Housing Bubble Bursting

hmmm

Over the long term prudent borrowing for property has been around 2 to 2.5 times salary, or for an investor a yield of about 10%. It wasn't so many years ago that this was the norm, these days people are getting 8 times salary as "normal" and some are stretching to 10 times (we'll look back on this period as utterly insane). Personally I'd consider buying at those 10% yield levels, but when prices in any bubble start falling they have a strong tendency to undershoot on the way down.

conor_mc

Raskolnikov wrote:

In my opinion, there are two major factors that will dictate where housing prices will go. Employment and the quality of it and interest rates and the availability of credit. If we maintain current trends, I would say that we'll get the much vaunted soft landing.

You're joking, right? With 262,000 jobs in construction as of May '06, what happens when at least 100k of these jobs are lost? We can't continue to build 100k units per annum, so even if it only drops back to the perfect soft landing figure of 60k units, the industry will have contracted 40%. In simple terms, that's 100k jobs gone. And don't try tell me that infrastructure construction will take up the slack - roads don't need electricians, carpenters, kitchen-fitters, plumbers or tilers.

As for credit - availability is being withdrawn, and will continue to do so. You only have to read the notes from the last ECB press conference. Basically they're saying rates are low, don't expect it to last forever!

KingKenny7

I;ve a solution to all our problems................

Cardboard boxes...............We might get a few months out of them before the government puts on stamp duty.

pjbrady1

To end the debate on whether prices are falling or not. Daft.ie has confirmed that prices have fallen since the October peak. This has been posted on here numerous times, the growth rate for 2006 was higher earlier in the year, and then fell back to 11.3 (or something close to 11.3).
So QED, prices are falling. It is virtually impossible to have seen any capital appreciation on a house bought in October. It would be no great stretch of economics for someone who bought back then to be 10% down on their purchase price by the end of March. 15% by end of April.
Especially in Cork, where confidence has just took a walloping.
I thought we were gone beyond the reasoning of "you have been predicting crash for years - you might not be right now". Most of us on here predicted falls in late 2006 continuing on into 2007. The predictions of house price rises this year in the low digits will be ruined by the mid year 2007 Daft report. Which will hit national headlines and cause a national psychology of "lets wait a few months to buy and save 10,000". A few posts ago a poster used an EA comment about "<600k houses flying off the books" a complete lie by the ea and an incredibly weak reference point to back up your view.

ronbyrne2005

This economy is heading for the rocks. Multinational job losses will continue as will losses in construction. Immigrants will stop arriving and start leaving. The loss of jobs in construction and multinational sectors will hit consumer spending which will hit retail and service jobs and economy will suffer further job losses and negative consumer spending and enter a negative cycle. When economies enter difficulties the central bank normally lower interest rates to stimulate economy and currency changes to reflect the countries economic competitiveness etc but we have no independent currency or power to set rates. Does anyone think the ECB will bat an eyelid if our economy is in recession while rest of europe is growing?? The only way to get out of such a scenario without leaving the euro is to slash wages and costs in this country.

Calina

ronbyrne2005 wrote:

The only way to get out of such a scenario without leaving the euro is to slash wages and costs in this country.

I find that most people who recommend this course of action, particularly as regards wages, are those who are relatively sure that their wages/incomes won't be slashed.

_______________________

We could perhaps have been better off if the Financial regulator and Central Bank had exerted some pressure in terms of debt accummulation and dilution of lending criteria. Unfortunately, for the last five years no one wanted to face the truth that we were creating an asset bubble, and there are still people around who think it can be "managed". It wasn't managed on the way up.

Smoggy

I'm all for this bubble bursting and have read all side of this arguement, but I'm just not seeing it. Look out of your windows and see what's going on up and down your road. As I look out of my window there are 3 for sale signs , two have sale agreed on them and I *guess* they went for the asking price and they weren't up that long. People are still out there buying houses for the current market value - that hasn't dropped !

Do-more

One thing that isn't factored into the Daft report or others like it, is the increasing amount of "allowances" offered on new homes. In order to keep the asking prices up, developers are offering, floorings, TV's, white goods or allowances for same in increasing amounts. I posted a few pages back of one development in Tullamore offering €17K in allowances! This week I see yet more ads in the local papers offering more of the same.

Anyone who experianced the crash in the UK will remember that just prior to it, you could walk into a house that was fully furnished and kitted out, no deposit, just sign on the dotted line......

Padraig Mor

I live in your average relatively new estate in a commuter town. From my bedroom window I can see five 'For Sale' signs. Two of those are sale agreed - after being for sale for approx. six months. Two of the other houses have been on for a few moths with no apparent interest - one has dropped 10K from the asking price. All the three bed semis for sale in the area now have asking prices approx 15K lower than those six months ago. The market is only going one way - and it ain't up!

TCollins

Well it sure as hell doesnt seem to be going down to me.

Daft only show asking prices. You could pick any price out of your hole to ask for. Doesnt mean its realistic, but just because you reduce it tio sell doesnt mean house prices are falling at all.

Anyone got any links to real proof that actual sale prices are falling? I'd love to see it, just to get that warm fuzzy feeling inside, but i doubt i'll see it for a while yet.

It looks to me that those sure of a crash in prices have their heads buried in the same sand pile as those that think they will become property millionaires these days.

parsi

SimpleSam06 wrote:

Anyway my point is, this thread is about the housing bubble. Lets try to keep it on topic, please.

And is the demand for housing not in some way linked to employment ? For example if less folks have jobs then maybe they will not be in the market for a new house ? If less houses are being demanded then perhaps the numbers employed in construction will reduce. This will lead to a massive reduction in sales of breakfast rolls with subsequent dampening effects on shop incomes which may lead to more job losses ...

It is condescending (in the least) if not ignorant to say that employment stats are off-topic. Remember if your head is in the sand your ass is right out there....

ronbyrne2005

TCollins wrote:

Well it sure as hell doesnt seem to be going down to me.

Daft only show asking prices. You could pick any price out of your hole to ask for. Doesnt mean its realistic, but just because you reduce it tio sell doesnt mean house prices are falling at all.

Anyone got any links to real proof that actual sale prices are falling? I'd love to see it, just to get that warm fuzzy feeling inside, but i doubt i'll see it for a while yet.

It looks to me that those sure of a crash in prices have their heads buried in the same sand pile as those that think they will become property millionaires these days.

Two identical houses in my estate in Dublin 9 sold in last 8months. One sold last May for 735k and the other sold for 700k in December. A 35k or 5% drop in 7months and this despite the announcement of a metro stop a short walk away in the meantime. Asking price declines are well establised as a leading indicator of subsequent sales prices achieved. The head of economics at Ulster Bank said last month that prices of properties probably fell in December so I will take his word for it and my experiences above your warm fuzzy feeling that things are fine.

http://firstrung.co.uk/articles.asp?pageid=NEWS&articlekey=3707&cat=44-0-0
http://www.daft.ie/news/2007/daft_report_Q4_2006.daft
Don't forget that even if prices were just staying the same in euro prices they are falling in real terms due to high inflation.

SkepticOne

TCollins wrote:

Anyone got any links to real proof that actual sale prices are falling? I'd love to see it, just to get that warm fuzzy feeling inside, but i doubt i'll see it for a while yet.

The two main sources of information on the market are the Daft report and the ESRI/TSB house price index. Neither of these tell ou what is happening right now. The daft report is about asking prices and the ESRI index is based on mortgage drawdown which lags the market by several months. In order to determine what is happening right now you have to inerpret these two sources of information.

TCollins

ronbyrne2005 wrote:

Two identical houses in my estate in Dublin 9 sold in last 8months. One sold last May for 735k and the other sold for 700k in December. A 35k or 5% drop in 7months and this despite the announcement of a metro stop a short walk away in the meantime. Asking price declines are well establised as a leading indicator of subsequent sales prices achieved. The head of economics at Ulster Bank said last month that prices of properties probably fell in December so I will take his word for it and my experiences above your warm fuzzy feeling that things are fine.

http://firstrung.co.uk/articles.asp?pageid=NEWS&articlekey=3707&cat=44-0-0
http://www.daft.ie/news/2007/daft_report_Q4_2006.daft
Don't forget that even if prices were just staying the same in euro prices they are falling in real terms due to high inflation.

Not that i dont believe you but this is not the evidence that shows the market going up or down. This is only anecdotal localized evidence. What i would like to see is an official report with proof that prices are either going up or down.
Your opinion is biased, You want a crash so everything you see, you will want it to say 'crash' and you will ignore anything that doesnt give you the evidence for a crash. If you read my post about my 'warm fuzzy feeling' again, you will see that its a 'warm fuzzy feeling' of prices going down that i am looking for . But of course all you saw was someone arguing that house prices were going up, not someone who would like prices to come down, but hasnt seen any evidence of it yet.

All i'm after are links with proof either way, not hearsay. Some day i hope i will buy a house, but i'd like to pay as little as possible for it though. And a balanced view of the market will help me in this endevour i hope.

No point holding back now if prices are going to keep rising, but by the same token, no point in buying now if prices are going to fall. Its a tough decision.

Sponge Bob

TCollins wrote:

But of course all you saw was someone arguing that house prices were going up, not someone who would like prices to come down, but hasnt seen any evidence of it yet.

All i'm after are links with proof either way, not hearsay. Some day i hope i will buy a house, but i'd like to pay as little as possible for it though. And a balanced view of the market will help me in this endevour i hope.

there are 3 big indexes

1. Daft = asking prices in the daft report (lead indicator)
2. PTSB = mortgage drawdowns (some mortgages are 80% and some 100%) so thats not definitive (idea of whats being spent)
3. The Dep of environment stats on stamp duty collected (even if none there is a value , eg €300k FTB property is reported though no stamp duty is due) there is some ****ehawking going on there too so there will be feck all €319k houses for example . (lag indicator)

1 and 2 are out for December (your example) already, 3 will appear in april-june sometime

No point holding back now if prices are going to keep rising, but by the same token, no point in buying now if prices are going to fall. Its a tough decision.

you will always have lagged data and the harder and more precise the data then the more lagged it is , sorry about that sunshine

Gurgle

ronbyrne2005 wrote:

Asking price declines are well establised as a leading indicator of subsequent sales prices achieved.

Initial asking prices are always going to be at the most optomistic end of the scale.

ronbyrne2005 wrote:

Don't forget that even if prices were just staying the same in euro prices they are falling in real terms due to high inflation.

That situation is the very definition of the softest of soft landings.

TCollins wrote:

No point holding back now if prices are going to keep rising, but by the same token, no point in buying now if prices are going to fall. Its a tough decision.

Decision should be made on why you want to buy and what you plan to do in the future.

If you're buying a home to live in for at least 10 years, raise your kids in etc. then the only thing to really consider is what mortgage repayments you can afford.

If you're hoping to make some easy money on capital appreciation, you're a couple of years too late.

conor_mc

Gurgle wrote:

That situation is the very definition of the softest of soft landings.

Not according to the "economists" at the big banks, who suggest that 3-6% is a soft landing i.e. in line with inflation.

Stagnant nominal prices is actually the defintion of the softest of the hard landings!

Gurgle

conor_mc wrote:

Not according to the "economists" at the big banks, who suggest that 3-6% is a soft landing i.e. in line with inflation.

Stagnant nominal prices is actually the defintion of the softest of the hard landings!

Hadn't heard that one tbh.

Up until now, a soft landing was a situation where the actual sale prices didn't drop by more than a few percent from previous sale prices of similar houses. This would allow correction of an over-valued property market without negative equity situations becoming commonplace.

So here we go with re-definitions of soft landings, hard landings and crashes so that everyone can say they were right all along.

TCollins

Gurgle wrote:

If you're hoping to make some easy money on capital appreciation, you're a couple of years too late.

Personally im looking for a place to lay my head. It would hurt though if i just bought and prices went down. ouch.if they went up it would make no difference to me as i dont intend to sell after buying anytime soon. I guess its a dilemma that every single person who ever bought a home went through and will go through forever.

Gurgle

TCollins wrote:

I guess its a dilemma that every single person who ever bought a home went through and will go through forever.

Of course, but worse now because theres so much noise about it.
Everyones an expert!

TCollins wrote:

It would hurt though if i just bought and prices went down.

Only your pride really, it wouldn't affect your mortgage.

SkepticOne

Gurgle wrote:

Up until now, a soft landing was a situation where the actual sale prices didn't drop by more than a few percent from previous sale prices of similar houses. This would allow correction of an over-valued property market without negative equity situations becoming commonplace.

Generally it refers to significantly more modest (but still positive) growth after a period of extremely high growth.

I think a sustained period of modest growth is unlikely in the Irish market at this stage. There are too many speculators.

Pa ElGrande

The elusive soft landing definition varies depending on which estate agents or bankers you are talking to. It's really a marketing term that traps specuvestors who become emotionally attached to their investments. They are in knowing denial in that they know that prices can’t keep rising forever, but won't act on that knowledge, convinced they can leave just before the clock strikes midnight and the ball ends.

A housing market crash is defined as when you are forced to exit the market and can't recover your costs, as buyers desert and prices revert to the mean.

There is seldom a right time for first time buyer's to buy a house, its either a boom with loose credit, low interest rates and rising prices, or a bust with tight credit, high interest rates and low prices. I guess it all comes down to the psychology of security (note: long read), whether you decide to buy or not.

gurramok

Speechless

http://www4.myhome.ie/search/property.asp?id=301538&np=&rt=search&searchlist=

Pa ElGrande

gurramok wrote:

Speechless

http://www4.myhome.ie/search/property.asp?id=301538&np=&rt=search&searchlist=

And you can see why when you follow the link and click on map this property, must be about 20 properties for sale within spitting distance of each other.

ronbyrne2005

Those of us who have been following the market know that theres massive supply out there with new developments coming to market all the time. Saw adamstown advertised all weekend on telly. Remember last year when people queued for days to buy and then prices have fallen since out there! The crash is underway and now specuvestors are avoiding/leaving market theres even less demand for properties leaving those who are buying to live in in a good position going forward. Rent untill prices have dropped 30-50% is my advice depending on how long you can wait.

Iristxo

Jaysus the buble mustn't have burst just yet when someone is looking for 340k for THAT. Are people mad or what? And there was people buying these stuff... unbelievable

Iristxo

I live in a new-ish very sought-after state in Knocklyon, bought three years ago, property has gone up a massive 65% since. Have been monitoring the property market ever since (quite into it) and have never seen so many properties up for sale ever, 37 in Knocklyon of 3 bedrooms and bigger, several of them in my state (normally one or two tops in my state).

I would actually considering cashing it in, renting for two years and see what the story is then... I'd say i could quite easily move to a 4-bedroom then and the interest that the bank would give me for my money would pay for the rent. Quite clever right? If you manage to sell, says he... well, my property is a bit bigger than the others going in the state and completely renovated inside... it's a showhouse actually. Of course there is a chance that we could not sell, I am aware of that. In which case, there would be no harm done really.

Hubbie doesn't want to though...

miju

gurramok wrote:

Speechless

http://www4.myhome.ie/search/property.asp?id=301538&np=&rt=search&searchlist=

is it just me or does that look suspiciously like an investment property

live 30 seconds from that house btw

Lorax

Is it just me or does that crap actually put ppl off buying the house, it would for me anywa if I was buying.

"BLA BLA MUST SELL IMMEDIATELY AHH PRICE REDUCED BLA BLA BLA"

I wouldnt touch any house/property/anything with that as the selling point.

INVESTORS OR FIRST-TIME BUYERS TAKE NOTICE!

If its such a great investment why dont they just keep it as an investment then

Gurgle

gurramok wrote:

Speechless

http://www4.myhome.ie/search/property.asp?id=301538&np=&rt=search&searchlist=

-edit-
*ahem*

That property appears to be on the market at a similar price to similar properties in commuter towns.

As the first thing to land was the top end of the market, this could be a sign of the rest of the market rationalising.