Housing Bubble Bursting

gurramok

This sounds familar from ITV http://www.youtube.com/watch?v=iVLB9LfHXjU

Britains house price falls...whats happening there and whats happening here is so remarkably similar by behaviour

SimpleSam06

gurramok wrote: »

This sounds familar from ITV http://www.youtube.com/watch?v=iVLB9LfHXjU

Britains house price falls...whats happening there and whats happening here is so remarkably similar by behaviour

I think thats more interesting because it underlines a very dramatic difference between the Irish and UK markets - the UK markets are much more open. I mean imagine RTE showing something like that, it would never happen. Heres another difference:

GORDON Brown yesterday told MPs that they would have to settle for a pay rise of below 2 per cent to set an example to public-sector workers facing the same squeeze. The Prime Minister said that Westminster parliamentarians and government ministers had to demonstrate the "discipline that we ask of other people".

Can you spot the difference between him and Bertie?

Do-more

gurramok wrote: »

This sounds familar from ITV http://www.youtube.com/watch?v=iVLB9LfHXjU

Britains house price falls...whats happening there and whats happening here is so remarkably similar by behaviour

The Money progamme's "Buy to Debt" will probably strike a few cords aswell! In fact many of those specuvestors buying in Manchester were probably Irish.

Amberman

SimpleSam06 wrote: »

What Chinese market? 80% of the population is still living at subsistence levels and the vast bulk of Chinese manufacture is exported. Thats why their economy is doing so well. They seem to have grasped what we have missed - you can't keep your economy running by selling things to each other, you need to sell to other countries.

A good deal more than you, methinks.

You are right, but also so wrong. 80% at subsistence may be correct, but recently it was 95% subsistence. Entry into the luxury end of the Chinese market is a top goal of any luxury goods manaufacturer. I lived In Beijing for almost a year and the middle classes are booming. Just check out teh growth rates in Chinese cities...they are unreal. 10 year olf 20 storey builsings are being ripped down to put up new 50 storey buildings. Its like something out of bladerunner. They are spending, saving and investing. There is a mass exodus from the countryside to the cities. Consumerism is on the rampage. That is why chinese companies are valued at ridiculous multiples compared to more mature markets in the west. The growth in local demand is staggering and wages are starting to rise really fast.

The wests ability to import deflation from Asia is coming (has come? Look at the dollar) to an end. When it does, the Wests true inflation figures (expansion of money supply) will stun everyone and interests rates will shoot to the moon....hang on to your hats....IMHO.

Do-more

More on the UK market from Reuters. House prices fall at fastest rate since '92

A lack of transparent data from the Irish market prevents us from knowing how we really compare...

SimpleSam06

Amberman wrote: »

Chinese

We're not allowed to talk about that.

daveirl

This post has been deleted.

Calina

daveirl wrote: »

This post has been deleted.

But that's not the point. The point is that GB attached salary restraint to himself and MPs whereas Bertie tried to award himself a 38K salary increase and then had the nerve to tell the public sector in Ireland - many many of whom are earning far less than 38K (okay, so many are on more as well) that they would get nothing because we need to tighten our belts. It's not a case of GB taking on the public sector in the UK here, it's a case of Bertie applying different rules for the people who do the grunt work on a day to day basis than he applies to himself and the rest of the glory seeking politicians.

daveirl

This post has been deleted.

SkepticOne

Builders are gradually realising that there's no point building houses and pricing them out of people's reach. This is what people have been saying on this forum and elsewhere for some time.

Still far too expensive imo but a step in the right direction.

Top builders cut prices by 10-25%

Major housebuilding firms have cut prices at new homes schemes in Dublin and the commuter belt.

David Daly's Albany Group and Kingscroft, the Abbey Group's housebuilding division, have dropped prices at schemes by up to 25 and 11 per cent respectively in an effort to get buyers back into the new homes market.


The move by Albany and Kingscroft, two homebuilders with decades of experience, is the clearest illustration to date of the dramatic slowdown in the new homes market. Sixty houses and apartments go on sale this weekend at the Albany Group scheme in Swords called The Meadows.


Prices start at €229,950 for one-bed apartments and rise to €340,950 for three-bed end-of-terrace units. The Meadows forms part of the larger Holywell scheme. When the same units were launched in April 2007 at Holywell by Savills HOK, prices started at €269,950 and rose to €454,950. This represents price cuts of between 14 and 25 per cent. The prices at Holywell are now approaching 2005 levels at the scheme.

Meanwhile, Kingscroft Developments has instructed its agents to cut prices by an average of 10 per cent on all five new homes sites it has open in Leinster.


The most notable Kingscroft development - also called Holywell - is a scheme of 86 houses in Kilcoole, Co Wicklow. Launched in May 2007, selling agent Sherry FitzGerald secured 25 sales. Prices here have now been cut by around 10 per cent. Four-bed detached houses are now priced €695,000 - down from €780,000.


Kingscroft has also cut prices at The Hastings scheme on Hamlet Lane in Balbriggan. Some units have been cut by up to 10 per cent. Three-bed homes have been cut by €30,000. The other schemes being developed by Kingscroft are Clonroosk Abbey in Portlaoise; Lansdowne in Portarlington (both Co Laois); and Townparks Manor in Kells, Co Meath.


The Kingscroft and Albany price cuts follow the decision last December by Capel Construction to cut prices at The Crescent, Ashtown, Dublin 15 by between €70,000 and €100,000 - a reduction of 17 and 22 per cent respectively. Fifty-six houses have been sold following the price cuts.
Kingscroft builds houses in Ireland and England. The Albany Group is one of the largest housebuilders in the Dublin area.

Amberman

SimpleSam06 wrote: »

We're not allowed to talk about that.

I understand your point....Im not hijacking, its an integral part of the equation...any modern discussion of national or global economics cant leave the Chindia part out intelligently.

SimpleSam06

Looks like its not just the public sector thats starting to take a few knocks. The media is also suffering heavily from the collapse... take a look at this thread.

seamus

SimpleSam06 wrote: »

Looks like its not just the public sector thats starting to take a few knocks. The media is also suffering heavily from the collapse... take a look at this thread.

I'm not sure that's a measure of anything tbh. One paper which seemed to base half of its content on property advertising, kind of inevitable.
The other paper was apparently new - new papers go out of business all the time, it's a very tough market to get into.
It'll have a knock-on for things like the property section in the times, but I can't see it affecting the media at large - quite the opposite, it's fodder for them.

SimpleSam06

seamus wrote: »

I can't see it affecting the media at large - quite the opposite, it's fodder for them.

Its news fodder, but news doesn't put bread on the table, advertising does. The change in the newspapers around the area over the last few months has been quite dramatic - from bulging with property adverts (and hence income) to being fairly slender with front page slots used to advertise the newspaper itself, and multiple quarter page ad slots inside taken up with the same.

SkepticOne

This thread begins with an article by Morgan Kelly, UCD economics lecturer, at the end 2006 predicting falls of 50% in real terms over several years. He now regards this view as hopelessly optimistic. Things are unraveling much faster than he predicted and has a new article today in the Irish Times.

Property market approaching critical point

The economy may be about to enter a period of prolonged recession, writes Morgan Kelly , the economist who predicted the property slump

Writing in this newspaper a year ago, I suggested that, in the light of past property booms abroad, Irish house prices were at risk of falls of around 50 per cent in real terms. At the time I imagined, again based on what had happened elsewhere, that selling prices would stabilise at their peak values for a year or two, and then fall slowly by a few per cent a year for up to a decade.

My forecast has turned out to be wildly optimistic. In the past year Irish house prices appear to have fallen by around 10 to 15 per cent. While still short of the 20 per cent fall in Finland in 1991, this is on a par with the largest falls experienced during the Dutch and Swedish collapses.

However, the Irish property market is giving signs of approaching a critical point where vague individual anxieties coalesce into a general panic and prices collapse. Should a collapse occur in 2008, it is most likely to start among heavily-indebted builders, many of whom have not sold a house in over a year, coming under pressure from banks to liquidate their large amounts of unsold inventory.

What has made the Irish house price boom different from any other (apart from the concurrent boom in Spain) is that it has occurred alongside a building boom. In most economies, the housing stock is overwhelmingly second-hand houses whose owners are reluctant to accept price cuts. When a downturn occurs, most people refuse to sell and the market effectively dries up for a few years until prices rise again. In Ireland, by contrast, the supply of houses has expanded rapidly: at the peak of the boom in 2006 we built almost 90,000 units, or one for every 16 households. This fell to around 70,000 last year and, ominously, a large proportion of these failed to sell.

This raises the question of why, given the number of unsold houses, builders are planning to build another 50,000 or so units this year? Once we know the answer to this question, we are in a position to understand why Irish house prices are now at risk of sudden and large falls.

To start, we need to remember that, because of delays in the planning process, this new building represents projects undertaken by developers in the very different climate of two years ago. There are now two distinct groups of developers.

The first group own land, typically have vivid memories of how their fathers and uncles went bankrupt in the 1980s, and have all stopped residential construction. The second group, who are by no means the smallest developers, have borrowed heavily to buy land and have no choice but to keep on building.

If you are a builder who borrowed €20 million in 2006 from a bank and some mezzanine investors to buy land for 100 houses and have just received planning permission, you have no option but to go ahead and use your remaining €11 million credit line to build the houses and hope for the best. However, at some stage this loan will have to be repaid, at least in part, and the only way to do this is by selling houses at whatever price you can get.

For their part, banks are now in the position of throwing good money after bad: having lent money for land which has depreciated in value, they are lending more money to build on it in the hope that they can recoup their losses, or at least delay the inevitable change in value that may leave some of them with solvency problems of their own.

However, with the recent bankruptcy of McEnaney Construction, banks have sent a definite signal to developers that their patience and liquidity are finite. Despite their understandable reluctance to initiate a downward price spiral, in the next few months increasing numbers of developers will be forced to follow the lead of Capel Construction and cut prices by 20 per cent and more.

However, just as expectations of price rises were self-fulfilling, so now are price falls. Buyers know that the longer they delay the less they will pay, and have the added fear of negative equity to keep them out of the market.

It is appearing increasingly unlikely that builders will be able to move their inventory at any price that can remotely cover their borrowings, making a wave of bankruptcies inevitable.

The houses built by a bankrupt developer become the property of the lending bank, which would typically auction them off, in one or more lots, to other developers.

However, for these developers to be able to bid, they need loans from banks. With Irish banks already having sunk €100 billion into property development, and needing to conserve liquidity as the international financial system moves towards a major solvency crisis, such loans may not be forthcoming. It is not hard to imagine a scenario where tens of thousands of new units built by bankrupt developers are sold for a fraction of their construction cost or simply boarded up, leaving most existing apartments and commuter-belt houses effectively valueless.

Any collapse at the bottom end of the market will roll upwards to reduce second-hand prices sharply, while the presence of large number of families who cannot move house because they have negative equity will ensure that the second-hand housing market remains frozen for a very long time.

With rising unemployment, falling tax revenues, and sharp falls in stock prices, it is becoming evident that the problems of the Irish economy run a good deal deeper than a few overpriced houses.

The building boom of the last eight years has deeply distorted the economy, leaving us with worrying numbers of mis-skilled workers, heavily indebted households, unaffordable Government programmes, and over-extended banks.

Most importantly, as the Irish economy moved from one driven by exports to one based on selling houses, its international competitiveness has fallen sharply.

While the word competitiveness had vanished from our national vocabulary, the examples of Germany, Italy and Portugal are there to show how a domestic boom with falling competitiveness tends to be followed by prolonged recession."

Thread on the Property Pin from which this is copied.

JupiterKid

I would largely agree with Morgan Kelly's sentiment. Ireland may end up having the worst house price crash in history to happen anywhere. The bigger the bubble, the bigger the bust - there really is no way around that cold, brutal fact.

Ireland could be in the throes of a nasty recession by 2010.:(

blast05

Buyers know that the longer they delay the less they will pay, and have the added fear of negative equity to keep them out of the market.

An interesting article alright, at the extreme end of negative sentiment on the matter but backed up by a rational argument. The whole argument however is predicated on the current large number of people who are waiting to buy with mortgage approval and all that continuing to wait and wait. Is there not a chance that as soon as a bit of positive news starts creeping out where for example 20 houses on a new 50 housing estate sell at launch for whatever reason (which would cause huge headlines and be portrayed as the turning point) that this will trigger those people who are waiting to buy to actually buy in the fear that the market has stabilised and prices will start rising again

FreeAnd..

maybe...but how high can a cat bounce?

punchestown

blast05 wrote: »

An interesting article alright, at the extreme end of negative sentiment on the matter but backed up by a rational argument. The whole argument however is predicated on the current large number of people who are waiting to buy with mortgage approval and all that continuing to wait and wait. Is there not a chance that as soon as a bit of positive news starts creeping out where for example 20 houses on a new 50 housing estate sell at launch for whatever reason (which would cause huge headlines and be portrayed as the turning point) that this will trigger those people who are waiting to buy to actually buy in the fear that the market has stabilised and prices will start rising again

Or else FTB's have seen the Housing Market, for what it is, a glorified pyramid scheme and will equate the purchase price of a house to their current and future earning income and not a 100% amount that a bank are willing to hand over. The tide has turned Im afraid for Housing speculators and at current prices, there is plenty more water left to flow.

gurramok

The developers will have to convince buyers along the lines of what Leslie Crowther used to say on tv...'Come on down, the Price Is Right'...so far they haven't budged barely enough for the homing signal despite the audience screaming 'lower lower!'

punchestown

gurramok wrote: »

The developers will have to convince buyers along the lines of what Leslie Crowther used to say on tv...'Come on down, the Price Is Right'...so far they haven't budged barely enough for the homing signal despite the audience screaming 'lower lower!'

as Bruce Forsyth's dollies get ready to turn the cards on Play your Cards right!

is_that_so

From a developers' point of view what are the tax implications for stock on hand? I imagine some benefit could be gained by setting it against large profits.

Amberman

anything for a pair? (of balls for buying property now)...not in this game!

punchestown

is_that_so wrote: »

From a developers' point of view what are the tax implications for stock on hand? I imagine some benefit could be gained by setting it against large profits.

Didnt he do well?

Victor

is_that_so wrote: »

From a developers' point of view what are the tax implications for stock on hand? I imagine some benefit could be gained by setting it against large profits.

I'm not sure if there really are. Potentially some developers will try to sell from their companies to themselves at break-even prices. However, the Revenue are well aware of such deals and will insist that any deal either be beyond arms length or at market rates. One way to do this might be to sell development A to a friend and but development B in return.

Ginny

SkepticOne wrote: »

Builders are gradually realising that there's no point building houses and pricing them out of people's reach. This is what people have been saying on this forum and elsewhere for some time.

Still far too expensive imo but a step in the right direction.

Top builders cut prices by 10-25%

headed over to see what speil Albany were spinning on these "Meadows" properties..
They are really unsold Holywell houses scattered all over the estate, they were selling 3 bed duplexs for €399k when you can buy a second hand one for max €370k.
Although there were some eejits out, the launch was at 2 and by 3pm all the 3 bed end of terraces (€340k) were gone and people were queing up for cancellations.

seamus

GinnyJo wrote: »

Although there were some eejits out, the launch was at 2 and by 3pm all the 3 bed end of terraces (€340k) were gone and people were queing up for cancellations.

They sound like very particular properties at an affordable price though. A 3-bed end of terrace (which is effectively a 3-bed semi) is seen as a long to medium term home, to be used for ten or more years. €340k is well within the reach of two earners, particularly if they've managed to get 12 or 18 months' good saving behind them.

The one-bed apartment at €230k is still 10-15% overpriced - it's really only suitable for a single person on upwards of €35k and would only be intended as a short term (5 years max) home. So those aiming for the 3-beds have less to lose (or more time to recover) and would be more eager for them.

My point being that a particular type of house selling out quickly is probably more of a "right place right time" blip as opposed to a market indicator. It does however indicate to me that there is a certain amount of demand still waiting in the wings - they're just more frugal. In times gone past, people wouldn't have bother waiting for cancellations, they would have put their money against whatever they could get.

Ginny

oh they're affordable, but not worth the price, sorry my point was there's still eejits out there throwing money at builders as they're thinking they're getting a good deal, if you look on Daft etc theres a good lot of nicer better built with better amenities houses out there for a few grand more.
there is still a lot of people out looking right now, from what I can see anything thats in good nic and not asking crazy prices are moving, slowly though.

BobbyD10

http://www.rte.ie/business/2008/0121/houses.html

BendiBus

40,000 vacant apartments in Dublin according to the IAVI. Plus how many still under construction?

http://www.rte.ie/news/2008/0121/housing.html