Housing Bubble Bursting

BobbyD10

Listening to Bertie's proposals on Stamp Duty if Fianna Fail are re-elected, which may be the case (re-election that is), there will be no stamp duty for FTB's. This would lead to the conclusion that people who have been adopting a wait and see approach may be rewarded for their patience.

Am I right...?

I know its dependent on Fianna Fail returning to power, and even if they dont the other parties are scrapping it too for FTB's and probably more than that also.

And will prices go up by the diff the buyer saves on Stamp Duty...?

Hope not as I'd like to think buyers out there would be smart enough to cop someone pulling a quick one, as the market slowly returns to the buyer lets keep it in our court for a few years....!!!:)

whizzbang

BobbyD10 wrote:

And will prices go up by the diff the buyer saves on Stamp Duty...?

Hope not as I'd like to think buyers out there would be smart enough to cop someone pulling a quick one, as the market slowly returns to the buyer lets keep it in our court for a few years....!!!:)

I don't think it will have that big an effect, there is already so much choice in the market that anyone trying to raise their prices will just be shooting themselves in the foot as the non raisers will find it easier to shift their properties with the bit of extra cash floating about.

Either way it will be a relatively short term phenomenon on the otherwise decreasing prices.

pjbrady1

Has anyone else noticed that in the leafy avenues of Ballsbridge and surrounds (near american embassy and those streets) the guys who re-point brickwork and wash down red brick are getting loads of work. Also there is alot of renovation going on on these buildings inside. I see one clear reason for the majority of this. Owners are gearing up for a sale. It is much easier to sell a lovely restored red brick large house than a large red brick house with no work done on it.
The timing is crucial as well here, the indoor renovations take awhile and most of these owners would seriously have got the frighteners around February/March.

Seen also Barrack homes are offering from 3000 to 12000 euro cash back when you collect your keys. The condition is that you basically plough ahead with signing up to property whithin 21 days.

Also seen an ad in the paper along the lines of "Is your business sitting on a valuable property asset". Find out how to sell and lease back.

As I said before watch what people do not what they say.

To join the "I told you so brigade" my prediction of a near term Permanent TSB nose dive came through. People with good experience of shorting stocks should have made alot of money. I expect more serious stumbles from them, as no outside Bank will take them over if revenues decline and unsaleable assets stack up in late 2007/early2008. Permo, company that is seriously exposed to a property downturn and unemployment upturn.

VoidStarNull

pjbrady1 wrote:

Seen also Barrack homes are offering from 3000 to 12000 euro cash back when you collect your keys. The condition is that you basically plough ahead with signing up to property whithin 21 days.

It appears that the developers are doing whatever they can for now to shore
up prices, in the hope that the downturn is temporary.

However the large developers are backed by professional (or professionally-advised) investors, who understand that property is a
volatile market. and who accept the risks in the hope of
large returns. They will be well hedged/diversified against the risk of a downturn. Once they accept that the market has turned and that they have lost money, they will instruct the large developers to minimize losses and sell their properties at the price the market dictates. They might even ask
for protection against creditors (i.e. the development holding companies
declare bankruptcy, as has happened in the US).

At that point small investors, who may have a poor understanding of
volatility or how to hedge, will be burned to the ground.

But hey! Investors make or lose money every day. Big deal! :cool:

DublinWriter

VoidStarNull wrote:

The economists who work for the banks, estate agents, government, etc, know very well that in the long run house prices are static relative to household incomes. Volatility relative to incomes is always corrected in the long-run.

?!?!?!?
In the early 70's wasn't the average house price 4 times the average industrial wage, and at present it's something like 12 times?

I still maintain you don't lose money on bricks on mortar in the long term (i.e. 20+ years).

Afuera

DublinWriter wrote:

I still maintain you don't lose money on bricks on mortar in the long term (i.e. 20+ years).

Your argument is irrelevant if you consider the opportunity cost of buying (or holding on to) something that is overvalued. If there's a house that costs 400,000 today but ends up costing 200,000 in 2 years time than the buyer that jumps in today has lost a lot of money. It doesn't matter whether the house is worth 2 million 20 years down the road, the prudent thing would be to buy when the fundamentals support it.

babytooth

DublinWriter wrote:

?!?!?!?
In the early 70's wasn't the average house price 4 times the average industrial wage, and at present it's something like 12 times?

I still maintain you don't lose money on bricks on mortar in the long term (i.e. 20+ years).

your statement makes perfect sense and wholes true for the average person buying an average house in an average location of the time span of 30 years or more.

This is beacuse the ppl who will lose out on purchase made in the last 5 years will be ofset by those who gain by purchasing when property is undervalued...same as averaging in or averaging out...

at the moment, those that buy, will lose real money. plain and simple, nothing more or less...thats just the way it is i'm afraid to say.

pjbrady1

What are peoples views on their being a flood of completed sales after the election, tied in with a flood of property coming onto the market.
I'd say the Daft phones will be ringing constant after a government is elected.

I reckon there is about two months of purchasing activity out there. But that should be well counter balanced by alot of sellers saying "now or never off load the property".

For large scale price drops you need three competing sellers. Alot of streets at moment have two, after election you could easily see three.
With the laws of distribution then 60,000 will be a really dangerous figure on Daftwatch. At that figure in alot of areas you either drop your price or your neighbour sells his place first.

That figure of 60,000 can be reached pretty quickly if the sales curve starts to steepen by another couple of degrees. Amazing how constant the sales graph has been, its virtually a straight line expansion of supply available.

It would be interesting also if you could find a site with rural planning permissions. I'd say this has collapsed in the last month. If we build 70,000 units this years, I would imagine most of them will be in the top 20 urban centres. Outside of that would you even have 30% of the building activity?

dazberry

dazberry wrote:

Anyone in Dublin travelling on the red line in to the city centre cast your eyes left (right for rear facing commuters ) when you pass the GoldenBridge Stop, and before you reach Suir Rd you will see a house roughly in the middle of the first section of houses on Devoy Rd (its not advertised anymore on myhome).

Since late 2005 this house has gone For Sale > Sale Agreed > For Sale > Sale Agreed > Sold > For Sale. The same basic sign has been up for the last ~20ish months.

Seems that its finally made its way to myhome:
http://www.myhome.ie/search/property.asp?id=317792&np=&rt=search&searchlist=

Interestingly the asking price now is 10K cheaper than it was 20 months ago.

D.

VoidStarNull

DublinWriter wrote:

?!?!?!?
In the early 70's wasn't the average house price 4 times the average industrial wage, and at present it's something like 12 times?

I still maintain you don't lose money on bricks on mortar in the long term (i.e. 20+ years).

That's correct. However unemployment is lower today (so more households
are actually earning income) and the number of double-income houses jumped
dramatically in the 1990s. Result is that average household income has
risen much faster than the average industrial wage over the period.

However since 2000 average household income has grown by less than
5% pa, while house prices have seen double-digit growth....

In the long run, the property market ensures that supply equals demand.
Therefore real prices are static. If prices consistently rose faster than
household income, we would all end up living in tents.

In the short run supply and demand can
get wildly out of whack (think planning bottlenecks + development project
lead-times), and prices can also be affected by euphoria in times of
of cheap credit. In the long run, the money to be made by servicing the
market becomes large enough to overcome all obstacles.

VoidStarNull

DublinWriter wrote:

?!?!?!?
In the early 70's wasn't the average house price 4 times the average industrial wage, and at present it's something like 12 times?

I still maintain you don't lose money on bricks on mortar in the long term (i.e. 20+ years).

BTW, paradoxical as it may sound, you are right on the second count also
(as others have pointed out).

Household incomes generally keep pace with inflation.
Therefore house prices in the long run also keep pace with inflation,
so your capital is protected. If you are also earning a decent rent,
then the overall yield can make
property a competitive long term investment.

However, as others have also pointed out, the large amount of volatility in
the prices means that you have to be very careful about choosing when
to buy...

http://www.centralbank.ie/data/FinStaRepFiles/The%20Irish%20Housing%20Market%20-%20Fundamental%20and%20Non-Fundamental%20Influences%20.PDF


LOOK AT THE GRAPH!!!!!!!!!!!!!!

Sonnenblumen

A bubble burst is more likely to the rapid deterioration of too many recently poorly constructed/poorly spec'ed accomodation especially apartments (within < 5 years).

Also new planning regs which will see significant increase in 2 + bed apartments, windows on more than one side, higher ceiling, greater floor area will amongst others see a huge falloff in demand for the rabbit hutches built around Dublin.

Some already looky jaded and prospective 'new age slums'. At least renters can upgrade, but landlords are going to get caught big time IMO.

Kipperhell

VoidStarNull wrote:

Household incomes generally keep pace with inflation.
Therefore house prices in the long run also keep pace with inflation,
.

Actaully that is not always true. Ireland has a very high homeownship compared with other Eu countries and even the world. As Ireland becoimes more like the rest of the world it can easily mean homeownship rates will drop. The assumption you are making is Ireland home ownship will stay the same therfore inflation and house prices will remain linked as they were in the past instead of seeing a new ratio could be created.
I still think a good property owned outright could give a good rental return for most unless there is absolutley nobody renting. It's possible but a bit unlikely. If all the new oproperties are as bad as some people claim the older properties will out perfome the others.

ixoy

Guys, after pages and pages of posts in this thread you've won me over. We're postponing buying a place for a year and renting. Your arguments were too convincing in the end

ronbyrne2005

ixoy wrote:

Guys, after pages and pages of posts in this thread you've won me over. We're postponing buying a place for a year and renting. Your arguments were too convincing in the end

Good descision and good luck. Keep an eye on place syou like and watch them continue to fall! Only consider buying when prices stop falling or reach a very appealing price.

Iristxo

What the first graph shows (Chart 1) is that only Finland´s house prices fell by more than 30%. Or am I interpreting it wrongly? If my interpretation is correct, the chances of our house prices falling under 30% are small. This is consistent with what some of you have been saying and with what I think personally.

VoidStarNull

ronbyrne2005 wrote:

Good descision and good luck. Keep an eye on place syou like and watch them continue to fall! Only consider buying when prices stop falling or reach a very appealing price.

Also keep an eye on the backlog at daftwatch. When it stops building and
starts to fall, that would likely be a sign that the wider market believes
that reasonable prices can be found. Don't hold your breath though!

whizzbang

VoidStarNull wrote:

Also keep an eye on the backlog at daftwatch. When it stops building and
starts to fall, that would likely be a sign that the wider market believes
that reasonable prices can be found. Don't hold your breath though!

and watch out for the dead cat bounce!
http://en.wikipedia.org/wiki/Dead_cat_bounce

VoidStarNull

Kipperhell wrote:

Actaully that is not always true. Ireland has a very high homeownship compared with other Eu countries and even the world. As Ireland becoimes more like the rest of the world it can easily mean homeownship rates will drop. The assumption you are making is Ireland home ownship will stay the same therfore inflation and house prices will remain linked as they were in the past instead of seeing a new ratio could be created.
I still think a good property owned outright could give a good rental return for most unless there is absolutley nobody renting. It's possible but a bit unlikely. If all the new oproperties are as bad as some people claim the older properties will out perfome the others.

I don't think it matters whether people buy or rent. Households compete
for the best houses, whether they are buying or renting. That competition
should cause prices and rents to increase in line with household purchasing
power (for all except the worst houses, which eventually get demolished and
replaced with new stock). Since rents increase in line with household income,
the price paid by the investor who buys the house should increase at the
same pace (to keep the rental yield constant - otherwise everyone
would sell all other investments and buy houses, which would be unsustainable).

Note: all this is long-term stuff which in the Irish context has been
smothered by short-term volatility, the point is that the volatility must now
be corrected back to the long-term trend. I hope I am not persuading
anyone here to buy Irish houses!!!

Afuera

Kipperhell wrote:

As Ireland becoimes more like the rest of the world it can easily mean homeownship rates will drop.

Spain and Italy both have higher home ownership rates than Ireland. I don't see any arguments for why they should "become more like the rest of the world", in the same way I can't imagine Irish homeownership rates varying greatly either. The concept of renting vs buying falls into a type of cultural thinking that can take generations to change.

Kipperhell wrote:

I still think a good property owned outright could give a good rental return for most unless there is absolutley nobody renting. It's possible but a bit unlikely.

In the current Irish property market, rental yields are below the return that can be obtained from interest. Therefore, it currently doesn't make any sense for someone to hold onto an investment property that is owned outright, unless it's for personal reasons. The same sum lodged in the bank will give a greater return with no risk or effort.

tHE vAGGABOND

Spain and Italy both have higher home ownership rates than Ireland

I actually dispute that tbh

As far as I can see, all 3 countries are all at or near 80% - but its not really that important in the grand scheme of things is it

gurramok

Sonnenblumen wrote:

A bubble burst is more likely to the rapid deterioration of too many recently poorly constructed/poorly spec'ed accomodation especially apartments (within < 5 years).

Also new planning regs which will see significant increase in 2 + bed apartments, windows on more than one side, higher ceiling, greater floor area will amongst others see a huge falloff in demand for the rabbit hutches built around Dublin.

Some already looky jaded and prospective 'new age slums'. At least renters can upgrade, but landlords are going to get caught big time IMO.

Have to agree with most of this as a factor in determining which properties will be seen as a 'good buy' in the forseeable future.

I 'think' soundproofing in new builds is the required by law this year on new builds(open to correction on this), some new builds are timber frame/hollow brick which would frighten the bejayzus out of a buyer.

Also, forking out upto €2k a year in management fees on a 2 bed apt like in Royal Canal Park is not an attractive buy when money gets tight, a buyer would look to minimise expense on any property when they buy.

Kipperhell

Afuera wrote:

Spain and Italy both have higher home ownership rates than Ireland. I don't see any arguments for why they should "become more like the rest of the world", in the same way I can't imagine Irish homeownership rates varying greatly either. The concept of renting vs buying falls into a type of cultural thinking that can take generations to change.

As said I would dispute that. Considering Italy has a falling population I would discount them either way.I think you can say Irish society has changed drastically so it is a likelyhood. If religion can change so drastically I can see concepts of homeownship changing too. The financial changes in society and the mass reduction of state sponsored homeownership will also effect.

Afuera wrote:

In the current Irish property market, rental yields are below the return that can be obtained from interest. Therefore, it currently doesn't make any sense for someone to hold onto an investment property that is owned outright, unless it's for personal reasons. The same sum lodged in the bank will give a greater return with no risk or effort.

Actually it does make sense to hold onto investment as there is a 20% captial gains tax to hinder exiting the property market. Many people belive that rental returns are more stable in the long term and stay with inflation better than other investments. It can come down to what a house can mean. Many rural people buy property in the city in order to have a place for the kids when in college and other various benifits. Don't forget many people didn't pay current market rates so their rental yield is very high, it really a little be simplistic to consider it a current rates and people often ignore capital gains tax. SO it does make sense. You just think in the long term banks will continue to outperform the property market and 20% cut off your asset is a good idea. I don't and there are others who would agree some of whom own property.

Supercell

I have a colleage in work that sold a lovely house he had almost paid off the mortgage on and bought another at twice the price with an interest only loan for the difference.

He's very very stretched, his interest free mortgage has doubled in the last year and says he cannot pay any more. It looks like there is probably another two rate rises at least before things stabilise, I didn't have the heart to tell the guy. When he bought it just over a year ago I thought he was insane to do so at the height of the market madness but there was no telling him, and i'm not a "I told you so" type guy.

I'm sure this is repeated all over Ireland, many many people are going to loose everything in the near future, its frankly a bit scary.

ronbyrne2005

Kipperhell wrote:

As said I would dispute that. Considering Italy has a falling population I would discount them either way.I think you can say Irish society has changed drastically so it is a likelyhood. If religion can change so drastically I can see concepts of homeownship changing too. The financial changes in society and the mass reduction of state sponsored homeownership will also effect.


Actually it does make sense to hold onto investment as there is a 20% captial gains tax to hinder exiting the property market. Many people belive that rental returns are more stable in the long term and stay with inflation better than other investments. It can come down to what a house can mean. Many rural people buy property in the city in order to have a place for the kids when in college and other various benifits. Don't forget many people didn't pay current market rates so their rental yield is very high, it really a little be simplistic to consider it a current rates and people often ignore capital gains tax. SO it does make sense. You just think in the long term banks will continue to outperform the property market and 20% cut off your asset is a good idea. I don't and there are others who would agree some of whom own property.

Eh no, rental yields are based on current market value of property and current rent to allow a comparison with other investments. You dont see investors in shares quoting the yield on a share based on a price they paid for it ten or twenty years earlier. Your naive viewpoint ignores the opportunity cost of capital and in fact theres sound arguments to sell an asset when its yield becomes so much greater than when you bought it as yields (based on original purchase price) increasing greatly can indicate a great deviation from fundamental value.

Do-more

It seems as though developers are closing down sites all over at the moment, just heard of one developer who has closed down four sites this week! (Dublin and commuterville). Another site had a price drop of €45,000 per unit two weeks ago, this hasn't got things moving so now the site has been closed down with all workers layed off.

I'm told of another completed development in a commuter village which has seen only a few units sold. The developer is unable to service the loan and I'm told that the bank is now foreclosing.

It seems like the house of cards is starting to tumble....

miju

not that i doubt you do-more , but where did you hear this information. if its one thing i hate it's hearsay etc especially when im on your side of the fence

Afuera

Kipperhell wrote:

As said I would dispute that. Considering Italy has a falling population I would discount them either way.I think you can say Irish society has changed drastically so it is a likelyhood. If religion can change so drastically I can see concepts of homeownship changing too. The financial changes in society and the mass reduction of state sponsored homeownership will also effect.

Very low likelihood of home ownership rates varying dramatically in Ireland IMHO. Tenants laws are nowhere near good enough for people to be comfortable about renting long term. The current population rise is being heavily supported by a transcient element from other corners of Europe. As France, Germany and Poland pick up steam this will likely fuel a decrease in our own population.

Kipperhell wrote:

Actually it does make sense to hold onto investment as there is a 20% captial gains tax to hinder exiting the property market. Many people belive that rental returns are more stable in the long term and stay with inflation better than other investments. It can come down to what a house can mean. Many rural people buy property in the city in order to have a place for the kids when in college and other various benifits. Don't forget many people didn't pay current market rates so their rental yield is very high, it really a little be simplistic to consider it a current rates and people often ignore capital gains tax. SO it does make sense. You just think in the long term banks will continue to outperform the property market and 20% cut off your asset is a good idea. I don't and there are others who would agree some of whom own property.

I already mentioned that there may be personal reasons for someone holding a property, even if it makes no sense financially. As ronbyrne2005 quite rightly pointed out, you have to compare the current value of the property with it's current return, to determine its yield. I'm surprised that there are still people so blinkered out there that they can't see that it makes NO financial sense to hold onto the property under the current climate. Remember that you could lose a lot more than 20% of the value of a depreciating asset in a falling market! I made no projections on the long term performance of the money in the bank, but at least it would be a lot more liquid and easier to diversify than having it stuck in bricks and morter.

gurramok

News last night is that DCC are going to put it in regulation that new apartments should be 25% bigger as a minimum than they are now.

If you plan to upgrade from a shoebox to a bigger place in the future, plan to get out now as your place will be bottom of picking order for a prospective buyer even more so than in the downturn now.

http://www.rte.ie/news/2007/0508/housing.html?rss

Funny comment from CIF- 'The Construction Industry Federation has criticised the draft guidelines saying they will drive development out of the city.'

Translated as...your super huge profit building present apartment blocks will just be slimmed a little in giving buyers that little bit more space.