Housing Bubble Bursting

beeno67

Gurgle wrote: »

Don't buy anything, anywhere, ever unless:
a) You want to own it
- and -
b) You can afford to pay for it

For all the guesses, opinions and predictions on this thread (my own included), absolutely nobody knows what is going to happen.

'The day you buy is the day you sell' - Bollox
'Location, location, location' - Bollox
'You can't lose on property' - Bollox
'Get a step on the ladder' - Bollox

Not forgetting the classic
"Money spent on rent is money down the drain" - Bollox

Gurgle

beeno67 wrote: »

Not forgetting the classic
"Money spent on rent is money down the drain" - Bollox

True true.
Money spent on rent is an unavoidable living expense for people who decide not to buy a property they:
a) Don't want
- or -
b) Can't afford

biggus

To hotredhead, to buy now or wait.
In your mind,Wait til october,with short nights and winter coming a buyer may be more welcome. However go and look a properties now, that are fair bit above your budget.
If you find one thats nearly,but not exactly what you want make a ridiculously low offer(yes i do have mortgage approval and have nothing to sell). Do this a number of times with different agents and sit and wait. You might be suprised,also you'll know the market backwards by oct. A normal closing takes six weeks, if longer your nearly in october anyway ! The only problem is that If you find exactly what you want you won't be able emotionally to stick to the low offer dig your heels in.
Best of luck

Sarn

gamer wrote: »

Theres an article in new york times finance section..... says ,i paid 550k 4 this one bed apartment ,its lost 100k value since 2007....

The prices in the article are in dollars (so say ~€350k). Still expensive though.

The tightening in lending will have to force prices further down, certainly in the apartment sector with 80% only mortgages spreading. Declining affordability with rising rates, fuel, food, unemployment etc. means that the salary multiples used in calculating mortgages should come down as well.

Glenbhoy

hotredhead wrote: »

Hi,I hope I am not going off topic here.We are first time buyers and qualifiedfor 100% mortgage 2 years ago,but decided to wait.Obviously now we are talking 90-92% and that is fine.
However we will not be in a totally comfortable position to buy until October.
By then we will have drastically cut our loans and have full deposit.
What is freaking me out is people ie.family telling me we have to make a move now as prices are starting to go up.Who knows what is going to happen.Maybe they will go up maybe they wont.All I know is I cant do anything till October.
Sorry for the rant but I had to get it off my chest.What do you guys feel in general.Thanks in advance.

Eddie Hobbs reckons that anyone who can should wait as long as possible, certainly for another year and 2 years if you're in a position to - article in today's Daily Star.

The_Conductor

Glenbhoy wrote: »

Eddie Hobbs reckons that anyone who can should wait as long as possible, certainly for another year and 2 years if you're in a position to - article in today's Daily Star.

With no disrespect to Eddie Hobbs, much as I hate the smug prat, no-one really knows. Its entirely possible according to some economists, that we may be on the brink of the biggest recession since the petroleum crisis in the 70's, in which case not being tied to longterm debt may be a brilliant idea. On the other hand liquidity on the scale of hundreds of billions, is being pumped into the global credit markets. If this does work- it could well be that business may resume as normal? But who knows- I certainly don't have a crystal ball, and I'd have serious issues with anyone who tried to put absolute figures on anything.

Glenbhoy

smccarrick wrote: »

With no disrespect to Eddie Hobbs, much as I hate the smug prat, no-one really knows. Its entirely possible according to some economists, that we may be on the brink of the biggest recession since the petroleum crisis in the 70's, in which case not being tied to longterm debt may be a brilliant idea. On the other hand liquidity on the scale of hundreds of billions, is being pumped into the global credit markets. If this does work- it could well be that business may resume as normal? But who knows- I certainly don't have a crystal ball, and I'd have serious issues with anyone who tried to put absolute figures on anything.

I'm not eddie's greatest fan either, but, I quoted him purely to back up my own feelings as to some people (unbelievably), he's got a little more credence than me!!! Anyway, I hear we're actually about to enter the greatest depression since the 30's, that 70's oil problem is going to look like a little storm in a teacup, on the other hand the central banks efforts to free up liquidity may work, but to what end? Are we just postponing the inevitable? Will it have the same effect as low interest rates post 9/11?

faceman

Gurgle wrote: »

Don't buy anything, anywhere, ever unless:
a) You want to own it
- and -
b) You can afford to pay for it

For all the guesses, opinions and predictions on this thread (my own included), absolutely nobody knows what is going to happen.

'The day you buy is the day you sell' - Bollox
'Location, location, location' - Bollox
'You can't lose on property' - Bollox
'Get a step on the ladder' - Bollox

Im a bit confused at some of your bollox statements. Are you saying that they dont mean anything at all???

orbital83

hotredhead - You mention that people are saying "prices will take off again"
You need to be careful here.

Large sections of the media have a vested interest in telling you the market is going to take off again. These guys (developers, EAs, Landlords, banks etc) need you to buy NOW so they can either return to profit or escape financial ruin. They need to convince you that what happened over the last 10 years in Ireland wasn't a once in a lifetime event, but something that will never end, because Ireland is different from every other country in the world.

The people saying "prices will take off again" are probably swallowing this propaganda hook, line and sinker and repeating it to you.

Now, ignoring those people who probably have zero knowledge of how markets and economics work, you need to consider whether the factors are there to make property take off again.

The following is my totally amateur assessment, which you may agree or disagree with, but I believe the basics are indisputable and enough to suggest that we are not going to see house prices rising at double digit rates in the near future.

- Rising employment? No, 1300 jobs are being lost every week.
- Buoyant public finances? No, government deficit projected to be €3 billion more than expected.
- Rising economic growth? No, projections of 1-2% growth this year now looking optimistic - compare to 10% back in the Celtic Tiger era.
- Falling property supply? No. See http://daftwatch.atspace.com - 1000 new properties hitting the market per week.
- Falling interest rates? No, ECB are becoming more hawkish, hinting that rates are more likely to rise than to fall, and EU inflation is rising. Interbank rates, which are arguably more important, are steadily rising.
- Explosion of easy credit? No, mortgages are becoming harder to obtain, and prices may have to drop as a result, as FTBs are priced out by hefty deposit requirements.
- Immigration? Unlikely. Anecdotal and media evidence suggests this has halted and in fact immigrants are returning from whence they came.

The one thing that would concern me is the tightening of credit may make mortgages more difficult to come by and reduce affordability. However, I believe prices will fall by enough to outweigh this effect, and if you are a strong saver, this will put you in a strong position.

Tom123

hotredhead wrote: »

Hi,I hope I am not going off topic here.We are first time buyers and qualifiedfor 100% mortgage 2 years ago,but decided to wait.Obviously now we are talking 90-92% and that is fine.
However we will not be in a totally comfortable position to buy until October.
By then we will have drastically cut our loans and have full deposit.
What is freaking me out is people ie.family telling me we have to make a move now as prices are starting to go up.Who knows what is going to happen.Maybe they will go up maybe they wont.All I know is I cant do anything till October.
Sorry for the rant but I had to get it off my chest.What do you guys feel in general.Thanks in advance.[/QUOTE

You definitely should wait a few months hotredhead. No one can tell you what to do but prices DO have further to fall IMO.
If you are determined to buy now then make sure you negotiate a 20-25% discount to current asking prices.

Check out the website http://www.irishpropertywatch.com/index.php you should be able to spot a bargain.
Before going to view a house you should at least know how long it has been on the market and whether it has dropped the price previously.

Best luck

SimpleSam06

John J wrote: »

The one thing that would concern me is the tightening of credit may make mortgages more difficult to come by and reduce affordability.

I wouldn't be concerned, prices are dependent on the credit supply, not the other way around. If the credit supply drops, so do prices.

Gurgle

faceman wrote: »

Im a bit confused at some of your bollox statements. Are you saying that they dont mean anything at all???

Not to someone whos buying a home.
Those are all (misleading) tips for investors.

faceman

Gurgle wrote: »

Not to someone whos buying a home.
Those are all (misleading) tips for investors.

Im not so sure. I havent heard the one the day you buy is the day you sell before but some of the other comments are relevent to anyone buying at any stage.

Location location location is a cliche, however the point is to look at resale. Is it something that can be sold. If an individual runs into financial difficulty or has a change in personal circumstances, they need to know that there is a demand for property in the area. Particularly when its a buyer's market.

you cant lose on property is a bit of a broad statement but would stand up over a 30 year period. Not short term tho.

A step on the ladder is even more crucial now in current terms. You need to make sure if you take a step, its the right step. You dont want to stand on the broken rung!

Gurgle

faceman wrote: »

the point is to look at resale...
A step on the ladder is even more crucial now in current terms.

Both are relevant to someone who's already thinking of selling on the day they're buying.
i.e. an investor

With the costs of selling and buying, the so-called property ladder is more of a waterslide. Trading up is an extremely expensive business, between stamp duty and extortionate fees for everybody in sight.

Better to wait, save and when you're ready get onto the rung you plan to spend at least the next decade on.

faceman

Gurgle wrote: »

Both are relevant to someone who's already thinking of selling on the day they're buying.
i.e. an investor

With the costs of selling and buying, the so-called property ladder is more of a waterslide. Trading up is an extremely expensive business, between stamp duty and extortionate fees for everybody in sight.

Better to wait, save and when you're ready get onto the rung you plan to spend at least the next decade on.

Ah i get you now. Completely agree btw on your last comment.

DublinDilbert

SimpleSam06 wrote: »

I wouldn't be concerned, prices are dependent on the credit supply, not the other way around. If the credit supply drops, so do prices.

+1 and this is going to be especially true with apartments... the 80% LTV ratio if adopted by more banks is really going to make apartments take a hammering.... €40K deposit for a €200K apartment :rolleyes:

faceman

DublinDilbert wrote: »

+1 and this is going to be especially true with apartments... the 80% LTV ratio if adopted by more banks is really going to make apartments take a hammering.... €40K deposit for a €200K apartment :rolleyes:

The 80% wont be adopted by other banks.

Calina

faceman wrote: »

The 80% wont be adopted by other banks.

On what grounds do you say that?

SimpleSam06

faceman wrote: »

The 80% wont be adopted by other banks.

I don't think that really matters. The top amount the banks will lend out is dropping, and will continue to drop for the forseeable future. That top amount of course dictates the maximum price of houses and apartments.

astrofool

Is this not a bit of false logic? Does this mean that if the credit problems sort themselves out, that house prices are going to begin to rise again in line with what the banks are lending?

Remember, loans are being constricted by the credit crunch, so the banks are being more careful with the money they loan out given the limited supply (i.e. picking the best/safest people to lend it to, who have large deposits already).

I don't see house prices suddenly jumping up when the banking sector sorts it's problems, I agree it certainly doesn't help the housing sector now, but the restricted credit is only going to be temporary.

faceman

Calina wrote: »

On what grounds do you say that?

On the same grounds that everyone else is making their comments on the thread.

SimpleSam06 wrote: »

I don't think that really matters. The top amount the banks will lend out is dropping, and will continue to drop for the forseeable future. That top amount of course dictates the maximum price of houses and apartments.

Too much emphasis is being put on BoS recent move and as i already said for a long time when they entered the irish market they only gave 80% mortgages.

100% mortgages were always a bad thing no matter what state the housing market in.

Mortgages of upto 95% are still available and no other bank has given an indication that it will change.

What we may see is a drop in the attractive first year discount rates some banks offer new customers.

however what is the rule today will be different tomorrow. Its all swings and roundabouts.

faceman

astrofool wrote: »

Is this not a bit of false logic? Does this mean that if the credit problems sort themselves out, that house prices are going to begin to rise again in line with what the banks are lending?

Remember, loans are being constricted by the credit crunch, so the banks are being more careful with the money they loan out given the limited supply (i.e. picking the best/safest people to lend it to, who have large deposits already).

I don't see house prices suddenly jumping up when the banking sector sorts it's problems, I agree it certainly doesn't help the housing sector now, but the restricted credit is only going to be temporary.

Bare in mind that the "credit crunch" as it is being fondly referred to didnt cause a drop in house prices in ireland. The credit crunch is however affecting banks lending to one another and is adding to the speculative doom and gloom in the housing market.

Calina

faceman wrote: »

Bare in mind that the "credit crunch" as it is being fondly referred to didnt cause a drop in house prices in ireland. The credit crunch is however affecting banks lending to one another and is adding to the speculative doom and gloom in the housing market.

Well something *did* cause a drop in house prices in Ireland. I'm interested to read what you think it might be.

Afuera

faceman wrote: »

Bare in mind that the "credit crunch" as it is being fondly referred to didnt cause a drop in house prices in ireland. The credit crunch is however affecting banks lending to one another and is adding to the speculative doom and gloom in the housing market.

Faceman is competely right. The slowdown in the property market began around mid-2006, a few months after the ECB began raising their rates. When the rates were moved off their emergency level it had a major impact on affordability as prices had already been bid up about as high as they could possibly go in Ireland (well as high as wages could support anyway). This resulted in a stagnant market where buyers could not afford to pay the prices the sellers thought their properties were worth. The credit crunch is compounding this problem, since banks are being even more cautious in giving money out, affecting buyers afforability further.

SkepticOne

I too agree with Faceman. If anything the causal relationship is the other way round, i.e, the bursting of the bubble causes credit to be tightened. When property prices were rising, banks were only too willing to lend more and more money knowing (or believing) that they would have an appreciating asset to seize in the event of failure to pay. At present it is mainly the ending of the US bubble causing the international credit crunch but we are also seeing the depreciation of apartment prices in Ireland being used to justify 80% LTV mortgages by one of the banks.

jmayo

astrofool wrote: »

Is this not a bit of false logic? Does this mean that if the credit problems sort themselves out, that house prices are going to begin to rise again in line with what the banks are lending?

Remember, loans are being constricted by the credit crunch, so the banks are being more careful with the money they loan out given the limited supply (i.e. picking the best/safest people to lend it to, who have large deposits already).

I don't see house prices suddenly jumping up when the banking sector sorts it's problems, I agree it certainly doesn't help the housing sector now, but the restricted credit is only going to be temporary.

Ah so speaks someone that has probably grown up in the era of cheap credit ?
The cheap credit of last five years would probably not be the norm and definetly not the norm for Ireland.
Check out the credit rates in 1970s/1980s Ireland and you will see the other side of the coin.
Don't expect it to go back to the heedy days where students got loans for holidays, cars, etc, where you could get 100% mortgage, where you got offers of loans in the post every other day.
Welcome to the real world where you need things like colateral, a savings history and a good credit rating.

The Irish housing bubble had to stop at some time. It was unsustainable.
It ended due to a number of reasons including increase in interest rates, the fact that property had reached too high a multiple of the average wage and it's demise has been compounded by the the closing off of 100% mortgages, the fact that we are haemoragging manufacturing jobs, oversupply of cheap cra* shoeboxes and of course people belately started to cop on to the myth of getting on the ladder and property will rise in price no matter what happens.

astrofool

We're also no longer as isolated from the world economy, and part of the euro zone, so if credit becomes freer there (which it will), then it will be more available in Ireland.

The downturn happened before 100% mortgages were taken off the market.

I guarantee that in 10 years time, Property prices will be higher than they are today, (not inflation adjusted ), and we'll probably be gearing up for the next bubble.

jmayo

astrofool wrote: »

We're also no longer as isolated from the world economy, and part of the euro zone, so if credit becomes freer there (which it will), then it will be more available in Ireland.

The downturn happened before 100% mortgages were taken off the market.

Granted the membership of the euro should mean we don't go back to days of 15% mortgages, but I won't hold my breath that we will return ot days of 100% mortgages or banks offering us all loans through the post.
But membership of the euro is double edged sword, we now cannot control our currency so exporters are getting screwed due to the dollar and sterling valuation.

Yes the downturn had started before banks copped on to 100% mortgage but as I said it has exascerbated the situation.
The prices were unsustainable.
We had a case of oversupply meeting hikes in interest rates at a time when the prices were too high.
Good God look how many times the average salary the price of a shoebox apartment is even today.

astrofool wrote: »

I guarantee that in 10 years time, Property prices will be higher than they are today, (not inflation adjusted ), and we'll probably be gearing up for the next bubble.

I am glad to hear you are so bullish.

I would not guarantee anything these days. Take a look at our economy.
Where is our next bubble coming from ?
You ain't going to get any major multinationals setting up here now, so no Telecoms IT bubble.
Eastern Europe and Far East is too attractive and also new incoming American regime may change corporate tax system to protect US jobs.

Also there will not be the cheap credit to start housing boom so where is the next bubble coming from, tullips maybe ?

beeno67

The main reason that house prices fell is simply that supply of new houses exceeded demand. There were more properties than people to buy them.

faceman

SkepticOne wrote: »

I too agree with Faceman. If anything the causal relationship is the other way round, i.e, the bursting of the bubble causes credit to be tightened. When property prices were rising, banks were only too willing to lend more and more money knowing (or believing) that they would have an appreciating asset to seize in the event of failure to pay. At present it is mainly the ending of the US bubble causing the international credit crunch but we are also seeing the depreciation of apartment prices in Ireland being used to justify 80% LTV mortgages by one of the banks.

Its funny, i had a discussion with friends about the whole banks throwing money away when they knew a recession was upon us. Their motive is confusing. I personally dont believe that they believed they had an appreciating asset. I believe they were cashing in on those eager to get a property thus maximising their profits (on paper of course!) Some friends think it was blind sales orientated executives steering the ship. My insiders in the banking industry are a bit tight lipped on it!

Re the credit crunch in the US, if anything, the loans being given were the "bubble" in my opinion. Sub prime lending got out of control and literally anyone was being given a loan. All it took was one bank to suffer to have a knock on effect on the whole market. Scary when you think of it.

I wonder if even during future good times (and lets be honest, there will be a point yet to be determined where things will pick up again) if 100% mortgages will be introduced. If anything worldwide financial regulation is getting tighter year on year and governments will not want to see a repeat of current crisis.

Just a brief comment on jmayo's post. House prices cant come down forever for the same reason they cant go up forever. This wont be the last price recession we'll see. What we need to avoid is another inflated housing market again. But who knows what will happen to our economy. Despite what you read in the papers, ireland is still a very competitive and cost effective economy, existing projects of mine are seeing my compare ireland with regions all around the world. Eastern europe is not our biggest thread. I believe it to be Asia.

My current problem with the housing market is that i think there is too much uncertainity which is creating a pot of potential buyers from buying. This just my own belief formed from my own educated opinion so dont ask me to cite links. My concern at this is that if the pot builds up long enough, we may see a repeat of panic buying like we did in '06 when SSIA's were paid out. The EA's will have a good quarter and this could great a false sense that a boom is back.

Id would rather see a steady predictable flow of demand (be it low or high demand) rather than what we are seeing now.