Housing Bubble Bursting

Calina

Glenbhoy wrote: »

Well from looking at local demgraphics and seeing the amount of one person family units, developers and planners realised that maybe this was the way forward.
(Well, we're always hearing about the bachelor farmers of Leitrim)

One bedroomed apartments are lousy even for one person family units unless you have no life, no CDs, books, or any hobbies.

This is specifically why the apartment market is going to bomb here. The apartments we built are not suitable for living in long term.

seamus

Indeed. A one-bed apartment is great, so long as you can leave your stuff at Mammy & Daddy's

Glenbhoy

Calina wrote: »

One bedroomed apartments are lousy even for one person family units unless you have no life, no CDs, books, or any hobbies.

This is specifically why the apartment market is going to bomb here. The apartments we built are not suitable for living in long term.

If you hadn't released the equity on it, you wouldn't have any of that clutter anyway.
And if you'd managed to accumulate such clutter, there are options, ebay, or of course these superb storage solutions:
http://www.thestoragebed.co.uk/Ireland and of course, the packed suitcase under the bed...

Open your minds people, try and think outside the box;)

Calina

Calina wrote: »

One bedroomed apartments are lousy even for one person family units unless you have no life, no CDs, books, or any hobbies.

This is specifically why the apartment market is going to bomb here. The apartments we built are not suitable for living in long term.

which is why its in my view that for accommodation like that you would be mad to get a mortgage for longer than say 15 or 20 years.

johnnyskeleton

Deleted User wrote: »

which is why its in my view that for accommodation like that you would be mad to get a mortgage for longer than say 15 or 20 years.

+1.

Sadly, for the majority of purchasors, the one and only criteria is how much the monthly repayment will cost them, and I'm sure some of them would gladly go for a 50 year mortgage if it shaved a few quid off the mortgage (or let them buy a better place).

On yet another side note, there was a time when a 100 year mortgage was normal. You would buy your small holding off the local landlord, and you, your son, and your grandson would work your entire lives, endlessly toiling to get enough money to pay the mortgage, so that your great grandson could, well as it turned out, sell up and move to Dublin in the early 1970s.

Calina

Glenbhoy wrote: »

If you hadn't released the equity on it, you wouldn't have any of that clutter anyway.
And if you'd managed to accumulate such clutter, there are options, ebay, or of course these superb storage solutions:
http://www.thestoragebed.co.uk/Ireland and of course, the packed suitcase under the bed...

Open your minds people, try and think outside the box;)

My outside the box thinking involves a second bedroom to be converted into an art studio along with a garden shed to store the watersports gear in.

Thinking outside the box in this country would have involved building apartments that were for living in, not for making loads of short term profit.

Also, the reason I have all that clutter is not because I released the equity but because I pay rent and am not being so hurt by interest rate rises.

ixoy

We're a couple renting in a 2-bed and that's just about enough room for us and all our junk. When we buy (hopefully in about a year, we'll see) we'll really want a 3-bedroom place with enough room to spread out all our stuff comfortably. I don't want to have to cram everything together, fit into a shoe box just to get my own place and now I believe that may no longer have to happen as we're in a falling market. I no longer see a bounce for FTBs, especially with the new 80% mortgages being introduced by BoS and others (soemthing which can only lower prices further) - fingers crossed that it may give people more what they deserve, rather than merely afford.

orbital83

ixoy wrote: »

I no longer see a bounce for FTBs, especially with the new 80% mortgages being introduced by BoS and others (soemthing which can only lower prices further) -.

If this practice spreads among the banks, it's not good news for property prices.

The days of popping into Brown Thomas for a flashy handbag, booking a long weekend away in New York and then stopping off at Sherry Fitz on the way home for a 2 bed shoebox on a 100% loan are over.

The concept of developing a responsible savings habit and working to build up a decent deposit is beyond comprehension for your average Tiger cub.

Unless parents start writing big cheques, a large section of the FTB market will be floored by this move. I know very few in my peer group who could put down €60K on a 2-bed Dublin apartment costing say €300K.

DublinDilbert

John J wrote: »

If this practice spreads among the banks, it's not good news for property prices.

The days of popping into Brown Thomas for a flashy handbag, booking a long weekend away in New York and then stopping off at Sherry Fitz on the way home for a 2 bed shoebox on a 100% loan are over.

The concept of developing a responsible savings habit and working to build up a decent deposit is beyond comprehension for your average Tiger cub.

Unless parents start writing big cheques, a large section of the FTB market will be floored by this move. I know very few in my peer group who could put down €60K on a 2-bed Dublin apartment costing say €300K.

+1 was only thinking that this morning... even for a small apartment worth say €200K, they would be looking at a deposit of around €40K... not many people have that sort of cash lying around....

Also based on some of the reports on LTV ratio yesterday some banks are still giving 90% on houses... So you need a 40K deposit for a 200K apartment, but with the same 40K deposit you could possibly get a 400K house!

This will really hurt apartment values, which are already at 2004 / 2005 prices from what i've seen around....

ntlbell

John J wrote: »

.

Unless parents start writing big cheques, a large section of the FTB market will be floored by this move. I know very few in my peer group who could put down €60K on a 2-bed Dublin apartment costing say €300K.

Not sure the parents or the credit unions will be helping anymore as they're asking for proof of the savings, you will more than likley have to save with the bank you mortgage from or show savings statment.

ntlbell

DublinDilbert wrote: »

+1 was only thinking that this morning... even for a small apartment worth say €200K, they would be looking at a deposit of around €40K... not many people have that sort of cash lying around....

They could have it if it wasn't going up their nose and on interest on their 4x4/mini/bmw car loan

Dalfiatach

ntlbell wrote: »

Not sure the parents or the credit unions will be helping anymore as they're asking for proof of the savings, you will more than likley have to save with the bank you mortgage from or show savings statment.

Yeah, "skin in the game" the bankers call it. For FTBs now they'll want to see a saving record, with that bank, for at least 12 months before they'll give you the 80% mortgage. The 90% mortgages will be disappearing, and salary multiples will get shaved back to more traditional levels as well.

It means there'll be very few FTBs actually buying in the next 2-3 years until they have their deposits saved...and when they do start coming back to the market they'll only be getting mortgages for much lower amounts.

A lot of apartments, and badly-built shoeboxes in Cavan or Westmeath, are now essentially worthless :eek:

Do-more

If the 80% max on apartments is taken up by the majority of lenders, I can see it spelling doom for a lot of developers. Many smaller developers came to the party late and even many larger ones have rolled profits from one development into another expanding as they go. I think that the coming months will see the collapse of a considerable number of developers.

How true it is I don't know, but there is a rumour going around of a major developer in Dublin who is in crisis but the banks involved are supporting them in fear of what their bankruptcy would do to the market. As I say this is only hearsay but I have heard the same story from two totally different sources. But then you know what this country is like for not letting the facts get in the way of a good rumour!

ixoy

It seems to me that the 80% mortgage is, more than anything else, going to be the thing that's going to cut the bottom out of the market. I'm saving (while renting) and could maybe swing an 85% but an 80% would be next to impossible.
So new apartment builds would have to drop prices to meet the buying power (or lack of it) of the new FTBs or else no stock moves. People can't trade up if the bottom rung has been smashed in.
It could leave to swathes of stock sitting there and nobody able to move. I wonder how the vested interests are going to try and sell this one....

BendiBus

So people can't stump up 60K for a 300K property. If all people have is 30K then the property will go for 150K or it won't sell at all. It doesn't matter if builders completely stop building. It has nothing to do with oversupply. It's simple ability to pay. It will hurt developers with stock to sell but the real impact will be on development land costs. Developers will not pay as much as they used to for land if they can't pass it on to homebuyers. The real losers down the line are those who have hoarded land. And in all honesty who gives a sh1t about them?

Once land prices come back to earth (no pun intended), developers can continue to develop and sell their developments at a reasonable profit. But buyers won't have to pay so much.

So given a requirement for a 20% deposit, homebuyers could end up paying a mortgage of little over half what they otherwise would. So if they can stay in employment they can afford to continue to spend in shops, bars, restaurants etc. This will be very important in the context of a struggling world economy.

If we can get through this sudden change of environment, I think what is happening is a very, very good thing - even for property developers.

SkepticOne

I agree with Bendibus. There was a long article in the Irish Times today about the terrible effect of the credit crunch on borrowers. In reality prices must adjust to what people can afford to borrow. If that is only a small amount then then prices must drop accordingly. Any build up of unsold property such as we are seeing now will be temporary.

Do-more

I absolutely agree that the market needs to return to fundamental values, sensible multiples of average wages. My point is that bankruptcies amongst developers will release a huge amount of repo'd property onto the market and should act as the catalyst to get us back to fundamentals relatively quickly. Otherwise we are doomed to a long and drawn-out slump.

The_Conductor

Do-more wrote:

I absolutely agree that the market needs to return to fundamental values, sensible multiples of average wages. My point is that bankruptcies amongst developers will release a huge amount of repo'd property onto the market and should act as the catalyst to get us back to fundamentals relatively quickly. Otherwise we are doomed to a long and drawn-out slump.

Banks are terrified of bankrupting any of the larger developers though- as the loans they have given them are all backed up with these banks of unsold properties, and the reprecussions of taking a hit on the prices would be horrendous for the likes of some lenders (think Anglo Irish for example). Its seen as ok to bankrupt some of the smaller players- to keep the larger players in line- all the while trying to secure alternate income streams for the larger developers so they are in a position to at least service their loans to some extent until the dust from the carnage settles somewhat, and people have a better idea of lie of the land.

Pa ElGrande

smccarrick wrote: »

Banks are terrified of bankrupting any of the larger developers though- as the loans they have given them are all backed up with these banks of unsold properties, and the repercussions of taking a hit on the prices would be horrendous for the likes of some lenders (think Anglo Irish for example). Its seen as ok to bankrupt some of the smaller players- to keep the larger players in line- all the while trying to secure alternate income streams for the larger developers so they are in a position to at least service their loans to some extent until the dust from the carnage settles somewhat, and people have a better idea of lie of the land.

This is why the Irish banks shares have fallen, the investors have twigged this and pulled put, if bank shares can fall 50%, so too can value of the assets they loaned against.

Here are two articles from Mike Morgan, a real estate agent in Florida, that highlight just what we face, remember the US bubble collapse is about 12 months ahead of us.

Florida’s Housing Hurricane
By Mike Morgan October 6, 2006

Hurricane season comes every year in Florida, but a really damaging storm comes along maybe once a decade.
So it is with Florida real estate: After years of good weather, the Florida housing market is due for a Category 5 hurricane. Sample recent headlines from the real-estate page: August existing home sales in Florida drop 34%, condo sales off 41%.
Pay attention, Northerners and left-coasters: Although much of the country is safe from hurricanes and skyrocketing homeowner's insurance, the real-estate hurricane knows no boundaries.
Just as a hurricane needs warm water to feed its power, the housing industry's hurricane was fed by reckless investors feeding money into a real-estate bubble during the last few years. And not just Florida's: Investors have fuelled all of the hot housing markets, including Arizona, California, Northern Virginia, Nevada and many of the Eastern Seaboard markets.
continued ->

In the Eye of the Housing Hurricane
By Mike Morgan April 21, 2008

Recently, however, there has been a lull in the windstorm. Would-be buyers are returning to the market. Over the past few weeks, we’ve been seeing 300% increases in traffic at our open houses from a year ago. Builders and real-estate agents report that offers are up, along with traffic.
But this is not the end of the hurricane; it’s still the eye. What the builders and agents neglect to report is that most of the traffic couldn’t qualify to buy a moped. Nor do they report rising rates of pending contracts that fail to close. And they don’t mention the damage being done by falling prices, which put more and more home owners into negative-equity positions and make it more likely that more property gets pushed back to the lenders.
Nor do the builders dare to mention the bulk sales of inventory homes they are making to a new generation of giddy flippers with deeper pockets. This nonsense not only forces prices down further; it also creates a new competitor for the builders’ remaining inventories. The bulk buyers still have to sell these homes to end-users.
This twist is not all that new, but it is continuing to feed the overall problem of inventory glut. However, this is not what we should be focusing on as we enter the back half of this hurricane.
Almost nobody is reporting on how the inventory problem of 2006 has moved from builders to lenders, and how the lenders have no clue about what to do with the surge of defaults and foreclosures.
The reason the back half of the hurricane will be such a devastating wipeout: The failure of the lenders to address their issues with defaults is compounding the inventory problem to the point where we will see a tidal wave of inventory hit the market.
continued ->

Caoimhín

Is it accurate to say that the majority of posters here have NO sympathy for builders, developers or speculators who have gotten rich off the back of this glorified pyramid scheme and are now open to loosing vast sums of money?

SkepticOne

I'm against the government helping out builders through schemes like the the "affordable" housing scheme/initiative etc.

Pa ElGrande

caoibhin wrote: »

Is it accurate to say that the majority of posters here have NO sympathy for builders, developers or speculators who have gotten rich off the back of this glorified pyramid scheme and are now open to loosing vast sums of money?

Not true. Builders and developers are just actors who have been misled by the money thrown at them by bankers. They are not foolish people and have made rational decisions based on availability of credit and projected demand, they are the entrepreneurs who have got up and created companies and jobs .

If you want to blame someone, then follow the money, the cheap money was created by central banks and governments running deficit spending, this inflationary expansion of money and credit is what caused the problem, this is what caused the Dot.Com boom, the mortgage backed securities (MBS) boom and now the commodities boom which is driving up the cost of energy and food and robbing you and me of our income and savings through declining purchasing power.

Greenspan, Bernanke, Fukui , Shirakawa, Trichet, Hurley - these are the men who oversee the monetary inflation and combined with irresponsible politicians create the bubbles we experience, but they are seldom blamed by the public or held accountable for the destruction of wealth and impoverishment they cause.

Stephen

For me, absolutely. They've been raking it in for years during the good times, now they get to suffer.

bren2002

Builders and developers have been raking the cash in for the past 7/8 years, especially in the past 5 years. Granted the banks have facilitated both devlopers and buyers over this time driving the prices through the roof.

It has not taken any effort (or genius) to make a ton of money in the past 5 years. If builders, developers and flippers, especially the small time amateurs, had extracted a given percentage from each development as they went along instead of ploughing all of the profits into the next development then they would not find themselves in the positions that some are in now. i.e. owing half a million on a 2 bed (or even 1 bed) apartment that can't sell.

They screwed people on the way up, we all have friends and family with enormous mortgages who live in places they don't want to live or in places that are too small for the long term. Or like myself who were priced out of the game and chose not to buy somewhere I didn't want to live.

miju

personally I don't begrudge anyone making their profit from property such is the nature of the open market and more power to them. people like to blame builders , banks etc but at the end of the day it was stupid people bidding against themselves etc which drove the price up so everyone is complicit in this and people like to look for someone else to blame other than themselves.

but likewise nor do i have any pity for them when that same open market comes around to bite them in the arse

bren2002 wrote: »

They screwed people on the way up, we all have friends and family with enormous mortgages who live in places they don't want to live or in places that are too small for the long term. Or like myself who were priced out of the game and chose not to buy somewhere I didn't want to live.

In fairness they just facilitated people screwing themselves. Everyone has free will and the capacity to make the decision not to buy a property and just rent etc (though granted there a exceptional circumstances sometimes)

Pa ElGrande

Stephen wrote: »

For me, absolutely. They've been raking it in for years during the good times, now they get to suffer.

I disagree, these men are the entrepreneurs, who organise land, capital and labour and create good that have value. They are people whose ability to see the future create the production and generate wealth in the first place.
These men take on risks, if they are right they are rewarded, if they are wrong they bear the burden of failure and that is the way it should be.

Begrudgery

Begrudgery is an attitude which has often been identified as "the Irish disease". In essence, it describes a predilection to begrudge other people their success and wealth. Irish people are supposedly very keen to drag everybody down to their level, with phrases such as, "It's far from that he was reared", i.e. "He may be successful/wealthy/powerful now, but I knew him when he was just a guttersnipe/corner boy/snot-nosed pup". This attitude is summed up nicely by Bono:

An American will look up at somebody living in a big house on a hill and say, "Someday, I'm going to be like him". An Irishman will look up at the big house and say, "Someday, I'm going to get that fecker!"

Wishing suffering on people because they were raking it in during the good times is the Irish disease "begrudgery". Let's move beyond that, the housing boom was a text book bubble, and we all benefited in some way from it while it lasted, it's now time to face up to the consequences and deal with them.

biggus

I looked at Florida property in 1999 as an investor and was told there would be no capital appreciation but good rental returns. I couldn't understand this until I went and saw a cresent of luxury homes (five Beds with pools) they all looked lovely ,However the standard of build was totally lacking longevity.

A Mobile home/caravan in Ireland was better built. Hence no potential capital appreciation of Florida property, i.e a bad tennant or storm would render these lovely looking houses as scrap.

Also there were no natural limits on building capacity as developments didn't have to cluster around old villages(none) or between hills or other geography. Unlimited sprawl with no focal points.

I didn't buy in florida, but my point is don't compare Florida property collapse to any european property market, particularly Ireland or London or Paris or anywhere where people have always aspired to live over centuries, regardless of their status. Because people actuallly want to live here this will help the market from going down the tubes.

iguana

I largely blame the government for what has happened. There were many things they could have done to limit the boom. And surely that was their job.

johnnyskeleton

biggus wrote: »

I looked at Florida property in 1999 as an investor and was told there would be no capital appreciation but good rental returns. I couldn't understand this until I went and saw a cresent of luxury homes (five Beds with pools) they all looked lovely ,However the standard of build was totally lacking longevity.
...

I didn't buy in florida, but my point is don't compare Florida property collapse to any european property market, particularly Ireland or London or Paris or anywhere where people have always aspired to live over centuries, regardless of their status. Because people actuallly want to live here this will help the market from going down the tubes.

I think the point is thought that while people still want to live in Dublin City Centre and within 5 miles of the city, less people actually want to live in Meath, Kildare and Wicklow and commute into town, and even less (if any) want to buy up all the new properties in small towns across the country. While on paper there would have been say 80,000 new homes built across the country over the last few years, the reality is that maybe only half of those new homes were built where people actually want to live, the rest were built anywhere that 1) land was cheap 2) planning permission was easy and 3) labour was readily available. So while it is my view that there aren't enough new properties in Dublin, Cork, Galway etc (or at least, not enough to accomodate everyone who wants to live there at a reasonable price) there are far too many new properties across Ireland that simply wont sell.

So, when you look at places like Ballymahon in Longford, which has hundreds of new properties and no one to buy them, it seems reasonably clear that the bottom is going to fall out of that market.

While the same won't happen in places that people actually want to live (and I should say there are people who want to live in Ballymahon, it's a great place, but they already had homes there), the effects of these drops will have an impact on prices across the board, and that is in addition to the impact of the credit crunch.

silverharp

I gather there is now international shorting of Irish banks , betting on a downside risk from the credit crunch. I'm wondering if any of the big schemes will go tits up based on dodgy financing, for instance the people that bought the jurys site for 100's of million based on the "sky is the limit" or similar around the city.