Housing Bubble Bursting

kleefarr

Supercell wrote: »

Went to see a house today. Asking was 249, prevous offer was 235, agent told me today that someone bidded 250 this morning on the first viewing!! What kind of person up's the bid by so much?, even over the asking in the current market!!, I just was astounded. Good luck to them I suppose, I wasnt going to bid much more than the previous offer anyhow, the agent mustn't believe his luck.

Did it sell for €250K??

Ok, just realised you only posted that a couple of days ago, but would be interested to hear the answer when you have it.

sportfanatic

Just read the first few pages of this thread....amazing how close the article and some of the posters were on the scale of the crash and mess we ended up in.

Makes it even worse that all this information has been there for so long

barrackali

I can't believe people continue to speculate on property, that is the reckless stuff that got this country into the mess we are in.

I for one would like to see every single tax relief removed from investment property, we can't afford to start another bubble.

ronan45

Chill everyone. Our gaffs will be worth what they were at the top of the boom in about....

Eh.... Hmmm Lets look at some of the variables

Total lack of confidence.....
Job Outlook bleak......
Country financially Crippled.....
Massive housing overstock..........
People leaving Country.......
Euro Unstable.........
Western World economies shaky...

So lets say we bottom out overall at a 65% drop in house prices from peak Summer 2006. ( we are at 50% now)

I really really cant see houses going up in the next 10 years.
Next 15 They might gain a little but NOT double. In the next 15 - 20 years will people be out of Negative Equity? Hmmm Come on inflation do your work

Yahew

Warren Buffet would be suggesting to buy now.

Yahew

Yahew wrote: »

Warren Buffet would be suggesting to buy now.

Might have something to do with his bank of America investment!

Theboinkmaster

ronan45 wrote: »

Chill everyone. Our gaffs will be worth what they were at the top of the boom in about....

Eh.... Hmmm Lets look at some of the variables

Total lack of confidence.....
Job Outlook bleak......
Country financially Crippled.....
Massive housing overstock..........
People leaving Country.......
Euro Unstable.........
Western World economies shaky...

So lets say we bottom out overall at a 65% drop in house prices from peak Summer 2006. ( we are at 50% now)

I really really cant see houses going up in the next 10 years.
Next 15 They might gain a little but NOT double. In the next 15 - 20 years will people be out of Negative Equity? Hmmm Come on inflation do your work

Depends on the individual but i think no for alot of them. I see more significant drops over next 3-5 years with another 10 of stagnation and only then will they start to increase with inflation.

So alot of people may be in their twilight years by the time they get out of NE, if ever.

Snakeblood

Yahew wrote: »

Warren Buffet would be suggesting to buy now.

Warren Buffett would probably wait until prices aren't steadily dropping and are at a multiple of average income that isn't ludicrous.

Zipppy

robd wrote: »

On North Side of Dublin, places like Finglas and Mulhudert already have houses for below 100k. Not the best locations but Donneycarney which isn't bad and close to town and not far from Dart (depending on end) has houses in need of refurb for 149k. Needs updated windows and insulation and decor. Roofs fine though.

If Morgan Kelly's latest is to be believed there's room for 50% drop on most reasonable current asking prices too.

Longer term I see:
1 bed apt in Dublin @ avg 99k,
2 bed apt in Dublin @ avg 150k
3 bed hse in Dublin @ avg 200k
4 bed hse in Dublin @ avg 300k

You'll pay for better location, size and condition.

These prices are already the 'norm' in most areas of dublin that aren't D4 types ...

Snakeblood

Zipppy wrote: »

These prices are already the 'norm' in most areas of dublin that aren't D4 types ...

Most of the southside is more than that, I'd say. Not all of that can be D4 types.

Tallaght/Citywest the 1 bed apartments are just starting to hit 99 thousand.

robd

Snakeblood wrote: »

Most of the southside is more than that, I'd say. Not all of that can be D4 types.

Tallaght/Citywest the 1 bed apartments are just starting to hit 99 thousand.

As is most of the Northside.

The reality is we're still miles off these prices for nearly all run of the mill areas. Granted some outer lying and socially depraved areas are at this but who wants to live there.

Zippy, I don't know what websites you look at for property but you're very wrong on your assertions here.

shawnee

Yahew wrote: »

Warren Buffet would be suggesting to buy now.

Warren Buffet didn't get rich buying stuff just because it halved in value ! His advice would be wait for the green shoots before you buy , don't see a lot of them out there yet

Yahew

shawnee wrote: »

Yahew wrote: »

Warren Buffet would be suggesting to buy now.

Warren Buffet didn't get rich buying stuff just because it halved in value ! His advice would be wait for the green shoots before you buy , don't see a lot of them out there yet

Warren didn't wait for "all the green shoots" visible to everybody else. Once that happens the value is gone.

robd

Yahew wrote: »

Warren didn't wait for "all the green shoots" visible to everybody else. Once that happens the value is gone.

Warren has always been a value investor
http://en.wikipedia.org/wiki/Value_investing

However the modern crap that is the services economy that started in the US and permeated through the whole globe killed value investing. Too much capital and complex financial instruments, automated trading platforms, all of which is essentially one big casino.

Anyway back to Warren. He'd look at the yield in regard to Irish Property. He'd want about 10%+. Does anyone seriously think we are anywhere near 10% yield on either residential or commercial property in this country? We were down to about 3-4%. We're now at about 6-7%. A while to get before any value investors are interested I'm afraid.

Yahew

robd wrote: »

Warren has always been a value investor
http://en.wikipedia.org/wiki/Value_investing

However the modern crap that is the services economy that started in the US and permeated through the whole globe killed value investing. Too much capital and complex financial instruments, automated trading platforms, all of which is essentially one big casino.

Anyway back to Warren. He'd look at the yield in regard to Irish Property. He'd want about 10%+. Does anyone seriously think we are anywhere near 10% yield on either residential or commercial property in this country? We were down to about 3-4%. We're now at about 6-7%. A while to get before any value investors are interested I'm afraid.

If it were 10% then lots of money would flow in. That yield is rental, but there is also long term capital gains.

Zamboni

Yahew wrote: »

If it were 10% then lots of money would flow in. That yield is rental, but there is also long term capital gains.

Wut?

Capital gains? Irish property? Have I missed something?
How long term exactly are you talking?

noxqs

You have to offset the capital gains versus inflation.

I would be surprised if anyone purchasing property today would be able to sell at a price higher than adjusted for inflation. In fact, I doubt that very much. House prices in Ireland is still at 6x average industrial wage, and higher in Dublin. Get some sense man - just because prices went 'gaga' and people became adjusted to seeing these kind of numbers doesnt mean that the price is right.

The bubble started in 1996. We know from other bubbles that house prices drop BELOW the starting point. Always. Then we have value. Japan property is still less today, 30 years later than at the start of their bubble. Hello ? History is knocking, it wants to show you a lesson.

(Also: Property tax, increased income tax, stamp duty, water charges, reduction in RA/RS, reduction/freeze of wages likely to continue, more austerity measures, etc etc). If you're bullish on Irish property today - I dare say without trolling that P.T Barnum was correct. The IS a fool born every minute ... (in Ireland).

Yahew

noxqs wrote: »

You have to offset the capital gains versus inflation.

I would be surprised if anyone purchasing property today would be able to sell at a price higher than adjusted for inflation. In fact, I doubt that very much. House prices in Ireland is still at 6x average industrial wage, and higher in Dublin. Get some sense man - just because prices went 'gaga' and people became adjusted to seeing these kind of numbers doesnt mean that the price is right.

The bubble started in 1996. We know from other bubbles that house prices drop BELOW the starting point. Always. Then we have value. Japan property is still less today, 30 years later than at the start of their bubble. Hello ? History is knocking, it wants to show you a lesson.

(Also: Property tax, increased income tax, stamp duty, water charges, reduction in RA/RS, reduction/freeze of wages likely to continue, more austerity measures, etc etc).

Firstly, let me say where I am coming from. I didnt buy in the boom, although I could have. I did buy in a central European country because it wasn't booming. I now dont live in Ireland, but I might in future.

The long term I am talking about is 30 years, or so. I dont know if now is the bottom, but the market will probably over shoot sometime.

If you're bullish on Irish property today - I dare say without trolling that P.T Barnum was correct. The IS a fool born every minute ... (in Ireland).

It is when the mob ( I say without trolling) thinks there is no value that there is often value to be had. When the mob thought there was no end to value was the time to be out.

Ireland is still a high wage country - as far as I can see I would earn more there, than in the UK ( average salary here about £25k - house prices tending towards 200K and not falling in a recession). Some people are still making money. The time not to buy is when the economic indicators are extremely rosy. When the economy has obviously turned a corner, house prices will rise or have risen. The smart thing to do is not to buy then, but before the obvious turn of the economy.

May not be now, but it will be when most people are pessimistic.

For instance: there is that investment company which bought into BOI. Thats what smart money does. ( Real smart money - not the smart money which got into Turkey during the boom). That's obviously long term.

6 times income is about 3.5 times joint income - most people buy as couples now, not as singletons. 2.5 is the historical ratio of house prices to single wages. However, there is a clear structural change in irish house buying, the once off near doubling of household income as women moved into the workforce between - mostly - 1980-2000. Which is why 1996 was not the start of the boom, but 2001 was.

It will shoot down lower than 2001, adjusted. But if rental yields tend towards 10%, and house prices tend below 5 times average wage ( in reality 4,5 as women still dont earn as much as men and not all house buyers are couples) the long term average will be met, and then house prices will trend lower. Which would be a "buy signal" as the man said.

It would help to have capital, of course, as banks are not that helpful these days.

noxqs

I don't entirely agree with your observations.

I'll break it down to clarify where I am coming from:

1. Yes, Ireland is a 'high wage' country, now, but the future isn't necessarily this rosy at this point in time.

So then the question becomes: What is the future avarage wage of the Irish? It's not a law that this should be growing with inflation, there is no reason why it would not continue, as now, to be falling or freeze relative to inflation reducing the real wage.

2. Long term Ireland is facing severe economic pressure and this pressure is - as usually - put on the tax payer. Less money to go around, means less money to buy houses for. This is compounded with the uncertainty of (1).

3. The reason banks should use 2.5x income is not because of 'The man makes the money' and now is a new time. It is for risk management. Many countries in the western world had women working fulltime well before Ireland and did not change their mortgage lending practices much. The income was factored in, but not to the extent of a full multiple.

If one loses the job - the other salary should be able to keep up with the mortgage and still leave food on the table (this would ofcourse be calculated based on wellfare/taxation and other variables which changes in that scenario).

I understand what you're saying but as you can see, many households lost 1 earner and this is devastating as their mortgage repayments relied on both. This is not a good model economically and it will have to return to what it used to be.

3. Rental yields - my point is rental yields might look good now, but they haven't dropped in line with house price drops yet - and this is largely due to RA/RS which is being reduced come next budget and probably in a few budgets following this. This increases risk to a potential investor.

Now; There is also over 300,000 empty properties in Ireland - NAMA holding a good chunk of them. This is an undecided wild card what will happen here, further increasing the risk of a would-be landlord. What if this all becomes cheap housing run by the government?

4. Emigration. There is little immigration and high emigration now resulting in a net emigration from Ireland -> There is no real pressure on the property/rental market. It's actually very slow.

Overall - even in 30 years time buying a property now given the current prices would be a bad bet for almost any investor. Even 100% cash.

My question, even with a 10% yield (ignoring everything above) will you after 30 years be able to say the following:

Will: Interest_Bonds on deposit or savings be

Less than, equal to, or more than below:

((sale_price_in_30_years - interest_paid) + (rent - mortgage)-tax_on_rent) - property_tax))

Will it be more or less? This assumes a renter for 100% of the time which I sincerely doubt is realistic. Given all of the above I think property as an "investment" is mad versus bonds/stocks or certificates of deposit. And for a person buying to stay as a family home, the market hasn't reached a point yet where the drop in equity is less than rent paid annually. So it hasn't reach any sort of meaningful equilibrium yet. And when it does it will not grow significantly and fast - so there is time to sit on ones hands and wait for say - 1-2 years of stagnation or modest rises in house prices before even thinking of signing a mortgage application. Renting is a perfectly viable thing to do now, negative equity and interest paid on it is 'dead money'. So much so that the only analogy I could find to it would be to kill money, then bury it, dig it up, kill it again, then once more for good measure.

robd

Yahew wrote: »

If it were 10% then lots of money would flow in. That yield is rental, but there is also long term capital gains.

I howled laughing when I read this. So 2006. I think you've failed to see what drives capital gains, i.e. inflation and increase in rental yield.

You don't factor capital gains into your calculations as to whether a place is worth buying or not as it should be linear against all other properties you would be deciding against. Anyway it will be negative for the foreseeable future.

Also 10% is the long term average gross yield on residential property. It has to be to cover mortgage rates of circa 6%, property taxes (which are in the post), maintenance charges and vacancy periods plus a bit for yourself which allows you to put together deposit for buying the next property. That's how the game worked prior to 2000 and the capital splurge that destroyed the country.

I think you need to give Sarah Beanie a ring, she'll sort you out !!!

OMD

robd wrote: »

Also 10% is the long term average gross yield on residential property. It has to be to cover mortgage rates of circa 6%, property taxes (which are in the post), maintenance charges and vacancy periods !!!

In what country can you get 10% "long term average gross yield on residential property"?

Also not looking at capital growth is daft. I am not suggesting anyone should invest in Irish property at present but you logic doesn't really add up.

Treehouse72

OMD wrote: »

In what country can you get 10% "long term average gross yield on residential property"?

Well, Allsop is saying 8%+ on investor properties, and that's in a country where the vast majority of residential properties have a direct rental equivalent, making that yield at least somewhat relevant.

To boot, prices are still falling (I think 25%+ still to come off), the IMF are running the show and the economy is, if anything, still getting worse.

So it's not that much of an imaginative leap to get from the 8% up to 10%.

That said, I wouldn't place neutral pricing on residential properties quite as high as 10% myself. But I think 7%+ makes sense.

OMD

Treehouse72 wrote: »

Well, Allsop is saying 8%+ on investor properties, and that's in a country where the vast majority of residential properties have a direct rental equivalent, making that yield at least somewhat relevant.

To boot, prices are still falling (I think 25%+ still to come off), the IMF are running the show and the economy is, if anything, still getting worse.

So it's not that much of an imaginative leap to get from the 8% up to 10%.

That said, I wouldn't place neutral pricing on residential properties quite as high as 10% myself. But I think 7%+ makes sense.

10 is 25% more than 8. That is a Sizable difference. Anyway we were talking longterm yields. I have asked this before when people keep maintaining "Ireland is different". If other countries do not offer long term (30 years or so) yields of 10% then why should Ireland?

Treehouse72

OMD wrote: »

10 is 25% more than 8. That is a Sizable difference. Anyway we were talking longterm yields. I have asked this before when people keep maintaining "Ireland is different". If other countries do not offer long term (30 years or so) yields of 10% then why should Ireland?

I've always thought people overestimated required yield too, but I found this with my first Google:

A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2004 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs).

The results? Housing delivered a solid but unimpressive annualized return of 8.6%. Commercial property did better at 9.5%. The S&P, however, delivered a crushing 13.4%

http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html

OMD

Treehouse72 wrote: »

I've always thought people overestimated required yield too, but I found this with my first Google:

A new study by Jack Clark Francis, a finance and economics professor at Baruch College in New York City, and Yale's Roger G. Ibbotson compared the annual returns of real estate from 1978 to 2004 compared with those of 15 different "paper" investments, including stocks, bonds, commodities futures, mortgage securities and real estate investment trusts (REITs).

The results? Housing delivered a solid but unimpressive annualized return of 8.6%. Commercial property did better at 9.5%. The S&P, however, delivered a crushing 13.4%

http://money.cnn.com/galleries/2007/real_estate/0704/gallery.stocks_v_realestate.moneymag/index.html

I don't know the study (and am willing to be proved wrong) but that study appears to combine rental yield and capital growth. This is fair enough when comparing stock Market to property as an investment choice but it is not what we were talking about here in terms of yield. Robd said you have to ignore Capital growth.

subway

OMD wrote: »

I don't know the study (and am willing to be proved wrong) but that study appears to combine rental yield and capital growth. This is fair enough when comparing stock Market to property as an investment choice but it is not what we were talking about here in terms of yield. Robd said you have to ignore Capital growth.

I think it's worse and is just talking about capital growth!

This might be more interesting, but doesn't show longterm...
http://www.realestateanalysisfree.com/blog/real-estate-analysis/price-to-rent-ratio-rental-yield-of-all-us-states

Yahew

robd wrote: »

Yahew wrote: »

If it were 10% then lots of money would flow in. That yield is rental, but there is also long term capital gains.

I howled laughing when I read this. So 2006. I think you've failed to see what drives capital gains, i.e. inflation and increase in rental yield.

You don't factor capital gains into your calculations as to whether a place is worth buying or not as it should be linear against all other properties you would be deciding against. Anyway it will be negative for the foreseeable future.

Also 10% is the long term average gross yield on residential property. It has to be to cover mortgage rates of circa 6%, property taxes (which are in the post), maintenance charges and vacancy periods plus a bit for yourself which allows you to put together deposit for buying the next property. That's how the game worked prior to 2000 and the capital splurge that destroyed the country.

I think you need to give Sarah Beanie a ring, she'll sort you out !!!

You may fall about laughing all you want mate but your "argument" makes no sense. To say 2011 is 2006 is the intellectual equivalent of saying 2006 was like 1996, which the pro-boomers did

And as I pointed out I didn't buy in 2006 and I could have with cash. Clearly I can now because I still have thar cash, and more might in the future.

This is the dumbest statement I have ever seen.

You don't factor capital gains into your calculations as to whether a place is worth buying or not as it should be linear against all other properties you would be deciding against. Anyway it will be negative for the foreseeable future.

Yahew

OMD wrote: »

Treehouse72 wrote: »

Well, Allsop is saying 8%+ on investor properties, and that's in a country where the vast majority of residential properties have a direct rental equivalent, making that yield at least somewhat relevant.

To boot, prices are still falling (I think 25%+ still to come off), the IMF are running the show and the economy is, if anything, still getting worse.

So it's not that much of an imaginative leap to get from the 8% up to 10%.

That said, I wouldn't place neutral pricing on residential properties quite as high as 10% myself. But I think 7%+ makes sense.

10 is 25% more than 8. That is a Sizable difference. Anyway we were talking longterm yields. I have asked this before when people keep maintaining "Ireland is different". If other countries do not offer long term (30 years or so) yields of 10% then why should Ireland?

I am talking about getting into the market when the capital costs of buying a house are low, assuming an overshoot in the market, which often happens.

At the start of this thread the rental yield at < 3% was pointed out to be a indicator of an overvalued house - similar to a low P/E ratio for a company. Now it seems if rental yields trend towards 10%, the opposite conclusion can't be drawn.

That's mistaken.

robd

Yahew wrote: »

You may fall about laughing all you want mate but your "argument" makes no sense. To say 2011 is 2006 is the intellectual equivalent of saying 2006 was like 1996, which the pro-boomers did

And as I pointed out I didn't buy in 2006 and I could have with cash. Clearly I can now because I still have thar cash, and more might in the future.

This is the dumbest statement I have ever seen.

As in you statement is so 2006 or passé.
Re-read the comment.

The statement about capital gains is in no way dumb. How can you know what capital gains are going to be? You only know capital gains in the future when you sell your asset or at the least get it valued. Plus as I clearly stated to support the comment, capital gains don't just happen without either inflation or the yield (rent) increasing. So if you think rent is way to low and will increase in the next few years then by all means link it to capital gains but otherwise deal with the losses.

So in conclusion capital gains don't just happen they require rent to increase. Do you really see rent increasing over the next 10 years?

ronan45

Recover in the Next 5 years lol

Property Crash: Where to Now?
9.35pm. RTE1.
Almost 5 years on from his landmark documentary Futureshock: Property Crash, Richard Curran looks to the future to ask what happens next to Ireland's residential property market. Where will the property market will be in five years' time: will it ever recover and to what extent will any future recovery be location specific rather than national? He travels to Finland and Japan to see what lessons we can learn from their property crash and he examines the conditions needed at home for recovery to happen. Contributors include: Peter Nyberg (Finnish Central Bank and author of the Nyberg report into Ireland's banking crisis), Sauli Niinisto (Finnish Deputy Prime Minister), Governor Patrick Honohan, Pat Farrell (Irish banking Federation), Dr Alan Ahearne (Economist and Special Advisor to Brian Lenihan).