Housing Bubble Bursting

jmayo

You can not lay blame on the FTB for the huge rises in property prices.
They are usually just trying to buy somewhere to live, a starter home.
They have also been fed the cr** that you must get on the property ladder by the vested interests, the developers/builders, the banks/lenders, the estate agents and their propagandists/the papers.

But our property price bubble is also due to good old greed.
How many people have remortgaged their properties to buy second, third or more properties. How many of this category are renting these properties out to tax payer funded tenants?
"Greed is good" should have been the motto of the last 5 years.

Yes, it has been good for the few, but in the long run we are all going to suffer the consequences of this lop sided economy.

Maybe people should take a close look at Carlow as a good example.
They have just lost one of their long term stalwart employers, no not Bruan or Lapple, but the Sugar Factory. A company thet kept that town ticking over in the bad old times.
And what are they going to replace it with?
A residential development with probable shopping centre.

With thinking like that where are our towns going to be in 5/10 years time?
Great they will have lots of property and shopping centres but no employment.
I can't see the price of property in Carlow staying at their current value for much longer.

D'Peoples Voice

SimpleSam06 wrote:

If anyone should feel anger at anyone else, I feel the banks and real estate agents ....

I know you are obviously referring to only mortgage lenders when you say banks, but I think that banks such as Rabodirect and Northen Rock are responsible for some of the cooling off in the market.
Some investors who are disillusioned by rental yields of circa 2% in Ireland (9% in Berlin in 2006) are selling up and investing the proceeds in these banks and receiving GUARANTEED rates of up to 5% pa.
I believe that the significance of non-property related investment opportunities in the future will have a major bearing on the property market.

Zambia

iguana wrote:

Do you feel any pity for your buyer?

No not really. I wish them well in the house and its a good long term house , not too mention they sold a simialiar house for a simialar price to get mine.

All the signs where there they chose to ignore them. However I have to give them Kudos for sticking to the sale.

Aishling

It annoys me when i hear people blaming banks and estate agents. Myself and himself were offered a mortgage of 500k by one bank 2 months ago. Whiile we can afford that amount now there is no way we would have taken it. We would have been stuck if rates go up, if one of us took time off to have children, or to have any sort of quality of life. We have a max budget (much lower than 500k) and we will be sticking to it. I suppose we are in a fortunate position whereby it is a buyers market, and prices are moderating (god I hate that term its called FALLING!!) but even a year ago when we hadn't heard of the market stabilising we still wouldn't get a crazy mortgage.

There is such a thing called personal responsibility and nobody is going to hold your hand for you.

jmayo

Aishling wrote:

It annoys me when i hear people blaming banks and estate agents. Myself and himself were offered a mortgage of 500k by one bank 2 months ago. Whiile we can afford that amount now there is no way we would have taken it. We would have been stuck if rates go up, if one of us took time off to have children, or to have any sort of quality of life. We have a max budget (much lower than 500k) and we will be sticking to it. I suppose we are in a fortunate position whereby it is a buyers market, and prices are moderating (god I hate that term its called FALLING!!) but even a year ago when we hadn't heard of the market stabilising we still wouldn't get a crazy mortgage.

There is such a thing called personal responsibility and nobody is going to hold your hand for you.

Do you happen to work for estate agent or financial institution?
Just the use of the term market stabilising sounds very estate agentist.

Yes, people have to accept personal responsibility for their actions.
If they took out a huge 100% mortgage for an over valued square box out in a commuter town that they cannot afford once interest rates rise by a point or two, then all I say is tough.

But the vested interests, including the government, have painted a very rosey picture for buyers over the last 5 odd years. It was in their interst to screw as much money out of the buyers and indeed the sellers.

The financial institutions have also driven the credit craze, that now results in lots of Irish people, particularly under 35s having huge amounts of load and credit card debts and not just mortgages.
Worst still people have been convinced to roll their non property related debt into their mortgages.

mikemac

jmayo wrote:

Maybe people should take a close look at Carlow as a good example.
They have just lost one of their long term stalwart employers, no not Bruan or Lapple, but the Sugar Factory. A company thet kept that town ticking over in the bad old times.
And what are they going to replace it with?
A residential development with probable shopping centre.

Actually, they have now lost Lapple so more bad news for Carlow

http://www.rte.ie/news/2007/0615/jobloss.html?rss

Läpple Ireland has announced the closure of its plant in Carlow with the loss of 140 jobs.
The company issued a statement this morning saying the closure was due to heavy losses in recent years.
It added that the increasing competition and cost pressures that are affecting Ireland's manufacturing sector had seriously impacted on the company.

SimpleSam06

Aishling wrote:

There is such a thing called personal responsibility and nobody is going to hold your hand for you.

If we're putting responsibility on anyone, the banks and REAs are dead centre in the crosshairs, as far as I can see. House prices wouldn't have gone so high if the banks didn't stretch the definition of "stress testing" beyond any reasonable standard, loaning out far more money than they had any right to do. Lots of money floating around -> REAs reckon they can get as much of that as possible and increase house prices to match, when some people have little choice but to buy a house. Its called tearing the arse off it.

I wouldn't be surprised if there weren't accusations of collusion between banks and major Real Estate Agencies in court cases in the near future, one hand telling the other the maximum a certain party could afford. And make no mistake, we'll see more than a few going through the court system before this is all played out.

In fact, I seem to remember something like that already hitting the papers a while ago.

jmayo

micmclo wrote:

Actually, they have now lost Lapple so more bad news for Carlow

http://www.rte.ie/news/2007/0615/jobloss.html?rss

Läpple Ireland has announced the closure of its plant in Carlow with the loss of 140 jobs.
The company issued a statement this morning saying the closure was due to heavy losses in recent years.
It added that the increasing competition and cost pressures that are affecting Ireland's manufacturing sector had seriously impacted on the company.

Yep I know Läpple was announced last week. If you were to look at Carlow, it has lost a lot of jobs in Bruan over last couple of years, the sugar factory closed and now Läpple.
Just another example of the great economy that we were told about by FF/PD during the election.
How many job losses have been announced since the election?

But back to topic, I know people working in the construction materials supply business and they expect layoffs in late July around the holidays.
The building business is contracting and watch the envitable, prices dropping, or should we say the market is stabilising. Also hearing stories of builders completing the shells and leaving the units unfinished.
Also some sites have been closed.
All adds up to more layoffs and more units available than demand.

El Stuntman

I don't like the idea that people may try and abrogate responsibility for their house buying decisions and the consequences of same when the credit bubble unwinds...caveat emptor

I'm even more concerned that the government may come under pressure to meddle in the market (i.e. prop it up) when the price slide we see now becomes a full-blown crash

mikemac

El Stuntman wrote:

I'm even more concerned that the government may come under pressure to meddle in the market (i.e. prop it up) when the price slide we see now becomes a full-blown crash

I'm extremly concerned about this and am pretty sure it will happen.
The government might buy up property, bailing out amateur investors and overstreched developers and use them as social and affordable housing.
And what's worse is they will make it seem that they are doing us taxpayers a favour. :eek:
But if they only removed the many tax breaks that investors get, they would not be such for a need for this.

While the government has a responsibility towards social housing, I don't want my money going to buying up estates of badly finished, overpriced housing. Ghettos of the future.

I don't know about all areas but in North Tipperary, people say the best built houses in recent years are council houses. What this basically means is the council employs engineers to ensure standards are met and they certainly aren't slapped up with shortcuts taken like a lot of privatly built estates.
Not all developers take shortcuts but a lot do.

I don't ask for much from the government, just spend my tax money wisely please.

daveirl

This post has been deleted.

patrickolee

micmclo wrote:

And what's worse is they will make it seem that they are doing us taxpayers a favour. :eek:

They will... and they will probably be doing you a favour, even though you won't see it. Its funny to see the posts on this thread almost hoping for a crash. People don't seem to realize that if that does happen we will all be screwed!

What's more likely for the government to do, in order to prop up the property market is increase tax breaks within its control. While they don't have control over mortgage rates, they do have control over mortgage interest relief/stamp duty and various other developer tax reliefs. They will probably use these levers to ensure that the economy and the property market doesn't go to pot! You'll probably complain and scratch your head and wonder why oh why would the government use your money so irresponsibly... but s're that's the way.

Calina

SimpleSam06 wrote:

If we're putting responsibility on anyone, the banks and REAs are dead centre in the crosshairs, as far as I can see. House prices wouldn't have gone so high if the banks didn't stretch the definition of "stress testing" beyond any reasonable standard, loaning out far more money than they had any right to do. Lots of money floating around -> REAs reckon they can get as much of that as possible and increase house prices to match, when some people have little choice but to buy a house. Its called tearing the arse off it.

I wouldn't be surprised if there weren't accusations of collusion between banks and major Real Estate Agencies in court cases in the near future, one hand telling the other the maximum a certain party could afford. And make no mistake, we'll see more than a few going through the court system before this is all played out.

In fact, I seem to remember something like that already hitting the papers a while ago.

Just on this: I'm strongly of the opinion that the financial regulators/central bank - whichever one ultimately bears responsibility for this - should have dealt with the question of salary:loan ratios. As things stand there are fairly crazy offers out there, including offers made on the assumption of future salary improvements. This skews the market a lot. The slip from 2.5 to 3 was okay. Last time I looked for myself I think there was something like 7 times my then declared income on offer. Likewise, the switch from salary multiple to percentage of net income shouldn't really have been mandated.

So yes, the banks and mortgage lenders do deserve a rap on the knuckles, as do the regulatory authorities.

That being said, no one is forced to borrow all that money. Ultimately, the fact that you can borrow money does not mean you have to. So I would say that there is no scope for walking away from your decisions. If you don't/didn't understand the ramifications, the duty lies still with you. There is a lot of paperwork involved in these things. There is a lot of money. People who do take out huge loans should be making sure they understand what they are doing. If they do not - they cannot blame anyone else for it.

In any case, matters in Ireland were not aided by the large number of investors. The problem is we need investors provided they are releasing property onto the market to rent. Anecdotally there seems to be a view that a lot of properties didn't get released onto the rental market. So what I would say is that there should be a serious charge on leaving residential property fallow - I would say up to 50% of prevailing market value - in the future with suitable tax incentives to provide the rental market with supply. So that what gets taken out of the equation are empty properties which skew supply on both the sales and rental market.

Calina

patrickolee wrote:

They will... and they will probably be doing you a favour, even though you won't see it. Its funny to see the posts on this thread almost hoping for a crash. People don't seem to realize that if that does happen we will all be screwed!

the problem is that the extent to which property values have diverged from connected fundamentals means that a crash is inevitable. Personally I think we should have dealt with the pain before it became clear that it was going to be acute.

However, practically nobody agreed with me, and now, people are afraid because it will hurt very much. This is called burying your head under the sand.

It's irritating to see people say that we shouldn't have a crash because it will hurt. It will hurt in the short term. In the long term, things continuing as they are will destroy the economy. It is already causing problems with regard to inflation, and people's need for salary inflation. What would be beneficial is a short and very sharp correction and normal service resuming. Unfortunately, it doesn't look like we'll get with it.

SimpleSam06

patrickolee wrote:

What's more likely for the government to do, in order to prop up the property market is increase tax breaks within its control.

Erm, your weak link there, where will the taxes the government is then losing come from? I mean, do you know how much of the tax take for this country is from property?

Or would you call increasing the base rate of income tax to 50% "doing us a favour"?

D'Peoples Voice

micmclo wrote:

I'm extremly concerned about this and am pretty sure it will happen. The government might buy up property, bailing out amateur investors and overstreched developers and use them as social and affordable housing.
And what's worse is they will make it seem that they are doing us taxpayers a favour. :eek:

Picture this, you and your missus have scrimped and scraped for years to buy a house in Clonee. Now hundreds of your neighbours are defaulting on their loans. So the local council purchases their house and puts a lot of undersirable neighbours into those houses.
Do you think the local authority will be doing the existing neighbours a favour by turning a private housing estate into a council estate overnight. People will be estatic, imagine spending years scraping by just to own a house in a council estate! Could such a scenario be possible?

patrickolee

SimpleSam06 wrote:

Or would you call increasing the base rate of income tax to 50% "doing us a favour"?

Erm, I'm guessing you picked 50, because 5 and % are just a shift modifier apart!

There are loads of ways the government could raise monies. The could divert them from 'health' for example! Not saying they should or will, but there are many ways they could come up with to raise prop-up money. I doubt raising the base rate of income tax to ... lets pick a random number... 50% will be one!

conor_mc

patrickolee wrote:

Erm, I'm guessing you picked 50, because 5 and % are just a shift modifier apart!

There are loads of ways the government could raise monies. The could divert them from 'health' for example! Not saying they should or will, but there are many ways they could come up with to raise prop-up money. I doubt raising the base rate of income tax to ... lets pick a random number... 50% will be one!

What's the difference?

Whether they raise VAT, VRT, Stamp Duty, CGT, whatever to 50% - at the end of the day, they're already reliant on construction-based revenue for simple day-to-day expenditure, so what makes you so sure they could prop up a falling market, even if they wanted to, when they'll have enough trouble balancing the books for the simple things in life..... ministerial cars and the like.

I dunno, sometimes it seems like people think this sort of thing is new and unique to Ireland - bubbles happen, then they burst. Government intervention usually has a habit of making things worse rather than better. Indeed, one could argue that FF have already played their cards in propping up the market by reversing the Bacon report several years ago. Now look at the mess we're in!!!!

patrickolee

conor_mc wrote:

when they'll have enough trouble balancing the books for the simple things in life.....

Who's to say they will try to balance the books. They may well decide to borrow, if that is the only way. It might not be palatable to the readers of this thread, but it is within the gift of the government to prop up the economy (building or otherwise) in what ever-way they see fit. We voted them in, knowing that they were builder backed...Bob the builder, Paddy the plasterer and Bertie the taoiseach! :-) Get used to it.

Glenbhoy

dochasach wrote:

Myself and others in similar circumstances found that at last year's interest rates, a 35 year mortgage on our dwelling (comparables in same terrace building or, in one case what the landlord paid two years ago) was almost exactly twice our monthly rent, not including stamp duty. Would trs make up the difference?

No, as was pointed out TRS is currently 266 per month for a couple, this is increasing to 333 per month as of Jan next, if the current govt stay together long enough to assemble a budget. However, what my initial post was supposed to clarify, was that it's not the mortgage repayment itself that people should be comparing with rent - it's the interest element of the mortgage repayment. For example:
IXOY's example of where he lives in Portmarnock.
Apt 415,000
Couple (Assume FTB's)
Mortgage Term 30 yrs
100% Mortgage.
Interest Rate 4.95%

Repayments would be €1950 per month after TRS
Interest element would be €1434 per month after TRS, and strictly speaking that is the only part of the payment that should be compared with rent, as rent for the apartment is approx 1400 per month, then there is no gain or loss from renting (ie definitely not dead money in this instance), it all depends on the persons view as to whether the capital element would be better off invested in the apartment or elsewhere. This is a crude example, but it shows the basics.
It should also be borne in mind that the interest element will keep on decreasing and the rent will most likely increase over the years, however this may or not be negated by interest rate changes too.
For example, by year 10, the interest element would be approx €1000 per month (assuming TRS relief remained at 333 per month), whilst rent would most probably have increased to approx €1900 (assuming 3% inflation p.a).

conor_mc

patrickolee wrote:

Who's to say they will try to balance the books. They may well decide to borrow, if that is the only way. It might not be palatable to the readers of this thread, but it is within the gift of the government to prop up the economy (building or otherwise) in what ever-way they see fit. We voted them in, knowing that they were builder backed...Bob the builder, Paddy the plasterer and Bertie the taoiseach! :-) Get used to it.

I still don't see how this works. Do we prop up the construction industry at 90,000 houses per annum, without having people to live in them?

The state can buy all these houses from developers, but what then happens to the second-hand house market when anybody who writes a letter to their local council gets a free house?

It's totally circular - cut off the supply, and you strangle the demand through higher unemployment and lower immigration. Keep supply up and you drag down prices anyway.

Face it - the herd have changed tack now, and it'll be very difficult to turn them around without control over interest rates, the singlemost important factor of them all. Anything else is just a smokescreen.

jmayo

patrickolee wrote:

They will... and they will probably be doing you a favour, even though you won't see it. Its funny to see the posts on this thread almost hoping for a crash. People don't seem to realize that if that does happen we will all be screwed!

What's more likely for the government to do, in order to prop up the property market is increase tax breaks within its control. While they don't have control over mortgage rates, they do have control over mortgage interest relief/stamp duty and various other developer tax reliefs. They will probably use these levers to ensure that the economy and the property market doesn't go to pot! You'll probably complain and scratch your head and wonder why oh why would the government use your money so irresponsibly... but s're that's the way.

Fogive me but I don't see proping up anyones 100% mortgage or the increased mortgages people carry in order for them to have the two Bmeers and the holiday pad, doing me a favour,
As mentioned above, are the geovernment going to rob Peter to pay Paul, quiet literally in this case ?

Maybe those that voted in this and the last government, on the basis that they look after "me" with ever increasing property prices, high availability of cheap credit and a "booming" economy with lots of employment, believe the government will look after "me" when the ar** falls out of the market and the "booming" economy is shown for what it really is.

As for those of us, that have been skeptical for a few years now about our supposed booming economy and ever increasing house prices, may decide that those that are over exposed made their beds so they can lie in them, at least until the bailiffs arrive.

Being perfectly blunt about it, I don't see why I should pay extra tax to bail out anybody that made stupid economic decisions.

Maybe I am becoming just like a lot of the FF voters on these boards, that have quiet openely stated all that matters is what they get for themselves.

Yes we will all suffer because all our house prices will drop, unemployment will rise and our public services will suffer.
Oh wait what public services, they are cr** already.

SimpleSam06

patrickolee wrote:

There are loads of ways the government could raise monies. The could divert them from 'health' for example! Not saying they should or will, but there are many ways they could come up with to raise prop-up money.

Oho, another magic money believer! The government can pull money out of the clouds, so of course they won't increase taxes! Sure don't they print the stuff! :rolleyes: Its thinking like that which gave this country the property bubble in the first place.

Even if they did get a loan, that loan has to be repaid, and with the shortfall we're talking about, its a significant percentage of GDP per annum. Who do you think would be foolish enough to loan this country that squandered its gains in a boom period that kind of cash, with little to no hope of repayment, in an effort to keep the good times rolling for the flutes?

Actually there is one other method they could use besides increasing income tax; they could pare off most of the overpaid and underworked civil service.

How likely do you think that is going to be?

There are a lot of people due for a harsh wakeup call shortly.

Glenbhoy wrote:

For example, by year 10, the interest element would be approx €1000 per month (assuming TRS relief remained at 333 per month), whilst rent would most probably have increased to approx €1900 (assuming 3% inflation p.a).

This is a very good point, and one which hasn't been mentioned enough, I feel. I don't think anyone is advocating renting for the rest of your natural life, just that its a bad time to buy now, and probably will be for the next three or four years.

A Random Walk

Glenbhoy wrote:

whilst rent would most probably have increased to approx €1900 (assuming 3% inflation p.a).

Please explain to me the relationship between rent and general price inflation? I must have missed that bit in my economics lectures because they were so busy talking about supply and demand driving rents. I don't wander into the motors forum and start giving my theories on how an engine works (in my world it is due to the little people who live inside the white plugs), why do people who don't understand economics feel they can offer up their new and unusual theories?

You'll notice from the most recent Daft figures that rents, after dropping for a while have reached their 2002 level. Has inflation been 0% for the past 5 years?

miju

patrickolee wrote:

They will... and they will probably be doing you a favour, even though you won't see it. Its funny to see the posts on this thread almost hoping for a crash. People don't seem to realize that if that does happen we will all be screwed!

to be honest the longer this property madness goes on the more we're all scewed in the long term. it actually is better for a short sharp painful correction rather than a long drawn out affair that wont heal because the government will be draining their coffers bailing everyone else out thus taking the moey from area that actually need it and can get our economy back on stable productive and exporting economy

Glenbhoy

A Random Walk wrote:

Please explain to me the relationship between rent and general price inflation? I must have missed that bit in my economics lectures because they were so busy talking about supply and demand driving rents. I don't wander into the motors forum and start giving my theories on how an engine works (in my world it is due to the little people who live inside the white plugs), why do people who don't understand economics feel they can offer up their new and unusual theories?

Given your deep understanding of economics you are more than likely aware of what an assumption is? Hence, when I wrote the following

(assuming 3% inflation p.a).

, that's exactly what I was doing.
I'm only confused as to what your issue with my post was, my post was meant to be informative and accurate, I didn't give try and force any opinion on how I see the property market going, I was simply providing information which everyone should calculate prior to making their decision as to whether to buy or rent.
Now, if you've something constructive to add I would be happy to take it on board, if not, you know how the saying goes......

A Random Walk

Glenbhoy wrote:

I'm only confused as to what your issue with my post was, my post was meant to be informative and accurate,

You're assuming a variable as part of your calculation that is only marginal to the calculation in reality.

If I did a similar calculation and said that "Assume that the cost of house insurance will rise by the number of bananas shipped into Europe" you'd probably haul me up and rightly so. Just because you mention an economic term like "inflation" doesn't mean it has anything to do with rents.

Rents are supply and demand driven, not the general rise in prices. How about re-doing your calculation on the basis of past experience, say the past 5 years when rents rose by 0% and then see what result you get.

patrickolee

A Random Walk wrote:

You'll notice from the most recent Daft figures that rents, after dropping for a while have reached their 2002 level. Has inflation been 0% for the past 5 years?

Do you really believe that? Have you actually convinced yourself that its true?

A Random Walk wrote:

Rents are supply and demand driven, not the general rise in prices. How about re-doing your calculation on the basis of past experience, say the past 5 years when rents rose by 0% and then see what result you get.

I rented a one double bedroom apartment through daft 5 years ago in August for 850 pm, which was typical of the rents at the time. I looked around a lot. Rent on a similar spec apartment, looking at daft today, is 1200-1400 pm. How can you think that rents have risen 0% in the last 5 years?

Glenbhoy

A Random Walk wrote:

You're assuming a variable as part of your calculation that is only marginal to the calculation in reality.

If I did a similar calculation and said that "Assume that the cost of house insurance will rise by the number of bananas shipped into Europe" you'd probably haul me up and rightly so. Just because you mention an economic term like "inflation" doesn't mean it has anything to do with rents.

Rents are supply and demand driven, not the general rise in prices. How about re-doing your calculation on the basis of past experience, say the past 5 years when rents rose by 0% and then see what result you get.

The calculation was intended to show that the interest element of the mortgage repayment is the key, not the total repayment - if you want an accurate rate of increase for rents, maybe we should use the 10% they've increased in the past 12 months? I would have thought that 3% was a very fair figure to put on rent inflation, probably on the low side. Anyway, it's not of massive importance, I was just annoyed by the tone of your response.

chump

i'd agree with sentiment suggesting rising rents...
from personal experience, looking for a dublin city centre 1 bed - last summer could get something for 1000, two-bed for perhaps 1200 - by time I actually took plunge (august/september) prices were 100-200higher for each - 1beds for 1100/1200 and two-beds 1300/1400. Now rents for these same property types are at the high end if not higher.
The question is will rising supply, increased rental from speculators drive these prices down.

On another point, isn't it insane/glorious that a FTB couple will be subsidised by 333 per month after the next election for purchasing a home. That's almost 4k a year. Madness