Housing Bubble Bursting

bobbbb

bobbbb wrote: »

Well when i can buy a house for 80k tell me quick.
Whats that, about €80 a week for the mortgage. Yes please. Bring it on.

Don't forget that interest rates will rise in the future and quite likely by a huge amount if you subscribe to the theory that rampant inflation follows quantative easing or printing money.

Wages will not keep up with it!

bobbbb

Fr0g wrote: »

Just a thought. It is possible that the huge increase in labour supply over the last 12 years may have moderated wage inflation. The graph for therefore may not look the previous two.

I doubt it. Wage inflation in this country has been massive even with the huge influx.
And now you've got the 2 worker family as well.
Double the salary for the household, before you even look at wage inflation.

bobbbb

bobbbb wrote: »

I doubt it. Wage inflation in this country is massive.
And now you've got the 2 worker family as well.
Double the salary for the household, before you even look at wage inflation.

You've touched on one of the reasons for such high house prices there!
Two incomes are now needed to service a mortgage where as historically only one was necessary.

House prices have doubled to soak up that available income, now it's become the acceptable norm.

This also explains the high unemployment figures we now have, in the past housewives/homemakers were not registered as unemployed, now they are as their wage is essential to support the family.

bobbbb

Deleted User wrote: »

Don't forget that interest rates will rise in the future and quite likely by a huge amount if you subscribe to the theory that rampant inflation follows quantative easing or printing money.

Wages will not keep up with it!

There are good 10 year fixed rates to be got. I used a 30 year mortgage at 3% to arive at €80 a week

http://www.aib.ie/personal/mortgages/New-Mortgage-Interest-Rates

Sure even fix that at 4.07% for 10 years and you only pay €95 a week.

Or about €5,000 per year.
A single person on the dole gets €10,000 a year - just to put that into perspective.

Then bring on inflation. Its your best friend if you owe loads of money at a fixed interest rate.

bobbbb

Deleted User wrote: »

You've touched on one of the reasons for such high house prices there!
Two incomes are now needed to service a mortgage where as historically only one was necessary.

House prices have doubled to soak up that available income, now it's become the acceptable norm.

This also explains the high unemployment figures we now have, in the past housewives/homemakers were not registered as unemployed, now they are as their wage is essential to support the family.

It also explains the huge amounts of people employed compared to 10 or 15 years ago too.
Then there is this trend of adults living with their parents now too.
My friends 2 sisters live with their parents at 33 and 35 years of age. Both parents are working too. The income in that household is obscene.

Im sure if they could buy the house down the road for 80k they'd be out like a shot. Communion money and all.

blast05

Don't forget that interest rates will rise in the future and quite likely by a huge amount if you subscribe to the theory that rampant inflation follows quantative easing or printing money.

There has been no quantative easing or printing of money in the EU ..... although of course it may yet happen

Also, i honestly feel that no one can say with any authority what will happen if interest rates rise ..... could result in consumer and business sentiment nose-diving again and necessitate flat line interest rates for a decade like Japan .............. cos remember the level of indebtedness in almost all countries will be a lot higher by the end of the recession and thus government will have to fund higher rates on bonds, paper, etc when they are being re-issued if interests rates go back up ......... and of course the tax payer will have to pay for this.

My own feeling .... we'll end up with some new global economic model within a few years - and of course no one will really know how this will work

bangersandmash

bobbbb wrote: »

And now you've got the 2 worker family as well.
Double the salary for the household, before you even look at wage inflation.

Unfortunately many of those families have already or soon will become single worker families again.

maninasia

blast05 wrote: »

There has been no quantative easing or printing of money in the EU ..... although of course it may yet happen

Also, i honestly feel that no one can say with any authority what will happen if interest rates rise ..... could result in consumer and business sentiment nose-diving again and necessitate flat line interest rates for a decade like Japan .............. cos remember the level of indebtedness in almost all countries will be a lot higher by the end of the recession and thus government will have to fund higher rates on bonds, paper, etc when they are being re-issued if interests rates go back up ......... and of course the tax payer will have to pay for this.

My own feeling .... we'll end up with some new global economic model within a few years - and of course no one will really know how this will work

So the UK isn't in the EU then :rolleyes:

maninasia

fricatus wrote: »

I had the same impression as you, but I think you're right in that real wages probably have gone down for all except the top 5 or 10% of earners.

The reason the average has probably gone up is probably that old adage about why we shouldn't always trust averages: if you have one millionaire and 99 destitute paupers in a village, the average wealth is about €10,000.

So you should be looking at the median, not the mean (average). The median will give you a much clearer idea.

bobbbb

bangersandmash wrote: »

Unfortunately many of those families have already or soon will become single worker families again.

People seem to forget that with all the talk of unemployment rising there is still a massive amount of people in well paid jobs.

Don't overdo this recession. Go back to the 80s and 90s and get some perspective. And don't fret too much because, like booms, recessions always end.

asdasd

Neither of the Bobbb's really understand markets. There is a lot of nonsense about how there are well paid jobs, two incomes etc. All of this seems to indicate they believe that housing must always be a multiple of income of some sort ( they say higher, sceptics say lower) - but is doesnt have to be. Housing will fall in Ireland until the Market clears, until the backlog of spare housing is dealt with. Multiple of incomes are irrelevent. Once people realise - as surely they have - that property is not a one way bet to prosperity they will pay less for the house, not "max" out at 40% of income. F that. It may well become common to pay 25% of income, or less. As rent falls so will what people are prepared to pay. housing seems like a risk now, not a certainty.

The second error is assuming that two salaries always means a double income. It would only do that if women earned double what men earned which is not the case ( the real figure is 60% or so). And of course plenty of people buy on one salary because one or t'other may want to stay home with the childers. Ergo, that structural change is not a important as the Bobs think, and even if housing were guaranteed to be a multiple of income(s), house prices should be about 1.5 times their norms relative to median salary. And we are nowhere there yet. In the meantime salaries fall, housing becomes more difficult to rent ( there were 70,000 more people leaving in the last few months than coming into Ireland), and the drop continues. It will probably overshoot.

A fixed interest rate for ten years is a good idea, however, he doesnt lie there.

asdasd

Don't overdo this recession. Go back to the 80s and 90s and get some perspective.

I did not build a time machine, which was the only possible way to ge back to the 1980's and 1990's. However I looked it up.

There was no recession in the 80s and 90s equivalent to the drop in GDP expected this year. In fact there was only one year of recession in the two decades in 1983, the rest was slow growth, growth that wasnt good enough to end unemployment, but respectable enough at 2-3% a year, something that we may be lucky to get in t'future.

gurramok

Yes, thats where both bobby's slip up. Dual incomes are not certain to continue to for the reasons explained unless all couples decide not to have kids and also both members keep their jobs on good salaries for the next 30yrs. The reduction on child welfare money given by the govt will force one half of the couple to stay at home to mind the kids.

Dual incomes are what is catching present mortgage holders out now. If ye had listened to the various radio shows recently of couples where one half has lost their job, they are going deep into debt with serious danger of losing their houses because their mortgage was based on 2 incomes, they are crying down the airwaves as a result.

bobbbb wrote:

Sure even fix that at 4.07% for 10 years and you only pay €95 a week.

The 10yr mortgage on 80k is not relevant as there is nowhere available in Dublin for 80k now.
Will there be a 4.07% interest rate available for when that 80k Dublin gaff comes up in a few years time?:)

Its a very long shot like lotto odds.

bobbbb wrote:

People seem to forget that with all the talk of unemployment rising there is still a massive amount of people in well paid jobs.

That demographic of well paid jobs contain about a 33% +\- of the workforce(after recent tax hikes), that will only support that demand at their price ranges. Not for the rest of the housing stock.

And thats assuming most of that demographic will want to invest/(buy to live in) property at all, they do have other things to do with their money.

quozl

blast05 wrote: »

There has been no quantative easing or printing of money in the EU ..... although of course it may yet happen

I don't think that's strictly true.

Financing banking recapitalisation and bad asset purchase with directly issued treasuries, is quantative easing.

It seems to me to be quantative easing by stealth. Or am I missing something about this that means this really isn't QA?

Fr0g

bobbbb wrote: »

I doubt it. Wage inflation in this country has been massive even with the huge influx.
And now you've got the 2 worker family as well.
Double the salary for the household, before you even look at wage inflation.

I dont doubt that there was wage inflation, I'm just saying that the increase in the labour supply will distort the graph.

The two worker family would be part of the increase in labour supply

2 wages does not equal wage inflation.

gurramok

Wages have never kept in contact with the tripling rise in house prices.

http://www.globalpropertyguide.com/Europe/Ireland/Price-History

asdasd

There is one point that I agree with the Bobbs though. Long term interest rates are probably going to be lower than in the eighties.

Fr0g

gurramok wrote: »

Wages have never kept in contact with the tripling rise in house prices.

http://www.globalpropertyguide.com/Europe/Ireland/Price-History

The dotcom bubble is responsible for the peak in '99 - '01. I work in IT so I was part of that bubble, in fact I worked in England in the late 80's during their previous property bubble. I know bubbles I do.

As I thought the increase in labour supply kept wages down mid decade.

gurramok

http://www.independent.ie/business/irish/ireland-set-for-severe-downturn-says-imf-1716723.html

IMF wrote:

The International Monetary Fund warned yesterday that the recession here will be "particularly severe" adding that the Irish housing market is experiencing one of the worst corrections in the world and still has "a considerable distance to run".

Prices are nowhere near a bottom yet.

blast05

So the UK isn't in the EU then

As you well know it is.
But perhaps what you didn't know if that it is not part of the ECB :rolleyes:

johnnyskeleton

bobbbb wrote: »

People seem to forget that with all the talk of unemployment rising there is still a massive amount of people in well paid jobs.

Don't overdo this recession. Go back to the 80s and 90s and get some perspective. And don't fret too much because, like booms, recessions always end.

There's never been as many people on social welfare as there are at present.

The thing is though, this recession/depression might not end for 10 years.

Firetrap

Jesus I hope you're wrong there :eek:

Firetrap

Firetrap wrote: »

Jesus I hope you're wrong there :eek:

So do I, but I'm certain that the world will be a different place afterwards.

The days of getting rich by buying houses and selling them on are over.

Gurgle

johnnyskeleton wrote: »

The thing is though, this recession/depression might not end for 10 years.

Or it might be over by september.
Or there might be a global nuclear war, an alien invasion, a plague....

Or, most likely, there will be a couple of messy years as the financial markets are re-arranged to cope with the banking fùckups. Who knows, we could even get away without any panicked hordes commiting mass suicide and/or eating each others brains.

bobbiw

Gurgle wrote: »

Or it might be over by september.
Or there might be a global nuclear war, an alien invasion, a plague....

Or, most likely, there will be a couple of messy years as the financial markets are re-arranged to cope with the banking fùckups. Who knows, we could even get away without any panicked hordes commiting mass suicide and/or eating each others brains.

It will end but Ireland is in for a serious housing correction. It wont be good for people at the bottom of the ladder and FTB are not going to be able to buy houses. I estimate most of them unemployed or unqualified for a mortgage.

That will really annoy them, finaly realise that they can afford that house and the banks tell them now way. How Ironic.

oceanclub

bobbiw wrote: »

It will end but Ireland is in for a serious housing correction. It wont be good for people at the bottom of the ladder and FTB are not going to be able to buy houses. I estimate most of them unemployed or unqualified for a mortgage.

That will really annoy them, finaly realise that they can afford that house and the banks tell them now way. How Ironic.

Your superior attitude to prospective first-time buyers aside, how long do you think a property market can last without first-time buyers, just current property owners selling to each other?

P.

asdasd

the price of all property is pretty much determined by the new money coming in. Of course FTB's dont have to buy new houses, they didnt in the 80's - there werent any.

bobbiw

oceanclub wrote: »

Your superior attitude to prospective first-time buyers aside, how long do you think a property market can last without first-time buyers, just current property owners selling to each other?



The houseing market doesnt need FTB, the construction industry does.

Its a complete joke to think that you need a FTB market in an economy, you dont, you can have no construction industry. you can have a flat market.

People who only live in the boom years think that you need an FTB market, you absolutly dont.

You need it for a construction industry but thats gone in Ireland for the forseeable future.

asdasd

By the way, Ireland'sproperty ownership precentage has been 80% and , as far as I know, that was true during the 80's as well when the unemplyment rate was 20%. Assuming that nobody on social welfare bought a house, it is clear that housing was bought by pretty much all employed people at some time during their life.

And this was a time of tough banking.

bobbiw's idea that if prices fall the low paid wont be able to get a loan is probably not quite correct.

asdasd

You need it for a construction industry but thats gone in Ireland for the forseeable future.

eh, no. Totally incorrect. People die every year. Housing becomes available every year. FTB's dont have to buy new houses, but without new buyers the price of all housing collapses even if no new stock is built.

Also the population is reducing.