Housing Bubble Bursting

Pa ElGrande

faceman wrote: »

Regard the repossessions figures i promised.
2001 - 25 homes repossessed
2006 - 50 homes

Might now sound crazy but its the applications for repossesion this year that are more worrying:
1 day alone in the last week of October of this year saw a court received 17 new repossession applications. Thats one court.
In september in one day's sitting relating to repossessions (heard in the high court), over a 2 hour period, 45 cases were put forward!

Unfortunately i dont have the stats yet and successful repossessions so far this year nor do i have the stats on applications in previous years but its food for thought.

Judgements are now at their highest in a decade
Sunday June 03 2007

"It's the fastest rate I've ever seen," according to James Treacy, managing director of credit bureau BusinessPro, which maintains over 1.5m consumer credit risk scores.

"At the beginning of the year I predicted that there would be an increase of 20 per cent in the amount of judgments filed in the courts for 2007.

"Unfortunately, I was wrong and they are even higher than forecast. So far this year they are up 29 per cent in volumes and 41 per cent in value, and this trend looks likely to increase further in 2008," he said. Treacy predicts that the number of judgements against people could rise a further 35 per cent in 2008.

In the first five months of this year some 1,580 judgements have been registered against people failing to pay back loans or bills. In the same period last year, just 1,330 judgements were recorded. Judgements totalling €31.7m have been registered this year, compared with just €22.7m over the first five months of 2006. Unregistered judgements have also vaulted from 5,605 in the first half of 2006, to 7,402 this year, with overall sums increasing from €28m up to €40.3m.

The upward trend started at the beginning of this year. The credit crunch hit in August, which probably accounts somewhat for the increased actions we are now seeing in court, especially from the sub-prime lenders. It will be no surprise that the higher risk customers are the first to fall, however the days of payment holidays and extending the mortgage from 25 to 30 years with the main banks will be coming to an end, as the blowout works it's way along the chain.

Glenbhoy

smccarrick wrote: »

The average carpenter or electrician over the past 3 years had a take home pay greater than a GP? (CSO figures)

Any figures? I honestly don't believe that, from the knowledge I have of the industries involved, I would guess the following salaries:
GP - By my reckoning any associate should be taking in over 100K p.a, that's assuming the standard 28hr week worked by GP's. A principal could be taking multiples of that.
Carpenter/spark - assuming they're working on sites and probably working 50 odd hours a week, I don't think they'd hit 100K. Certainly the guys I know were pulling in probably 65/70 legit and another few grand on top from nixers(I've been told).
Now, these figures are based on assumptions and anecdotal knowledge, but, I don't think they're too far off the mark. One should also bear in mind the differential in terms of hours worked.

SkepticOne

faceman wrote: »

I cant believe you still throw that 30% amount out there after all this time! Didnt you say the same last year when prices were 20% higher? Where do you get the 30% from????

Remember that your position last year was that anyone who believed prices would fall at all was delusional. You therefore probably have difficulty believing further reductions are possible. Personally I have become a lot more bearish these last few months.

SimpleSam06

Kipperhell wrote: »

That has got to be the strangest logic I have heard in a long time.

Alright so, I'll explain it to you. When you are lending out based on two incomes, you are lending out double or much more than the amount you would lend on one. That is a much higher risk. Also you are gambling on two people leading stable, happy, financially secure lives, not just one, which can be very difficult to quantify. Much higher risk means higher interest rates, or just don't do it.

Kipperhell wrote: »

As for children being born people manage and have been in other countries for years.

Hold on there, where are all these countries where it takes two people paying a massive slice of their income just to buy a home? And where is it written that house prices need to be just on the edge of affordability so that people need to pay so much towards them?

Kipperhell wrote: »

As home ownership is so high here I would say that is the thing that will change. Property could easily become a long term investment again while less people buy.

But with home ownership rates so high, how do you see it changing? And even with that, we have a massive overhang of construction, far more than we need at the moment.

A good long term investment, I think not.

gsxr1

smccarrick wrote: »

By my reckoning- prices will have to fall by in excess of 50% just to get back to historic norms (historic norms defined as 5 times the average industrial wage). The entire business model of the building trade has to be rethought. The average carpenter or electrician over the past 3 years had a take home pay greater than a GP? (CSO figures)

wow. I wish I was on that sort of money.

any chippy i know is making around 45 50k a year. Plus I would like to add that skilled site work was relatively badly paid till the housing boom. Now we are making a few more pound. (and working hard for it). Why not. every other skilled job is getting paid well. Why not the lad who lays heavy blocks or builds a roof.
Its about time i think.

Our wages are not the major factor of the price of houses. It is the developer who cleans up.

ionapaul

Flippers trying to get out of Adamstown?:

http://www.neighbours.ie/adamstown/showthread.php?t=138&page=2

Wouldn't fancy their chances of getting out without the loss of a couple of year's wages...I'd say you'd be lucky to get out of most units in Adamstown down only €50k if you bought last year or this year.

Do-more

Pa ElGrande wrote: »

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.

Looks like Desperate Dan isn't applying those lessons! From reports on his latest economic outlook.

"The supply response to the softening in house prices has been pronounced, with completions set to decline to 72,000 this year from over 88,000 in 2006, and to 58,000 in 2008," he said. "This is ultimately supportive of house prices. House building will not fall forever, and our expectations of a growth rebound in 2009 is partly due to a forecast upturn in completions in that year.

As for interest rates:

"Real incomes will also be supported by a sharp fall in headline inflation, which is forecast to average 2.7% from 4.8% in 2007. Discretionary spending may well be bolstered by ECB rate cuts - we anticipate two-quarter point reductions, starting in the second quarter of 2008".

Oh and not to be left out Comical Austin is quoted in today's Irish Times

Though the public is gloomy about the current state of their personal finances, they are, significantly, more optimistic about their own personal fortunes over the next year.

Mr Hughes said this modest but surprising improvement in consumer confidence in their own spending power reflected the growing belief that the worst news on interest rates may have passed after eight successive rises.

Kipperhell

SimpleSam06 wrote: »

Alright so, I'll explain it to you. When you are lending out based on two incomes, you are lending out double or much more than the amount you would lend on one. That is a much higher risk. Also you are gambling on two people leading stable, happy, financially secure lives, not just one, which can be very difficult to quantify. Much higher risk means higher interest rates, or just don't do it.

Yeah that is where it doesn't make sense. You are suggesting one person at risk is better than two. So say there is a 50% chance of loosing any job. That would suggest that a 50% chance of loosing all income is better than 25% (50%*50%). That is also forgetting about the fact if one person looses a job it is only a partial drop in income as opposed to a complete loss. So it is actually less of a risk

SimpleSam06 wrote: »

Hold on there, where are all these countries where it takes two people paying a massive slice of their income just to buy a home? And where is it written that house prices need to be just on the edge of affordability so that people need to pay so much towards them?

Name any developed western country where working woman are the norm and you have your answer. It goes to the household not just the property. Cheap house one place means expensive health insurance or some other expense we don't have. Generally Ireland as a whole broken down as a percentage of incomes and outgoings Ireland is in no way bizzare. What is odd is the high home-ownership rate. So I would say this is likely to change to line up with the rest of the world rather than Ireland return to it's isolated former ways.

SimpleSam06 wrote: »

But with home ownership rates so high, how do you see it changing? And even with that, we have a massive overhang of construction, far more than we need at the moment.

A good long term investment, I think not.

Let me think why would it change?
1) It has and is changing and gone down quite rapidly
2) A key point in the market has left many people who missed the boat. They are now older. It's a lot like having a kid at a certain point it is too late. These people will have to rent
3) Rent yield on property is just becoming attractive again for long term investment.

I the construction "overhang" is actually prime for a investment. Buy a block of flats at a knock down price and use it as a pension investment. Plus it isn't as bad as people make out.

What I do know is I don't know anybody in any financial trouble due to their house price. The repossession figures actually bear it out too. at 30% increase on last year given the massive increase in purchases over the last ten years. We are talking 15 extra and considering the massive sales a very very small percentage of the market.

Afuera

Desperate Dan wrote:

"Real incomes will also be supported by a sharp fall in headline inflation, which is forecast to average 2.7% from 4.8% in 2007. Discretionary spending may well be bolstered by ECB rate cuts - we anticipate two-quarter point reductions, starting in the second quarter of 2008".

Amazing. The target for inflation that the ECB has set is 2%, and even though the forecast is well above that Dan expects that cuts are just around the corner. If this is the best news that the banks can pull out at the moment then God help us all.

Afuera

Kipperhell wrote: »

I the construction "overhang" is actually prime for a investment. Buy a block of flats at a knock down price and use it as a pension investment. Plus it isn't as bad as people make out.

How do you figure that out? Daft have stated that they have about 100,000 properties for sale on their web site alone. The following document from IBF gives a very clear picture of the level of sales over the last few years:
http://www.ibf.ie/pdfs/ibf_pwc_mortgage_Q207.pdf

Removing top-ups and remortgages from those figures shows that there were 99,866 houses sold in the previous 12 months. Of those sales, 40,000 were listed as "movers" meaning that they might not be adding to overall demand (if they sold the property they moved out of).

By my calculations, there is more than a year's supply of housing for sale at this moment in time.

The_Conductor

ionapaul wrote: »

Flippers trying to get out of Adamstown?:

http://www.neighbours.ie/adamstown/showthread.php?t=138&page=2

Wouldn't fancy their chances of getting out without the loss of a couple of year's wages...I'd say you'd be lucky to get out of most units in Adamstown down only €50k if you bought last year or this year.

Either that- or the haunting sites are getting to them

Glenbhoy

Do-more wrote: »

House building will not fall forever, and our expectations of a growth rebound in 2009 is partly due to a forecast upturn in completions in that year.

And that forecast is based on what exactly?? It really is a truely ridiculous statement, it's the old catch 22 scenario, only this time it's working for Dan, he's discovered that when he increases the rate of house completions in his model, then the growth rate increases, thus if he makes the baseless assumption that house completions will rise in 2009, he sees that growth has risen too!!

Kipperhell

Afuera wrote: »

How do you figure that out? Daft have stated that they have about 100,000 properties for sale on their web site alone. The following document from IBF gives a very clear picture of the level of sales over the last few years:
http://www.ibf.ie/pdfs/ibf_pwc_mortgage_Q207.pdf

Removing top-ups and remortgages from those figures shows that there were 99,866 houses sold in the previous 12 months. Of those sales, 40,000 were listed as "movers" meaning that they might not be adding to overall demand (if they sold the property they moved out of).

By my calculations, there is more than a year's supply of housing for sale at this moment in time.

Why you would class "movers" as a non entity yet rely on the houses for sale just shows your bias. How did the movers sell their houses? Why not see them as positive force as people move up the property ladder? Lets use your figures too. 100,000 ads and 40,000 movers advertise that leaves 60,000 but wait it is 40,000 who got a top-up "mover" mortgage so they both advertise and were looking so that leaves only 20,000 houses not being catered for by the "movers". So if you are going to start raving on about figures and report at least be consistent and also look at the possibility it might means something other than your assumptions. What is stated above is no more or less ridiculous than how you used the figures

Advertisement websites are not what I think of a reliable source of information. Skimming the report it does not look bad or even particularly worrying. I won't loose money unless the market drops 80% AND I have to sell. Mean while it is less than 15% of my income forgetting about my wife.
There is very very little evidence of people being unable to afford their homes. If the market actually crashes there will be some problems but I doubt people will sell their homes and investors are still making money. There is a very small amount of people at risk directly on property. Construction jobs are different matter.

faceman

Pa ElGrande wrote: »

The upward trend started at the beginning of this year. The credit crunch hit in August, which probably accounts somewhat for the increased actions we are now seeing in court, especially from the sub-prime lenders. It will be no surprise that the higher risk customers are the first to fall, however the days of payment holidays and extending the mortgage from 25 to 30 years with the main banks will be coming to an end, as the blowout works it's way along the chain.

Careful not to associate the rise in judgements as representative of the rise in repossessions. Court judgements range from people not paying their mobile bill (of which the mobile operators register the highest volume of debts in ireland) to people not paying the revenue.

SkepticOne wrote: »

Remember that your position last year was that anyone who believed prices would fall at all was delusional. You therefore probably have difficulty believing further reductions are possible. Personally I have become a lot more bearish these last few months.

Thats incorrect my good man. I did not expect such a massive fall in prices, which across the board we still havent seen yet. I did expect it to be a temporary measure if and when prices did fall. Defining what temporary means is a different story!

either way where is your 30% derived from?

Afuera

Kipperhell wrote: »

Why you would class "movers" as a non entity yet rely on the houses for sale just shows your bias. How did the movers sell their houses? Why not see them as positive force as people move up the property ladder?

Calling them a "non-entity" is a bit strong... I said they may not be adding to the overall demand for property. It's likely that they will have taken one property from the market when they bought and added one to the market when they sold so it's a zero-sum game. This is bad for developers as the new stock they are creating generally does not get soaked up by movers.

Kipperhell wrote: »

100,000 ads and 40,000 movers advertise that leaves 60,000 but wait it is 40,000 who got a top-up "mover" mortgage so they both advertise and were looking so that leaves only 20,000 houses not being catered for by the "movers". So if you are going to start raving on about figures and report at least be consistent and also look at the possibility it might means something other than your assumptions. What is stated above is no more or less ridiculous than how you used the figures

I'm sorry this makes no sense to me whatsoever. I've no idea what your point is here.

The fact is that in the last 12 months of that report just less than 100,000 properties were sold. Daft have already said in public that they currently have about 100,000 properties for sale through their site. That's a years supply of property lying there waiting to be bought, TODAY!

In case I need to spell it out for you further... this is not a healthy situation for a market to reach! The overhang that you said "isn't as bad as people make out" is probably a lot worse than most realize.

SimpleSam06

Kipperhell wrote: »

You are suggesting one person at risk is better than two.

You're missing the point, which is that you can't partially make your mortgage payments: you either make them in full, or you are in default. Also, now the bank is out of pocket for a double jumbo mortgage. Its harder to quantify the risk for two people because these aren't sober businessmen going into it with a thirty year plan and milestones, these are ordinary joes in a relationship. Hand that to an actuary and see what he says. Given the trend in divorce in Ireland, yes, I'd call that a higher risk, its not as simple as 50/25.

I'll tell you what the last nail in the coffin of double jumbo mortgages will be though; when those bright sparks in the bank realise that they will get many more mortgages if they don't exclude single buyers. What they lose in value they will more than make up in volume, which has usually been the case in most business types.

You can get away with it (barely) in a boom with low interest rates, but on the way down you may as well bite the bullet.

Kipperhell wrote: »

Cheap house one place means expensive health insurance or some other expense we don't have. Generally Ireland as a whole broken down as a percentage of incomes and outgoings Ireland is in no way bizzare.

What sort of voodoo economics is this?

Kipperhell wrote: »

Let me think why would it change?

Others have handled that point I think...

BendiBus

250 expected to lose their homes over mortgage arrears

http://www.rte.ie/news/2007/1107/9news_av.html?2306805,null,230

SkepticOne

faceman wrote: »

either way where is your 30% derived from?

Since you consistantly argued against the sort of downturn we are seeing now until it started happening (please correct me if I'm wrong) why do you feel there won't be a further 30% correction.

Here's what you believed this time last year: " just for the record, here is my theory (which is all any of us have at the end of the day). House price inflation will slowly correct itself (note, assuming the government does nothing in the budget to hinder property investment) but will not get in a position of negative growth in most of the main business areas in ireland. i.e. dublin, cork, galway. in a few years time i expect house price inflation to be at a level of 1-3% p.a. I dont predict doom and gloom that others predict. What is my theory based on? In summary (and its already been debated before and no one won so dont start again)"

You believed that the worst that would happen would be a correction in house price inflation which would not turn negative in the larger markets.

gsxr1

I heard that first time buyers where falling over them selves to buy a new block of 2 beds in clane this week. lining up over night.

the developer jacked the price up when he saw the demand.

maybe things are not as bad as some of you predict.

ambro25

gsxr1 wrote: »

the developer jacked the price up when he saw the demand.

You don't precise whether the FTB then told the dev to shove it until it tickled his tonsils. See, there's the root problem with the property market in this country: too many people forego rational thinking when it comes to property, and just have to buy.

Glenbhoy

gsxr1 wrote: »

I heard that first time buyers where falling over them selves to buy a new block of 2 beds in clane this week. lining up over night.

the developer jacked the price up when he saw the demand.

maybe things are not as bad as some of you predict.

Given the size and location, they're welcome to them.

SimpleSam06

ambro25 wrote: »

too many people forego rational thinking when it comes to property, and just have to buy.

You have to admit though, they are facing a pretty slick marketing machine most of the time. Among the standard sales techniques, that REAs are all too familiar with: the use of anxiety to sell, also known as "u'll be livin in a carrivan with teh kanckers".

Scottish

I've sale agreed my house, and I am looking for a new one at the moment. Most EAs are falling over themselves to talk to me.

So heres some anecdotal evidence. I have seen several properties in the past few weeks advertised at over 900k. Two thirds of them have come back to me after I have viewed properties (and said they were over valued) and told me that the vendors will accept between 800-850k. In most instances, the real, unadvertised price has been about 100k less. And this is in south county dublin.

robd

Scottish wrote: »

I've sale agreed my house, and I am looking for a new one at the moment. Most EAs are falling over themselves to talk to me.

So heres some anecdotal evidence. I have seen several properties in the past few weeks advertised at over 900k. Two thirds of them have come back to me after I have viewed properties (and said they were over valued) and told me that the vendors will accept between 800-850k. In most instances, the real, unadvertised price has been about 100k less. And this is in south county dublin.

Interesting. In Sales/Marketing terms adding 100k to the price as above is know as Discount Loading. Basically add the discount on to the original price knowing that the customer will look for that approx amount to be discounted. Very common in large corporate sales where there is only 1 customer. But why is the EA revealing his/her hand.

It certainly makes sense when customers are scarce and the chance of a bidding war very low to try to sell in this manner. But again, why is the EA revealing his/her hand unless they are really looking for 750k.

Scottish

robd wrote: »

Interesting. In Sales/Marketing terms adding 100k to the price as above is know as Discount Loading. Basically add the discount on to the original price knowing that the customer will look for that approx amount to be discounted. Very common in large corporate sales where there is only 1 customer. But why is the EA revealing his/her hand.

It certainly makes sense when customers are scarce and the chance of a bidding war very low to try to sell in this manner. But again, why is the EA revealing his/her hand unless they are really looking for 750k.

Well, I don't think they are showing their hand - rather there seems to be something of a game at the moment were valuations are artificially high to give an impression of stability. Websites like thepropertypin only see half of the reality. Even properties that appear not to be falling in price have, in my opinion, a marketed price and a real price. As one EA told me, if its been on for more than 3 months, offer at least 10% less.

I don't think you would yet find a 3-4 bed house in the nicer parts of SCD for under 800k. But its getting close. TBH, I can't believe that amount of family homes there are in places like dalkey, killiney, monkstown etc. And as for Blackrock.....

As it gets nearer to the end of the season, panic is really going to set in for some people. If you could be arsed (and you can afford it), buying in December/Jan might be a good thing to do.

There are still a lot of people looking at the moment, or there certainly seem to be when I turn up for viewings, but offers are few and far between. The problem for EAs and vendors is that no one knows where the bottom is - if 3 bedroom semi-ds in SCD hit sub-800 is that the bottom?

But when you go and see something that is 15 minutes from the DART, has a big garden, needs a little modernising with 4 beds for 925k, and you get a call a week later saying that the vendor will consider offers of around 800k, then things are getting a bit bleak.

Colonel Sanders

see bottom paragraph of this article:

http://www.rte.ie/business/2007/1108/inflation.html

HICP up to 3% from 2.9%. Rate cuts not likely in the next few months at least, in fact another .25% rise surely can't be ruled out (remains unlikely tho).

I think home owners are very lucky that there's a credit crunch and a weak dollar!!!!

Glenbhoy

Scottish wrote: »

As it gets nearer to the end of the season, panic is really going to set in for some people. If you could be arsed (and you can afford it), buying in December/Jan might be a good thing to do.

There are still a lot of people looking at the moment, or there certainly seem to be when I turn up for viewings, but offers are few and far between. The problem for EAs and vendors is that no one knows where the bottom is - if 3 bedroom semi-ds in SCD hit sub-800 is that the bottom?

I personally think it'd be much too early to be rushing into buying, look at it logically, a 3 bed semi in SCD for 775K, assume that the buyer has say 200K in equity, 70K will go in stamp duty leaving 130K of a deposit, and borrowings of 645K. Repayments on a 645K mortgage over 30 years at current interest rates are €3,400 per month, assuming that the bank allows 50% combined income affordabilty, the purchaser/s will require disposable income of 6,800 per month, this corresponds roughly to gross combined income of 120K p.a.

Is it worth it for a 3 bedroom semi in blackrock??

Keith C

Scottish wrote: »

Well, I don't think they are showing their hand - rather there seems to be something of a game at the moment were valuations are artificially high to give an impression of stability. Websites like thepropertypin only see half of the reality. Even properties that appear not to be falling in price have, in my opinion, a marketed price and a real price. As one EA told me, if its been on for more than 3 months, offer at least 10% less.

I don't think you would yet find a 3-4 bed house in the nicer parts of SCD for under 800k. But its getting close. TBH, I can't believe that amount of family homes there are in places like dalkey, killiney, monkstown etc. And as for Blackrock.....

As it gets nearer to the end of the season, panic is really going to set in for some people. If you could be arsed (and you can afford it), buying in December/Jan might be a good thing to do.

There are still a lot of people looking at the moment, or there certainly seem to be when I turn up for viewings, but offers are few and far between. The problem for EAs and vendors is that no one knows where the bottom is - if 3 bedroom semi-ds in SCD hit sub-800 is that the bottom?

But when you go and see something that is 15 minutes from the DART, has a big garden, needs a little modernising with 4 beds for 925k, and you get a call a week later saying that the vendor will consider offers of around 800k, then things are getting a bit bleak.

Be careful when agreeing a price, theres a thread either here or AAM (cant remember) where someone agreed a price & the mortgage valuation (from the bank) of the house was €100k less, so the buyer was left with €100k diff to come up with themselves.

Scottish

Keith C wrote: »

Be careful when agreeing a price, theres a thread either here or AAM (cant remember) where someone agreed a price & the mortgage valuation (from the bank) of the house was €100k less, so the buyer was left with €100k diff to come up with themselves.

How on earth can you avoid this?? Can you make an offer subject to bank valuation?

robd

Scottish wrote: »

How on earth can you avoid this?? Can you make an offer subject to bank valuation?

Any offer that you make on a house is always subject to survey and mortgage approval. If the bank sees the valuation being less then you obviously don't get mortgage approval for what you need and you pull out.

Anyway, paying a deposit to an EA means nothing. The vendor or buyer can pull out at any stage for any reason. Paying the contract deposit is a different matter. Contracts should only ever be exchanged by the buyers solicitor and contract deposit paid when full mortgage approval is received.