Housing Bubble Bursting

astrofool

Unemployment will effect the whole market regardless, however those going into buying a house, will usually be dual income, and will set the market price for that property.

If what you're saying is that if we get mass unemployment, the price of property will drop, then yes, but I think that will be the least of the worries. Property at the moment has been in a speculative bubble that has reached it's peak and is now on the decrease, where market fundamentals (inc. low unemployment rates, and stable interest rates), will begin to set the real price.

I'd be very surprised if dual income mortgages ever became the abnormal situation again, if anything, more and more women will be encouraged to keep working, with companies realising that to keep the best talent they have to be flexible with family issues.

SimpleSam06

On the dual incomes staying the norm, I'd be somewhat sceptical of that view. Accepting two incomes for a mortgage is a relatively recent phenomenon, and it joined the products on offer at around the same time as other dubious offerings, like interest only, or 40 year 100% mortgages.

From a lending institution's point of view, accepting two incomes represents a higher risk, since if one partner backs out, loses their job (due to having children or whatever), or if there are marital difficulties, the remaining parter will be unlikely to be able to cover the full mortgage, leaving the bank out of pocket for twice what it otherwise would be.

This is especially relevant in a downturning property market - lending institutions can't reclaim their losses based on selling the house on, even if the house is worth more than the amount due, they won't be able to sell it, leaving them sitting on a bad debt and a depreciating asset. Its a hard lesson they will be learning over the coming years.

Also what a lot of banking officials have missed in their quest for more zeroes on the balance sheet is that there will always be vastly more people who are well employed on a single basis than there are couples employed on the same basis.

What this means is that by allowing loans to be handed out valued at the maximum that two well employed people can afford, they are excluding enormous amounts of potential customers who are well employed on a single basis. The amount they could earn from a lot more lower value loans far outweighs the amount they could earn from limiting themselves to couples, I feel.

In any case, if the banks won't regulate themselves in this manner the government will probably do the job for them.

SimpleSam06

Just saw this over in AH, and I thought it might be relevant as regards the bottom of the market. This place (built illegally) cost £50,000 to put together. Does that give some idea of the cost of materials?

gally74

people keep forgetting one thing in ireland.

nothing is really cheap here, cars, mobiles insurance etc.

so i cant see us having cheap property, secondly we have no property tax in ireland, and this does allow people to hold onto property easier than in the us and the UK,

i knwo trichet is talking the talk, but its talk, the uk and us are dropping and so will the ecb, its just a matter of timing,

the us joint mandate growth and inflation, euro inflation only, however they know that is the economy tightens ( and sarcosy is looking for a cut in france) that you might have inflation under control but no growth,

prices have come back, with inflation running at 4-5% in real terms houses have dropped more that the %'s in the media,

Afuera

astrofool wrote: »

If what you're saying is that if we get mass unemployment, the price of property will drop, then yes, but I think that will be the least of the worries.

You can leave mass unemployment aside for the moment. My point is that if the average household income falls (possibly through greater unemployment, less hours been given to employees, parents deciding to stay at home to mind kids, or any number of reasons) then this will also affect the affordability for the average property.
I think it's too simplistic to use current inflation levels to try and predict whether something will be cheap in the future or not. Wage inflation is the important variable in determining that and in the case of property the inflation/deflation of the household income is really the most important factor. You need to come up with a plausible scenario for why household incomes will continue to rise in Ireland before I can see 280k being considered too cheap for an average property.

Afuera

gally74 wrote: »

we have no property tax in ireland, and this does allow people to hold onto property easier than in the us and the UK,

Tax laws are are not set in stone though. If the Irish government starts to run short of funds I imagine this is probably the first tax they will introduce.

gally74 wrote: »

the us joint mandate growth and inflation, euro inflation only, however they know that is the economy tightens ( and sarcosy is looking for a cut in france) that you might have inflation under control but no growth,

The ECBs view on this is that Sarkozy should be looking after growth in his own country while the ECB look after the currency. If there's a problem with growth in France then that would be Sarkozy's fault.

Cantab.

Afuera wrote: »

Tax laws are are not set in stone though. If the Irish government starts to run short of funds I imagine this is probably the first tax they will introduce.

I very much doubt that will happen in Ireland. It would only happen if a) farmers were exempt (landbanks would also be classified as 'farms'), and b) large homes on land with many bedrooms would be charged the same rate as middle-class semi-Ds in suburbia. Effectively it's the middle classes who'd pay to fund the local council -- not the landowners or the ones in power who'd be affected by it.

Anyway there's an easier way to introduce property taxation: it's called water charging. And with the fall-off in revenue (/bribes!) in the local councils from property-related activity, they'll be looking to make-up the shortfall in other ways. Heaven forbid a council was audited and the drift-wood ejected!

The "ground-work" for water charging has already been laid. All this fear-mongering over the summer via expensive advertising campaigns (through 'favoured' PR companies) really only has one purpose. If you do this for long enough, you'll have the masses out arguing your point on your behalf! The increasing numbers of people I'm meeting who are in favour of water charges is ridiculous -- but what they don't realise is that they've already paid their part in the water infrastructure by paying all kinds of taxes when their property was built!

Gurgle

Do-more wrote: »

Ah come on! If your going to make a pridiction and least hold it for a day!

In one post you say that you think the over-shoot is done and prices are likely to level off now and in the next post you say no, I think prices will go down further!

Which is it to be!:D:D

I have to argue the semantics over what I said?
Ok, to clarify:
I think the overshoot is done.
We are now into the 'settling' stage.
That does not mean they are going to settle right now at current values.
I expect prices to oscillate as they settle.
This could take some time.
Maybe 2 years.
Maybe less.
I think the average house price, when the market reaches a point where it could be described as stable (which I expect to happen in the next couple of years), will be in the region of €280k.

This figure is based on the predictions and speculation that I've been making for years - That the average house price will follow a graph similar to that of an underdamped second-order system.

astrofool

SimpleSam06 wrote: »

On the dual incomes staying the norm, I'd be somewhat sceptical of that view. Accepting two incomes for a mortgage is a relatively recent phenomenon, and it joined the products on offer at around the same time as other dubious offerings, like interest only, or 40 year 100% mortgages.

From a lending institution's point of view, accepting two incomes represents a higher risk, since if one partner backs out, loses their job (due to having children or whatever), or if there are marital difficulties, the remaining parter will be unlikely to be able to cover the full mortgage, leaving the bank out of pocket for twice what it otherwise would be.

This is especially relevant in a downturning property market - lending institutions can't reclaim their losses based on selling the house on, even if the house is worth more than the amount due, they won't be able to sell it, leaving them sitting on a bad debt and a depreciating asset. Its a hard lesson they will be learning over the coming years.

Also what a lot of banking officials have missed in their quest for more zeroes on the balance sheet is that there will always be vastly more people who are well employed on a single basis than there are couples employed on the same basis.

What this means is that by allowing loans to be handed out valued at the maximum that two well employed people can afford, they are excluding enormous amounts of potential customers who are well employed on a single basis. The amount they could earn from a lot more lower value loans far outweighs the amount they could earn from limiting themselves to couples, I feel.

In any case, if the banks won't regulate themselves in this manner the government will probably do the job for them.

On dual incomes, what you're really saying is that we'll start seeing a decrease of women in the workplace (also a relatively recent phenomenom), which I don't see happening. Yes it is riskier, but you could argue that the greater risk is with a single earner than a dual income, if the single earner loses their job, their chances of paying the mortgage is negligible, in a dual income family, the remaining earner will benefit from being jointly assessed for tax, and while drastic cutbacks would be needed, the mortgage could still be paid, at worst, they can sell up, and move to a smaller accommodation, and have someone earning money to have time to do this.

Of course, as I said earlier, if unemployment starts picking up, then yes, prices will fall, but the economy will be so F*cked, that there will be other things to worry about.

SimpleSam06

astrofool wrote: »

On dual incomes, what you're really saying is that we'll start seeing a decrease of women in the workplace

You misunderstood what I was saying rather drastically there. In no way did I say we'd see a decrease in women in the workplace. I said that banks should and probably will stop taking two incomes as a good basis for a loan. I see what you are saying about risk, but risk starts with risk evaluation. Its a lot easier to evaluate risk to one income than two incomes, especially when one partner might have children (and all the complications they bring) or whatever within a few years of taking out the loan.

astrofool

If anything, in that case, the government legislation is pushing things toward dual incomes rather than away, by means of tax breaks on child care, and increasing maternity leave to 26 weeks. Companies themselves see the value in keeping these workers, as it will usually take at least 6 months to train someone into the job.

If the problem is risk evaluation, then that is a problem for that industry to solve, you don't stop doing something because it's not easy. In that case, the company that best works out how to evaluate risk on two incomes forces the competitors to catch up, or the competitor goes bust.

SimpleSam06

astrofool wrote: »

If anything, in that case, the government legislation is pushing things toward dual incomes rather than away, by means of tax breaks on child care, and increasing maternity leave to 26 weeks.

No matter what tax breaks are offered, childcare costs lots and lots of money, weekly. In any case children are only one possibility. By the time the dust from the bust is settled, I would say that the financial services sector will be one of the most regulated in the world, to ensure no recurrence of this mess. We'll see sure.

gurramok

Speaking of money, think we have finally found what the national median wage is!

From page 40 here(http://www.normfisher.ca/pdfreports/dihas2008.pdf) of an international affordable survey dug out thanks to BJ, national household income(2 earners) is listed as follows:

On page 40, they say its:
(in euros!)
Cork - 57.9k
Dublin city/county - 64.8k
Dublin exurbs - 55.2k
Galway - 56.6
Limerick - 59.7
Waterford - 55.2

So from the above, the national median wage for a SINGLE earner seems to be around 27.5k outside Dublin to 32.4k for Dublin city/county so could be half way between that, ballpark 30k

Ah yes, the rising incomes factor lark that was used for years by VI's to justify the rising cost of housing is laid bare as a lie.

Now, are any bulls reading that and trying to justify the cost of overpriced housing for the median joe and jane out there ?

seamus

gurramok wrote: »

So from the above, the national median wage for a SINGLE earner seems to be around 27.5k outside Dublin to 32.4k for Dublin city/county so could be half way between that, ballpark 30k

How is the average single wage calculated? Is it based on a 37.5 hour week, or is the total wage taken into account - that is, do they get the average hourly rate of someone whether they're part or full time and then use that to calculate the average full-time weekly wage?

I would imagine that in many households, one earner gets significantly more than the other, so while the simple average is to divide it by two, in reality it may be 2:1 ratio.

gurramok

Average wage is an unfair measurement as it lobs the fewer higher earners with the far more numerical low wage earners to push up the 'figure' so median is fairest measurement of them all.

Only the government knows your answers to your questions Seamus as the median(not average) wage is not known for Ireland.(The UK do release theirs as its deemed to be fair measure)

The above link was the newest info that can be found, they don't say how they got it but only from 'national sources' and but it has to be the nearest that is known of the median wage nationally.

We do know that 78.42% of the workforce earn under 35.4k so thats a start, the sheer volume of human numbers would push that 35.4k level downwards to figure out the median wage(whether its 27,28, 29, 30, 31, 32, 33, 34, 35.3k ) you have to agree on this one, its maths?!

Anyone know the median wage in Ireland to better the 30k? (now, this is not the avg industrial wage nor the average wage!!...it's the state secret that is not available, it is find out what 50% of the population earn below/above a certain level?)

Gurgle

gurramok wrote: »

Average wage is an unfair measurement as it lobs the fewer higher earners with the far more numerical low wage earners to push up the 'figure' so median is fairest measurement of them all.

But then the average house price lobs the fewer multi-million properties in with everything else.

If you're taking the median wage, find out the median house price.

SimpleSam06

Gurgle wrote: »

If you're taking the median wage, find out the median house price.

Actually thats an interesting point. My guess is that its higher than the average, but it needs to be segregated by property type. One bedroom apartments going for a quarter million are wildly overpriced, but would throw off a national averages or median measurement towards the lower end of the scale. You can't say, ha one bedroom apartments are easily affordable to a couple - they are worthless to a couple. Lets say the median and average prices for a place you could fit a family of three, which is the target market for most mortgage lenders, apparently.

Afuera

Gurgle wrote: »

If you're taking the median wage, find out the median house price.

Not too sure where they get it from but this is in the same report linked by gurramok:

Median House Price
Cork

---

271,000
Dublin City

---

349,000
Dublin Exurbs ---- 278,700
Galway

---

262,000
Limerick

---

211,900
Waterford

---

225,800

SimpleSam06

Afuera wrote: »

Not too sure where they get it from but this is in the same report linked by gurramok:

I wonder what it looks like if you exclude one and two bed apartments, however?

Afuera

SimpleSam06 wrote: »

I wonder what it looks like if you exclude one and two bed apartments, however?

Yeah, you're right. 349k wouldn't have got you much in Dublin city these last few years.

DublinDilbert

SimpleSam06 wrote: »

I wonder what it looks like if you exclude one and two bed apartments, however?

In the current climate, I'd say it won't be long till the banks try exclude apartments from their "house" prices, so they can say that house prices haven't dropped that much at all.... as apartments seem to be taking the biggest hit at the minute...

jmayo

Ok don't have this in stone but heard, from reasonbly reliable source, over weekend of builder that is in trouble and owes over 60 million to Banks.
If true then is it tip of the iceberg ?

gurramok

SimpleSam06 wrote:

I wonder what it looks like if you exclude one and two bed apartments, however?

They do take the overall picture of each micro market (micro been Dublin and Limerick as separate markets with their own conditions)

They do not differentiate between areas, for now the lowest priced real houses in the whole city are located in the sh1ttiest areas asking a minimum 300k a pop(northside, about 360k southside) where those that can afford to buy there don't want to buy there and everyone else can't afford to live there at all, that's where its irrational as well!

jmayo wrote: »

Ok don't have this in stone but heard, from reasonbly reliable source, over weekend of builder that is in trouble and owes over 60 million to Banks.
If true then is it tip of the iceberg ?

Banks are bound to take hits on their exposure to developers, they are not saying it yet but its so obvious.

Just this morning, 3 Irish banks had their ratings downgraded
http://www.rte.ie/business/2008/0128/banks.html

rte wrote:

Broker UBS has downgraded a number of Irish banks this morning.

It has cut its rating on Bank of Ireland from 'buy' to 'neutral', and it has cut its ratings on both AIB and Anglo Irish Bank to 'sell' from 'neutral'.

Anglo's shares were down by more than 6% in Dublin, while AIB and Bank of Ireland fell 4%.

Dirk Gently

It looks like the European Central Bank will be cutting interest rates this year, some suggesting .25% , some suggesting .5% and some even suggesting 3 (x 2.5%).

Will it be enough to inject life back into the housing market or do people reckon prices will still fall regardless? How long do you reckon the downward interest cycle will last before we're back onto a rising cycle?

SkepticOne

clown bag wrote: »

It looks like the European Central Bank will be cutting interest rates this year, some suggesting .25% , some suggesting .5% and some even suggesting 3 (x 2.5%).

There's conflicting opinion on this. Eurozone inflation is still a worry and that is the ECBs primary concern. I would go with Mr Trichet's recent comments on the issue.

Tea drinker

SkepticOne wrote: »

There's conflicting opinion on this. Eurozone inflation is still a worry and that is the ECBs primary concern. I would go with Mr Trichet's recent comments on the issue.

Yeah, the external factors will have the say here. I am sure trichet will want to retain some balance with the dollar, but again euro is watching inflation. Given the external infaltionary pressure on Ireland the housing market is not so important anymore, and indeed the economy is being weaned off it. So no, i really don't think the Housing Market will bounce anytime soon, indeed it has further to drop.

miju

clown bag wrote: »

It looks like the European Central Bank will be cutting interest rates this year, some suggesting .25% , some suggesting .5% and some even suggesting 3 (x 2.5%).

Will it be enough to inject life back into the housing market or do people reckon prices will still fall regardless? How long do you reckon the downward interest cycle will last before we're back onto a rising cycle?

link or is this just the opinion of one Austin Hughes and his ilk (who have been wrong predicting interest rate cuts for pretty much the last year)

oh well i'm sure they'll get it right eventually :D:D:D

Sarn

Here you go.

IIB predicts ECB to lower rates

Personally I see them staying static with at most 0.25 drop if things really get bad.

patrickolee

If its the same thing as I heard on the radio it was IIB. If it happens, I think it will stabilise things for a while. It will take time for peoples confidence to rise, so I would think the rates would need to stay low for a while before things would recover.... and even then it will more likely be a return to small increases rather than anything we were used to in days gone by. So yes and no.

Victor

SimpleSam06 wrote: »

Just saw this over in AH, and I thought it might be relevant as regards the bottom of the market. This place (built illegally) cost £50,000 to put together. Does that give some idea of the cost of materials?

I suspect the £50,000 doesn't take into account several man years of labour.