Housing Bubble Bursting

Gurgle

Gurgle wrote: »

That makes no sense.

Housing = somewhere to live in.
Houses = buildings to live in, rent, lease, sell, hold on to till the price is right etc

Speculators dont buy houses to live in, they see them as an investment in a similar way to shares etc

edit: didn't see your post there dublindilbert.

SkepticOne

Gurgle wrote: »

That makes no sense.

Makes sense to me. Short-term speculative demand started taking over from underlying demand for accommodation. Everyone, not just investors, became obsessed with rising prices. Rents at the height of the boom were actually lower than in 2002.

gurramok

Gurgle wrote: »

That makes no sense.

Firetrap explained it well, the houses were not bought for housing but for a quick buck.

gurramok

We're in recession, it's official according to ESRI.
http://www.rte.ie/news/2008/0624/economy.html
http://www.ireland.com/newspaper/frontpage/2008/0624/1214257072258.html

EKRIUQ

The word "recession" simply refers to a market in decline. The term doesn't necessarily describe all of the negative things that can come out of a falling market, like unemployment. It might help to visualize recession as a line graph. It begins immediately following the peak of what's called a business cycle. Some economists think that markets exist on the law that what goes up must come down. So a complete business cycle goes from its lowest point -- the trough -- to its highest point -- the peak -- and then back down. Here, the cycle begins again. A recession simply describes one side of the business cycle's wavelike structure:

Unfortunately, there's no graph that economists can follow in real time to see whether or not a business cycle has entered recession. And even once it's clear that the economy has entered decline, it's hard to tell if the recession will be a long or short one. Graphs that depict market decline usually come about after a recession has already made its presence known in the markets.

There are a variety of factors that determine a recession. In a recession, all (or most) of the sectors that make up the economy (like the stock market, employment, retail trade and industrial production) enter decline at the same time. For the decline to be classified as a real recession, these sectors must suffer longer than a month or two [source: FRBSF].

miju

so in other words what your saying is no one really knows how fooked we really are

DonJose

Anybody else using the Property Bee Firefox plugin to record the price changes on Daft, I came across the following plug in, its excellent and free to download, enjoy

http://www.property-bee.com/toolbar/download/

miju

yep am using it at the mo and monitoring a few properties in my area

Tea drinker

I think the meeja has done themselves no favours. From outright propaganda broadcasts to the headlines like "we're all funked" is quite a swing. To think that a few short months ago people who commented negatively on the economy were called doom mongers and should commit suicide. Now we see the meeja herd rushing to get the bad news out - all post election and post lisbon.

I am really sick of the crap that passes for journalism in this country.
The same goes for our coverage of international events, merely regurgitating what the western state run media outlets tell us to.

jdivision

That was our then Taoiseach wasn't it. Well one of his mates tried and failed to commit suicide not long afterwards. Maybe he's reconsidered his ignorant comments since then?

Anyway, hot off the press:

Latest edition of permanent tsb / ESRI House price index published

• Figures show national house price reduction of 1.2% in May
• First five months of 2008 reduction stands at 4.4%, while year on year the rate is 9.5%.

Wednesday 25th June 2008. Average national house prices fell by 1.2% in May according to the latest edition of the permanent tsb / ESRI House Price Index. This follows reductions [1.1%] in April, [0.7%] in March, [0.8%] in February and [0.7%] in January.

In the first five months of 2008 average national prices fell by 4.4%, compared with -3.3% to April 2008.

Measuring the rate of growth in the 12 months (year on year) to May, average national prices were down by 9.5%. This compares to a decline of 9.2% recorded in the 12 months to April.

The average price paid for a house nationally in May 2008 was euro 275,176. This compares to euro 287,887 in December 2007.

Commenting on the results, Niall O’Grady, General Manager Business Strategy, permanent tsb said: “The combination of higher customer mortgage rates and weaker confidence in the economy is increasing uncertainty about the immediate future of the property market. This has resulted in lower demand thereby reducing transaction numbers and property prices.”

Dublin V Rest of Country:
Dublin house prices fell by 1.6% in May while houses outside Dublin reduced by 0.8%. In April the relative price changes were -0.9% and -0.8%.

In the first five months prices for Dublin and Outside Dublin were down 4.3% and 4.4% respectively. The equivalent changes last year were -0.6% and -2.3%.

House prices were reduced by 10.4% and 8.4% in the twelve months to May 2008 in Dublin and Outside Dublin respectively. The equivalent changes in the twelve months to April were -10.0% and -8.4% respectively.

The average price paid for a house in Dublin and outside Dublin in May 2008 was EUR 380,329 and EUR 238,484 respectively. The equivalent prices in December 2007 were EUR 397,507 and EUR 249,359.

Commuter Counties: - Louth, Meath, Kildare & Wicklow
House prices in the commuter counties of Dublin fell by 0.9% in May 2008, while the reduction in April was 1.5%. In the first five months this year prices fell by 4.6% compared to 3.3% last year. A year on year reduction to May 2008 in the Commuter counties of 7.9% compares with 6.8% in this category over the 12 months to April.

The price of a house in the commuter counties in May 2008 was euro 306,705, down from euro 321,403 in December 2007.

3 Bedroom Semi-detached Houses
3 bed semi-detached house prices reduced by 1.3% in May 2008, compared with a very small increase in April (+0.1%). Year to date prices fell by 2.3% compared to 3.4% in same period last year.
House prices in this category were reduced by 2.9% year on year to May 2008 compared with 3.5% to April 2008. The price of a 3 bedroom semi in May 2008 was euro 292,496 - down from euro 299,412 recorded in Dec. ‘07.

First time buyers V. Second time buyers:
House prices for first-time and second-time buyers were reduced by 1.2% and 1.5% respectively in May 2008. In April the equivalent rates showed reductions of 0.6% and 1.1%. Year to date prices for first-time and second-time buyers were down 5.3% and 4.2% respectively, while growth rates for the same period last year were -2.3% and -2.1%.

House prices were reduced by 9.4% and 9.9% year on year to May 2008 for first-time and second-time buyers respectively. The equivalent rates to April were reductions of 10.0% and 8.9% respectively.

The average price paid by a first-time buyer and a second-time buyer in May 2008 was EUR 246,925 and EUR 308,144 respectively. The equivalent prices in December 2007 were EUR 260,786 and EUR 321,498.

New V. Existing Houses
House prices for new and second-hand houses reduced by 1.7% and 1.5% respectively in May 2008. In April the relative price reductions were 2.0% and 0.8%. Year to date prices for new and existing houses were down 4.9% and 3.5% respectively. The equivalent changes last year were -0.5% and
-2.4%.

New and second hand house prices fell by 8.3% and 10.0% respectively year on year to May 2008. The equivalent changes to April were -7.6% and -9.3% respectively.
The average price paid for a new house in May 2008 was EUR 276,215, while that paid for a second hand house was EUR 274,716. The equivalent levels in December 2007 were EUR 290,296 and EUR 284,608.

Treehouse72

Thank God it's a soft landing.

Treehouse72

Treehouse72 wrote: »

Thank God it's a soft landing.

I'm glad you're not a pilot.

gurramok

Ah yes, the famous ESRI/TSB index. A body with links to the state and another which is the biggest lender in the mortgage market, no bias there

Anyway, the index is not even based on sale prices, it's allegedly based on 'subjective valuations' on a handful of properties(Shane Ross had an insight to the fallacy of what the index represents), it's so accurate you see

At least the argument peddled here by certain posters using that index to say '3bed Dublin semi's are resilient' has been torpedoed by todays figures.

What will they come up next?

The_Conductor

Treehouse72 wrote: »

Thank God it's a soft landing.

A perpetual optimist I see......:D

johnnyskeleton

jdivision wrote: »

• Figures show national house price reduction of 1.2% in May
• First five months of 2008 reduction stands at 4.4%, while year on year the rate is 9.5%.

If these trends continue, May 08 -May 09 will see a 14.4% drop in house prices, and if anything the monthly rate of reduction will increase.

So even by this most conservative of estimates, prices is likely to drop by at least 15% over the next year.

punchestown

Time for the banks to cut ties with their builder mates 29 June 2008 By David McWilliams

The longer the banks go on protecting their developer clients, the bigger their problems are eventually going to be.

The Irish banking system is facing meltdown. The choice for the banks is now simple: they allow one of the big developers to go under or they risk going under themselves.

At the moment, the banks are frantically engaged in a game of bluff with the property market. Many of their builder-developer clients -the former crown princes of the boom - have no cash and cannot service the loans they took out in the past five years. Sites they paid fortunes for - confident that they could flip them on to a ‘‘greater fool’’ after they got planning permission - are now worth a fraction of what they paid.

Many sites are lying idle as no one wants to build, now that residential demand has fallen away. Huge debts are mounting and former high-flyers - the ‘Algarve and blacked-out Jeep brigade’ - haven’t a farthing.

The simplest way of getting the cash back (or at least some of it) would be for the banks to force the developers to sell sites and property. However, the banks know that the psychological damage of such an event would be so traumatic and the panic in the market so destabilising, that they are postponing this day for as long as they can.

Another possible reason for the unwillingness of the banks’ management to put up the land for sale is that they do not want to face the consequences of their own recklessness. They are in denial about the true valuations of their portfolio.

The developers know this and have recently begun referring to the banks as their ‘partners’ in mega-deals. The larger developers are assuming that the ‘too-big-to-fail’ moniker will save them. They are mistaken.

As a result, the Irish financial system is living in daily fear of the domino effect, where one large developer failing might bring them all down.

How long can - or should - the banks carry these bad loans? Are we talking weeks, months or years? Clearly, bank shareholders, who have been dumping bank shares for months now, believe that enough is enough.

Ultimately, the banks are caught in a brace. If they protect their developer mates, in a futile effort to protect themselves, their share prices will continue to fall. So will their bond prices.

More importantly, they could run out of cash because no one will lend to them as long as their balance sheets are hiding such colossal non-performing loans. Two events last week shed light on the banks’ position.

Banks are offering 6 per cent for ‘touch’ deposits. These are deposits you can withdraw at any time. For the banks, this is the worst, least secure deposit it can have. Yet they are prepared to pay close to 2 per cent above the market rate of 4.09 per cent.

The other story is just one of hundreds doing the rounds these days. A busy liquidator friend told me of a call he made last week to a builder who owed a client €600,000.He called the builder and the conversation went like this:

Builder: ‘‘Do you know where I am?”

Liquidator: ‘‘No.”

Builder: ‘‘Dublin Airport on my way to Dubai to build.”

Liquidator: ‘‘What about the €600,000?”

Builder: ‘‘You and your €600,000 can go **** off . . . now **** off.”

This type of thing is happening every day; the lads simply don’t have the cash.

The money is gone and they are not hanging around for the bailiffs. Is it any wonder that one of our reputable banks is offering us 6 per cent for our measly deposits? Cash is king and everyone wants it, no matter what price.

If you look a bit deeper, you see that now we have a chicken-and-egg scenario, where the bad debts on the banks’ balance sheets are causing the banks to go into retrenchment mode. So they are lending less. But the less they lend, the more their builder-developer mates get into trouble because, the tighter the banks’ lending regime, the lower the residential/ commercial demand.

If you look at the financial system as one large game, where the banks borrow from one source and lend to another, the dilemma becomes clear. If the banks can’t borrow, they can’t lend.

One way of looking at the 70 per cent fall in the share prices of Bank of Ireland and Anglo Irish or the 60 per cent fall in AIB is to regard these price falls as the markets’ unwillingness to lend to the banks. They are simply too risky at these prices.

The system needs a net injection of cash, but there is no likely source for this, particularly as the banks’ balance sheets are still jammed with useless rubbish, the bad loans of the boom. Unless the banks face the music and accept that they are not going to get paid back on many of these non-performing loans, no one will be prepared to lend to them. If no one lends to them, they make no loans and therefore, no profits. In the worst case scenario, they run out of cash.

This is a critical juncture for the Irish banking system. The top brass have to wake up to the reality that protecting developers is damaging the banks’ credibility. Ultimately, the banks will have to cut the umbilical cord.

Every property boom/bust and recession is characterised by Icarus moments where the great and the good fly too close to the sun, their wings melt and they fall to earth. Just think of Alan Bond in Australia, Donald Trump in the US, Paul Reichman in London or Patrick Gallagher here in the 1980s. Inmost cases, the individuals recovered their fortunes in the next upswing.

This Greek drama is not unusual. What is odd is the number of Irish financial professionals who seem to be in denial about this or, worse still, the number who don’t seem to understand what is happening or why. Many seem genuinely shocked and, if they are shocked, they are in no position to manage the situation. It is now dawning on the young stars of Dublin’s banking community that there is more to finance than Ron Black’s, a Prada suit, extra firm hair gel and an Audi TT.

However, the banks’ choice is simple: it’s either you or them. They have to realise that it’s not going to get any better. The longer they protect their developers, the lower their share prices and the property market will go.

Why would anyone buy now in serious quantities when they realise that there is huge supply overhanging the market that has to be liquidated to pay bad debts? The longer the banks prevaricate, the further off any recovery.

If one bank were to bite the bullet now and put the assets of one of its bankrupt property oligarchs on the market, the cleansing period would begin. Yes, there would be huge falls in the price of sites, but that’s the only way the market will clear - a child could understand this.

Some of our senior bankers fail to grasp this idea, but maybe that’s one of the problems with ten years of cowboy capitalism: with all these nudges and winks, you forget how a real market works.

www.davidmcwilliams.ie

Duckjob

That makes scary reading.

To borrow other posters expression, it's not just the builders that have been "tearing the arse" off the property market for the last few years.

Irish Banks have spent the last few years handing out jumbo mortgages to anyone and everyone and gleefully watching people over-mortgage themselves into a lifetime of financial stress. It didn't seem to occur to any of them that this practice might one day come back to bite them in the ass.

gcgirl

personally the boom never affected me or members of my family and as for people paying mad money for a 3 bed you could not swing a mouse around i'd say you'd should have rented ! Ireland have a unhealthy obsession with ownership and by the way things look the prices are constantly falling ! It's a pity that we don't look to places like France and Spain where renting is a big thing! All that negative equaty and all those big morgages !

Calina

gcgirl wrote: »

personally the boom never affected me or members of my family and as for people paying mad money for a 3 bed you could not swing a mouse around i'd say you'd should have rented ! Ireland have a unhealthy obsession with ownership and by the way things look the prices are constantly falling ! It's a pity that we don't look to places like France and Spain where renting is a big thing! All that negative equaty and all those big morgages !

Both France and Spain - and Spain in particular - have issues with their property markets. Spain in particular has meltdown going on at the moment.

I personally am very glad that lots of people spent mad money on a 3 bedroom house a 90 minute commute from Dublin because if they hadn't, my rent would be a whole lot higher.

Duckjob

It's true that we do have an obsession with owning property.

in fairness though our tenancy legislation is p**s poor compared with that of France or Spain meaning renting is not a viable longterm option here.
Particularly is you're looking to raise a family, and particularly with the sea of amateur landlords we now have here. I certainly wouldn't want to be seeking secure long-term tenure from most of the BTL brigade here.

SkepticOne

The property obsession has gone a good bit further than what could be justified by poor tenancy legislation, in my opinion. Poor tenancy legislation might provoke you to buy a house to live in rather than rent it but it should not make you by two, three or four as many did. And who was supposed to rent all these places if everyone was buying? Answer: nobody.

Calina

A lot of places weren't bought to be lived in, this istrue, but they weren't bought to be rented because like, renting, that was too much hassle.

They were bought to be traded on to someone who'd pay more money. The idea that anyone might live in these places wasn't really on the table.

punchestown

Calina wrote: »

A lot of places weren't bought to be lived in, this istrue, but they weren't bought to be rented because like, renting, that was too much hassle.

They were bought to be traded on to someone who'd pay more money. The idea that anyone might live in these places wasn't really on the table.

But Calina, I am constantly being told that there is a housing shortage. Surely people must buy now?

Duckjob

SkepticOne wrote: »

The property obsession has gone a good bit further than what could be justified by poor tenancy legislation, in my opinion. Poor tenancy legislation might provoke you to buy a house to live in rather than rent it but it should not make you by two, three or four as many did. And who was supposed to rent all these places if everyone was buying? Answer: nobody.

I agree with you entirely. I was making the point was that there is always a section of people who would, for various reason prefer to avoid the property market altogether but would end up buying just to get a security of tenure not available when renting.

But I agree, the message over the last few years has been "all aboard the property gravy train folks, free money for all !" Everybody who bought into that is culpable for the state of the crisis we are now in IMO. I just wish those people would take the consequences of their own actions on the chin now instead of (as some are) pushing for the market to be artificially propped up at the expense of the taxpayer.

gcgirl

my older brother is renting with his partner in lyon in france, they are paying 300 a month for a 2 bed apartment ! Over here in wicklow my cousin is renting a 3 bed apartment with 2 pals for 1400 ! Madness or what

Genco

Real estate group to let 13 staff go
Monday, 30th June 2008 06.16am


The slump in the Irish property market is behind a decision by real estate consultants, CB Richard Ellis, to let 13 staff go.

'The job losses are a direct result of the reduction in volume. If we thought that this was going to last three months or six months, we would not have taken this sort of action. But we believe it's going to be 12 months before we see any real recovery,' a spokesman for the company said.

He said the job losses would go across the board but he did not anticipate any further redundancies at the company.

"I don't believe there will be any further job losses. It is not our intention. We believe this is the right number."

He said CBRE was a multi-disciplinary business and while some parts were at their busiest ever, business in some areas had "turned right down".

Gurgle

Genco wrote: »

"I don't believe there will be any further job losses. It is not our intention. We believe this is the right number."

PR bullshìt.
The free money is gone on this one, EAs will be the most deserving of all who suffer.

maninasia

I'm going to wade in here although I'm not expert I'll admit that.

Is not a bigger factor than affordability the fact that people see the market dropping and it feeds on itself, i.e. the fear of buying something that is going to be worth 10% less the year after? The same but opposite reaction that propelled things up unreasonably will also propel things down (although more other reasonable factors such as affordability thrown in there aswell and the fact that people realise there are other and better things to invest in than property sometimes).

When job losses increase these fears will only be exacerbated and it will takes years for people to feel really safe putting their cash in their market unless there are very compelling reasons for them to buy a house. For people like me contemplating coming back to Ireland it changes the scale although I'm not sure for the better or not yet, we can more easily afford to buy a house in future but it will be harder to get a job and salaries will be most likely be stagnant. A bit of a catch-22. The major thing for us will be rent affordability then compared to earnings as I don't see a lot of people that would be on the margin of buying a house actually doing it for a few years. Why would I want to sink and lock my extra income into a pile of festering bricks when I could put it into stocks in companies that actually make things in Asia.

This property crash is great in one way because younger people will get a better deal, the bad part is the effect it has the broaded employment outlook, I mean the knockon to all sectors and hiring freezes rather than just the building sector which was ridiculous anyway.

From a distance the whole thing was even more ridiculous than it seemed to the Irish at home. Why were we building housing estates out in Laois when we could build high rise or high density apartments? What's the point of having a 3 bedroom house with a garden when you commute half your day and too tired or no time to do anything there. What's wrong with living in an apartment and getting home earlier and having free time instead of sitting in a car or train during the little free time that you have. Why were the government and the planning agencies
so against apartment and high density living? People are going to be working more and more hours (worldwide trend) and with oil prices/carbon tax added on commuting is a silly decision for people who work in big cities.

From examples I have seen in the Asia-Pacific (Taiwan, Japan) these hangovers can last a longtime. Taiwan took over 10 years to get over it's bubble and I think Japan was 20 years. The good thing about Ireland is it has an open economy, Ireland just needs to adapt, tighten its belt for a whlie again and people need to go back to school, get an education and start producting something with value.

faceman

maninasia wrote: »

From examples I have seen in the Asia-Pacific (Taiwan, Japan) these hangovers can last a longtime. Taiwan took over 10 years to get over it's bubble and I think Japan was 20 years. The good thing about Ireland is it has an open economy, Ireland just needs to adapt, tighten its belt for a whlie again and people need to go back to school, get an education and start producting something with value.

They can last a long time, but we cant compare the irish situation to that of Japan or Taiwan. If the situation lasts 20 years in ireland, it wont be for the same socio-economic reasons as there.

maninasia

I didn't make any comparison between Ireland and Taiwan and Japan. What I indicated was recovery phase of a property bubble can take a long time. BTW, the property bubble of those two countries were also brought about by speculation more than anything else. As my boss used to tell me, he bought apartments and sold them 2 mths later for 20-30% profit until the end when he lost it on the last few. Different bricks but the same old modus operanda.
The point is, what can bring the property values back up again? Only strong economic growth and I don't see where that is coming from for the next 5 to 10 years or even 15 years. That's not a slight against Irish ability, it's just a fact (we don't have massive amounts of oil/commodities/leading world brand manufacturers). We've played our low tax and natural advantages for FDI as well as we could have and we have a good finance industry and other industries which will grow but they won't give the type of lift that we've experienced in the last 10 years. The enlargement of the EU is a good thing but it's got no growth drivers for our economy really and there's not another America waiting to invest in us. If Irish business was more linked with some Asian countries it could help but geographically and culturally we are not really in that game either. There's just nothing there to replace the property and initial FDI wave of the 90s. We will have growth again after a couple of years but it will more like rest of the EU, anyway that's a good thing sustainability wise.

Japan and Taiwan festered for 10 years not because they were doing anything wrong really it's just they had outperformed their ace cards that they had already, reached the peak of their performance in those sectors (electronics/manufacturing) and had nothing to replace them as a STRONG growth driver and also external political/economic factors can come in and clobber countries.