Housing Bubble Bursting

nesf

Do-more wrote:

If that was the case they wouldn't have beaten around the bushes when they were interviewing the Dell workers. They would have just come out and asked them how long before their jobs are transferred to Dell's new factory in Poland?

It was blatant populism that pulled up a few high profile cases that will tend to be in recent memory of your average viewer. The economics of what's going on is far more complicated than what it suggests. It was summed up best at the end, I forget who said it: We could have a soft landing, such things do happen, but an exogeneous shock to the economy could cause a very bad crash. The key point is the market could land softly or crash, but if there are external shocks to the economy a soft landing would be very unlikely and with the present uncertainty in the global economy this is a very real scenario but by no means a definite one.

is_that_so

Have watched most of it. Quite disappointed tbh and regrettably it seems more keen on scaremongering. As posted above it started well. Also can't believe how much time was spent on UK in 90s . The guy doing it seems to be seduced by the logic of it all.

Zambia

Have to agree , it was a good report but the end was pants and the music in the background got gloomier than a cheap horror.

However every piont has been made before on this thread some I agree with some I dont.

1: A de-value in the dollar to the euro making us less competive.
2: Immigrants leave for brighter shores and sure work when building sheds jobs
3: No replacement of the jobs building has taken.

What was more interesting was questions and answers after wards where once again the partys lined up there answers to the problem.

The best was Fianna Fail (Would you all stop talking about this your making it worse ssh for gods sake ssh).

Or SF (Lets build loads of social Housing)

As for scary if your are a FTB and did watch it, did it make you think you should not buy?

nesf

Zambia232 wrote:

As for scary if your are a FTB and did watch it, did it make you think you should not buy?

As someone who bought last year if I was to take that program in isolation as my sole source of information I'd probably be a little panicked by it. Considering that I'm aware of how limited the scope of that program was, that I actually have an active interest in economics and read regularily opinions on both matters here and abroad and the fact that I'm not the kind of person who responds well to populist programming (it tends to annoy me by oversimplifying more than anything else) then it hasn't changed my opinion much.

At the moment no one really knows what's happening and comparisons with the UK are flawed in some senses since what's happening here is very different to what happened there (in terms of demand, area, the way interest rates will probably behave etc), I'm not overly bothered by (what I consider) fairly scaremongering theories being presented.

Would I change my mind about buying last year? Not really. The reality was that we needed somewhere to live as a family with a young baby and any place of decent standard similar to what we presently own worked out only slightly cheaper than this place after mortgage relief. Yes, we'd have more flexibility if we rented but on the flip side of things this is a home not an investment property so really a downturn wouldn't hugely affect me, it'd be a large interest rate hike that would do damage tbh.

nesf

nesf wrote:

At the moment no one really knows what's happening

I have to disagree - anyone who reads up on relevant facts and figures regarding the property market knows.

johnnyskeleton

DublinWriter wrote:

FTB'ers earning the average industrial wage haven't been able to afford the average 3-bed semi in Dublin for the past 5 years. That fact in itself has not caused any property crash so far.

...There is no hole in my argument ...

What is happening at the moment is all down to, and originates from, the comments by Enda Kenny that FG will abolish Stamp Duty for first time buyers if elected. Because of this, everyone about to step on the bottom rung of the housing ladder have decided to wait, causing a ripple effect upwards through the chain.

So,
1) FTB's not being able to afford property(i.e. not buying) hasn't caused a crash in the last 5 years (ie. no effect on prices)
2) FTB's waiting to step onto the housing ladder(i.e. not buying) has caused a ripple effect (ie. effect on prices)

Is that not a hole in your argument?

ixoy

Zambia232 wrote:

s for scary if your are a FTB and did watch it, did it make you think you should not buy?

It's food for thought, but I've had to consider a few of these points already. If I'm going to get a place, it's with the view to stay there for a number of years and not just a quick "step" on a property ladder. It'd be idiotic to think that it's going to be a nice quick race up the ladder now.

I don't forsee a need for a bigger place in the future because I won't be starting a family. That's a big potential problem if a young couple buy now and need to trade up to give future kids more space. This enables me to plan for longer to be in one place.

As to potential interest rates - I wouldn't touch a place, without forecasting how I would cope with a 2% increase rate (or so) over a couple of years (making fixed rate look more attractive).

The negative equity is a fair point obviously. That's why I'd need to be prepared to stay where I am, and be relatively happy to do so, for a number of years if there was a downturn.

As a potential FTB, I'd go with a place now if it suited my needs for a number of years and I wasn't relying on it as an ever appreciating asset but more so as a home.

BTW, was it just me or the example of the couple being interviewed by the broker a bit extreme? They quoted the top end of the mortgage for them in a range they shouldn't have been even thinking of.

A Random Walk

ixoy wrote:

BTW, was it just me or the example of the couple being interviewed by the broker a bit extreme? They quoted the top end of the mortgage for them in a range they shouldn't have been even thinking of.

I don't think it was. You and me are obviously rational people, who can see that borrowing that much on their salaries is nuts. There are thousands of people out there who have done that though, borrowed 7 to 10 times their salaries, and then gone and got more from the credit union. These people have been fed stories about how important it was to get on the property ladder/snake at any cost, and they will really begin to worry as the prospect of paying this mortgage for 40 years sinks in.

The woman talking about how she didn't realise "interest rates could go up four times" illustrates the level of financial ignorance in this country. The "and I wasn't warned about it" bit shows that she hasn't copped on that this ignorance is her problem, instead she looks for scapegoats. More to come I imagine.

nesf

Deleted User wrote:

I have to disagree - anyone who reads up on relevant facts and figures regarding the property market knows.

Eh, do they? What exactly do you mean by that, has everyone suddenly become able to predict the future over the past few months? There's enough disagreement in the media and among economists to suggest otherwise tbh.

nesf

A Random Walk wrote:

I don't think it was. You and me are obviously rational people, who can see that borrowing that much on their salaries is nuts.

I disagree actually. If they are both nurses and they go into the public sector then they are pretty much guaranteed pay rises as time passes. It actually goes to the point where they can accurately plan things out over the short to medium term assuming that both of them stay in nursing for the public sector. It's a luxury that most people in the private sector don't have really.

A Random Walk wrote:

The woman talking about how she didn't realise "interest rates could go up four times" illustrates the level of financial ignorance in this country. The "and I wasn't warned about it" bit shows that she hasn't copped on that this ignorance is her problem, instead she looks for scapegoats. More to come I imagine.

I completely agree. I really couldn't stop myself laughing at that comment by her. I mean really, anyone who went into a mortgage in the past few years who thought that interest rates would remain at such a historically low rate shouldn't be left buy a bar of chocolate never mind a house. Financial ignorance or whatever, this is really basic stuff tbh.

MG

I thought the programme was quite poor. Amid all the dark images & doom laden voiceovers, it lacked balance. There is a certainly a case for what was said but it both ignored several factors and took rather far fetched assumptions as read. It assumed that the dollar would go to 1.70 for instance, where this would almost certainly trigger a world recession and I can't see the Fed allowing that. Simliarly, I don't see Germany, so proud of its Exportweltmeister title, allowing that to happen without exerting serious pressure on the ECB. Moreover, the Irish economy is fairly robust overall and comparison to Britain where there was a massive overnight shock is less likely to happen. Also, let's not forget that prices have fallen in many areas and with SSIA's about to come into the economy, there is likely to be a consumer led cushion. In the past I would have been a property market bear but I would be more hopeful than ever of a soft landing now. Anecdoatlly, I have heard that here are signals of a lot of people ready to enter the market when SSIA's mature and when uncertainty over stamp duty ends. I have one friend, a fairly canny individual, who is planning to buy soon. Prices in the area he wants to buy in have already cooled, he reckons below the real value as pessimism has weighed heavily and that they will be a notable bounce if any confidence is restored to the market, for instance through stamp duty reform.

Overall, I think their good points got lost in their desperation to shock - remember that was the name of the programme. Definitely over egged.

seamus

nesf wrote:

Eh, do they? What exactly do you mean by that, has everyone suddenly become able to predict the future over the past few months? There's enough disagreement in the media and among economists to suggest otherwise tbh.

Any commentary I've seen in any media or by any economists, has been between 6 and 2 months out of date. I've even heard plenty of them say, "If prices begin to drop", clearly ignorant of the actual market conditions.

I saw a good deal of the programme, and there was a fair amount of scaremongering going on. They were detailing a worst-case scenario, not a likely-case one. But I suppose that needs to be said too. I'm still confident in my original assertions earlier in this thread. I don't think this is a long-term crash, á la London or Holland. There definitely is (and will be ongoing) a price correction happening, which will probably hold out until mid-to-late 2008, with the trough in sales & prices occuring next Spring. It's been an initially harsh drop, but this will stabilise briefly while some people decide now is the time to buy, and the uncertainty of the election makes people hold off selling.

Of course, this relies only on the EU and US markets staying as strong as they are now, and assumes that no-one in Government attempts to "fix" the correction.

miju

MG wrote:

It assumed that the dollar would go to 1.70 for instance, where this would almost certainly trigger a world recession and I can't see the Fed allowing that.

actually is was 1.50 not 1.70

MG wrote:

Moreover, the Irish economy is fairly robust overall and comparison to Britain where there was a massive overnight shock is less likely to happen.

please show an example of how robust this economy is. this economy is a basket case that has been skewed y contruction for quite some time. we're losing high worth jobs and replacing them with low value service jobs

MG wrote:

Also, let's not forget that prices have fallen in many areas and with SSIA's about to come into the economy, there is likely to be a consumer led cushion. In the past I would have been a property market bear but I would be more hopeful than ever of a soft landing now. Anecdoatlly, I have heard that here are signals of a lot of people ready to enter the market when SSIA's mature and when uncertainty over stamp duty ends.

well anecdotal or otherwise ALL the polls show people are not putting them into property for a few reasons:

1: continue saving
2: already took a loan out / bought a house on the back of the SSAI maturing
3: investing in something else
4: clearing down loans

these surveys have one underlying result , property is not where te SSIA money is going to end up

MG wrote:

I have one friend, a fairly canny individual, who is planning to buy soon. Prices in the area he wants to buy in have already cooled, he reckons below the real value as pessimism has weighed heavily and that they will be a notable bounce if any confidence is restored to the market, for instance through stamp duty reform.

well apart from the fact the market had comepletely stalled about 3 months before stamp duty was even mentioned the crux of the issue is affordability and with every ECB rate rise that is squeezed even more. and with at least 1 coming in June things will get hairier

conor_mc

MG wrote:

I thought the programme was quite poor. Amid all the dark images & doom laden voiceovers, it lacked balance. There is a certainly a case for what was said but it both ignored several factors and took rather far fetched assumptions as read. It assumed that the dollar would go to 1.70 for instance, where this would almost certainly trigger a world recession and I can't see the Fed allowing that. Simliarly, I don't see Germany, so proud of its Exportweltmeister title, allowing that to happen without exerting serious pressure on the ECB..

In fairness, it was clearly said that this was a hypothetical situation, not a road-map of what will happen in the next few years. And I wouldn't count on Germany exerting too much pressure on the ECB - they've had hyperinflation twice in the last century and lets face it, they were the ones who drove the ECB mandate i.e. price stability. Economic growth is not part of the ECB mandate, unlike the Fed.

MG wrote:

Moreover, the Irish economy is fairly robust overall and comparison to Britain where there was a massive overnight shock is less likely to happen. Also, let's not forget that prices have fallen in many areas and with SSIA's about to come into the economy, there is likely to be a consumer led cushion. In the past I would have been a property market bear but I would be more hopeful than ever of a soft landing now. Anecdoatlly, I have heard that here are signals of a lot of people ready to enter the market when SSIA's mature and when uncertainty over stamp duty ends. I have one friend, a fairly canny individual, who is planning to buy soon. Prices in the area he wants to buy in have already cooled, he reckons below the real value as pessimism has weighed heavily and that they will be a notable bounce if any confidence is restored to the market, for instance through stamp duty reform.

Overall, I think their good points got lost in their desperation to shock - remember that was the name of the programme. Definitely over egged.

I'm not sure about the SSIA-based consumer-led cushion. Not all these SSIA's are due on the last day of May this year - you'd think that those who have already received theirs would have tried to beat the rush to buy property, wouldn't you? But house prices have ground to a halt since the first SSIA's were cashed in.

I just can't get my head around the concept that property has been so seriously undervalued for 10 years, despite rampant price growth, and that it's only hitting equilibrium now. If it was hitting equilibrium, supply/demand would be constant, no? Yet why are we seeing rising supply on daft and myhome?

I heard John Fitzgerald this morning on Newstalk backtrack on what he said on that program last night. He said that if things cool off now, we'll be alright but if they were to continue to accelerate we'll be in trouble. I first heard this point of view from a bull when I bought my house in 2003, and I've heard that same person reiterate the point 4 years later, as if the 4 years of C.15% growth since were irrelevant. It is this blind faith that has me worried.

joejoem

Yeah the whole program was filmed so doom and gloom, law and order style.

I had a debate with myself weather or not to watch it, but as I am in the industry I decided to. Some points were accurate, I will give it that. We do have an over reliance on one industry which is construction. However, nearly everything after that was just propeganda.

The ending summed it up for me.

2007 - prices start to slow
2008 - house prices fall 18%
2009 - house prices fall 35%
2011 - The first space ship arrives.........

Were all doomed.

is_that_so

conor_mc wrote:

I'm not sure about the SSIA-based consumer-led cushion. Not all these SSIA's are due on the last day of May this year - you'd think that those who have already received theirs would have tried to beat the rush to buy property, wouldn't you? But house prices have ground to a halt since the first SSIA's were cashed in.

I agree with with what you say about the SSIA but not linking it to house prices. The average SSIA is only €13K anyway. I am not sure the SSIA was ever going to be used that way. Much of the expectation was for personal expenditure, holidays, cars, extensions, plasma TVs etc.
I said at the beginning of the year that the SSIA would be a damp squib and used to sort out other things, like absorb the interest rate increases.
As regards the due date I think you will find an awful lot maturing in May. IIRC there was a very big rush in May 2002.

conor_mc

joejoem wrote:

Yeah the whole program was filmed so doom and gloom, law and order style.

I had a debate with myself weather or not to watch it, but as I am in the industry I decided to. Some points were accurate, I will give it that. We do have an over reliance on one industry which is construction. However, nearly everything after that was just propeganda.

The ending summed it up for me.

2007 - prices start to slow
2008 - house prices fall 18%
2009 - house prices fall 35%
2011 - The first space ship arrives.........

Were all doomed.

As opposed to the soft landing hypothesis:

2007 - 120,000 immigrants - they love Ireland, y'know.
2008 - 130,000 immigrant - keep 'em coming lads.
2009 - 140,000 immigrants - where are we gonna put all these guys?
2011 - 200,000 immigrants - it just keeps getting better.

Jesus, we're an arrogant bunch. We've been rolling sixes for years in this property game now - really winging it - and we still think that we're just the sexiest little economy in the whole world and that we're soooo different and special. All those other crashes, well they obviously screwed up, didn't they. Won't happen here though, we're experts at managing soft landings, even though we can barely recognise a bubble when we see one.

conor_mc

is_that_so wrote:

As regards the due date I think you will find an awful lot maturing in May. IIRC there was a very big rush in May 2002.

I agree - the vast majority are due in May. But that doesn't mean that all the others that have been cashed in don't count. In fact, it's wishful thinking to believe that the SSIA's are the answer to all our woes. I think a massive, massive amount of them will be used to clear existing debt.

SteadyEddie

I dont know if this is significant, but just logged onto daft.ie and it said this:

85,633 properties online (13,637 in the last 24 hours)

13,637 in the last 24 hours? oh oh.

Zambia

Cant see that being anything to worry about.

The SSIA's are no saviour to the housing market IMO as they have been coming out for months. There has been no evidence they have bouyed anything.

eirmail

Zambia232 wrote:

Cant see that being anything to worry about.

The SSIA's are no saviour to the housing market IMO as they have been coming out for months. There has been no evidence they have bouyed anything.

Or you could look at it like this. The SSIA's have been propping the market up for the last 11 months and will do for another couple of months. After the SSIAs are no longer around to prop up the market come the summer or the latest the Autumn ,the market will be in meltown.

seamus

SteadyEddie wrote:

13,637 in the last 24 hours? oh oh.

That would be updated.

Many estate agents would go in and refresh/change an ad every few days to bump it to the top of the list. Recruiters do the same on the Jobs sites.

Jesus, we're an arrogant bunch. We've been rolling sixes for years in this property game now - really winging it - and we still think that we're just the sexiest little economy in the whole world and that we're soooo different and special.

I'd agree on the arrogance. For quite some time, a lot of people seemed to be ignoring some fundamentals and seemed to think that, "Sure property never drops in price". To say that we're no different though is the opposite side of the coin. Every boom that busts, does it differently. It's equally delusional to point at Holland and say "That's what's going to happen to us".

External economic factors and internal political factors have some of the biggest influences on the rate of collapse, and they are different now than they have been for most of the biggest collapses. So it's tough to point at previous collapses and use them as a roadmap. At best, they are guidelines of how it *may* turn out.

nesf

seamus wrote:

Of course, this relies only on the EU and US markets staying as strong as they are now, and assumes that no-one in Government attempts to "fix" the correction.

That last point is extremely important and potentially the one most likely to screw things for us tbh.

DublinWriter

eirmail wrote:

Or you could look at it like this. The SSIA's have been propping the market up for the last 11 months and will do for another couple of months. After the SSIAs are no longer around to prop up the market come the summer or the latest the Autumn ,the market will be in meltown.

I think that's incorrect because George Lee on Primetime said that 50% of SSIA investors started in the last month of the scheme. Even considering that, I don't think the average SSIA would much cover an FTBer's required 10% deposit.

If there is to be a 'meltdown', SSIA's certainly won't be a contributing factor.

nesf

DublinWriter wrote:

I think that's incorrect because George Lee on Primetime said that 50% of SSIA investors started in the last month of the scheme. Even considering that, I don't think the average SSIA would much cover an FTBer's required 10% deposit.

If there is to be a 'meltdown', SSIA's certainly won't be a contributing factor.

Even on the erroneous assumption that all SSIAs about to be cashed were at the top level, they wouldn't make up at entire deposit for people. 20K in the present market is short by at least 10K of an average home in most of the cities plus considering the amount of homes going for above the stamp duty threshold, you'd have to add in stamp duty on top of the deposit. SSIAs probably will show a surge in car purchases, extensions, new kitchens etc but they won't make an enormous difference in the housing market I'd imagine.

l3rian

l3rian wrote:

that tv show was excellent, will it be on rte.ie?

I thought it was crap.
Why?
Because it was one sided.
The makers must have a lot of appartments to let.

It was as good in my opinion as that programme "The great global warming swindle"...

conor_mc

seamus wrote:

I'd agree on the arrogance. For quite some time, a lot of people seemed to be ignoring some fundamentals and seemed to think that, "Sure property never drops in price". To say that we're no different though is the opposite side of the coin. Every boom that busts, does it differently. It's equally delusional to point at Holland and say "That's what's going to happen to us".

External economic factors and internal political factors have some of the biggest influences on the rate of collapse, and they are different now than they have been for most of the biggest collapses. So it's tough to point at previous collapses and use them as a roadmap. At best, they are guidelines of how it *may* turn out.

Absoutely - no two bubbles will ever be the same. The UK 80's bubble wasn't brought about by negative real interest rates. Construction in Holland wasn't 25% of GDP before they crashed. The common factor though is that all booms, in their own way, did bust.

Was it Mark Twain who said that history doesn't repeat itself, but it does rhyme?

nesf

Tristrame wrote:

I thought it was crap.
Why?
Because it was one sided.
The makers must have a lot of appartments to let.

It was as good in my opinion as that programme "The great global warming swindle"...

Well, call me a cynic but, there was always going to be a bit of Schadenfreude going on with people priced out of the market and some shows like these try to appeal to that.

DublinWriter

nesf wrote:

Well, call me a cynic but, there was always going to be a bit of Schadenfreude going on with people priced out of the market and some shows like these try to appeal to that.

Very true.

The programme was an exercise in scaremongering. I was half expecting it to end Simpons-style...

Kent Brockman: "Professor, without knowing precisely what the danger is, would you say it's time for our viewers to crack each other's heads open and feast on the goo inside?"

Professor "Yes I would, Kent."

While I'm here (and not for a moment submitting to the pessimism )...

Could someone tell me how many of these "booms" went on to the extent of the Irish one ie longer than 12 years prior to a crash.

Our economy has certainly been buzzing for that length.