Housing Bubble Bursting

Amberman

http://blog.mises.org/archives/009620.asp

Everyone shuold watch this...but its an hour long

oceanclub

http://www.irishtimes.com/newspaper/finance/2009/0320/1224243122637.html

Senior property valuers, who are believed to share Dr Bacon’s estimates on the declines in property values, estimated that residential development land in Dublin and other cities will fall by up to 70 per cent from its peak and by up to 90 per cent in regional towns.

Residential property is expected to halve in value from peak levels.

The value of commercial property development land is estimated to fall by between 50 and 70 per cent, while commercial property values will drop by up to 70 per cent from their peak.

These figures match or exceed the assumptions in the worst-case scenario of the State’s largest bank, Allied Irish Banks (AIB). The bank, which has the largest loan exposure to the development sector, estimated that, in a worst-case scenario, commercial property values would fall 50 per cent and development land would drop by between 70 and 80 per cent.

JackieT

Just spoke to my dad, his missus just bought a house in sweden. She paid 300,000 SEK (roughly €28,000) for a detached 3 bedroom house with 1/2 acre of land. She's got sea view as well.

It's not entirely relevant to the thread I guess, but I thought it was very sobering to compare the house prices there in Sweden with Ireland.

JackieT

JackieT wrote: »

Just spoke to my dad, his missus just bought a house in sweden. She paid 300,000 SEK (roughly €28,000) for a detached 3 bedroom house with 1/2 acre of land. She's got sea view as well.

It's not entirely relevant to the thread I guess, but I thought it was very sobering to compare the house prices there in Sweden with Ireland.

That's well below the build cost of anything similar you could build in Ireland, let alone the cost of a decent site.

Is that a typical price?

JackieT

Deleted User wrote: »

That's well below the build cost of anything similar you could build in Ireland, let alone the cost of a decent site.

Is that a typical price?

According to my dad that's a typical price actually. I was looking at some property ads there myself, and detached houses start at around 100,000 SEK or ~ €9,000 for a fixer-upper in that county (Vasternorrland).

The house is located in a smallish town, although it's got all the amenities, shops etc. it doesnt have much going for it job-wise. Not that the latter matters much for my dad and his girlfriend though, they are both retired

K-9

JackieT wrote: »

According to my dad that's a typical price actually. I was looking at some property ads there myself, and detached houses start at around 100,000 SEK or ~ €9,000 for a fixer-upper in that county (Vasternorrland).

The house is located in a smallish town, although it's got all the amenities, shops etc. it doesnt have much going for it job-wise. Not that the latter matters much for my dad and his girlfriend though, they are both retired

I'm tempted!

Still, that's nearly too cheap! Nearly as bad as too dear!

JackieT

K-9 wrote: »

I'm tempted!

Still, that's nearly too cheap! Nearly as bad as too dear!

be veeery careful, looks like sweden isn't doing too well at the moment either, you may end up in negative equity!! So your €9,000 house may only be worth €8,000 next year :P

K-9

K-9 wrote: »

I'm tempted!

Still, that's nearly too cheap! Nearly as bad as too dear!

It's only too cheap if there's either something wrong with it or the location is bad (no work, dangerous location etc).

Chances are, certain midlands housing estates will be like that in a few years!

K-9

LOL, Buy, buy, buy then!

Still, if it's a relatively new house and there hasn't been a huge crash there, how the hell could it cost €9,000?

JackieT

ok, using my mad googling skills:

here's a €9,000 house, not the classiest place mind you, but still.. : http://www.hemnet.se/beskrivning/hemnet/84199

and a €25,000 house with sea view: http://www.hemnet.se/beskrivning/hemnet/223625 (mortgage repayments are gonna hurt bad, €25 / month according to the ad :P )

1 EUR =~ 11 SEK

johnnyskeleton

JackieT wrote: »

ok, using my mad googling skills:

here's a €9,000 house, not the classiest place mind you, but still.. : http://www.hemnet.se/beskrivning/hemnet/84199

and a €25,000 house with sea view: http://www.hemnet.se/beskrivning/hemnet/223625 (mortgage repayments are gonna hurt bad, €25 / month according to the ad :P )

1 EUR =~ 11 SEK

Have you any idea how much a property in Stockholm costs?

bobbbb

Deleted User wrote: »

It's only too cheap if there's either something wrong with it or the location is bad (no work, dangerous location etc).

Chances are, certain midlands housing estates will be like that in a few years!

Anywhere outside the major cities here will just have to be knocked down, because people just wont be living there as the work is in the cities.
Good riddance too. Some nice villages in this country have been ruined by apartments.
You drive through a maze of apartments, then through a lovely village, then back out through more eyesores.

bobbbb

JackieT wrote: »

ok, using my mad googling skills:

here's a €9,000 house, not the classiest place mind you, but still.. : http://www.hemnet.se/beskrivning/hemnet/84199

and a €25,000 house with sea view: http://www.hemnet.se/beskrivning/hemnet/223625 (mortgage repayments are gonna hurt bad, €25 / month according to the ad :P )

1 EUR =~ 11 SEK

You can buy a house in Banjo Country in the US for the same price.
You should buy a few of these.

blast05

Rural properties in Sweden are very cheap cos people don't want to live outside the built up areas. I've spent enough time there to get a feel for the mindset regarding this and living in a 3 bed apartment in a 6 story block tends to be much preferred than living say 15 miles outside the town on a half acre with no public facilities and very few neighbours ! In the regional cities, the cheapest apartments in what are absolutely disgusting looking apartment blocks are about 30K. 2 miles out from the the city centres in the nicer suburbs, a 4 bed detached (on its own plot, i.e.: not a housing estate) would be anything between 200-300K.
Note, my figures are based from browsing auctioneers windows in both the 4th and 5th biggest cities in Sweden from about 12 months ago when i was last over there for more than a flying visit.

JackieT

johnnyskeleton wrote: »

Have you any idea how much a property in Stockholm costs?

I had a look at prices in Nacka on hemnet.se, it's an area in innercity stockholm. I suppose you can compare it to Rathmines or something like that, so not /the/ poshest area but safe and central (and lots of pubs). Looks like apartments there start at €60,000

Murtinho

JackieT wrote: »

I had a look at prices in Nacka on hemnet.se, it's an area in innercity stockholm. I suppose you can compare it to Rathmines or something like that, so not /the/ poshest area but safe and central (and lots of pubs). Looks like apartments there start at €60,000

Dont forget that when you own an appt in sweden you still pay a monthly fee to the management company. This fee varies, normally high for new or badly run companies or even high for older ones that have needed renovating.
Low cost price normally means high monthly cost, this can be anything from €400-1000 /month!

ntlbell

Murtinho wrote: »

Dont forget that when you own an appt in sweden you still pay a monthly fee to the management company. This fee varies, normally high for new or badly run companies
!

much like ireland then?

blast05

blast05 wrote: »

Rural properties in Sweden are very cheap cos people don't want to live outside the built up areas. I've spent enough time there to get a feel for the mindset regarding this and living in a 3 bed apartment in a 6 story block tends to be much preferred than living say 15 miles outside the town on a half acre with no public facilities and very few neighbours !

It sounds like the Swedes don't have a commuting culture at all, but then again we need to remember that in winter the roads could be closed for days at a time!

The only reason we have so many (expensive) houses in rural Ireland is because of the extreme commuting culture that had bee allowed to grow in recent years.

ntlbell

Deleted User wrote: »

It sounds like the Swedes don't have a commuting culture at all, but then again we need to remember that in winter the roads could be closed for days at a time!

The only reason we have so many (expensive) houses in rural Ireland is because of the extreme commuting culture that had bee allowed to grow in recent years.

I'm not sure many people were doing it out of choice.

Murtinho

ntlbell wrote: »

much like ireland then?

How much do management fees cost in ireland? Like i said, up to €1000/month is not unusual.

ntlbell

Murtinho wrote: »

How much do management fees cost in ireland? Like i said, up to €1000/month is not unusual.

No idea I was referring to badly managed companies not the cost.

Murtinho

ntlbell wrote: »

No idea I was referring to badly managed companies not the cost.

well im just highlighting the difference in buying appts in sweden, you join a bostadsrättsförening, often the ayment to them is higher than a mortgage, and is in effect "dead money"

blast05

How much do management fees cost in ireland?

Anything between about €300 and €2000

Re the whole Swedish comparison - its not real a valid to compare with the Irish situation. Take direct taxation for a start .... for a married couple each on 60K thus 120K in total meaning 10K per month - well the take home pay in Sweden is ~1700 per month less than in Ireland.

Other costs are also vastly greater than here. For example, i recall when i was over there for a week about 2 years ago where a Swedish government minister resigned cos she was exposed as paying a nanny in cash rather than paying all employer taxes, benefits for the nanny, regional taxes, state taxes etc etc. It panned out that had the nanny been employed in the correct manner that the cost of employing her would have been 9 times greater for the employer. I haven't a clue what the breakdown was or what extra specifics were involved (high wage of the gov minister being another consideration as i vaguely recall) but i sat though an hours lunch break with Swedish guys talking about it (major scandal at the time - an Irish politician would probably have been promoted for such an act) and after much debate the conclusion was it was 9 times dearer.

ntlbell

ntlbell wrote: »

I'm not sure many people were doing it out of choice.

Agree totaly, most were just priced out of town!

sotiris1

miju wrote: »

i'm sure they do as they more than anyone else will realise that the longer this asset bubble continues the more and more long term damage it does to this country



a bit over-dependnt??????? more like completely and utterly dependent on construction to mask this economys figures




out of curiosity what percentage of price drop would you consider a crash?



most "doom-mongers" are not dying for a crash so they can buy i think you'll find alot of them are actually thinking of the economys health as a whole and they don't want / wish for a crash but at this stage it is looking increasingly unavoidable , also those of 100% mortgages are not the only ones badly exposed there's the "investors" , retirement purposes as well as those members of the laughable brigade of "top-up mortgages" who will all be royally fooked as well



your obviously choosing what pallatable to read and whats not , as regards hard figures there's plenty including the permanent tsb / esri index just release , recent daft report and of course the most current site that can be used as a indicator of anecdotal current property prices http://irishhousepricesfalling.blogspot.com/

then of course there's the fact that property prices (at the very best) is expected to grow by 5% and general inflation (at the least) will be hitting 6% next year so without interest rate hikes , over supply , no more panic buying , investors staying out of the market , capital appreciation finished , end of a fair few property tax incentives property prices WILL fall by 1% at the very , very least in real terms , those hard enough facts for you?

by the by the below quote clearly indicates the next rise as early as feb next year so after that is anyones guess , however, the ECB wont care about ireland in the grand scheme of stability in the eurozone and you can bank on that



ps: heres some late night reading from the central bank that was released this month , is 30 pages long so brew up a cuppa first

The only time people make or lose money in the housing market is when they buy or sell.
So if you want to lose money and the value of your property has gone down by 50% you can sell.
If you don't want to lose money you will hold on to the property for a while until the property cycle rises again which might be a 2-5 years.
If you have purchased a property that's mortgage does not cover ther rental income,or your salary or business is not enough to pay the mortgage on then you will lose money either way either by selling,or keeping but if you can afford to hold the property long term you will recover those loses in equity.In the short term it is like the lotto who knows?

spockety

sotiris1 wrote: »

So if you want to lose money and the value of your property has gone down by 50% you can sell.
If you don't want to lose money you will hold on to the property for a while until the property cycle rises again which might be a 2-5 years.

So eh, you reckon a house that has lost 50% of it's value already will see it shoot back up again (i.e. double in price) over the next 2 to 5 years? haha.. okay!

Instant bubble, just add credit!

ntlbell

spockety wrote: »

So eh, you reckon a house that has lost 50% of it's value already will see it shoot back up again (i.e. double in price) over the next 2 to 5 years? haha.. okay!

Instant bubble, just add credit!

I think people also forget that if a property falls by 50%

it has to increase by 100% to get back to where it was.

They assume a 50% increase will get it back to where it was.

maninasia

spockety wrote: »

So eh, you reckon a house that has lost 50% of it's value already will see it shoot back up again (i.e. double in price) over the next 2 to 5 years? haha.. okay!

Instant bubble, just add credit!

And a bit of foam on top from FF.
Ireland has the BIGGEST property bubble in the world and there are people thinking it will be go back up in 2-5 years. Even if there was no global credit crisis things would have come unstuck naturally...there was no stopping this implosion as it made the country completely uncompetitive and locked up all the capital which could have been used to make sound businesses that actually, wait for it, make MONEY. Who can start a business now...who can invest in the stock market to give businesses capital......not too many....huge numbers of young earners have locked up all their earnings and doing the opposite of what young people should do which is go for their dreams.

bobbiw

The implosion of the irish property bubble was going to happen regardless.
There is no way a 3 bed home in dollymount should be higher priced that a home with an ocean view in Laguna Beach, California.

Regardless I now think that Ireland can weather this storm. I dont think houses will become more affordable. I think people will end up with pay cuts and higher taxes so even if they drop in value it will still be a stretch to buy them.

Owning a home isint a right, you dont deserve it. People in Ireland act like it is a right. Maybe they should say that unless you make 100k a year you have to rent.

It is what it is though.

As for the thought that prices will go back up, I think you are seriously looking very long term (15 years). Prices will drop for the forseeable future until they get so low that it stimulates demand and where credit is avaiable.

But I think if you buy today you need to accept that you are going to loose value, but then if you need it now and plan to live there 30 years go for it.

Amberman

bobbiw wrote: »

The implosion of the irish property bubble was going to happen regardless.
There is no way a 3 bed home in dollymount should be higher priced that a home with an ocean view in Laguna Beach, California.

Regardless I now think that Ireland can weather this storm. I dont think houses will become more affordable. I think people will end up with pay cuts and higher taxes so even if they drop in value it will still be a stretch to buy them.

Owning a home isint a right, you dont deserve it. People in Ireland act like it is a right. Maybe they should say that unless you make 100k a year you have to rent.

It is what it is though.

As for the thought that prices will go back up, I think you are seriously looking very long term (15 years). Prices will drop for the forseeable future until they get so low that it stimulates demand and where credit is avaiable.

But I think if you buy today you need to accept that you are going to loose value, but then if you need it now and plan to live there 30 years go for it.

Any society which fails to provide the ability to unskilled labour to own their home at a reasonable price has failed. People should be able to own a home rather than rent. Its indecent to have it any other way.

I think houses will become more affordable. How can it work any other way? Prices cannt float at unaffordable levels for long. Sellers in denial have a wake up call coming. That wake up call is when a house on their street changes hands through a forced sale at auction generally. Then the realise the real price of their home. Ofcourse, they can refuse to sell...but unemployment, interest rate hikes, the need to move, job displacement, deaths and a myriad of other factors may force their hand sooner than they realise.

I take your point about disposable income. If the tax burden increases and wages fall...guess what....house prices will crash harder.

If they dont, who will buy them? No one will be able to afford them cos of tax/wage deflation.

Prices will drop for the forseeable future until they get so low that it stimulates demand and where credit is avaiable.

This is correct. We are nowhere near the bottom IMO...not even close.

Attached is a map of almost every bubble in history. Go and look at any bubble in detail and you will see this psychology play out.

Things are predictable...Im afraid. We can determine our position on teh continuim easily. We can use the huge amount of denial and the lack of real fear over prices completely collapsing in many segments of society...but teh fear is growing and spreading. Capitulation is a requirement of most huge crashes before a bottom can be successfully put in. The "we'll be back to normal soon" in many places adds to my belief of our place today in this bubble.

we're still at ~8 times earnings dont forget....its still a huge bubble by most measures.