Housing Bubble Bursting

gurramok

Gegerty wrote: »

Now that interest rates look likely to increase, is there any point in holding out for them to drop?

Maybe listen to the eternal Irish 'economist' Austin Hughes who rabbles on RTE and th eprint media about cuts depsite being constantly wrong.

Gegerty wrote: »

Considering the medium to long term, it seems to me the smart people are buying now.

No its not. Its stupid to buy now. Everyone is in the same boat with rates going up.
When everyone is in the same boat, prices will drop further to reflect what buyers can afford.
And that means paying less interest to the bank over the lifetime of the mortgage due to shorter mortgage amounts amongst others.

Glenbhoy

Gegerty wrote: »

Now that interest rates look likely to increase, is there any point in holding out for them to drop? Considering the medium to long term, it seems to me the smart people are buying now.

I don't understand the logic there at all Gegerty.

ixoy

Gegerty wrote: »

Now that interest rates look likely to increase, is there any point in holding out for them to drop? Considering the medium to long term, it seems to me the smart people are buying now.

Are they? If interest rates go up another .25%, you could then argue that house prices come down to match that increase. You could then pay less on say a 1-year fixed term and then re-negotiate if you believe there'd be a cut back a year from then on. Would that not make you ultimately better off again?

Gegerty

gurramok wrote: »

No its not. Its stupid to buy now. Everyone is in the same boat with rates going up.
When everyone is in the same boat, prices will drop further to reflect what buyers can afford.
And that means paying less interest to the bank over the lifetime of the mortgage due to shorter mortgage amounts amongst others.

Not always true, i.e non FTBs. You get less for the house you're selling.

So how much further back do we need to go? Do you seriously believe that people who bought in 2004 are going to accept offers of anything less or even close to what they paid, regardless of the state of the economy? Seems to me the mentality of the boom is still around, its just been flipped on its head. Instead of greedy vendors we now have greedy purchasers.

There's some fantasic deals out there, interest rates are not falling.....I think smart people are buying now. I have no vested interest in saying this except to say I know people who have moved this year and I think they've made very smart decisions. Very nice homes (what they consider to be their dream homes), very nice prices. Prices may drop a little further but thinking medium to long term, i.e if they need to move again in 5-10 years time they can look back and say that was a very mise move (pun intended ).

jmayo

Yes banks threw the lending rulebook out the window, estate Agents inflated the prices.
The government were happy because Johnny the builder (who happened to be FF supporter) was now building houses in Leitrim becuase of Section 23 and apartments in Sligo thanks to Section 50.
Anyway there was huge take from stamp duty and VAT to allow them blow money on ego trips such as e-voting.

Land bankers, developers and builders realised that it was a gravy train like never before.

But the Irish people bought into it 99.99%
Sure you couldn't lose.
Hell remortgage the existing house and buy a couple of appartments and let them out to those Eastern Europeans, then buy a place in Spain and after that Sunny Beach.
I have sympathy for those that had to buy because of growing families etc but not some eejits that bought becuase aunty Marge told them her three had an apartment each in Gorey and that they should do the same.

There is such a thing as personal responsibility.

Something I think that is not mentioned much and that will have a huge effect on some is their exposure in overseas developments.
Times are tough at home, the returns on the guranteed rental in Bulgaria dries up and is now a millstone but there are no buyers for it.
What will they do ?

People seem to believe that this is a temporary blip and things will resume in couple of years.
I believe that we are in deep sh** and we are in a Japan scenario except they had a stronger economy with major multinationals, corporations etc to pull them through.
What have we got ?
Multinationals who make their decisions in Santa Clara or Round Rock, a huge incompetent public sector and not much else.

Calina

Gegerty wrote: »

So how much further back do we need to go? Do you seriously believe that people who bought in 2004 are going to accept offers of anything less or even close to what they paid, regardless of the state of the economy? Seems to me the mentality of the boom is still around, its just been flipped on its head. Instead of greedy vendors we now have greedy purchasers.

It is of zero relevance to me whether people who bought are going to accept offers of less than what they paid. The net result is that they may wind up not selling at all.

We don't have greedy purchasers. The greedy purchasers are the ones who are already in; who bought anything and everything on the grounds that they'd make a killing no matter what they bought where they bought. It's why we have acres of unoccupied apartments in parts of Leitrim and Roscommon. The ones who are left in the market are the sensibile ones; the ones who have a price that they will buy at and who are wiling to wait for that price to come to them.

There are people out there who are refusing to take a loss in the short term. They will wind up taking a loss in the long term unless they learn to cut them. The people who are left in the market are not in the business of protecting people who bought at the top of the market. Why should I spend 100K more on an apartment than it really is worth just to protect the one who went before me? It's worth what a seller and a buyer can agree. If they can't agree, then it's worth effectively nothing because it can't be sold.

The market heavily depends on FTBs to make the trade-up possible. FTBs are currently still by and large priced out of the market and not only that, they are placing a greater value on their quality of life than the tranche of FTBs who went before them. The purchasers who are out there now are not out there to fleece the buyers; they are out their to avoid getting fleeced themselves. By and large, the sellers are still too greedy, and what proves this is that nothing is selling because it is still too expensive.

Gegerty

Glenbhoy wrote: »

I don't understand the logic there at all Gegerty.

There are people holding out for interest rates to fall. Now it seems they are going up.

Calina

Gegerty wrote: »

There are people holding out for interest rates to fall. Now it seems they are going up.

They have been flagged to be on an upward trend for a while. The only ones saying that they felt interest rates were due to fall were Irish bank and estate agency economists. They are still below historic norms however.


In any case, it is not the smart who will try to pile in before the next wave of rises; it is the desperate "must buy before they reduce the amount I can borrow" brigade.

Gegerty

Calina wrote: »

It is of zero relevance to me whether people who bought are going to accept offers of less than what they paid. The net result is that they may wind up not selling at all.

What I'm saying is there will come a point when negative equity looms upon a generation of buyers who are simply going to put their foot down. They simply will not accept it as easily as people who bought at the peak. If you want to buy a home off them, you're not going to get anywhere haggling. so what happens? People stop buying homes? People stop selling homes? Maybe for a brief period.

How else do you suggest the downward spiral is going to stop? the credit crunch disappears and the banks go crazy throwing money around again? It's very easy to predict prices are going to continue to fall at the moment. I don't hear anything on here about whats going to stop it. It won't be when a newly qualified Garda can afford a 3 bed home in Co. Dublin. You'd want to go back to 1985 prices for that.

Afuera

Gegerty wrote: »

Do you seriously believe that people who bought in 2004 are going to accept offers of anything less or even close to what they paid, regardless of the state of the economy?

The problem is that the buyers from 2001 can go a lot lower. The buyers from 1998 can go a lot lower still. In fact considering there was a 300% increase in prices over the last 10 years or so, prices would have to fall back over 60% before someone who bought in 1998 even gets close to making a loss.

Afuera

Gegerty wrote: »

How else do you suggest the downward spiral is going to stop?

When people can afford property with a 20 year mortgage based on 4-5 times their salary.

The_Conductor

From today's Irish Independent here



IN a move which surprised markets and drove the euro up two cents against the dollar, the European Central Bank (ECB) yesterday warned that interest rates could rise as early as July as it bids to dampen rising inflation in the euro zone.

Economists said such a rise will damage the prospects for economic recovery here, with IIB Bank economist Austin Hughes saying a rise in rates will hit consumer confidence.

The Bank of England also kept its rates on hold yesterday, pegging them at 5.5pc.

ECB president Jean-Claude Trichet said the Governing Council had agreed to leave rates on hold at 4pc for this month but added that the bank was determined to win the war against inflation.

Raise

Some members of the ECB's 21-member policymaking council had wanted to raise rates now, some saw a case for a rate rise later, and some saw no case at all, Trichet told the ECB's monthly news conference in Frankfurt.

"We could decide to move our rates a small amount in our next meeting in order to secure the solid anchoring of inflation expectations," he said.

"I don't say it's certain. I say it's possible." The language used by Trichet was unusually blunt, as ECB officials normally use coded signals to address the markets, leaving itself plenty of room for manoeuvre.

IIB Bank economist Austin Hughes said the indication that interest rates could rise as early as next month "is probably the biggest shock the ECB has delivered to financial markets in its nine-and-a-half-year history.

He said it is now almost certain rates will rise next month. "Mr Trichet went so far today in preparing the market for a rate rise in July that it is difficult to see what would make the ECB decide against hiking rates next month.

"A failure to raise rates would leave markets completely lost as to what determines ECB policy and communications," he said.

For the Irish economy, Mr Hughes said the prospect of higher interest rates will further weaken the property market.

"Consumer confidence will be hit as rising borrowing costs add to pressure coming from much more expensive energy and food. So, the squeeze on household spending is set to be particularly painful," Mr Hughes said. "The outlook for activity and employment in the Irish economy in the second half of 2008 now looks a good deal poorer," he added.

The euro gained two cents or half a per cent against the US dollar in the wake of Trichet's comments, rising to $1.5511.

Before the meeting, most economists had expected the ECB to keep rates on hold before cutting them towards the end of the year, though rate futures traders thought a rate rise was due for late 2008.

- Pat Boyle

martian1980

But even if second-hand house people refuse to drop the price, the developers with stock in the same area will be dropping theirs

gurramok

Gegerty wrote: »

Not always true, i.e non FTBs. You get less for the house you're selling.

So how much further back do we need to go? Do you seriously believe that people who bought in 2004 are going to accept offers of anything less or even close to what they paid, regardless of the state of the economy? Seems to me the mentality of the boom is still around, its just been flipped on its head. Instead of greedy vendors we now have greedy purchasers.

There's some fantasic deals out there, interest rates are not falling.....I think smart people are buying now. I have no vested interest in saying this except to say I know people who have moved this year and I think they've made very smart decisions. Very nice homes (what they consider to be their dream homes), very nice prices. Prices may drop a little further but thinking medium to long term, i.e if they need to move again in 5-10 years time they can look back and say that was a very mise move (pun intended ).

Afuera has explained it, think of it like a graph of prices bought vs years when bought.
Everyone who sells are in different boats yet the buyers are in the same boat.

Prices going down means less stamp duty, less estate agent fees etc for trade uppers.

People in 2004 are going to be undercut by those in 2003, 2002, 2001 etc

People who bought in 2004 are a tiny selling portion of the housing stock. There is no way out for buyers in 2004 to keep prices high.

Negative equity scenario is happening and will happen to alot more purchasers of the recent years.

Plus investors/speculators will sell when they see their capital appreciation eroded, there is nothing any seller can do to 'keep' the prices high.

And lastly, we need FTB's to keep the ladder going thats why they are crucially important.

Gegerty

Afuera wrote: »

When people can afford property with a 20 year mortgage based on 4-5 times their salary.

Define "people". I hear Nurses and Gardai alot as the guage. I know some nurses who earn crazy money. Highly qualified Gardai earn crazy money. So what the guage? A newly qualified nurse on say €30K? Or is it the people in the private sector who start out on €22K? I'm sorry, but there is a certain level you have to reach before you can buy a home. Always has been, always will be. OK so you're saying that level needs to drop. But to what? Someone on €22K will not get a mortgage for 4-5 times their salary, so a 2 bed apt in Co. Dublin should drop to their level just because they are on sh!te earnings?

Gegerty

Afuera wrote: »

The problem is that the buyers from 2001 can go a lot lower. The buyers from 1998 can go a lot lower still. In fact considering there was a 300% increase in prices over the last 10 years or so, prices would have to fall back over 60% before someone who bought in 1998 even gets close to making a loss.

OK I see your point, and the people in 1940 can go lower still. So the whole contry is doomed to negative equity.

ixoy

Gegerty wrote: »

Someone on €22K will not get a mortgage for 4-5 times their salary, so a 2 bed apt in Co. Dublin should drop to their level just because they are on sh!te earnings?

Someone on 50k shouldn't need to have to qualify for government assistance to buy a house though - but that's what's happened. 50k is well above the average wage.

The_Conductor

ixoy wrote: »

Someone on 50k shouldn't need to have to qualify for government assistance to buy a house though - but that's what's happened. 50k is well above the average wage.

In some developments in west Dublin a couple with a combined salary of 68k qualify for assistance.

Another 1/4% rate rise in July....... Interesting times......

punchestown

Gegerty wrote: »

Now that interest rates look likely to increase, is there any point in holding out for them to drop? Considering the medium to long term, it seems to me the smart people are buying now.

Are you Brendan O'Connor Gegerty cos you sure talk some ****e like him!

'Which makes no sense when you think about it. When you think about it, it makes sense to buy property now. Though of course some people say it always makes sense to buy property. There is no such thing as a good or a bad time to buy. It's always a good time to buy' Brendan O'Connor July 29 2007

Gegerty

ixoy wrote: »

Someone on 50k shouldn't need to have to qualify for government assistance to buy a house though - but that's what's happened. 50k is well above the average wage.

I don't agree with basing it with the average wage. The average wage is dragged down by unqualified low earners. Are you suggesting people who leave school early should be able to afford to buy a home? 50K is very acheivable by a lot of people. It will take a few years for most but then the reality of that situation is that its going to take you a few years to buy a home. I agree though that could come down a little bit to encorporate more of the younger population. 45K is achievable within a few years of leaving college and for some its not far off their starting salary.

Calina

Gegerty wrote: »

OK I see your point, and the people in 1940 can go lower still. So the whole contry is doomed to negative equity.

Once property prices stopped tracking inflation and took off on a spiral of their own creation, quite a lot of the country was doomed to trouble, particular given ladder mania. Unfortunately, people yelled at David McWilliams for pointing it out. Now, a few more people are starting to see sense. But people like you are trying to bog them down on ikkle details without looking at the big picture. The point is people may not have to deal with negative equity at all if they do not have to sell for any reason or if they have enough of their mortage paid off. Either case, they'll feel a bit silly about paying too much for their house, and equity releases won't be an option but they are not, per se, in trouble if they are servicing debts. So saying things like "the whole country is doomed to negative equity" is emotive oversensationalising of the situation with a view to making people you disagree with look faintly ridiculous in the hope that it supports your argument that it can't get that bad.

You've a choice of two things: either house prices drop to meet incomes or incomes rise monumentally to meet house prices. The latter will bring with it significant unemployment. I think house prices are going to have to drop or a lot of sellers are not going to be able to sell.

Gegerty

punchestown wrote: »

Are you Brendan O'Connor Gegerty cos you sure talk some ****e like him!

'Which makes no sense when you think about it. When you think about it, it makes sense to buy property now. Though of course some people say it always makes sense to buy property. There is no such thing as a good or a bad time to buy. It's always a good time to buy' Brendan O'Connor July 29 2007

Listen don't start taking what I'm saying out of context. People are saying for a long time that people should hold out until interest rates start to drop. Thats what I'm referring to. I'm saying to those people, ok so what now you're not getting your lower interst rates. Maybe I should have put my next comment "I think now is a good time to buy" on a new paragraph....

The_Conductor

Rate rise may put squeeze on mortgage holders

LAURA SLATTERY

MORTGAGE HOLDERS could face an extra squeeze on their pockets next month following comments by European Central Bank (ECB) president Jean-Claude Trichet yesterday that it is considering raising interest rates at its next meeting.

The ECB left its key interest rate unchanged at 4 per cent yesterday, but some members of its governing council were in favour of announcing a rate hike yesterday. Mr Trichet's remarks have now cleared the way for a rate hike on July 3rd.

"We considered that - it is not excluded - that after having carefully examined the situation, we could decide to move our rates by a small amount in our next meeting in order to secure the solid anchoring of inflation expectations," he said.

"I don't say it's certain. I say it's possible," he added.

A quarter-point rate hike in July would add around €40 to a typical €250,000 mortgage being repaid over a term of 30 years, based on a tracker mortgage rate increasing from 5.1 per cent to 5.35 per cent.

Such an interest rate increase would wipe out the benefit of the extra €33 in mortgage interest relief granted to individual borrowers in last December's budget package. An interest rate increase would also lower the likelihood of a turnaround in the Republic's housing market, where house prices are tumbling at an annual rate of 9.2 per cent.

It had been hoped earlier in the year that the ECB would cut interest rates to stimulate sluggish rates of economic growth in the euro zone. This would have made mortgages more affordable for first-time buyers and sparked fresh demand for housing. But the ECB is now leaning toward a rate hike to curb inflation.

The EU's measure of inflation, known as the Harmonised Index of Consumer Prices (HICP), has risen from below 2 per cent last summer to 3.6 per cent, and the ECB expects it to average at 3.4 per cent in 2008, according to its latest forecasts. In March, the ECB estimated that inflation would average at just 2.9 per cent in 2008.

This signals that the risk of higher prices in the euro zone has increased, largely due to higher fuel and food prices. Oil prices are close to $125 per barrel, up from below $100 in February, while it is expected that there will be continued pressure on food prices due to global food shortages.

The ECB said it was in a state of "heightened alertness". Simon Barry, an economist at Ulster Bank, described this as a new form of language from the governing council. Although it is not the definite signal of an imminent rate hike implied by the words "strong vigilance", the phrase puts the market on notice that the ECB is prepared to back up its concerns about the inflation threat by raising rates, Mr Barry said.

Mr Trichet's hawkish remarks sent the share prices of stocks that are exposed to the mortgage market falling. On the Iseq index in Dublin, Irish Life Permanent fell 1.8 per cent, while Bank of Ireland dropped 1.3 per cent. One equities dealer said a rate hike would result in higher rates of bad debts among borrowers.

"It would put us all in the poor house next year," he said.

Central banks have spent the past nine months combating a global credit squeeze that still threatens to push the US economy into a recession. The Bank of England, which has reduced borrowing costs three times since December, yesterday kept its main rate at 5 per cent.

"This is the clearest signal we're going to get," said Dario Perkins, an economist at ABN Amro in London. "It looks like an interest rate hike is imminent. We're now looking for data to prevent a rate hike rather than for something that would allow them to raise rates."

- (Additional reporting, Bloomberg)

gurramok

Gegerty wrote: »

I don't agree with basing it with the average wage. The average wage is dragged down by unqualified low earners. Are you suggesting people who leave school early should be able to afford to buy a home? 50K is very acheivable by a lot of people. It will take a few years for most but then the reality of that situation is that its going to take you a few years to buy a home. I agree though that could come down a little bit to encorporate more of the younger population. 45K is achievable within a few years of leaving college and for some its not far off their starting salary.

We had this debate already about incomes in the buyer bubble thread.

The majority do not earn nowhere near 45k or 50k. Some do, most do not.

When that happens, the price of the average gaff will have to come down to match the demand.
And then we have severe over-supply of housing and then throw in the investors/speculators, immigrants leaving, rental sector having problems etc, it all indicates lower prices in the future.

Gegerty wrote:

Listen don't start taking what I'm saying out of context. People are saying for a long time that people should hold out until interest rates start to drop. Thats what I'm referring to. I'm saying to those people, ok so what now you're not getting your lower interst rates. Maybe I should have put my next comment "I think now is a good time to buy" on a new paragraph....

Who are these people?

I know who they are but can you list a couple of them?

Gegerty

Calina wrote: »

So saying things like "the whole country is doomed to negative equity" is emotive oversensationalising of the situation with a view to making people you disagree with look faintly ridiculous in the hope that it supports your argument that it can't get that bad.

Sorry I come across like that. I'm simply pointing out you can keep going back, but it has to stop somewhere.

Calina wrote: »

You've a choice of two things: either house prices drop to meet incomes or incomes rise monumentally to meet house prices. The latter will bring with it significant unemployment. I think house prices are going to have to drop or a lot of sellers are not going to be able to sell.

I do not buy the story that people cannot afford homes. I'm sorry but there are lots of FTBs out there who can afford it but are just holding out. you yourself are telling people to hold out. Who are you telling this to if there are no FTBs out there who can afford a home?

I just don't agree with the force which is driving prices down. yes prices should come down, but I think we're close to as far as they should go.

Gegerty

gurramok wrote: »

We had this debate already about incomes in the buyer bubble thread.

The majority do not earn nowhere near 45k or 50k. Some do, most do not.

Yes because the majority are unqualified and will never earn anything decent. I don't think it is fair to expect the majority to be able to afford a home. If the majority of the country was qualified then I would agree with this statemet.

ixoy

Gegerty wrote: »

I don't agree with basing it with the average wage. The average wage is dragged down by unqualified low earners.[ Are you suggesting people who leave school early should be able to afford to buy a home?

The stats - discussed in the Buyer Bubbles thread - say 78% of people are below 35k. Are you suggesting that these people should never be able to buy without:
1) Lots of assistance
or
2) A dependency on a higher-earning partner?

50K is very acheivable by a lot of people. It will take a few years for most but then the reality of that situation is that its going to take you a few years to buy a home. I agree though that could come down a little bit to encorporate more of the younger population. 45K is achievable within a few years of leaving college and for some its not far off their starting salary.

I don't necessarily agree with these figures - there's nothing to support them and we can only go on anecdotes. Noone in my peer group is on that wage (we're about to hit 30 and all in IT) and though some may hit it in the next couple of years, it would mean that you're suggesting that only people in their early 30s should look at a home.

Even if we accept your 50k argument - do you believe that someone on that wage should be able to get a decent home? Because they can't - not without assistance in a lot of cases. If you're say given a 4.5 multiple, that's still only 225k which won't get you anywhere that doesn't involve a nice looong commute.

punchestown

Gegerty wrote: »

I just don't agree with the force which is driving prices down. yes prices should come down, but I think we're close to as far as they should go.

So Davys optimistic forecast of price falls of 20% over the next two years is wrong then?
You sound like the shrewd ballsy type of guy I referred to earlier Gegerty. Why dont you put your money where your mouth is and get down to Paddy Power and a few of the spread firms and place your bets where property prices will lie this time 12, 24, 36 months down the line? You probably already have your money tied up in property though!

Calina

Gegerty wrote: »

I don't agree with basing it with the average wage. The average wage is dragged down by unqualified low earners. Are you suggesting people who leave school early should be able to afford to buy a home? 50K is very acheivable by a lot of people. It will take a few years for most but then the reality of that situation is that its going to take you a few years to buy a home. I agree though that could come down a little bit to encorporate more of the younger population. 45K is achievable within a few years of leaving college and for some its not far off their starting salary.

This is actually an extremely elitist position to take. According to figures already debated at length, it was established that 67% of the population at large are on an income of 34.5KE or below. What you are suggesting is that the majority of the working population in this country should not be able to afford to buy their own home, and from what I can see, the sole reason for this is to try and sustain the house prices that we have.

I disagree. In a country where traditionally well over 70% have owned their own home, you are pricing the same proportion out of the market going forward. I am of the opinion that a lot of people doing work which you consider as being unqualified is extremely critical to society. Some examples would include care assistants in some creches, and refuse collectors, for example.

Ireland does not have what could be called an equitable or mature rental market either. We don't tend to do open ended long term leases and we have a lot of small time investors and few instititutional full time landlords. Most property investment over the past 4 or 5 years has been of a speculative/cap appreciation dependent nature. As such, there is demand for home ownership beyond what you have in other countries.

But not at any price because people will only pay what they can afford to borrow. That figure is dropping.

SimpleSam06

Gegerty wrote: »

I don't think it is fair to expect the majority to be able to afford a home.

Why not? Lack of land? Ireland is one of the most underpopulated countries around, never mind all the ghost estates and empties. Lack of services? We have one of the most bloated and best paid public sectors in the world, may as well get some value out of them (yes normal disclaimers about not all public sector workers are part of the problem etc).

This smacks of nineteenth century social darwinism.