Housing Bubble Bursting

http://www.finfacts.com/irelandbusinessnews/publish/article_10006514.shtml

An extensive research report published today by Bank of Ireland Private Banking shows that, in a survey of the top 8 leading OECD nations, Ireland is ranked the second wealthiest, behind Japan and ahead of the UK, US, Italy, France, Germany and Canada, showing an average wealth per head of nearly €150,000.

Lads we are swimming in the money apparently so will ye just stop moaning and pay up

ronbyrne2005

Deleted User wrote:

http://www.finfacts.com/irelandbusinessnews/publish/article_10006514.shtml







Lads we are swimming in the money apparently so will ye just stop moaning and pay up

In case anyone thinks blindjustice is being serious bear in mind this notional "wealth" is based on a very high percentage of wealth being in form of property while the other "wealthy" countries have it much more in equities bonds and cash. Also the measure of wealth used in this report does'nt account for a poor public infrastructure(low public wealth), Ireland has a poor physical infrastructure compared to the other "wealthy" countries which have great roads rail healthcare etc. The notional value of our property "wealth" can and will fall while the debt/mortgages attached to these "assets" will stay the same and even continue to rise at 20 per cent per annum(despite house prices rising 13%in 2006, mortgage debt rose by around 30%, this trend has to continue even if prices paid for houses stall/fall). Wealth based on principal private home values is largely irrelevant.

Of course the report is by Bank of Ireland - when they are handing out 30 - 40 year mortgages it encourages people if they think they are rich!

Its all notional wealth - its not in our bank accounts! Its simply Fantasy now that the bubble has burst.



gather round children for I am about to tell you a tale...............once upon a time mortgages were 3 - 4 times your wage and were .....wait for it .... take a deep breath and sit down this may be a shock ..... over 20 and even 25 year terms.
The End

johnnyskeleton

This might be a naieve or stupid question but please bear with me

My understanding was that during the boom period houses usually sold higher than the asking prices e.g. asking price 200k but will sell for 250k after a bidding war, and there was a tendency to have a lower asking price to entice buyers without any realistic expectation to sell at that price.

Now, is there any logic to the following:

(a) if asking prices are being reduced then it is reasonable to assume that they it would be sold if you offered that price and that the bidding wars aren't really happening,

(b) prices can be negotiated downwards now,

(c) it is just a ploy to get more interest in house sales and there is no real drop in prices?

I know it is hard to get accurate information, but the point I'm getting at is that if asking prices generally drop 1% e.g. 500k to 495k, 200k to 198k etc, then is it fair to assume that the actual prices that houses are sold for has dropped much more e.g. the 500k house would previously sell for maybe 600k (100k over the asking price) but now will sell for 495k (i.e a much higher % drop).

Smoggy

Heres what I know :

a.) Houses and appartments that are selling at the moment in the majority are going for under the asking , if not the asking price. I have seen some that have gone over the asking price as well, but these are in the minority

b.) Prices can be negotiated downwards, it all depends upon wether the seller believes that the market is on the turn and that the only way they can sell is to reduce the price. Many people state that the market has just stalled and that they will just wait it out until the demand returns ( after the election etc )

c.) The only way to find out if a house has dropped in price is to know what houses like the ones you are looking at have sold at previously. There are Irish websites that track the reduction in asking price by monitoring sales websites like daft / myhome.

If I had a semi D house, which my neighbour sold thiers for 9 months back for 400k, my opinion is that in the current market I wouldn't get this value for mine. If I entered it on the market at 400 I would get little to no interest. Leaving me with the choice to drop the price or hold on. Which brings us back round to point b.) and what type of person I am, someone who beleives the market will hold and return or someone who believes the market is on a down turn.

A Random Walk

johnnyskeleton wrote:

I know it is hard to get accurate information, but the point I'm getting at is that if asking prices generally drop 1% e.g. 500k to 495k, 200k to 198k etc, then is it fair to assume that the actual prices that houses are sold for has dropped much more e.g. the 500k house would previously sell for maybe 600k (100k over the asking price) but now will sell for 495k (i.e a much higher % drop).

No, you're exactly correct. In the "good times", houses would go for asking price plus a premium. If sellers are now happy to even get the asking price, it indicates that prices have fallen in reality for significantly more than the nominal asking price drop.

I don't know what your feelings on property are, but hopefully you can now see how the "bearish" posters on property are arriving at their conclusions that this market is in much bigger trouble than the official figures are letting on.

ixoy

I noticed that a number of ads on Daft.ie for property have fairly long "Date Entered" periods - 21 days+. Is this typical or did property shift quicker? It'd be interesting to see how long a typical apartment/house is now taking to sell on the site and not just the price factor.

massplanck

ixoy wrote:

I noticed that a number of ads on Daft.ie for property have fairly long "Date Entered" periods - 21 days+. Is this typical or did property shift quicker? It'd be interesting to see how long a typical apartment/house is now taking to sell on the site and not just the price factor.

21 days is nothing! The EAs renew the ads from time to time, so there is no way of telling how long they have been for sale. But I have been watching houses/apartments that have been for sale since August last year.

ixoy

massplanck wrote:

21 days is nothing! The EAs renew the ads from time to time, so there is no way of telling how long they have been for sale. But I have been watching houses/apartments that have been for sale since August last year.

What would be then interesting is if ad renewals are accompanied by a price drop. I'm assuming the renewals show re-wordings and maybe new pictures in order to act as an incentive to buyers.

It's actually quite interesting the breath of choices currently available and the notion that the seller may actually be in a position where they have to listen to offers below the asking price.

BrandonBlock

I'm gonna hold off for at least 2 years before buying anyway. Things are too up in the air at the moment. Need to wait til they have settled down a little and more predictable in the long term.

Smoggy

Whats interesting is that anything under the stamp duty bracket is still selling. All the appartments around me have been on the market and have appeared to have sold ( some on the market for multiple months ). I say appeared to have sold, as you never truely know.

Zambia

Smoggy wrote:

Whats interesting is that anything under the stamp duty bracket is still selling. All the appartments around me have been on the market and have appeared to have sold ( some on the market for multiple months ). I say appeared to have sold, as you never truely know.

People will still always buy ... no matter how glaring signs are like this one today

http://www.rte.ie/business/2007/0402/houses.html

RTE wrote:

Estate agent Sherry Fitzgerald says its figures show a 1.1% drop in second-hand house prices in the first three months of this year, following growth of more than 18% in 2006.

The fall was even sharper in Dublin, at 2.3%. The figures show prices rose by 0.2% in the quarter when Dublin was excluded.

Sherry Fitzgerald economist Marian Finnegan blamed 'a reduction in consumer confidence in the performance of the market' for the drop. She attributed this to higher interest rates and speculation about changes in stamp duty in the Budget.

gurramok

Yep, an estate agent report 'admitting' a price slide on what we know already is surprising!

Regarding buyers in todays market, a fair chunk of new builds are been flogged towards 'affordable housing'.

You need to earn €67k/yr to afford a house in Ongar http://home.eircom.net/content/unison/national/10144055?view=Eircomnet

It really is taking the mick on 'affordable' whether your single or double!

ronbyrne2005

Prices down over 2% in Dublin in last 3 months and also fell in the last few months of 2006 acording to same estate agent. Anyone considering buying WAIT! Even estate agents are reporting prices dropping! The crash is under way.

jmayo

When, not if, (unless you are in cloud cuckoo land) the housing bubble crashes, has anyone thought how bad the fallout is going to be?
Looking at Japan as example, some Banks were in serious trouble.
Has anyone any idea what financial institutions here would be majorily hit, i.e. what banks/societies have most exposure.

Some people just think once prices drop, construction slows down, then I can afford a house. That is too simplistic a view.
At this stage any slowdown in construction results in loss of jobs, decrease in disposable income, increase in unemployment rate, lower tax take for government from direct taxation, major decrease in tax revenue from indirect taxation, end of huge revenues from stamp duty.
So on one side exchequer income is seriously hit and on the other side our increasing unemployment and public sector wage bill will impose a larger drain on what resources the exchequer has available.
Employment ill be harder to find and banks will be less inclined to lend and their mortgage lending will be cut drastically.
Any thoughts on this?



I come from one of those back arse of nowhere towns/counties and yes there are very little decent employment opptunities outside of construction & the public sector, all the established industries, co-ops, food processing, and electronics assembly closed down over the last 7 years and only construction & retail in the local major town keep the place ticking. I have not been able to find any recent housing bubbles in any western economy where construction employment is as large as the manufacturing sector, the most extreme example being perhaps Easter Island. The construction sector in Ireland is expected to account for 25% of GDP in 2007 compared to a 12% EU average, who are we kidding, this level of output is never going to last in the medium to long term? In Q4 2006, there were 281,600 people employed in construction in Ireland, over 100,000 of us are going to have to find alternative employment by the time this bottoms out.

If you are reading this, don't expect that you are going to escape the upcoming recession, we all have family members who work in the construction sector and attendant services. Potential buyers sitting on the fence expecting to capitalise on this may still not buy due to tighter credit controls imposed by the banks and a decreased appetite for risk due to uncertain economic outlook.
Quote:
Originally Posted by faceman
(to all you old school posters in this thread, im back!)
Welcome back
Quote:
Originally Posted by faceman
We're currently starting to see reductions in house price values but it doesnt translate into an apparant bubble bursting. We wont know this for potentially 2-3 years. It depends on how rapid prices fall. I wouldnt see a 10-20% decrease in price as catastrophic.
You are wading knee deep in a river in Egypt. Housing bubbles don't burst, they seize up and slowly unwind as people are forced by economic circumstance to accept the new lower price. If you are a highly geared specuvestor or first time buyer who bought a starter house/apartment and have a short investment horizon (say 5 years) to earn a return, then in 2-3 years it will be too late to exit without taking a substantial loss. For people who bought in 2006 and have seen the neighbours and developers selling for less than what they paid, it is really galling and I've already listened to one woman's reaction - "How dare they reduce the price", "I'll kill the developer, thieving b*****d!". Obviously if you are fully capitalised or earning a resonable yield on the property then a 10-20% decrease in price is not the end of the world.

jmayo

Sorry about last email, slip of the cut & paste finger and ended up pasting part of previous message at end of my own.
Dyslexic typing and dyslexic pasting I call it.

Zambia

Its is an interesting time to actually see peoples reaction to the price of their neighbourhood falling for as long as I can remeber this has never happened..

ixoy

I'm currently of the mind to look "casually" at prices over the next 6 months and not to rush in (although that could be considered rushing in by some here).

I appreciate though that even if house prices don't fall, but say static, that's still a loss in value when put against inflation, etc. As a result if I do get a place this year, I'd be of the mind to at least get somewhere where I could live for several years - I'd have to innure myself against the (very real) possibility that it wouldn't make fiscal sense to move in the short term (less than 5 years). I'm also going to be cautious in the sense that I think the amount I intend to take on a loan could surivive a 2% interest hike rate (if such horrors were to pass) and not be desperately stretched on my current income.

If nothing else, I've been pushed so far by this thread to be very very damn sure that I want to live in the place I can't just assume the "move up the ladder" direction will be defientely available to me in the near future.

conor_mc

ixoy wrote:

I appreciate though that even if house prices don't fall, but say static, that's still a loss in value when put against inflation, etc. As a result if I do get a place this year, I'd be of the mind to at least get somewhere where I could live for several years - I'd have to innure myself against the (very real) possibility that it wouldn't make fiscal sense to move in the short term (less than 5 years).

The thing is that if you buy at the peak and the market does crash, it can take 5-7 years just to bottom out. You could be looking at 12+ years until your property is worth what you paid for it again.

ixoy wrote:

I'm also going to be cautious in the sense that I think the amount I intend to take on a loan could surivive a 2% interest hike rate (if such horrors were to pass) and not be desperately stretched on my current income.

I wouldn't consider 5.75% extraordinarily high - a resurgent German economy could prompt a rate that high.

A horror coming to pass (e.g. hyperinflation) could prompt higher rates, but I'd consider 6% to be the upper range of the regular business cycle. Remember, we're still in "accomodative" territory at 3.75%.

Do-more

I think it will be interesting to see how long this "stall phase" of the crash will last. Speaking to people, there still seems to be many who are deluding themselves along the lines of "ah well even if prices don't keep going up, sales activity will increase again once the uncertainty of the election is over"

The question is, when will wholesale panic set in and people start slashing prices in order to offload their "investments"?

pjbrady1

A sure sign that the developers have lost all confidence in the sales market but not quite so much the rental market. I was walking home today when I passed a foreman (seemed to be) looking in over the wall at the large development of 20 - 30 apartments that he was building. "Fine job" I said to him in passing.
"Ah, there all goin for renting he said, not going to be sold at all. Jese if places like this slip, god help the rest."

The apartments are in an absolutely smashing location. Close to Luas line, yet the developer is still not selling them.

Imagine pressure developer could come under if rates went up .5% and second hand market stalled to a trickle.

Another interesting thing I was just thinking. If unemployment starts to rise severely you would see a slip back in rents. Put simply if people lose their jobs then with only one income for a couple for example then they are forced to move out to somewhere cheaper to rent like Balbriggan or Tallaght.
There are only so many people able to rent one beds for 1000 euro+, plus with a rise in unemployment you would no longer see a large influx of immigrants.

Total waterfall collapse in property market would be unavoidable if the unemployment rate in Dublin rises significantly. Significant being 8%+. At that rate competition for jobs stalls wage growth reducing the ability to raise rents. The lucrative sectors where wages are still high would start to draw in workers (IT,Finance) reducing wage increases in those sectors.

I expect their to be alot of troubled times ahead for rural bank managers with a serious rise in defaults on loans. Bertie apparently was none too happy about the 20 house estate he was canvassing this week with only one resident. With the parallel downturn in small shops, farming, pubs there is bugger all employment left in smaller towns.

The_Conductor

Do-more wrote:

I think it will be interesting to see how long this "stall phase" of the crash will last. Speaking to people, there still seems to be many who are deluding themselves along the lines of "ah well even if prices don't keep going up, sales activity will increase again once the uncertainty of the election is over"

The question is, when will wholesale panic set in and people start slashing prices in order to offload their "investments"?

http://www.myhome.ie/search/property.asp?id=284859&np=&rt=search&searchlist=

http://www.myhome.ie/search/property.asp?id=305670&np=&rt=search&searchlist

Same house in Newbridge reduced 4 times with 2 different estate agents, before eventually going sale agreed..... Was 450k Sale agreed at 365k

The market is panicking, the second hand market is in meltdown (Looking at Lucan as an example, it has over 400 second hand properties on the market at the moment- many at less than their original purchase prices, in the last 18 months.......)

The only market that appears to be any sort of health at all is the new property market that is pitched below the stamp duty cut-off levels. Even then developers are adding discounts, by way of paying 6 or 9 months of mortgage........

Its no longer a case of the writing being on the wall- its people sitting on the sidelines watching the carnage unfold.........

Mick Wallace of Wallace Construction has said that the Irish property market would still be profitable for developers if the market fell 60%........ Makes you wonder.......

Smoggy

pjbrady1 wrote:

The lucrative sectors where wages are still high would start to draw in workers (IT,Finance) reducing wage increases in those sectors.

Say I work in the finance sector and have worked in it for the last 10 years how is more people flooding into my industry going to affect my wage ? Someone who enters the industry DOESN'T have my sector knowledge and couldn't replace what I do for many years.... It just doesn't work like that. It would put the squeze on newly qualified people trying to enter the business. But I have never seen a proffesional job been replaced by new enteries, as they can't.

pjbrady1

pjbrady1 wrote:

I was walking home today when I passed a foreman (seemed to be) looking in over the wall at the large development of 20 - 30 apartments that he was building. "Fine job" I said to him in passing.
"Ah, there all goin for renting he said

smccarrick wrote:

Mick Wallace of Wallace Construction has said that the Irish property market would still be profitable for developers if the market fell 60%........ Makes you wonder.......

The developers can guarantee that people rent their properties by reducing the price of renting their place.
The developers will be able to cut their losses easier than your average person when it comes to selling in a stalled/crashed market.

Average people will simply not be able to compete. Prices may be sticky for the average person or even to some investors but the big shots can slash prices and still make a profit.

Pa ElGrande

Smoggy wrote:

Say I work in the finance sector and have worked in it for the last 10 years how is more people flooding into my industry going to affect my wage ? Someone who enters the industry DOESN'T have my sector knowledge and couldn't replace what I do for many years.... It just doesn't work like that. It would put the squeze on newly qualified people trying to enter the business. But I have never seen a proffesional job been replaced by new enteries, as they can't.

Depends on your compensation package, if it's performance based, then very likely only a downturn in your sector, will affect you. If you are a salaryman in a multinational corporation, then you are just a number (irrespective of your experience) and if the head office in another country says cut 20% of staff and/or reduce wages by 10% or shut your office, then, that's what will happen. For skilled and motivated people though the experience would give you an advantage over newer recruits in the market, but at a lower compensation level in a more competetive market for jobs.

I remember being told by a mate of mine, who had a job selling fax machines in the 80's (they did well out of the post worker strikes), Every so often the boss would wave a bunch of CV's in his hand and say "Don't be asking for a raise, these people will all work for free". In those days, job ads tended to require a degree and five years experience and there was a waiting list to join the local council.

In the early 90's construction bust in the UK, a quantity surveyor I knew who worked in London, had her yearly pay review and the option was a ten per cent pay cut or redundancy, she chose the pay cut. Also in the UK several employers turned downright nasty and exploited their employees weakness (they had to make mortgage re-payments) to the full, when they laid off people, there was still work to be done only not so many people left to do it.
The remaining employees had the choice work lots of overtime or don't come to work the following Monday. Laid off building workers used to follow concrete trucks to sites in the hope of finding work.

Don't forget many of us once started in our respective industry with little knowledge compared with the experience we have built to date, and if we can do it so can someone else. It is a mistake to assume you are irreplacable, as they say there's always some one else out to eat your lunch.

Supercell

Pa ElGrande wrote:

Don't forget many of us once started in our respective industry with little knowledge compared with the experience we have built to date, and if we can do it so can someone else. It is a mistake to assume you are irreplacable, as they say there's always some one else out to eat your lunch.

Thats a very pertinent point Pa ElGrande, with globalisation comes an open market for skills. Couple that with things getting tighter here, its Darwinism in action.
People under pressure to feed their family, pay the mortgage are more motivated than the comfortable guy who likes pizza and hasn't really had to try too hard recently to get a good wage.

I'm skilling up, I think Irl Inc is about to be flushed down the global toilet.

babytooth

Longfield wrote:

Thats a very pertinent point Pa ElGrande, with globalisation comes an open market for skills. Couple that with things getting tighter here, its Darwinism in action.
People under pressure to feed their family, pay the mortgage are more motivated than the comfortable guy who likes pizza and hasn't really had to try too hard recently to get a good wage.

I'm skilling up, I think Irl Inc is about to be flushed down the global toilet.

get into a recession industry...

not sure which ones?....perhaps lipstick sales....or fixed income / bonds......hmmm maybe a bulk food wholesaler...

or even easier still, try the public service, nice 35 hour working weeks and a 10% increase....must see if i can get that tomorrow...damm hard this working 40 hours weeks like the rest of productive europe...


skill up, pack up andget ready to jump ship....maybe a little too harsh, but as palegrande stated before, the misallocation of resources in this country over the last 10 years, well defo the last 5 years.....it is nothing more than absolute gluttoneous madness...

for the excess 100% we have pumped into house we could have put into PPP infrastructe or even indigenous industry....ahhh well...the world needs lessons and examples and us Irish have been milking our "cute-hooredness" for long enough, looks like we may have just been too cute for our own good this time...

Do-more

Deleted User wrote:

The developers will be able to cut their losses easier than your average person when it comes to selling in a stalled/crashed market.

"Build 3 and you've 1 for free!"

That's the margins the building industry has always worked to, and with the years of rapid price increases that have just gone past any price increase has added to that margin.

So most developers can afford to cut prices by at least 33% to exit the market without a loss on built houses. It's undeveloped land that will prove the biggest potential loss for them. (assuming they can still find buyers!)

babytooth

babytooth wrote:

35 hour working weeks and a 10% increase....must see if i can get that tomorrow...damm hard this working 40 hours weeks like the rest of productive europe...

The French have or used to have a 35hour week!!!!

tHE vAGGABOND

there all goin for renting he said, not going to be sold at all

To be fair, there are stories on this forum of people having massive trouble getting a good place to rent. The rental market for good places is very compeitive indeed..

If these places are as good as you make them sound, the developer/owner is more than covering his costs by renting the buggers out, maybe saving them for a rainy day..

Thats a standard thing for massive developers of property to do the world over. A mate of my brothers in San Francisco is a large developer, and has a gigantic portfolio of property and its all rented out. A lot of this property was accepted in exchange for work done [partial payment if you will]. If he needed cash for anything in the future he can sell one/some of them, otherwise its easy money for him to have the rent trickle in..

I would be stunned if some of the large developers in Dublin are not up to the same thing..