years ago, pointing to historical prices and saying "that's the true level" is pointless really. Interest rates, LTV rates etc etc are all quite different nowadays. The housing market of the 80s was a very different beast to the present housing market.

Dalfiatach

nesf wrote: »

Historical levels are not necessarily "regular levels". This country, for better or worse, is very different to that of 20 years ago, pointing to historical prices and saying "that's the true level" is pointless really. Interest rates, LTV rates etc etc are all quite different nowadays. The housing market of the 80s was a very different beast to the present housing market.

The only material difference is a massive flood of extremely cheap credit. Both very, very low interest rates; and the complete abandonment of prudent lending criteria by the banking system.

That's all our insane house prices are based on. As interest rates swing back towards normal levels and banks begin to quietly re-instate the lending criteria of the past, house prices will revert to the long-term mean. They always have in every other housing bubble ever, they'll do it here too. Ireland Is Not Different.

4X income or gross rental yields of 8-9%. Them's the fundamentals. That's where we're headed. The only question is whether it takes 2 years or 10. End of story, really.

iguana

smccarrick wrote: »

And why should they stop it?

Maybe even more importantly how could they?

nesf

Dalfiatach wrote: »

The only material difference is a massive flood of extremely cheap credit. Both very, very low interest rates; and the complete abandonment of prudent lending criteria by the banking system.

And we're going to return to the interest rate regime of the 80s?

Glenbhoy

nesf wrote: »

Historical levels are not necessarily "regular levels". This country, for better or worse, is very different to that of 20 years ago, pointing to historical prices and saying "that's the true level" is pointless really. Interest rates, LTV rates etc etc are all quite different nowadays. The housing market of the 80s was a very different beast to the present housing market.

True, I've always thought that the true value should be that which gives a rental return (pre-tax) slightly above the return gained in a bank deposit account, somewhere around 5% at present. So on a property giving a rental return of €1K per month, say a net annual profit of approx €10K, I would expect the property to be worth approx. 200K, this is obviously totally arbitrary. The property I currently live by this measurement should be worth approx. 320K, however it was sale agreed at 700K and more recently 600K within the past 18 months.

Victor

iguana wrote: »

Maybe even more importantly how could they?

Property tax. It would shove up the outgoings on property and people's repayment abilities would drop, reducing what the banks will loan, reducing the prices paid to sellers. It should have been introduced 5 years ago when interest rates headed for 2%.

nesf wrote: »

And we're going to return to the interest rate regime of the 80s?

And we're going to return to the interest rate regime of the early 00s?