Housing Bubble Bursting

Scottish

robd wrote: »

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.

thanks - I understand all that. But, unless I'm mistaken, the bank doesn't usually do its valuation until after the loan has been approved in principal? If this sort of stuff is happening, then it has me worried.

miju

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.

what development would this be? my other halfs brother lives in clane and they've been trying to offload their property for the last 6 months so they'd be interested in some good news

gsxr1

miju wrote: »

what development would this be? my other halfs brother lives in clane and they've been trying to offload their property for the last 6 months so they'd be interested in some good news

Yesterday that story was gosip.

sorry.

I heard the real story today.


The properties where advertised at 285k .

One day before the houses where released the developer DROPPED the price to 245k.

That's why they where falling over themselves to get in the door.


Seems to me like slick advertising to me. The developer knew what he wanted then dropped them to that price. So every one thinks they are getting a good deal.


Dont know where in Clane. but Clane is not to big.

Firetrap

God. I never thought I'd associate property developers with sharp practice :rolleyes:

faceman

SkepticOne wrote: »

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.

yep thats correct i said that. However im probably the only original optimistic poster who came back to admit he got it wrong and who is continue to post his view of the market and economy.

Either way you have throw a figure out there of 30%. im not asking you to justify it to the cent, but i am asking why you have come up with that conclusion. There must be some logic behind it?

i had a very interesting discussion yesterday with a respected guru who gave me his insight into the property market and economic downturn. He has connections in all industries and i must say his opinion is very thought out and logical. He believes things are alot worse than they even the papers are saying!

anyway, i did some further investigation on home repossessions. I mentioned in one of my stats about a 2 hour session hearing 45 cases. (its seems the indo reported some of these stats too) Its transpires that the reason the 45 cases were in 2 hours, is that there is now a dedicated high court session on certain mondays that hears repossession cases only. (therefore the stat looks more worse than it is)

however we will probably find that the banks will play down the repossession thing for as long as they can. there are economists who believe that the amounts outstanding to banks by property developers or speculators is equals to the amounts held on deposits on banks! Now thats a worrying statistic!

look at it like this. economic downturn. house prices go down. punters are in negative equity. not as many people take out mortgages. Well its not really that big a deal as those who can afford it will continue to pay their mortgage. Booms and slumps are cyclical so the banks will have a bad debt expectation. they can repossess homeowner's properties if they default. however think about this. all the lending the banks have given to property developers and speculators over the past few years. its got to be massive. what happens to those companies in a downturn? they either go bust or the directors fold the business. What happens to the debts outstanding? gone!

Think about northern rock. no bank tried to bail them out. no bank offered them a loan to get them out of their situation. the banks are probably alot more scared than they are letting on. this affects us all whether you have a house or not. your money is on deposit with a bank. they have given loans to risky companies on the back of that dosh... scary...

aniascor

faceman wrote: »

Think about northern rock. no bank tried to bail them out. no bank offered them a loan to get them out of their situation. the banks are probably alot more scared than they are letting on. this affects us all whether you have a house or not. your money is on deposit with a bank. they have given loans to risky companies on the back of that dosh... scary...

Yes, and now the banks are trying to convince us that cash and cheques are bad, and we should move away from a cash economy to a completely "virtual transaction" economy. Wonder where all the money would be all the time then?:rolleyes:

gurramok

And hence the bank 'economists' talk up the economy to hide the bad news and in most cases the truth.

Regarding deposits and the unknown about banks liabilities, you should only hold no more than 22k in any Irish bank because by law you'll only get back 90% max of that(20k) if your bank goes under.

Regarding repossesions, one of the banks 'spokesmen' did say a while back that about 80,000 or was it 120,000 mortgage holders are feeling the pinch, whether thats couples or number of people i do not know, don't have link for it but it was publicised a few months ago maybe by Austin himself.

The_Conductor

gurramok wrote: »

Regarding repossesions, one of the banks 'spokesmen' did say a while back that about 80,000 or was it 120,000 mortgage holders are feeling the pinch.

That was quoted in the Indo about 7-8 weeks back, and it was mortgages, not people (i.e. couples would bump this figure up even further). I'll see if I can find the article.

S.

Glenbhoy

Report's 2008 forecast lowest yet
Friday, 9 November 2007 11:34
A new report from Goodbody Stockbrokers says house prices will fall by 8% next year after a 5% decline this year.

Its economist Dermot O'Leary has also produced the lowest forecast yet for economic growth for 2008. He says gross domestic product will expand by just 2.5% next year after a 4.9% rate this year.

Mr O'Leary says builders are responding more quickly than expected to the housing slowdown. As a result, he now expects just 50,000 homes to be completed next year, 10,000 lower than his previous forecast.

AdvertisementBut the economist believes that growth can rebound to 3% in 2009 as the housing market stabilises and Government spending on the National Development plan helps the rest of the construction sector.

Mr O'Leary's report also predicts that consumer spending growth will fall back to 3%% next year from 6.5% this year, mainly due to slower employment growth.

http://www.rte.ie/business/2007/1109/economy.html

faceman

gurramok wrote: »

And hence the bank 'economists' talk up the economy to hide the bad news and in most cases the truth.

Regarding deposits and the unknown about banks liabilities, you should only hold no more than 22k in any Irish bank because by law you'll only get back 90% max of that(20k) if your bank goes under.

interesting, a spokesperson on newstalk earlier this year said it was only 50% that was covered but i cant remember if he mentioned the or thresholds.

prior to this i had always thought it was 100% upto 100k

gurramok

faceman wrote: »

interesting, a spokesperson on newstalk earlier this year said it was only 50% that was covered but i cant remember if he mentioned the or thresholds.

prior to this i had always thought it was 100% upto 100k

Nope, not in good ole Ireland.

Its 20k max payable by the Central Bank.

As i mentioned in another thread, only the likes of Rabobank, NIB and NR are covered for much higher amounts by foreign central banks to Irish customers, at least double of what the Irish central bank covers.

faceman

faceman wrote: »

yep thats correct i said that. However im probably the only original optimistic poster who came back to admit he got it wrong and who is continue to post his view of the market and economy.

Nobody gets things right all the time, welcome back, your contributions are appreciated and valued.

SkepticOne

faceman wrote: »

Either way you have throw a figure out there of 30%. im not asking you to justify it to the cent, but i am asking why you have come up with that conclusion. There must be some logic behind it?

I'm quite happy to come up with my reasoning behind that in summary form.

1. Massive build up in inventory.
2. Despite cutbacks in building, if optimistic forecasts are correct then 50,000 houses a year will still be produced.
3. If optimistic forecasts on building are incorrect, then massive unemployment and recession for the economy.
4. Vast numbers of empties.
5. Historically high multiple of incomes being lent.
6. Still very low yield (~4%) for investers.
7. Credit squeeze.
8. Inflationary fears in Germany leading to higher interest rates.
9. Build up in rental inventory.
10. 40% of purchasers in 2006 were investors.

None of these reasons on their own would be significant but combined they add up to substantial falls which we have not seen yet.

I think the reason that builder have not yet lowered prices substantially is that they themselves have significant personal holdings and they want to shift those first.

If you believe that most of the falls have already happened, I would be interested in hearing your reasons.

Nobody can tell exactly how much prices will fall, but I believe they have to be in the region of 30% or more based on similar falls after other bubbles. I think yields have to rise to about 7 or 8 percent before investors start coming back into the market.

Gurgle

SkepticOne wrote:

Nobody can tell exactly how much prices will fall, but I believe they have to be in the region of 30% or more based on similar falls after other bubbles

I expect ~10% based on guesswork.

SkepticOne wrote: »

I think yields have to rise to about 7 or 8 percent before investors start coming back into the market.

Rental yields higher than lending rates?
Cold day in hell tbh.

Investors are backing away from the market now due to uncertainty about the future of housing prices. When the market levels off, they'll be back.

ionapaul

Irish 'investors' haven't cared about rental yields ('wats dat?') in manys a year! Long may they continue to subsidise their tenants lives.

arctictree

Gurgle wrote: »

Rental yields higher than lending rates?
Cold day in hell tbh.

Not as far fetched as you might think. In a stagnant property market, it makes more sense (as an investor) to have your money sitting in a high yielding deposit account. Only when the rental return goes a couple of percentage points above the deposit rates is it worth the hassle getting back into property.

SkepticOne

Making no assumptions about future interest rates or house prices, currently the cost of funding an investment is 1% higher that the rental yield. So without making any assumptions or even taking into account the hassles of being a landlord you are making a loss. The only possible reasons for getting in now is if you believe there's going to be significant capital appreciation but the fundamental factors that might lead to that capital appreciation aren't there.

chump

faceman wrote: »

yep thats correct i said that. However im probably the only original optimistic poster who came back to admit he got it wrong and who is continue to post his view of the market and economy.

I was probably one of the posters who had a few duels with you up to a year ago. It is refreshing and honest of you to continue posting here and the above post deserves a nod of respect.

The rest of that post makes interesting reading too.

Personally, I think we are on an economic precipice in Ireland at the minute. However bad the wider global economy gets it (particular eyes on the US) Ireland will be hit harder, much harder.

Can anyone tell me what's involved with shorting irish banking stocks?

Kipperhell

SkepticOne wrote: »

Making no assumptions about future interest rates or house prices, currently the cost of funding an investment is 1% higher that the rental yield. So without making any assumptions or even taking into account the hassles of being a landlord you are making a loss. The only possible reasons for getting in now is if you believe there's going to be significant capital appreciation but the fundamental factors that might lead to that capital appreciation aren't there.

That is not true. There is no mention of inflation,stamp duty or any other costs of entering and exiting the property market. It also assumes short term investment. Property should never been seen as a short term investment. It also neglects aspects of owning the property at the end of the mortgage. If you only pay 20% of the mortgage over time and you own the house at the end you will make a better return than if you contribute the same amount of money into a savings account.
Of course at the end of the mortgage your income from the property is most likely to make a hell of a lot more than the money you could have saved.

very simply
€200 subsidising a rental income would amount to €60,000 after 20 years

say the property is worth €400,000. For the 60k you have something worth that

Now you can plug in compound interest of the money and add property inflation and even capital gains but you still end up with a greater asset than your money would normally buy. Now in 20 years property prices could keep going down and you could be right, that still doesn't make what you said true.

People often misunderstand how to use the rent yield figure and forget how personal rental yield is what you should use when working out the figures and you don't just watch the market. The banks money is considered part of the rent yield so 1% of 100 is more than 2% of 20. So a low rental yield can make a lot more money than a higher rate for the actual money. You can't sell the house and make more money in a savings account because you get a better rate of interest because you don't have the value of the house to begin with.

Property is a good investment if you know what you are doing and you see growth in what you are buying. Hoping the market will increase your asset just by being in it is a bad way to look at investment in property. I don't actually know people who really expect this but many people here seem to think that is the only way property investors work.

There are a lot of people out there with very small mortgages that can afford to pay a very high mortgage. I pay half of some of my friends' mortgages and others pay less than half of what I pay. They could subsidise a loss making rent in order to buy a second property and still pay less than I do on one property.

It may be seen as subsidising somebody else's rent but it doesn't mean it is a bad investment. When you could make a healthy profit on renting in the 80s lots of people used to say property investment was a bad idea 20-30 years later that has been proven to be wrong. In 20-30 years are you saying that property will be worth less than small proportion of it's value now? I don't know but if the population decreases it could happen I guess

SimpleSam06

chump wrote: »

Can anyone tell me what's involved with shorting irish banking stocks?

Shorting stocks:

To profit from the stock price going down, short sellers can borrow a security and sell it, expecting that it will decrease in value so that they can buy it back at a lower price and keep the difference. The short seller owes his broker, who usually in turn has borrowed the shares from some other investor who is holding his shares long; the broker itself seldom actually purchases the shares to lend to the short seller.

The lender of the shares does not lose the right to sell the shares. While the shares are lent, two investors have a right to sell the same shares. This has happened in 2007 in the UK with dramatic results, when shares in a Bank, Northern Rock, were £12 in February 2007 and £2 in September. Short sellers made over £1 billion in about seven months.

Tbh I'm not at all sure that the exposure of the Irish banks in property warrants putting your life savings on a scheme like this however. I seem to recall reading in a recent AIB report that they only had 6% of their assets in property, couldn't be bothered looking it up now though. Even the Northern Rock situation was just a bridging loan that got out of hand.

SimpleSam06

Kipperhell wrote: »

very simply
€200 subsidising a rental income would amount to €60,000 after 20 years

say the property is worth €400,000. For the 60k you have something worth that

But you still had to pay out your initial 400k and 60k more by your own figures. The question to be asked is, could you have put that 400k to better use over a 20 year lifespan? You can't just shrug it off by saying "tenants will cover it", when there are other alternatives. Don't forget, if house prices rise at less than inflation (around 5%), you haven't made any real gains.

Also you are making the assumption that your house will be fully occupied all year round - most landlords take it as given that there will be 10-15% vacancy rate. Thats one to two months of the year where you are carrying the full weight of the mortgage + interest. And this makes the assumption that your time has no value - being a landlord can be a taxing job sometimes.

One of the predictions of the property bust theory is that when the houses don't sell, many people will be putting them on the market to rent; what happens to your cosy €200 a month when

• You can't get people to rent your house
• The people you can get are paying much reduced rents

Kipperhell

SimpleSam06 wrote: »

But you still had to pay out your initial 400k and 60k more by your own figures. The question to be asked is, could you have put that 400k to better use over a 20 year lifespan? You can't just shrug it off by saying "tenants will cover it", when there are other alternatives. Don't forget, if house prices rise at less than inflation (around 5%), you haven't made any real gains.

A
The point is you don't put in the initial 400k to buy a house you get a mortgage. You don't have 400k you only have €200 a month which amounts to 60k over 20 years. You do include the income that you get from the property to work out your own investment as it income you would get with out doing the investment.. I am not suggesting you buy a property and sit on it. You only pay a portion of mortgage over the lifespan hence you get a property for less than it would have cost you to buy and there is a good possibility of asset appreciation.

SimpleSam06 wrote: »

Also you are making the assumption that your house will be fully occupied all year round - most landlords take it as given that there will be 10-15% vacancy rate. Thats one to two months of the year where you are carrying the full weight of the mortgage + interest. And this makes the assumption that your time has no value - being a landlord can be a taxing job sometimes.

One of the predictions of the property bust theory is that when the houses don't sell, many people will be putting them on the market to rent; what happens to your cosy €200 a month when

• You can't get people to rent your house
• The people you can get are paying much reduced rents

I just used simple maths rather than to go into ever detail. I stated no inflation in house prices or rent. In the 30 years my family have rented property the longest vacancy has been 2 weeks. That 5 separate places around Dublin. €200 could easily cover the shortfall but I would say that over time €200 will have less value and rents will within 20 years go up cancelling out any shortfall.

To be clear I was just pointing out that putting your money in a high yield account with a higher rate of interest to rental yield does not mean you get more money. There are risks with property investment it isn't for everybody but what was stated was wrong. A lot of forecasts see people in their tens and 20s will not be able to buy as the assets are held by the older generation. People are still working on the principle that everybody will have to own and that people who own more than one property will get some kind of justice. People marry later, stay single etc... all situations that make it less likely to buy.
The basics are if you think you can invest 200 a month in order for it amount to 400k in 20 years let me know. Sure try and do it with historical data but don't forget what you need to do is work out 10% or rent 20 years ago on a property and see how that would compare against the value of the property now. If you could track it, it would be interesting at what point the investment was over taken.

Gurgle

Kipperhell wrote: »

In 20-30 years are you saying that property will be worth less than small proportion of it's value now? I don't know but if the population decreases it could happen I guess

IMO, real investors are thinking in terms of decades while bandwagon investors are thinking in terms of 6 months to a couple of years. In the long term property investment is as safe as houses.

Those who bought last year planning to sell this year and pocket the profits are now faced with a sticky choice between cutting their losses or putting more money they don't have into it and holding the property for several years at least. Neither option is attractive but thats the risk you take with these get rich quick schemes.

Calina

You mean speculators, not investors.

nesf

Calina wrote: »

You mean speculators, not investors.

Usually the only sure way of distinguishing between them is ex post.

Kipperhell

Calina wrote: »

You mean speculators, not investors.

The point is they are investors as they aren't speculating when they plan to own the property in the future. It isn't really speculative to say in 20 years the value of a property will at least be the same. If you use your logic anywhere you put your money is speculative.

Pa ElGrande

Kipperhell wrote: »

The point is they are investors as they aren't speculating when they plan to own the property in the future. It isn't really speculative to say in 20 years the value of a property will at least be the same. If you use your logic anywhere you put your money is speculative.

Interestingly this subject came up at the start of the thread (must be nearly a year ago now) in reply to Conor74. (Wonder how he got on?)

Speculation versus Investment

To gain by speculation, a speculator must be able to foresee price changes. Since price changes coincide with changes in marginal opinion, he must in the last analysis be able to foresee changes in opinion. Successful speculation consists in just this. It requires no knowledge of intrinsic value as such, but only of what people are going to believe intrinsic value to be. Now opinion, when it changes, need not change for the right; it may change for the wrong, and the probability of a change for the wrong is about as great as of a change for the right. If opinion were not found in part on current dividends and changes therein, there would be nothing to prevent price and value from drifting miles apart.

How to foretell changes in opinion is the heart of the problem of speculation, just as how to foretell changes in dividends is the heart of the problem of investment.

SkepticOne

Kipperhell wrote: »

A
The point is you don't put in the initial 400k to buy a house you get a mortgage. You don't have 400k you only have €200 a month which amounts to 60k over 20 years. You do include the income that you get from the property to work out your own investment as it income you would get with out doing the investment..

I think people overcomplicate the issue when it comes to borrowing to invest. An investment in property is just like any other business. If you are going to invest in something - anything - then you will want the return from that investment to be greater than the cost of those funds over the period of the investment. That is the bottom line.

It does not take a genius to see that if you are getting a yield of 4% on a property but you are paying greater than 4% on interest alone, then you are making a loss. Just because we are also making capital repayments on top of interest payments doesn't change this basic equation.

Gurgle

SkepticOne wrote: »

you will want the return from that investment to be greater than the cost of those funds over the period of the investment....
if you are getting a yield of 4% on a property but you are paying greater than 4% on interest alone, then you are making a loss.

But you're not looking at the return over the period of the investment, you're looking at the return at the beginning only. An investment which starts showing a profit from day one is what everone wants, so it tends to drive up the cost of investing

SkepticOne

Gurgle wrote: »

But you're not looking at the return over the period of the investment, you're looking at the return at the beginning only.

True, interest rates could rise further increasing the cost of funds or more unsold properties could be put out to rent lowering the yield and making the investment proposition much worse than it currently is but I am trying to avoid speculation about future events and I'm trying to give the benefit of the doubt to those who think property is a great investment at present.