Housing Bubble Bursting

SimpleSam06

Kipperhell wrote: »

I never said it was rigid . I am pointing out that in order for a change in policy their would need to be a correction in the market which would be rent moving upward in the current market.

First of all, where is it written that the rent has to cover your mortgage? There are plenty of landlords who aren't paying a mortgage (with extremely minimal costs), and even if they are, they are in competition with the ones that aren't.

So, when massive amounts of people who bought an "investment property" try to recoup some of their losses by renting, they will be going against landlords who can drop the rent any amount and still be making a healthy profit. Those people who bought in the last five years are going to be in for a hard time one way or another.

This is one of the reasons that the rental market is different to the mortgage market. Any market will only charge what people will pay, if there are a large number of rental properties out there, rent will fall. Rents don't track mortages in any way, and the rental market is much more vulnerable to sudden changes than the property market.

Ironically, the poor legislation to protect tenants (which is why there is a charity in place for tenants rights here) is what damns landlords anyway; long term renting is really not an option in this country, so there will always be a push to own your own place, further weakening the rental market. While stronger legislation might have unpalatable short term effects, in the long term it is the only way to secure a good rental market.

Mix all of this in with what appears to be a looming recession, and you have the eastern european migrants hitting the road for greener pastures, reducing the amount of renters available.

A reduced amount of renters, a drastically increased amount of properties for rent (had a look at daftwatch lately?), and poor employment opportunities, all lead to a much weakened rental market.

Boggle

Mix all of this in with what appears to be a looming recession, and you have the eastern european migrants hitting the road for greener pastures, reducing the amount of renters available.

Funny you should mention that but from the stories I've heard, its the Irish lads who appear to be first off the mark in going abroad... I have heard of entire crews who have packed up and left - and of those working, it's starting to turn into a race to the bottom (wage-wise) as the rates are being ignored and wiped out.

Kipperhell

Afuera you are ignoring the real world where fixed rates are more expensive. A lot more expensive. So I am not ignoring they can fix their rate just that that is actually expensive and in real terms therefore not an option. You ignored this.

Name a place where rents doubled in a year in Ireland. All else you said is additional fluff
Ireland has protection for landlord/tenants you suggested fixed rents as a fix which I say simply favours the tenants without any consideration for the landlord. The fact you think fixing the rate would solve this problem shows little understanding of fixed rate and current landlord or as seem more likely you don't really care how it would effect them.

Simplesimon;

There is no where it is written that rent should cover a mortgage. This does not however mean it is a good idea for the government to move in and make it so rent must be controlled regardless of what way the rental property market is financed. If you destabilise landlords in favour of tenants you simple loose rental property forcing rent up.

I reject your argument that current legislation is damaging to landlords. The PRTB is not a charity. The relevance of how landlords are going to loose out due to the market has nothing to do with the argument about fixing rent. You are just stating more fire and brimstone that will rain on landlords. This just shows further bias.

Lets be 100% clear the suggestion is to fix rents so tenants are in a better situation and if this causes problems for landlords they can fix their mortgage and this will solve the problem. I think this is a simplistic suggestion with little or no real time application in Ireland. What else you think will happen in the market is irrelevant to that argument

The pair of you are incensed at something but are mixing all your points together and seem to have some sense that equality is a by product a free market i.e. landlords can't keep on doing what they are doing if the market doesn't get them the government should.

Why not state exactly where you think the legislation is unfair. Annual rental review seems reasonable to me. BTW I am pretty sure it is that rental increases have to be in-line with the current market, so a landlord doesn't have to reduce his rent as you guys suggest.

How Strange

Is Threshold a charity?

They are the only organisation that protects tenants as far as I know. PRTB is a regulating body but they don't have much power to intervene if tenants are being treated badly by landlords and whatever powers they do have are choked in bureaucracy so they can't act quickly enough in the case of an unfair eviction.

SimpleSam06

Boggle wrote: »

Funny you should mention that but from the stories I've heard, its the Irish lads who appear to be first off the mark in going abroad... I have heard of entire crews who have packed up and left - and of those working, it's starting to turn into a race to the bottom (wage-wise) as the rates are being ignored and wiped out.

Yes but I'm not just talking about the contruction industry, I'm talking about all sectors.

Kipperhell wrote: »

Simplesimon;

Hoho, original.

Kipperhell wrote: »

If you destabilise landlords in favour of tenants you simple loose rental property forcing rent up.

Happily there are vast amounts of rental property coming on the market as we write. Again, have you looked at daftwatch lately?

Kipperhell wrote: »

I reject your argument that current legislation is damaging to landlords.

Actually it definetely is. If you look at places like Germany, where renting for life is fairly common, they have very strong tenant protection regulations. Some might say too strong, but thats how they have structured it. There isn't much need to buy a house if you can rent safely.

Kipperhell wrote: »

The PRTB is not a charity.

Okay, so Threshold is just there for fun, is it? And if you've ever had any dealings with the PRTB from the tenant's perspective, they are completely toothless, to put it mildly. I have complained to them about unregistered landlords before, and not a finger was lifted. The Revenue Commissioners were a bit more proactive, thankfully.

Kipperhell wrote: »

The relevance of how landlords are going to loose out due to the market has nothing to do with the argument about fixing rent.

I never said anything about fixing rent. I was responding to your point that a correction upwards in rental prices was needed, and that rents and mortgages are in any way aligned. Both of these are entirely incorrect.

I don't think rents should be fixed, and I'm fairly sure the market will sort out rental prices; if rents get too high, you'll have other people piling on to get some of the windfall, increasing the number of rental properties and reducing prices. Note this is exclusive of current market conditions where many "investors" are being forced, literally, to rent.

If the market doesn't resolve these issues then yes, the government should step in.

Kipperhell wrote: »

Lets be 100% clear the suggestion is to fix rents so tenants are in a better situation and if this causes problems for landlords they can fix their mortgage and this will solve the problem.

If a minority of landlords who dabbled in the property market in the last few years can't make ends meet, that's their problem, not the problem of the market.

Kipperhell wrote: »

The pair of you are incensed at something but are mixing all your points together and seem to have some sense that equality is a by product a free market i.e. landlords can't keep on doing what they are doing if the market doesn't get them the government should.

What, you don't think something as vital as a place to live shouldn't be heavily regulated by the government? These aren't mars bars we are discussing here. You're talking about something as vital as hospitals and education, and people trying to make it a profitable business.

Kipperhell wrote: »

BTW I am pretty sure it is that rental increases have to be in-line with the current market, so a landlord doesn't have to reduce his rent as you guys suggest.

As far as I know that is completely correct. However if everyone else is dropping prices, holdout landlords will be looking at a lot of vacant time.

Afuera

Kipperhell wrote: »

BTW I am pretty sure it is that rental increases have to be in-line with the current market, so a landlord doesn't have to reduce his rent as you guys suggest.

Wrong again. Jeez you really know nothing about nothing on this subject do you? This is from the quick guide to the Residential Tenancies Act 2004 on PRTB's website:
http://www.prtb.ie/DownloadDocs/Residential%20Tenancies%20Act%202004%20-%20A%20Quick%20Guide.pdf

Rent may not be greater than the open market rate and may be
reviewed (upward or downward) once a year only unless there has
been a substantial change in the nature of the accommodation that
warrants a review. Tenants are to be given 28 days notice of new
rents.
Tenant may ask their landlord to review the rent if they feel it
exceeds the market rate for the property - if more than a year has
elapsed since the last rent review, tenants may seek a review.
Disputes about any aspect of rent may be referred to the PTRB.

Victor

Chill out. :mad:

Iristxo

Does anybody else think that the reform in the stamp duty might bring along the much talked about dead cat bounce?

miju

dead cat bounce was after the election IMO , what the stamp duty reform is going to do is bring the blinding realisation to joe public that the problem wasn't stamp duty at all and is simply fundamental affordibility and prices that is the problem.

so i'd say sometime around March next year as market conditions deteriorate further the VIs out there may actually start capitulating the argument and actively push the idea of a housing slump in order to get prices dropped signigicantly enough for them to be able to sell the houses and thus get their commision.

there ya go thats my first prediction for 2008

conor_mc

I agree with Miju.

Stamp duty "reform" was the psychological crutch which propped up asking prices. Now that its been removed, reality has a free run.

Tony255

i have read a lot of the posts today and i had to try and start one to try and help me figure it out. Do people think the new stamp duty policy will have a negative or positive affect on the housing market looking at it from a buyers perspective?

Colonel Sanders

Another developer breaks ranks

*hopes it hasn't been posted already as was too lazy to read back and check*

Glenbhoy

Tony255 wrote: »

i have read a lot of the posts today and i had to try and start one to try and help me figure it out. Do people think the new stamp duty policy will have a negative or positive affect on the housing market looking at it from a buyers perspective?

I don't think it'll make much difference, maybe an increase in volume, but I don't think it'll provide any long term boost in prices. Why do you want to know?
If you're interested in buying, I'd recommend you do so, if, you're happy to move to the location and property that you purchase for the long term, I wouldn't be buying anywhere as a 'stepping stone' to that dream home.

expediateclimb

I think we need to change the name of this thread to housing bubble burst

BobbyD10

Colonel Sanders wrote: »

Another developer breaks ranks

*hopes it hasn't been posted already as was too lazy to read back and check*

Nope don't think it has been posted before.

I must say this is a welcome development in the housing market.

Developers are finally realising possible customers are not willing to pay those artifically high prices anymore.

These are fairly significant price reductions, and brings to mind a friend who bought his house in Swords last month for €60k less than what was agreed the end of '06 as he pulled out of the sale and the builder offered a significant reduction to sell the house.

There are bargains to be had now which is great for potential buyers, more competition amongst the developers will further drive down prices.

Who knows where the floor is for the housing market, still think we are abit away from it yet.

I agree with Miju also that the stamp duty will make no difference to the market.

Do-more

Brian Cowen was on The Last Word with Matt Cooper this evening and said that it was OK to make changes to stamp duty at the bottom of the market, implying that we were now at the bottom! I nearly crashed the car laughing!!!:D

A Random Walk

Do-more wrote: »

Brian Cowen was on The Last Word with Matt Cooper this evening and said that it was OK to make changes to stamp duty at the bottom of the market, implying that we were now at the bottom! I nearly crashed the car laughing!!!:D

It is a sad thing when politicians feel the need to prop up the housing lobby at the expense of the people who will be fooled into buying a house at these prices.

Why are there no politicians saying "don't buy a house, prices are falling"? Is it better that an Estate Agent or Bank Manager shouldn't be able to buy an 08 BMW or that 20,000 young people should be kept out of negative equity next year? It is shameful when the only sources of trusted information are strangers you meet online in a discussion forum.

BobbyD10

A Random Walk wrote: »

It is a sad thing when politicians feel the need to prop up the housing lobby at the expense of the people who will be fooled into buying a house at these prices.

Why are there no politicians saying "don't buy a house, prices are falling"? Is it better that an Estate Agent or Bank Manager shouldn't be able to buy an 08 BMW or that 20,000 young people should be kept out of negative equity next year? It is shameful when the only sources of trusted information are strangers you meet online in a discussion forum.

Yeah I kinda wondered that too.

The politicians, the opposition mainly keep saying it's the government's fault the housing market is slumping that they acted too late, what did they want..? house prices to keep increasing forever.

punchestown

BobbyD10 wrote: »

Yeah I kinda wondered that too.

The politicians, the opposition mainly keep saying it's the government's fault the housing market is slumping that they acted too late, what did they want..? house prices to keep increasing forever.

Yes as it keeps the staus quo happy. It is home owners & investment prop owners that really decide who gets elected in this country. The Government doesnt want young people voting (as eveidenced from last election and the mess surrounding the registrar) and it suits them that the majority of people voting are home owners. As greed has so much to do with it, by creating the illusion that the only way house prices go, are up, you feed into the greed factor and ultimately regardless of health services, corruption, infrastructure and all that is wrong in Ireland, once you convince gullible people that the gravy train will run forever, they will buy into it.

jmayo

punchestown wrote: »

Yes as it keeps the staus quo happy. It is home owners & investment prop owners that really decide who gets elected in this country. The Government doesnt want young people voting (as eveidenced from last election and the mess surrounding the registrar) and it suits them that the majority of people voting are home owners. As greed has so much to do with it, by creating the illusion that the only way house prices go, are up, you feed into the greed factor and ultimately regardless of health services, corruption, infrastructure and all that is wrong in Ireland, once you convince gullible people that the gravy train will run forever, they will buy into it.

A lot of the younger voters actually voted for the government so it was not just the older generation who had become millionaires overnight due to fact they had property that put the government back in.
After all a lot of the young voters believed this is the government that, gave them jobs (be it on a building site or as a professional), gave them cheap credit so they could buy a house/apartment, gave them cheap credit to buy their BMW and have two holidays together with 3/4 city breaks a year.
They also didn't care about the health service since they weren't sick and their parents hadn't reached the age where they were the old left lying on hospital trolleys.
They had always experienced increasing house prices so what was the worry about buying in Gorey. You could sell in few years and move to Deansgrange or somewhere else.

It is noticable how many people are clutching at straws these days.
If the stamp duty changes don't cause the prices to stabilise, then the EU interest rates will remain static and there is even a rumour that there may be a drop in rates.
Sure we are going to be going ahead with all public infrastructure development so there will be jobs for all the builders, no worry about job losses then.
Anyway rental market is increasing and investors will move into the market very soon.
And then there are all these immigrants coming to live here and work in the ...
maybe in the service industry/economy whatever that is?

Have I forgot any straws ?

Zambia

I have been neglecting this thread of late due to the same stuff recurring again and again inevitable really when its such a mammoth thread.

However I decided to have a look at rte and see was there any new indicators

http://www.rte.ie/business/2007/1207/JOBLESS.html
Increase in the live register

http://www.rte.ie/business/2007/1207/abbey.html
Abbey announce a loss in profits

So looks like its still sliding but at no great pace.

patrickolee

A Random Walk wrote: »

It is a sad thing when politicians feel the need to prop up the housing lobby at the expense of the people who will be fooled into buying a house at these prices.

Why are there no politicians saying "don't buy a house, prices are falling"? Is it better that an Estate Agent or Bank Manager shouldn't be able to buy an 08 BMW or that 20,000 young people should be kept out of negative equity next year? It is shameful when the only sources of trusted information are strangers you meet online in a discussion forum.

You might do well to wonder, why you trust information strangers are giving you online in a discussion forum. There have been quite a few misquotes, exaggerations, erroneous calculations cropping up on this thread...

SkepticOne

No shade of politician is willing to call the bubble what it is for fear of being accused of causing the bubble. Therefore the typical solution proposed by both government and opposition involves subsidising housing for those that can't pay the full overvalued inflated price. This allows prices to stay high while paying lip service to those left behind. Even those who could not not afford a house went along with this because they too were caught up in the bubble mentality and assumed that prices were going to continue to rise and maybe eventually end in a 'soft landing'.

Naturally such solutions can only benefit a tiny minority of those in need as there is simply not the money to go round. The real solution is to remove the props and subsidies keeping prices high and allow them to fall to their fair valued level. Politically, of course, this is highly unrealistic.

handsfree

As Reported by jeff randell in the daily telegraph

In Roaring Twenties' America, Joseph Kennedy knew it was time to off-load his shares when the shoe-shine boy started giving him stock tips. In New Millennium Britain, we have been witnessing a similar, equally clear, "sell signal": mini-cab drivers as property tycoons.
During the Blair years, it seemed that taxis, especially those in London, were driven largely by aspiring landlords.
In return for a £10 fare, many cabbies would throw in a free 15-minute lesson on real-estate economics, which often ended with the revelation that they had just bought a place on the Costa Plonker as an "investment".
Others preferred the domestic market, where acquiring property for the sole purpose of renting it out had become, in City argot, "a no-brainer". On one occasion, during a slow trip along the Thames Embankment, I recall a driver pointing across the river and telling me how he hoped to own more than one flat in an attractive waterside development.
Nothing wrong with that; I'm a cheerleader for aspiration. But when I asked him how he was going to afford space in a block that seemed more suited to bullion dealers and cosmetic dentists, he beamed: "BTL, mate, BTL." This had nothing to do bacon sandwiches.
The driver was referring to a commercial phenomenon known as Buy-To-Let. The process, he explained, couldn't be simpler: "Borrow £150,000 and get an apartment. Interest charges: £625 a month. Rental income: £1,000 a month. There you go, guv, off to the races."
Money was cheap, repayments were low, lenders were feeling generous, demand for homes was rising, property prices always went up (didn't they?) - you couldn't possibly lose. Or that's how it must have appeared from behind the steering wheel of a licensed people-carrier.
The obvious question troubled him not: if it's so simple, why doesn't everyone pack up work and join the rentier class? To be fair, in the heady days of Labour's second term, many BTL pioneers did achieve prosperity beyond their fruitiest fantasies. Yes, the lucky ones had it large.
The prospect of a free lunch created a surge of buy-to-let punters. The sector experienced an old-fashioned gold rush. Ordinary people, who wouldn't normally risk a pound on the lottery, went mining for riches. In 1998, there were 30,000 BTL mortgages; today there are about one million.
BTLs were symptomatic of the Blair-Brown boom: a period of uneven wealth explosion, much of it illusory, created by pumping out easy credit and sucking in foreign moolah. British house prices went up 200 per cent in 10 years, until they reached the point where a man on the average annual salary of £25,000 had to borrow eight times his income to afford the average house.
For many, the numbers did not add up. So debt affordability was "redefined" to mean simply servicing the interest. Worries about repaying the capital were dismissed as "outdated", a bit like tank tops and loon pants.
Those who predicted disaster were branded as "mugs". Reality was suspended in favour of excess. Too few wanted to miss out on the eternal summer of perpetual house-price inflation. It was a time of collective deceit, into which borrowers, lenders, regulators and ministers happily bought.
At the peak of investor exuberance just before the 1929 Wall Street Crash, American stockbrokers were opening offices on cruise ships and at seaside resorts to feed the masses' addiction to the upward tick of share prices. In a similar vein, contemporary real-estate peddlers have combined with television companies to nurture our obsession with house prices through "property porn" shows.
When bull markets turn into asset bubbles, something dangerous occurs: vulnerable folk start to mistake themselves for financial geniuses. They begin to believe they are blessed with insights and talents not available to previous generations. They become susceptible to revivals of faith in "a new era".
According to Incademy.com, an investor education website, an insidious assumption takes hold: "It is different this time." As a result, established rules for wealth preservation are flouted. Eager buyers become blinded to overvaluation and start to pay too much, often with borrowed money.
"Repeated on a large scale, this is how a whole economy loads up with too much debt, supporting too many over-priced assets. The unwinding of this process is one of the leading causes of recessions," Incademy observes.
Paul Atkins, head of the US Securities and Exchange Commission, concurs: "Human gullibility is displayed throughout the history of investment … the herd mentality, overly rosy expectations, the feeling that somehow today is much different to yesterday, the bigger fool theory."
In modern Britain, the army of bigger fools, I'm afraid, includes many who bet significant sums of borrowed money on BTLs. The credit crunch has squashed the availability of funds - and the cost of debt has soared.
Worse still, financial gravity has reasserted its pull on real estate: house prices are falling at their fastest pace for 12 years. Morgan Stanley, an American investment bank, forecasts that they will drop by 10 per cent in 2008, with the possibility of further declines in 2009.
You can see where this is leading. As Mervyn King, the Bank of England Governor, once said: "House prices are a matter of opinion, whereas debt is real." When the cost of funding a BTL mortgage becomes greater than the property's rental income, ie, the landlord starts subsidising the tenant, the get-rich-quick bubble goes pop.
Industry experts report that, in recent weeks, there has been a sharp rise in the number of buy-to-let flats and houses coming on to the market, as anxious investors try to get out before conditions worsen. Last year, 300,000 properties were bought on BTL mortgages - many will soon be under water.
"At the margin," says Bill Bonner, author of The Daily Reckoning, "the BTL investor is no better off than an American sub-prime borrower or leveraged hedge-fund hustler. He will have to sell into a declining market to stay solvent. Result… rising defaults, failing economy."
The Council of Mortgage Lenders forecasts that 45,000 homes will be repossessed next year, an increase of 50 per cent. In part to prevent that number becoming any bigger, the Monetary Policy Committee cut interest rates by 0.25 per cent yesterday.
It may be enough to save some on the brink, but it will not undo all the damage done between October 2001 and August 2004, when base rates were set too low for too long, at 4.5 per cent or less, encouraging hordes of naive consumers to binge on debt. Like too much cheap drink, too much cheap credit can be ruinous.
Roger Bootle, the City economist and Daily Telegraph columnist, wrote four years ago: "Once the property market has come down to earth, people will have to face the awful truth - no more money for nothing."
He was right. That moment is now.

Ste.phen

handsfree wrote: »

As Reported by jeff randell in the daily telegraph

In Roaring Twenties' America, Joseph Kennedy knew it was time to off-load his shares when the shoe-shine boy started giving him stock tips. In New Millennium Britain, we have been witnessing a similar, equally clear, "sell signal": mini-cab drivers as property tycoons.
During the Blair years, it seemed that taxis, especially those in London, were driven largely by aspiring landlords.
In return for a £10 fare, many cabbies would throw in a free 15-minute lesson on real-estate economics, which often ended with the revelation that they had just bought a place on the Costa Plonker as an "investment".
Others preferred the domestic market, where acquiring property for the sole purpose of renting it out had become, in City argot, "a no-brainer". On one occasion, during a slow trip along the Thames Embankment, I recall a driver pointing across the river and telling me how he hoped to own more than one flat in an attractive waterside development.
Nothing wrong with that; I'm a cheerleader for aspiration. But when I asked him how he was going to afford space in a block that seemed more suited to bullion dealers and cosmetic dentists, he beamed: "BTL, mate, BTL." This had nothing to do bacon sandwiches.
The driver was referring to a commercial phenomenon known as Buy-To-Let. The process, he explained, couldn't be simpler: "Borrow £150,000 and get an apartment. Interest charges: £625 a month. Rental income: £1,000 a month. There you go, guv, off to the races."
Money was cheap, repayments were low, lenders were feeling generous, demand for homes was rising, property prices always went up (didn't they?) - you couldn't possibly lose. Or that's how it must have appeared from behind the steering wheel of a licensed people-carrier.
The obvious question troubled him not: if it's so simple, why doesn't everyone pack up work and join the rentier class? To be fair, in the heady days of Labour's second term, many BTL pioneers did achieve prosperity beyond their fruitiest fantasies. Yes, the lucky ones had it large.
The prospect of a free lunch created a surge of buy-to-let punters. The sector experienced an old-fashioned gold rush. Ordinary people, who wouldn't normally risk a pound on the lottery, went mining for riches. In 1998, there were 30,000 BTL mortgages; today there are about one million.
BTLs were symptomatic of the Blair-Brown boom: a period of uneven wealth explosion, much of it illusory, created by pumping out easy credit and sucking in foreign moolah. British house prices went up 200 per cent in 10 years, until they reached the point where a man on the average annual salary of £25,000 had to borrow eight times his income to afford the average house.
For many, the numbers did not add up. So debt affordability was "redefined" to mean simply servicing the interest. Worries about repaying the capital were dismissed as "outdated", a bit like tank tops and loon pants.
Those who predicted disaster were branded as "mugs". Reality was suspended in favour of excess. Too few wanted to miss out on the eternal summer of perpetual house-price inflation. It was a time of collective deceit, into which borrowers, lenders, regulators and ministers happily bought.
At the peak of investor exuberance just before the 1929 Wall Street Crash, American stockbrokers were opening offices on cruise ships and at seaside resorts to feed the masses' addiction to the upward tick of share prices. In a similar vein, contemporary real-estate peddlers have combined with television companies to nurture our obsession with house prices through "property porn" shows.
When bull markets turn into asset bubbles, something dangerous occurs: vulnerable folk start to mistake themselves for financial geniuses. They begin to believe they are blessed with insights and talents not available to previous generations. They become susceptible to revivals of faith in "a new era".
According to Incademy.com, an investor education website, an insidious assumption takes hold: "It is different this time." As a result, established rules for wealth preservation are flouted. Eager buyers become blinded to overvaluation and start to pay too much, often with borrowed money.
"Repeated on a large scale, this is how a whole economy loads up with too much debt, supporting too many over-priced assets. The unwinding of this process is one of the leading causes of recessions," Incademy observes.
Paul Atkins, head of the US Securities and Exchange Commission, concurs: "Human gullibility is displayed throughout the history of investment … the herd mentality, overly rosy expectations, the feeling that somehow today is much different to yesterday, the bigger fool theory."
In modern Britain, the army of bigger fools, I'm afraid, includes many who bet significant sums of borrowed money on BTLs. The credit crunch has squashed the availability of funds - and the cost of debt has soared.
Worse still, financial gravity has reasserted its pull on real estate: house prices are falling at their fastest pace for 12 years. Morgan Stanley, an American investment bank, forecasts that they will drop by 10 per cent in 2008, with the possibility of further declines in 2009.
You can see where this is leading. As Mervyn King, the Bank of England Governor, once said: "House prices are a matter of opinion, whereas debt is real." When the cost of funding a BTL mortgage becomes greater than the property's rental income, ie, the landlord starts subsidising the tenant, the get-rich-quick bubble goes pop.
Industry experts report that, in recent weeks, there has been a sharp rise in the number of buy-to-let flats and houses coming on to the market, as anxious investors try to get out before conditions worsen. Last year, 300,000 properties were bought on BTL mortgages - many will soon be under water.
"At the margin," says Bill Bonner, author of The Daily Reckoning, "the BTL investor is no better off than an American sub-prime borrower or leveraged hedge-fund hustler. He will have to sell into a declining market to stay solvent. Result… rising defaults, failing economy."
The Council of Mortgage Lenders forecasts that 45,000 homes will be repossessed next year, an increase of 50 per cent. In part to prevent that number becoming any bigger, the Monetary Policy Committee cut interest rates by 0.25 per cent yesterday.
It may be enough to save some on the brink, but it will not undo all the damage done between October 2001 and August 2004, when base rates were set too low for too long, at 4.5 per cent or less, encouraging hordes of naive consumers to binge on debt. Like too much cheap drink, too much cheap credit can be ruinous.
Roger Bootle, the City economist and Daily Telegraph columnist, wrote four years ago: "Once the property market has come down to earth, people will have to face the awful truth - no more money for nothing."
He was right. That moment is now.

I think i've read that article before, possibly on this thread...?

Do-more

In a similar vein, contemporary real-estate peddlers have combined with television companies to nurture our obsession with house prices through "property porn" shows.

ROFL What are all those satellite channels going to show when the public no longer has an appetite for endless repeats of "Location, location, location", "House Doctor" and "Flip that house"?

In 1998, there were 30,000 BTL mortgages; today there are about one million.

I'd love to know comparable figures for Ireland! Does anyone have them?

Victor

Zambia232 wrote: »

http://www.rte.ie/business/2007/1207/abbey.html
Abbey announce a loss in profits

Reduced profits, not a loss.

dazberry

Do-more wrote: »

I'd love to know comparable figures for Ireland! Does anyone have them?

The only figures I have are from the May 07 Industry Bulletin (no linky - its a paper copy) break down as follows:

New House Purchases (Annual Av 2002 - 2006)
First Time Buyers 20.8K
Holiday Homes 10k*
Buy to Let and Trading up/down 43.5K*

Total New Completions 74.3K

* estimated.

If those estimations are correct(ish) - that means that only 27% of new house purchases between 2002 and 2006 where FTBs, the remainder were what would be termed "housing insiders".

Since New House Completions are quoted as 93419 in 2006, an annualised rate of 27% means that on average there is only a need for 25.2K houses to be built this year to support the FTB market (all things being equal). If (as I've heard quoted**) only 30k unit will be built this year - it would appear given the current level of market investment (i.e. housing outsiders) that its not near as grave as has been made out.

D.

** Edit: I think that's what I heard, maybe it was next year - there seems to be a lot of estimates floating around these days.

Zambia

Victor wrote: »

Reduced profits, not a loss.

True I did word that cr*p so I did so I did. However Still makes a point.

Yes there is a huge amount of TV Property porn

Do-more

Zambia232 wrote: »

Yes there is a huge amount of TV Property porn

Yeh and I forgot the best/worst one "Property Ladder"!