Housing Bubble Bursting

tHE vAGGABOND

From todays times - I think its a good one, with multiple references, not just one eejet..

As a FTB in the market right now it makes me think that we are indeed the middle of a slowdown and adjustment but that no wild crash is going to happen TBH

As several of us have said here for a while, its the commuter towns around Dublin which suffer most while inside the M its not too bad at all

House prices stall in first quarter
Dominic Cole

House prices have stalled in the first three months of the year, according to figures compiled by Permanent TBS and the Economic and Social Research Institute (ESRI).

The latest monthly house price index states there was no increase in prices in February, with prices at the end of that month just 0.1 per cent higher than they had been at the start of the year.

Prices nationally rose by 9.6 per cent on average over the past year - the first time since December 2005 that the annual rate has dipped below 10 per cent. Last August, the annual pace of house price inflation was running at 15.4 per cent.

Rising interest rates and continuing uncertainty over stamp duty reform ahead of the general election have been blamed for holding back prices. The index notes that prices nationally have risen by just 1.6 per cent in the past six months.

A separate survey by estate agents Sherry FitzGerald yesterday stated the average price of a second-hand property nationally had fallen by 1.1 per cent in the first three months of the year. A 2.3 per cent decline in Dublin prices more than offset a marginal increase of 0.2 per cent elsewhere in the State.

Marian Finnegan, chief economists at Sherry FitzGerald, said the fall in prices "largely reflects the impact of a reduction in consumer confidence in the performance of the market" - a situation she said was triggered by "misguided commentary on the future of stamp duty".

Anticipation of a change in stamp duty in the last budget, together with rising interest rates and a "stronger than usual stock of second-hand properties in the market", had served to erode consumer confidence, she said.

Niall O'Grady, head of marketing at Permanent TSB, said moderate price growth was likely this year. "The housing market is clearly in a period of price realignment," he said. "Clearly stamp duty uncertainty in advance of the election is a factor, as are recent rises in interest rates."

While Ms Finnegan foresees a "restoration of confidence in market conditions", Permanent TSB said it was difficult to imagine momentum coming back into the housing market until the stamp duty issue is resolved after the election.

The average property across the State cost €311,078 in February, according to the Permanent TSB/ESRI data, just under €27,000 more than the €284,089 average at the same time last year.

Prices in Dublin rose by 0.2 per cent in February, while the value of property elsewhere slipped 0.1 per cent. Year on year, Dublin homes were 13.2 per cent more expensive, while the value of property outside the capital increased at a more moderate 8.7 per cent. The average price of a Dublin home was €428,850, compared to €267,293 elsewhere.

The commuter counties of Louth, Meath, Kildare and Wicklow saw a 0.9 per cent decline in prices in February after a 0.1 per cent fall in January. However, strong demand last year means prices remain 10.6 per cent ahead of the year-ago period.

First-time buyers saw no change in prices during the month, while for those moving up the housing ladder, prices eased 0.4 per cent. On an annualised basis, first-time buyers are now paying 10.2 per cent more than last year.

One of the strongest growth areas in February was the price of new homes, which jumped 0.7 per cent against a dip for send-hand property. Sherry FitzGerald says demand from first-time buyers remains buoyant, accounting for 34 per cent of property sales this year. Investors also remain active, purchasing 21 per cent of second-hand properties in the first three months of 2007.

SkepticOne

Is it just me or does anyone else find the idea that the ESRI house price index is unchanged at 311078 for January and February a bit suspicious? The sub-indices show variation but somehow when added up they produce the same six-figure number for both January and February. What are the chances of that happening?

ronbyrne2005

tHE vAGGABOND wrote:

From todays times - I think its a good one, with multiple references, not just one eejet..

As a FTB in the market right now it makes me think that we are indeed the middle of a slowdown and adjustment but that no wild crash is going to happen TBH

As several of us have said here for a while, its the commuter towns around Dublin which suffer most while inside the M its not too bad at all

Irish Times are hugely reliant on advertising from property sellers and own myhome.ie.

ixoy

I'm assuming that one of the reasons that FTB (like myself) are more eager is that stamp duty reforms won't really affect us - most of us are getting either a new property or one below the stamp-duty threshold on a 2nd hand property.

The 34% glut of FTB is probably those who feel that prices have levelled off so now is a good time for first-timers to buy, especilly with the fact stamp duty reforms could work negatively against them (although that'd be an unpopular move no doubt).

Calina

ixoy,

the key point is that not so many FTBs wind up paying stamp duty. As a result, I've come to the conclusion that cries for stamp duty reform are on the part of those who have realised that capital appreciation isn't going to sort out their stamp duty liabilities for them any more.

Fine Gael and the PDs are messing with my mind at the moment. They should be bright enough to know that FTBs aren't paying stamp duty too often. The last time a change was made to benefit FTBs, it did nothing of the kind. So I don't think that they are pandering to people trying to buy property, they are pandering to people trying to sell property, who are - increasingly - finding it difficult to find buyers.

I find it quite cynical to be honest. I'm of the opinion - I realise it's not universally shared - that if you need to give government support to someone earning 76KE a year to be able to buy a house, then there is something seriously wrong with your housing market ie it is far, far too expensive. The solution to issues in the property market is not to tamper with taxes at the moment. Houses/apartments - property is far too expensive. It needs to cost less. If it cost less, the stamp duty rates wouldn't be an issue, and they wouldn't need to be tinkered with.

The tax they need to tinker with is a wealth tax on unoccupied property. It would sort out a lot of problems. Talking about stamp duty for FTBs is dishonest in the extreme.

Do-more

How long will it be before we see similar stories about Irish lenders?

2nd largest US subprime lender files for bankruptcy.

Pa ElGrande

Do-more wrote:

How long will it be before we see similar stories about Irish lenders?

2nd largest US subprime lender files for bankruptcy.

Sub-prime is not so big in Ireland (yet) compared with the US, but more of these vultures have come to feed in the market this year see Irish sub prime activity increases, list of sub prime operators in Ireland.

I have no idea yet if mortgage brokers in this country or even main lenders are steering clients in the sub-prime direction because of higher commisisons and higher profit margins like they did in the USA. Watch how often the subprime lenders appear in the Irish courts legal diary compared with the mainstream lenders.

Another article written by David McWilliams explains how rising asset prices lead the banks to lend more money and increase their risk exposure, you need to find the data on the proportion of residential mortgage assets held by the main banks to guage their exposure. You planning to short the market??

How secure will you be when the credit runs out?
http://www.davidmcwilliams.ie/2005/08/03/how-secure-will-you-be-when-the-credit-runs-out

Now that we are in the downturn, the factors that drove prices skywards, start to work in reverse, the banks have already started to demand more money up front from developers for land. The no.1 challenge for any business or self-employed person is managing cashflow and any slowdown in buying houses will have a direct affect on all the businesses involved in the chain, layoff's and bankruptcies start to rise. This makes the banks nervous and they rediscover risk, and, when they start to panic it really is game over!, lending standards are tightened and loans are called in, then we have the credit crunch and deflation of the money supply.

Do-more

Just heard of a development in Carlow where trenchs had been dug for foundations for a new phase and last week they were backfilling the trenchs and closing the site down. One developer with a bit of cop-on!;)

jimmycrackcorm

Do-more wrote:

Just heard of a development in Carlow where trenchs had been dug for foundations for a new phase and last week they were backfilling the trenchs and closing the site down. One developer with a bit of cop-on!;)

I heard about that but the reasons were to do with a planning application problem and nothing with the housing market.

Zambia

jimmycrackcorm wrote:

I heard about that but the reasons were to do with a planning application problem and nothing with the housing market.

The planning application should be online , I know mine was

tHE vAGGABOND

The planning application should be online , I know mine was

yea, you can even get a copy of all correspondence and even the drawings in the planning office in town if you fancy it

Zambia

Short clip on this page about how first time buyers are un wise not to enter the market.

http://www.rte.ie/business/index.html

No even mention of falling prices at all is it just me or is this pure propaganda.

4 -5 people stating you are wise to enter the market, seems very one sided. States that stamp duty is not an issue

Edit removed the not ...the opposite off what I meant

whizzbang

Zambia232 wrote:

Short clip on this page about how first time buyers are un wise not to enter the market.

http://www.rte.ie/business/index.html

No even mention of falling prices at all is it just me or is this pure propaganda.

4 -5 people stating you are not wise to enter the market, seems very one sided. States that stamp duty is not an issue

Comical Austin at it again...

Remember his job is to sell mortgages... that's why he gets paid.

Zambia

whizzbang wrote:

Comical Austin at it again...

Remember his job is to sell mortgages... that's why he gets paid.

I can imagine when i did pay an RTE TV licence i hoped for unbias reporting from RTE but I have never heard such a Advert for buying a house disguised as a report

Pure "oh you will miss the boat" mentality being pawned , not even one mention of houses falling in Value.

"if you rent sure you will have paid the stamp over the year anyway"

And the opening classic

"Stamp duty is nothing for 1st time buyers to worry about only for people moving up the market"

pjbrady1

Seen in todays indo, Paddy power are offering 5/2 on Permanent TSB house price index this year (2007) indicating that house prices will have fallen this year. Not sure how trustworthy these house price indexes can be, is it calculated on the "basket of properties" basis. Someone highlighted an estate agents calculating that average basket had exact same price in March as February (it was a few posts back).
Anyways, who is going to put there money where their mouth is. I reckon I'll go 100 euro on a drop see what happens.Then I'll pop the resultant 250 profit straight into a neat 2 up 2 down at the lower prices.

miju

i've already put down €300 with them two weeks ago when they were offering much better odds

would have put more put their site wouldnt let me

johnnyskeleton

miju wrote:

i've already put down €300 with them two weeks ago when they were offering much better odds

would have put more put their site wouldnt let me

So you are 100% certain that prices will drop?

Smoggy

You have to be fairly confident in your belief that the price will drop if your going to drop 300+ on it ( or just have to much excess cash ).

SkepticOne

It is small potatoes really compared to the money many people are betting that house prices will rise, although it looks like a lot of those people are cashing in their chips at the moment.

miju

johnnyskeleton wrote:

So you are 100% certain that prices will drop?

not only 100% confident they will drop , i know 100% already that they have

johnnyskeleton

miju wrote:

not only 100% confident they will drop , i know 100% already that they have

And you're certain too that prices won't get back on track?

miju

johnnyskeleton wrote:

And you're certain too that prices won't get back on track?

oh i'm sure they'll get back on track but not for at least 2-5 years as per other property asset bubbles have shown

Pa ElGrande

johnnyskeleton wrote:

And you're certain too that prices won't get back on track?

Prices are on the right track alright, its just there is a progressive decrease in slope angle, which reminds me of a very good analogy I saw on AAM

"All aboard!!" shouts the Fat Controller. "All aboard the gravy train".
Like an episode of Thomas the Tank Engine the puffing behemoth that is the Irish property boom is chugging down the tracks but the most attentive kids in the audience can see its about to derail, thanks to the healthy dose of reality lying on the line, also known as a "correction".

The puffy chested big wigs who run the railway are telling the pasengers that the line is clear, the worst that can happen is that the train will slow down a bit. Their friends, The Fat Controller and the Greedy Banker egg them on helped by their chums in PR. "Don't worry," they say, "we'll all be fine".
But alas the train did indeed hit a fallen tree (correction) and derailed. The Fat Controller was quick to call for help. He called his frineds in the Garda Station, he called his golfing buddy Dr Stretched in the hospital. "Come quick the gravy train has left the tracks. I think some of the passengers have been injured".
He waited ... and waited... and waited ...and waited. But nobody came. He tried to calm the passengers who were starting to panic.
Those who could walked away from the gravy train, they wouldn't be getting onboard again in a hurry.
Dr Stretched finally turned up, lights flashing. "Where have you been? said the Fat Controller. "I had to go and pick up the paramedics", said Doctor Stretched. "They live a long way from the big city".
"Wheres Garda Plod?, said the Controller. "He's on his way," said Dr Stretched. "He'll be a bit longer, he lives even further from the big city".
Nobody had the heart to tell the Fat Controller that Plod couldn't afford to live near the big city.
The story didn't end happily ever after for the Fat Controller. The passengers took a long time to come back to the gravy train and by then he had been made redundant.

Source: Cork Independent, Sept 2006.

johnnyskeleton

Is it possible that prices won't drop because:

1) developers think they can weather the storm so won't sell
2) people who believe their house is worth €350k will refuse to accept less, even when it may only be worth €250k.

I tend to agree that prices will drop a little bit, but I'm not sure how significant it will be.

Also, if less houses are sold will that effect the statistics (e.g. will less sales = lower prices overall), or do they only reflect actual drops in sales prices (e.g. average house price)?

gurramok

johnnyskeleton wrote:

And you're certain too that prices won't get back on track?

The prices will get back on track upwards when FTB's can re-enter the housing pyramid and afford that mortgage.
From Budget '07, (click part 4 of Technical Analysis of Distribution of Income Earners .. http://www.budget.gov.ie/2007/annexa.html), 31.7% of all income earners were taxed at higher rate.
To you and me, only 31.7% of the workforce earn more than 34k in this country with a projected figure of 34.7% for '07.

Now the following categories of FTB's cannot buy in general..

Single FTB's unless they are very rich, tiny % of them.
Older part of that 34.7% who earn more than 34k are more likely to have a house and no need for mortagge to be a FTB..make sense as many FTB's are at least under 40 and older people are paid more than younger people

The conclusion is that there are basically feck all FTB's who can afford a place at 317.5k before stamp duty kicks in.

Before i am jumped upon by those saying its a 'dub-centric' argument, the only FTB's that can barely afford are those places in isolated rural areas.
Maybe tiny villages/towns with no industry but sizeable large urban areas like cork/galway/limerick/'any commuter town to dub' where the vast majority of population want to live, the prices are simply out of range.

Coupled with interest rates of 4% soon, its even worse, make sense now?

A Random Walk

johnnyskeleton wrote:

Is it possible that prices won't drop because:

1) developers think they can weather the storm so won't sell
2) people who believe their house is worth €350k will refuse to accept less, even when it may only be worth €250k.

Developers will be first to drop prices (and already are). There is a big difference between a developer who spent 200k building a house and wants to sell it for 350k, than there is to someone who bought a house last year for 350k and wants to get their money back. The developer will not hang on to stock, that just costs him money.

It doesn't matter what people believe, houses always have to be sold. Maybe someone is leaving the country, divorce, new job, can't afford the repayments, unemployment, whatever. Thinking that there will somehow be a sellers strike is as naive as thinking there would ever be a buyers strike.

miju

regarding developers. builders / developers make money from building & developing not from sitting on unsold stock

regarding point number 2 what you describe is a stand off between sellers and buyers and this IMO is whats currently happening at the moment. problem is with every .25% interest rate rise it knocks about 30k off the maximum amount a couple earning 60k a year can get. check out http://www.mortgages.ie and go to their "how much can i borrow" section. put in 30k for each person with no current loans and you'll see what i mean.

so in other words the sellers can price their houses at whatever they want but when people literally cant get approved for a mortgage to buy the price of that house then the price MUST come down to at least the upper limit.

then of course there is not forgetting the fact that thereis PLENTY of people who can easily afford to drop the price of their house and STILL MAKE A LARGE PROFIT. it's the people who bought in the last 2-3 years who will be i trouble.

The_Conductor

miju wrote:

regarding developers. builders / developers make money from building & developing not from sitting on unsold stock

Yup. Some of the Developers have broken rank already- its now possible to negotiate mortgage payments of 1 year from at least one large developer in the Dublin region- along with fully furnishing some apartments to showhouse standard (they argue that this is not a price drop- sit down and do the maths though.....

miju wrote:

regarding point number 2 what you describe is a stand off between sellers and buyers and this IMO is whats currently happening at the moment. problem is with every .25% interest rate rise it knocks about 30k off the maximum amount a couple earning 60k a year can get. check out http://www.mortgages.ie and go to their "how much can i borrow" section. put in 30k for each person with no current loans and you'll see what i mean.

There is a May statement expected when the ECB meet in Dublin, but the next rise is not expected until June. Comments from 4 ECB board members concerning the 2% inflation ceiling this week have been interpreted as further rate rises this year- possibly not as high as 4.75%, but this ceiling may well be met. Thats another 120k off people's borrowing capacity before the end of the year..... It won't so much be a case of a stand-off between buyers and sellers, more a case of carnage. The rental market will most probably be the sole solid factor.

What would people consider affordable, from a housing perspective? In the not so distant past it was 3 times the main salary + half the second salary. By this calculation- there wouldn't be anyone much buying over 250k- with a lot of people around half this level...... At present property is being pitched at FTBs at 10 times the average industrial wage...... In some parts of Dublin you qualify for affordable housing on a salary of 76k....... Lunacy.

miju wrote:

so in other words the sellers can price their houses at whatever they want but when people literally cant get approved for a mortgage to buy the price of that house then the price MUST come down to at least the upper limit.

The argument from sellers is "I won't sell my house at price X because its worth Y." This is fundamentally flawed. Who is the house worth Y to? The seller? In which case why are they selling it? The purchasers- not if its unattainable. As Publius Sirus put it- "Everything is worth what its purchaser is willing to pay for it." The safe as houses brigade had better start learning whats going on around them pronto......

miju wrote:

then of course there is not forgetting the fact that thereis PLENTY of people who can easily afford to drop the price of their house and STILL MAKE A LARGE PROFIT. it's the people who bought in the last 2-3 years who will be i trouble.

The people who bought in the last 2-3 years are fine, providing they did not fiddle their income and loans to qualify for borrowing more than they can afford. How many people borrowed lumps off credit unions because they didn't show up on the credit records? Who knows. Were people truthful about their outgoings and whether they would be able to cope with a 2% stress-test? Most probably not? Who knows again......

If people who bought 2-3 years ago were to try to sell, for whatever reason, they could easily find themselves in a negative equity situation. What happens then? Declare bankruptcy and wipe the debt, but no more loans for 7 years? Service the debt and weather the couple of years? Prices are cyclical after all. How long might a cycle be- 4 years, 10 years- toss a coin......

There is blood in the water already- and a panic in some sectors. Second hand prices are dropping- but the big problem will of course be when those who purchased apartments suddenly find that irrespective of what the price is, there simply is no market for their overpriced shoe boxes......

Its not the FTBs who are sitting on the sideline who deserve the help and assistance of the government- its all those who are getting slaughtered with increased interest rates.......

Supercell

What I find interesting is that pretty much uniquely on the Irish market, floor size is rarely mentioned for apartments or otherwise.

Look on Daft and see how often size is mentioned on apartments in Dublin, then go google any other property site in the world and sees what a very important part of apartment advertising this should be.

Ireland has long passed rationality, apartment prices are going to be hit worst of all imho as people seek utility value again from their housing as after all ,..thats what housing is for.

They blew up the 'mun towers, 20 years from now will that be Ongar and Tyrentstown and their new kind of living?

Bono said "I see seven towers but I see no way out", funny how history may repeat itself.

smccarrick

smccarrick wrote:

What happens then? Declare bankruptcy and wipe the debt, but no more loans for 7 years?

I didnt think that was allowed in this country - sure don`t we throw Old age pensioners in jail for not paying TV licenses?