Housing Bubble Bursting

gurramok

blast05 wrote: »

Where have they been getting it up to now ? Most young professional couples out of college would be on say 70K between them. A multiple of 4 times their income which would still be easily available in the current climate plus a few savings gives them 300K to but an apartment or even a 3 bed semi in west Dublin.
Look, we all know FF. If by next summer the property market hasn't started moving again then they will do something. It will be dressed as "revenue from property transactions has dropped dramatically so we are halfing stamp duty to stimulate activity with the expectation that despite the reduction, there will be a nett increase in revenue to the government." ... and this would be true

Your missing something here.

All those 30,000 couples are not good earning professionals, they ain't all on 35kpa each. Statistics from the budget say that 66% of the workforce earn under 34kpa.
FTB's are generally young, young people don't earn big bucks until they step up the job ladder and that takes a few years.

Then you have to assume that all 70,000 want to buy in the first place and buy together as couples(bye bye single folks) and don't have car/personal loans which reduce mortgage amounts and have significant savings(30k+)!

ie..a longggg shot

Anyway, FF can't do anything, they are screwed no matter what they do. Builders cut back, tax revenue nosedives. FF can give more incentives if they like, it won't make any difference as prices are sky high for FTB's.

Affordability is the issue for FTB's, not stamp duty.

It's the FTB who largely cannot afford to enter the 'ladder', they've being holding the hold housing pyramid up all along till Sept '06.

If FTB's cannot buy, no-one on the 'second' and subsequent rungs of the ladder can sell to each other hence crash.

domania

No one is factoring in the simple fact that there is already an entire years supply of housing available currently on the market according to Davy Stockbrokers. Even with a slowdown in new house output next year there is still over supply on the market. With speculators now completely out of the market and trader uppers unable to move the market has stagnated.

Added to the fact that according to the census in 2006 over 250,000 homes are unocuppied (i know there are holiday home etc in this), it is obvious that something is seriously wrong. Anyone who thinks otherwise is living in denial.

blast05

The only reason I can think of for builders to keep prices artificially high is so that they can get rid of their own portfolio of investment properties. But once they have shifted these it is not in their interest to maintain high prices indefinitely.

All of the big big builders needs prices to be high as they have paid huge money for lands banks on the edges of all major towns and cities. These really big guys can afford to sit on these landbanks indefinitely, until such time as the current excess housing stock has been more or less used up cos ultimately in the long term they still hold control imho.

I'm not denying there are big problems in the property market but i still think it will start moving in the other direction within a year - it may be 2, it may even be 3 but ultimately it will happen cos of the power the big builders have.

robd

SkepticOne wrote: »

I think an important question here is whether builders have stopped building to maintain prices or whether they've stopped because people have simply stopped buying their output.

The slowdown in construction is not due to the developers being canny or savvy. They're not cutting supply because they smartly predict lower demand and want to maintain prices. Development is a hugely leveraged business. 80% finance on sites and 100% finance on builds. Banks had no problem advancing 100% finance when the builders were selling each phase before they turned a sod. Purchase contracts were signed so the risk could be completely removed from the banks books. Anglo, for example, were well know to offer 100% finance (including advancing of deposit) to their clients on developments that they were also financing. A conflict of interest maybe but common practice. Banks continue to call the shots.

Also at the moment heavier marketing and incentives are being used to try to sell the properties. Basic marketing believe is to never ever drop your price. Only when this fails (prob around April-May) will the accountants and financiers kick in and demand heavy discounting.

Advance to today. Who in their right mind would sign contracts to purchase an overpriced badly built shoebox in the middle of nowhere. Tax incentives and investors are gone. Only first time buyers left. 100% finance is no longer available. The new build market is now first time buyers who can only borrow 92%. Given the average price of a house is still circa 300k, that's a lot they need to borrow on a small wage. I suspect there is also a shortage of FTB's due to the market sucking them in earlier than normal with 100% mortgages and silly salary multiples when interest rates were lower. Basically, developers can no longer get the finance or the buyers. By late 2008 or early 2009 the better capitalized developers should be building bigger, higher quality houses in better areas for less money. 40k per year sounds like a reasonable rate provided the excess has been bulldozed or sold. I think 300k for a decent 100-120sqm terrace (not a townhouse or duplex) wouldn't be altogether unreasonable for somewhere like Balgriffen. I see the natural price of a Dublin city centre 2 bed 85sqm apartment at circa 280k. I don't see a need for all that duplex crap over the next 10 years.

Incidentally the general text book believe on monetary policy is that it takes 18 months for rate changes to fully find there way into the market. No surprise the Irish property market tanked circa May 2007, 18 months after the first increase in December 2005. Nothing to do with stamp duty. Only 4 of the 8 interest rate increases have fully found there way into the market to date. It will be circa December 2008 when the full 4% ECB rate is felt. A 0.5% interest rate change up or down is unlikely to have much affect on the Irish market. Certainly Austin's predicted reduction in rates in June 2008 isn't something to look forward to as it will do little to the residential market and will be due to bad economic figures. If rates are reduced it will be because the US is in recession and Europe is slipping that way. Ireland doesn't affect rate decisions but we're likely to be in deep trouble due to dollar decline, US recession, and negative GDP growth (oh wait that's a recession) due to complete collapse in residential construction, followed by a collapse in the still hyped commercial sector. That leaves infrastructure but recent reports are suggesting a market increase in bids for projects which will make things tight but at least we the taxpayers will be finally getting some value for money.

On the positive side, now the the mis-investment in overpriced property from Dublin to Dubai has stopped hopefully investment in real businesses will be re-ignited. There are still some of us interested in knowledge export. The ICT sector has picked up greatly over the last 2 years. We do have a growing finance sector (even if it's only the back office stuff rather than the trading of London and New York).

faceman

domania wrote: »

No one is factoring in the simple fact that there is already an entire years supply of housing available currently on the market according to Davy Stockbrokers. Even with a slowdown in new house output next year there is still over supply on the market.

interestingly enough, ive seen quite a few houses disappear off myhome.ie in my area recently, so i did some dummy calls to estate agents to find out what the SP was and i was surprised to find out that the houses were taken off the market. I think the panic selling phase may be starting to stagnate.

News article in either RTE or breakingnews today (sorry too lazy to look them up again!) saying that rents are starting to match mortgages although rents arent expected to climb much higher.

SkepticOne

blast05 wrote: »

All of the big big builders needs prices to be high as they have paid huge money for lands banks on the edges of all major towns and cities. These really big guys can afford to sit on these landbanks indefinitely, until such time as the current excess housing stock has been more or less used up cos ultimately in the long term they still hold control imho.

Presumably this land is rented out to farmers at a tiny fraction of the return they would get if they sold and invested elsewhere, a huge opportunity cost. I have no doubt many at present have the intention of holding out but I would question whether they are willing to do so indefinitely.

bugler

News article in either RTE or breakingnews today (sorry too lazy to look them up again!) saying that rents are starting to match mortgages although rents arent expected to climb much higher.

This has been reported from many sources. It's also completely untrue, as even a cursory glance at Daft will tell you. In the majority of cases, rents are nowhere near mortgages.

iguana

bugler wrote: »

This has been reported from many sources. It's also completely untrue, as even a cursory glance at Daft will tell you. In the majority of cases, rents are nowhere near mortgages.

It does depend where you are. In Limerick, for example you could generally rent for a similar monthly cost of a 90% 35 years mortgage. So perhaps the figure comes from selected areas.

faceman

bugler wrote: »

This has been reported from many sources. It's also completely untrue, as even a cursory glance at Daft will tell you. In the majority of cases, rents are nowhere near mortgages.

Daft.ie was the source.

http://www.rte.ie/business/2007/1127/daft.html

by the way you can generalise and say that mortgages are rental are cheaper mortgages unless you assume that the house purchase is being made now. i have no outgoings on my properties.

Calina

bugler wrote: »

This has been reported from many sources. It's also completely untrue, as even a cursory glance at Daft will tell you. In the majority of cases, rents are nowhere near mortgages.

This is not, strictly speaking true for all areas and currently, the gap is declining where it still exists.

However, that's not proof that everything is okay and the garden is rosy. The problem is that supply on both the sales and rental market has gone up radically and I don't think it can be claimed we are in any sort of equilibrium if it's taking up to 9 months to sell property. Available sales supply has seen falls in asking prices and, apparently (who knows for sure) sales prices. Available rental supply will have the same impact in the medium term.

It's still playing out.

D'Peoples Voice

faceman wrote: »

News article in either RTE or breakingnews today (sorry too lazy to look them up again!) saying that rents are starting to match mortgages although rents arent expected to climb much higher.

Rents are NOW 4.2% higher in October 2007 than in Janaury 2002!
http://www.daft.ie/report/Daft-Rental-Report-Q3-2007.pdf
That's BEFORE inflation.

Tom123

Calina wrote: »

This is not, strictly speaking true for all areas and currently, the gap is declining where it still exists.

I challenge you to give me 2 examples of a property currently advertised where the rent is higher than the mortgage

The gap exists EVERYWHERE

SkepticOne

A few small points with regard to the daft rental report.

1. It reports on rental asking prices not rent received. We have no idea how many of the investment properties bought in outlying areas over the last few years are actually getting tenants.

2. These asking prices are now slightly lower than they were in June. Landlords appear to be unable to pass on interest rate rises to tenants. All the rises seem to have occurred in the first half of the year yet this is not being reported by the media. Instead we are getting the story that rents are currently rising.

3. There has been a massive increase in rental inventory in the last few weeks suggesting that rents will either come down next year or that landlords unwilling to lower rents will suffer long vacant periods. This is a very significant development in my opinion.

iguana

Tom123 wrote: »

I challenge you to give me 2 examples of a property currently advertised where the rent is higher than the mortgage

The gap exists EVERYWHERE

I did that about a year ago. Two houses one street apart. If that was possible a year ago it certainly possible now.

Tom123

iguana wrote: »

I did that about a year ago. Two houses one street apart. If that was possible a year ago it certainly possible now.

Was it with a 20 year investment mortgage or a 40 year lunacy mortgage?

seamus

Incidentally the general text book believe on monetary policy is that it takes 18 months for rate changes to fully find there way into the market. No surprise the Irish property market tanked circa May 2007, 18 months after the first increase in December 2005.

I would argue that it died about 6 months earlier than that - the bell had been ringing since about August 2006.

There has been a massive increase in rental inventory in the last few weeks suggesting that rents will either come down next year or that landlords unwilling to lower rents will suffer long vacant periods. This is a very significant development in my opinion.

Indeed. Anecdotal evidence (from people who "know builders") say that many builders are opting to not sell their new builds, but hold onto them as rental properties and let the management company handle the letting.

This is interesting because it could go one of two ways:

1. The removal of new properties from the market, adds some slight stability to the supply/demand imbalance.

or

2. The drop in rents encourages FTBs and some home owners to opt for renting, thereby reducing demand, upping supply and further destabilising the market.

The past few weeks has seen a fairly dramatic increase in the number of viewings for cheaper homes, especially compared to six months ago, but it's more moderate now. There's plenty of viewing going on but still not much buying. People are more considered with their money - there's no need to bid on a house while you're viewing it just to edge out anyone else.

The Irish preference for buying tells me that scenario two above isn't very likely - most people would rather stick with their home so long as they can continue to afford the mortgage.

iguana

Tom123 wrote: »

Was it with a 20 year investment mortgage or a 40 year lunacy mortgage?

90%, 35 year, re-payment mortgage. Obviously it would be better value at 25 years, but it does show that not all areas of Ireland have the same discrepencies between rent and mortgage.

I've done a quick trawl around and can't find any identical houses but you can rent this house for €1,150pm or with the mortgage I described you could get this house for a repayment of €1211pm before interest relief. So assuming married ftb's it would cost about €1000pm. Or this house for €1110pm before IR.

That's also assuming that the houses sells for asking price. I have no idea about how bad the market in Limerick is at the moment though.

Glenbhoy

Outside dublin one can probably find some properties wherein the mortgage can be covered by rent, however I doubt if such a place can be found in the capital. In my own case, I am now renting and pay approx 1600 per month less than a 30yr tracker for the same property would cost.

The latest CSO figures showed that rents have stopped rising as more and more inventory has come on the market (presumably in response to the extremely widely reported rise in rents).

RuggieBear

More anecdotel evidence:

The house a few doors down from me that was listed at 680k a few months back is now listed 630k with SherryFitz and 610k with Daft.

Do-more

blast05 wrote: »

Can anyone tell me of 1 single housing development that has started in the last 3-6 months, i.e.: a green field site.

I remarked on a new site starting in Killeigh on this thread back in July. Haven't seen one since though!

As regards the figure of 30,000 houses being built next year, bear in mind that this figure relates to "completions" rather than "starts", so most of these are already under construction. IMO the only "starts" next year are likely to be one-off self-builds...

Fr0g

blast05 wrote: »

Can anyone tell me of 1 single housing development that has started in the last 3-6 months

This one in Killeens, Wexford http://www.wexford.ie/planenq/detail.asp?id=20065065
for 748 houses. The ground was broken on this in the last few weeks. I dont understand it the market isn't there. The number of properties on daft in Wexford town at the moment is 390 this will treble that figure. this is a local councillors take on it http://www.labour.ie/georgelawlor/news/117033363554268.html

Interesting thread by the way, I have been following the property market closely since April/May of last year and I would be very bearish.

blast05

Theres no way they are going to build 748 in one go - probably start with an initial batch of 50 including 5 or 6 show houses and see how they go.
Nonetheless, seems surprising and brave !

Fr0g

I suppose it's a case of having to this is an area of prime real estate which I think was bought in 2005 at the peak of the madness. It is opposite another housing estate Clonard Village which has been going up phase by phase for the past 5 years. It will be interesting to see what the asking price will be on these. It might be the first development that will be sold at a significantly lower price.

BobbyD10

It seems property investors are still positive according EBS and Gunne anyway.

http://www.independent.ie/business/irish/property-investors-stay-positive-about-market-1232533.html

Pa ElGrande

BobbyD10 wrote: »

It seems property investors are still positive according EBS and Gunne anyway.

http://www.independent.ie/business/irish/property-investors-stay-positive-about-market-1232533.html

It reads like the final scene from Monty Python's Life of Brian - Always Look on the Bright Side of Life

Kipperhell

Pa ElGrande wrote: »

It reads like the final scene from Monty Python's Life of Brian - Always Look on the Bright Side of Life

It actually sounds like most investors were always looking at a long term investment to start with. I never thought the investors in the market were predominantly speculating on short term gains.
Very few people in general would gamble their future on a quick punt into the property market IMHO.

Victor

http://www.independent.ie/business/irish/property-investors-stay-positive-about-market-1232533.html

BobbyD10 wrote: »

The vast majority, or 93pc, of buy-to-let investors have no intention of selling their property and more than half are looking to buy more rental units, a new survey showed yesterday.

This says 93% of buy-to-let investors, not 93% of buyers, not 93% of investors.

Buy to let investors were always going to stay 5-10 years, flippers are another matter.

BendiBus

It also found that 54pc of those polled said they plan to increase the size of their property portfolio within the next five years

So they see the market bottoming out sometime in the next 5 years, i.e. not necessarily soon.

The_Conductor

Victor wrote: »

http://www.independent.ie/business/irish/property-investors-stay-positive-about-market-1232533.htmlThis says 93% of buy-to-let investors, not 93% of buyers, not 93% of investors.

Buy to let investors were always going to stay 5-10 years, flippers are another matter.

This is evidenced by the fact that the outrageous rent rises are actually servicing mortgages again in a lot of inner city locations, given the property price falls. It doesn't necessarily mean that there is any inherrent value or sustainable pricing associated with said units, simply that BTL purchasers can cover their costs (again). I'm depressed.

RuggieBear

smccarrick wrote: »

This is evidenced by the fact that the outrageous rent rises are actually servicing mortgages again in a lot of inner city locations, given the property price falls. It doesn't necessarily mean that there is any inherrent value or sustainable pricing associated with said units, simply that BTL purchasers can cover their costs (again). I'm depressed.

That actually cheers me up as my landlord had had the house for at least 10 years....So I'm thinking I won't be at the whim of the desperation to cover the mortgage as some other tenants might be.

Well i hope not anyway.