Housing Bubble Bursting

jmayo

PjBrady1
states that if contruction drops thats leaves entire nation solely relying on IT/Multinational manufacturing/agriculture/pharma chemicals.
As I have stated about 3 times already in this thread those industries are smoke and mirrors now.
The Software & Hardware has dropped since 2001.
Wait until Dell pulls the plug, Intel are facing increased competion from AMD.
We are only an assembly shop and that can be pulled out at any time and is an will go either to EAstern Europe, India or Far East.
Manufacturing is too expensive here.
Pharma Chemicals will last as long as government grants and benevolent tax regime lasts (i.,e. Asahi in Killala style).
Agriculture does not pay here, look at the number of farmers sons that now work away from the farm leaving the semi-retired parents to run the farm.
It is a hobby and a very expensive one at that.
Costs are rising in agriculture, return is falling, european aid is being phased out.

As regards Conor74 suggestion to buy in Berlin.
Unless you are buying entire apartment block, you will be caught.
Renting rules are a lot more strict in Europe than ours, you can't just turf someone out overnight.
Also Germans do not buy apartments, so when you go to sell in 5 years time, who will buy it, the ever rich and foolish paddy ?
Easier to sell entire building than 1 apartment.

As Frasier always said "We're Doomed I tell ye".
Well at least the twenty somethings are.

HashSlinging

about setting up a repo co, I heard most banks are now renting back houses to the owners if a reposession order is put through, so it wouldnt be THAT cruel, you wouldnt be turfing people out.

Think if I was to buy in Germany it would be into some type of commercial office block, as part of a group investment Scheme where i could get out quick if needed. I wouldnt be buying an apartment thats for sure.

pjbrady1

A little off topic, JMayo is right, those industries are all set for major problems but in the short term (next five years) they will be our only employers (along with the government).

I reckon Agriculture will make alot of money for anyone with more than 100 acres of fertile tillage ground. Grain prices are set to skyrocket out of all proportion this summer. World is currently only a couple of million tonnes shy of having a deficit in most grains especially wheat. Huge % of American, South American, European tillage ground is going to be set for Biofuels in next five years. Drought raged last summer across Australia/Africa/Central Europe.

The one country that will largely be unaffected by drought and has by a long way the largest per hA grain yields in the world is Ireland. Just imagine if wheat prices doubled the kind of wealth you would see in Kilkenny/Carlow/Wexford/Meath.

Alot of analysts think prices could more than double as there are alot of interested buyers for whom not securing supplies is not a financial option. If you have just opened a 100 million dollar biofuelds plant you need crops full stop. Likewise third world governments may have to pay exhorbitant prices so that millions don't starve. You can be assured grain prices will rise when one of the largest grain growers in Argentina is George Soros who bought 900,000 ha when the Argentinians were on their knees financially. Soros does not make mistakes, he somtimes makes markets as the UK found out.

jmayo

I know off-topic again but the economy does affect the price or value of housing.
We do not appear to ever have a plan. I think the economic boom of the mid nineties happened by accident to a degree rather than by any grand plan of civil service/government. Ok maybe the IDA were the only ones with their heads screwed on and they
Yes coporation tax was cut, but we were luckly that Micorosft chose Ireland. It caused companies like Dell and Intel to follow. We had the advantages of english speaking and young reasonably educated workforce.
We were lucky that the whole Telecomms/e-commerce boom hit at exactly the right time.
Following that collapse, we have been riding the wave of cheap credit but that is all we have now got.
We haven't had a plan for years, money has been shamelessly wasted and the government don't make any hard long term decisions.
There is no Sean Lemass or Donncha O'Malley today. Nobody looking down the road at all. live for today and to hell with tomorrow.

Example: why not develop the Carlow and/or Suagr plans as biofuel centres.
Divert the agircultural/tillage land used for sugarbeet to grow biofuel producing crops. Then try something far fetched like start using biofuels in all publicly run transport. Not counting trains here since I don't conside them something that runs but rather crawls.
Ok I am not sure how much would be involved in modfiying plans or how close are rapeseed crops to sugarbeet as regard growing conditions?
But surely it should be an option.

But what will we do with these plans - well we will knock them and build a shopping centre and more townhouses/apartments.
Great, that's what these towns really need more fri**ing houses and shopping centres. They need jobs, that's what keeps the wheels turning.

pjbrady1

Don't worry JMayo, Austin Hughes is fully confident in our economy.
We don't need Carlow biofuels plants, what we need is more houses and shopping centres for our growing population. Austin Hughes solution to our economy seems to be for us to open up the gates at Dublin Airport, let as many people in as possible, and for us all to head down to Copper Face Jacks and get it on with as many women between the ages of 18 and 35.
We are going to be the first population economy!!!
He really must be the most bland, follow the herd economist out there. With his thinking China would be the richest country in the planet per head. Every business we knock down to build apartments shopping centres is digging us further into a hole. The person selling up will be tying that money up in long term investments not redistributing it into the economy.

---

leading economist has predicted that the upward cycle in
interest rates may be coming to an end

Speaking at a conference in Dublin, Austin Hughes, Chief
Economist, IIB Bank said that 2007 promises to be a far less
painful year for borrowers and homeowners

His words come after the European Central Bank yesterday decided
to leave interest rates unchanged and signaled that it would not
be raising rates again until at least March

"After a tough year for many borrowers in 2006, it seems there
will be less upward pressure on interest rates in 2007," he said

"The ECB have signaled a further 0.25pc rise is likely in March;
however, there is a real sense that the upward cycle is coming
close to an end. With the recent Budget changes to mortgage
interest relief about to kick in, this promises to be a less
painful year for borrowers.

When asked about the property market, he predicted that this year
looks set to begin somewhat as 2006 ended, with some nervousness
remaining in the market reflecting greater supply and worries
about borrowing costs.

However, he said the recent "generous budget" and maturing SSIAs
will help support demand

"Put simply, the demand for housing is strong because we have a
young and rapidly growing population in a healthy economy," Mr
Hughes said

"This year should see economic activity and job growth remaining
buoyant. Ireland's economic success means money and people are
flowing into the country from abroad. This is seen in very strong
IDA figures for new investment in Ireland, and a 20pc rise in
applications for PPS numbers by EU accession state nationals in
2006. The continuing rise in traffic volumes at our main airports
suggests this process has further to go. These sort of
developments mean Ireland's population profile which is virtually
unique in the developed world, is strongly supportive of a healthy
property market.

Gurgle

Ladies and Gentlemen,

I have some critical breaking news that will absolutely ruin the economy and all those working in car dealerships nationwide. This sector accounts for between 5% and 50% of employment in Ireland.

If you buy a new car today, it will lose 50% of its value in the next 3 years. This is not a baseless prediction, its nothing short of a certainty. This will lead to thousands of people finding themselves with negative equity and being forced to sell their cars for less than the outstanding debt.

Take for example a Toyota Avensis D4D costing 30k new, thats 10% of the nationwide average house price. In 3 years it will be worth only 15k.

Now that this information has come to light, who in their right mind would even consider buying a new car?

This will see a collapse in the prices of new cars in this country, with a knock-on effect on second hand cars. Soon people will be giving away their car keys in the street in sheer desperation at the foolisness of their decision to make the initial purchase.

pjbrady1

I assume tongue in cheek comment Gurgle, actually new car purchases are set to decline if house prices decline. Anyways it will all be good for our film, music, writing arts.

Lex Luthor

Gurgle, your information is nothing new.

Going by the amount of '07 reg's I've seen in the past 2 weeks, nobody is listening to you.

ps. I just sold my investment property. Had it 2yrs and grossed €69k. When I figure out my expenses, I hope to have made a tidy profit and move it somewhere else.

Might buy myself a new Toyota Avensis D4D

jmayo

Ah yes Gurgle but you picked a Toyota as your example.
You should see the long term drop in prices of Alfas. The Cape Verde of the car world I reckon.

Pjbrady, Austen Hughes sounds just like a developer builder buddy of mine.
He maintains the US was built on the fact that population grew so economy grew.
But I keep thinking he missed point that they provided everything that population wanted i.e. the food, the clothes, the cars, the coal, the wood, the homes.
We don't, we import it all or as good as.
All we provide our growing population is houses, built from lots of raw materials imported. My buddy did admit we don't import the sand, gravel, cement and water.

Gurgle

Lex Luthor wrote:

Gurgle, your information is nothing new.
Going by the amount of '07 reg's I've seen in the past 2 weeks, nobody is listening to you.

Tounge firmly in cheek, as spotted by pjbrady1.
People are willing to buy cars when this kind of depreciation is a certainty and the expense of a new car is an unneccessary luxory. 20,000 registered so far this year.

Lex Luthor wrote:

ps. I just sold my investment property. Had it 2yrs and grossed €69k.

Nice one, well done and a good decision to sell in these uncertain times.

The fact that you cleared €69k over those two years is a good indication that the housing market is in good health.

One question though, did it go for as much as your estate agent initially predicted?

Lex Luthor

Gurgle wrote:

One question though, did it go for as much as your estate agent initially predicted?

I tried initially to sell on my own. Had one interested party but they were waiting on their house to sign contracts before committing to an offer. Couldn't give me a realistic date and I eventually ran out of time to show it so went with the agent. They valued it at 10k more than I had it on sale for. Had an initial offer of 11k short of new asking price and to which I rejected. Came back next day with 2k short of new asking price. Seller is chain free and cash buyer and wants to close asap. Didn't want to fart about trying to squeeze another few grand out of them and seeing as they were in such a good position, accepted the offer. Contracts already gone out and should be closing in just over 3 weeks.

I have to pay CGT, fees atc out of the 69k, but its still a nice profit. Puts my 5yrs of slogging with my SSIA for just over 4k to shame

SkepticOne

Lex Luthor wrote:

I have to pay CGT, fees atc out of the 69k, but its still a nice profit. Puts my 5yrs of slogging with my SSIA for just over 4k to shame

Well done. So are you going to invest your profit into more property?

Pa ElGrande

Gurgle wrote:

Tounge firmly in cheek, as spotted by pjbrady1.
People are willing to buy cars when this kind of depreciation is a certainty and the expense of a new car is an unneccessary luxory. 20,000 registered so far this year.

Some people like to take out top-up mortgages to buy cars too. The SSIA seems to have been a disappointment for car salesmen with most savers electing to keep saving.
Makes little sense to me to buy a depreciating asset and secure it against your home.

Home equity withdrawal: the process by which fictional wealth is converted to real debt!

Victor

Sponge Bob wrote:

and most of them commuting daily to work in Cork city as Tuam people do and it sounds like it has a meat factory too.

Tuam-Cork-Tuam must be an awfully rough commute. Thank goodness for the Western Rail Corridor.

Victor

Sponge Bob wrote:

except that these 'good deals' in Berlin are generally where the Gemans themselves refuse to live and are sold with magic 'guaranteed rental ' attached

But you can buy apartments in Berlin for only €19,000!!!!!*









* For those who don't get it, this means they are either really bad apartments or a really bad location.

Gurgle

Pa ElGrande wrote:

Some people like to take out top-up mortgages to buy cars too.

Insane, a 40 year loan for an 'asset' that will depreciate 50% in 3 years and the other 50% in the following 7 years.

Pa ElGrande wrote:

Makes little sense to me to buy a depreciating asset and secure it against your home.

And yet plenty do exactly that. It would be interesting to know what proportion of new cars are bought on finance.

Pa ElGrande wrote:

Home equity withdrawal: the process by which fictional wealth is converted to real debt!

hehe

Lex Luthor

SkepticOne wrote:

Well done. So are you going to invest your profit into more property?

sort of.....some of it is going towards paying for a holiday home here in Ireland that I'm just about to close on, going to put a bit if it towards some home house improvements and the rest towards changing the main family car.

Zambia

Lex Luthor wrote:

Had an initial offer of 11k short of new asking price and to which I rejected.

This in itself is a huge indication of the state of the market this time last year you would not think of offering below the asking???

Well done Lex its a hard slog but it so feels worth it when your solicotor hands you the cheque.:p

TCollins

Gurgle wrote:

Insane, a 40 year loan for an 'asset' that will depreciate 50% in 3 years and the other 50% in the following 7 years.


And yet plenty do exactly that. It would be interesting to know what proportion of new cars are bought on finance.
hehe

A few of my friends have bought overly cool cars with their SSIAs and remortgageing their homes to make up the difference. All who remortgaged get the mortgage rate which is way less than the car loan rate .

They then pay the payments they would normally pay on a 3 or a 5 year car loan off their mortgage, thus paying off their car loan a little quicker than they would normally.

Not one of them is planning for the car loan to last the term of their mortgage. But you never know

Zambia

TCollins wrote:

A few of my friends have bought overly cool cars with their SSIAs and remortgageing their homes to make up the difference. All who remortgaged get the mortgage rate which is way less than the car loan rate .

They then pay the payments they would normally pay on a 3 or a 5 year car loan off their mortgage, thus paying off their car loan a little quicker than they would normally.

Not one of them is planning for the car loan to last the term of their mortgage. But you never know

As I said bring on the Finance Forum!!!

Lex Luthor

Zambia232 wrote:

This in itself is a huge indication of the state of the market this time last year you would not think of offering below the asking???

Well done Lex its a hard slog but it so feels worth it when your solicotor hands you the cheque.:p

You're dead right. Last year I probably would have had 2 or 3 bidders at the same time and maybe if I hung on a little longer I could have had a few also. But it was probably as good as I was going to get give or take a grand or 2 and the position of the buyer being chain free and ready to close asap was a huge plus.

dazberry

Gurgle wrote:

And yet plenty do exactly that. It would be interesting to know what proportion of new cars are bought on finance.

I work in an asset finance company - and lets just say that every January on the motor side things go ballistic, and true to form this year is no different. There is the misconception of course that the first few months of the year are the busy ones - in general all months are busy, its just the first few are crazy. And this "crazy" period seems to be stretching out longer every year.

A good friend of mine works in a mortgage company - and they had a trend whereby there was huge pressure to close mortgages coming up to christmas - so much so there was the on running joke that if someone wanted to get up out of their desk to go to the toilet they were told to go at their desk. This year those staff were loaned out to other departments to do menial jobs - because they had nothing! to do.

D.

Gurgle

dazberry wrote:

This year those staff were loaned out to other departments to do menial jobs - because they had nothing! to do.

I'm guessing its starting to pick up now though?
Although from everything I've seen it does look like the days of total stupidity are over.

Just thinking about this - When I was growing up, people didn't move house. You bought/built a house and moved in, and that was where you stayed.

Now I know people in their early 30s who are in their 3rd or even 4th house.

The 'property ladder' used to mean you would trade up as your situation changed. If you got a big promotion or better job with a big pay rise, you might consider moving to a bigger house or a nicer area.

But what does it actually cost to move?
I would estimate that to sell a house at 300k and buy another at the same price, it would cost in the region of 6k to 8k? A small amount on the scale of the house price, but it would pay for a hell of a holiday.

Of course you're not actually out of pocket by that amount straight away - it will come from the equity that built up in the first house and you'll pay it over the mortgage term. When price rises come to a stop, there will be a lot less people house hopping and a lot fewer houses on the market.

I see a lot of unemployed estate agents and mortgage brokers in the not too distant future. A fair few lawyers will feel the pinch too.

Still nothing that looks like a bursting bubble though.

Pa ElGrande

Gurgle wrote:

Still nothing that looks like a bursting bubble though.

There's still some life in house price inflation yet, the banks have targets to meet. Predictably the banks told the regulator where to get off when he wanted them to increase their reserve requirements. And yet more sub-prime lenders are coming into the market, you just know we are in the end game when these scavengers start circling.

Sponge Bob

Gurgle wrote:

I would estimate that to sell a house at 300k and buy another at the same price, it would cost in the region of 6k to 8k? A small amount on the scale of the house price, but it would pay for a hell of a holiday.

Ah no Gurgle, you missed out the stamp duty effect which is quasi subsidised by the taxpayer for first time buyers but not for subsequent transactions .

1. It would cost about €4k to sell (estate agent at 0.5%+legals+removal expenses)

2. It would then cost €18k to buy (€15k stamp duty as a second time buyer at 5% or 300k + €3k legals/valuers and surveys etc)

I make it that its €22k to replace a €300k house in Cork with the same house in Galway if you move jobs. If its €318k or higher for the house the stamp duty alone is €18k and at €400k its €22.5k

babytooth

megadodge wrote:

Miju, I've seen you quote this statistic a number of times and frankly I'm dumbfounded as to how you can get away with it.

I've already pointed out on another thread that I'm not an expert yet even I can see how ill-informed this quote shows you to be. I was waiting for somebody else to point out the error in your ways but...
It suggests one of two things 1. People here don't understand the most basic concepts of property investment or 2. they do understand it but aren't honest enough to point out the flaw in your argument as they support your general view.

Please note I'm keeping this example very simplistic for explanatory purposes so don't come back quoting voids, real values, banks etc.

In your world an investor with 100k cash goes out and buys a property for 100k cash and waits for the capital gain. If, as you say the value increases by 5% and inflation is 6% then yes, there is negative equity.

However, in the investor-with-half-a-brain's world who has 100k cash, he invests (eg.) 10k as a deposit and gets a 90k mortgage from the bank. At the end of the same year the property has increased by 5% meaning a 5k return on his 10k investment ie. a 50% return. He buys 10 houses in total and each is replicated making him 50k in one year.

That's how clued-in investors make serious money. They make other people's money work for them.

just reading through this thread, some funny views out there...this one here has got to win a prize for pure stupidness...

Tell me you "learned" this at some property investor roadshow....

investing is all about cashflow, ain't nothing esle.

You borrow 90k, you pay intererst on this....you borrow 900k, you pay for 9 property deeds and purchase costs, and you think that if the value increase by 5% you have made 50k on the million, realting to 50k on you 100k as its what you invested.

thats all bull, you haven't made money till you realise you profits...

OH and has any one mentioned the fact you pay interest on borrowed money.....

Whats the opportunity cost of capital in this scenario...yeah, about 13-18%....risk free is only about 4.15%. You can't discount risk property investeing at the risk free rate and then try and bring in inflation in the question.

With returns of 13% and inflation of 6^ you are still only making aprox 7%...no where near your 50%.

Same applies for propety making 5%, you discount it with rates of 13% (take returns on someting similar to property such as AIB or BOI ) add in the depreciating element that is inflation...and now tell me what your "making"...


Still laffing away here at ya!

babytooth

megadodge wrote:

miju



I'm still trying to figure that one out.

BTW somebody using the name 'miju' wrote the following on another thread...



Must be an imposter.



Maybe you should ask your Maths teacher to explain the concept of percentages to you, as you're just digging youself deeper and deeper with feet full of bullets from your own guns.

But just for those who aren't quite up to speed in the sums department, please read the following very slowly and use a calculator when (not 'if') necessary...
In miju's world an investor with 400k cash buys a house worth 400k using all his cash. If the value of the house rises 5% and inflation hits 6%, then yes he loses money in real terms.

However in any investor-with-half-a-brain's world who has 400k to spare he invests (e.g.)40k as a deposit, gets a 360k mortgage
and at the end of the year when the value rises 5% (now what's 5% of
400k...umm, let me think, where's that Goddamn calculator) there's a 20k profit equalling a 50% return on investment. But hold on, isn't that funny, that's the exact same return I got using the "simplistic for explanatory purposes" example earlier. Obviously wasn't simple enough !!



Sorry to burst your bubble (couldn't resist) but clued-in investors don't pay these mortgages, their tenants do !! Which means, of course (with no deposit to pay) an even bigger return on investment (assuming values rise).

I can't possibly make it any simpler.

i love to patronise, so as i don't have a calculator to hand, can you tell me in real terms what return i wil have made if the prices rise by 5% and inflation is at 6%, also, can you tell me what is your breakeven point for making this investment, and at what NPV......could you show to me like your above example....

and on another point, have your ever heard of geometric sequences, been around quite a while....had something to do with 1929.....

Afuera

Gurgle wrote:

When price rises come to a stop, there will be a lot less people house hopping and a lot fewer houses on the market.

I am not too sure if this statement makes sense...

Without price rises, I agree that there probably wouldn´t be so many people house hopping (no build up in equity that would allow them to move up the ladder, people would be more reluctant to jump into taking on a long term loan on a depreciating asset), but I do not see why there would be any less houses on the market. If anything I think it would do the opposite.

Admittedly, builders will probably have to adjust their output to reflect lower demand but due to the long times needed for planning and building, I doubt that this can be done that swiftly to reflect the changing nature of the market itself.

A good number of recent investors are obviously holding on for capital appreciation as the yields are non-existant. Without this appreciation, the property essentially just becomes a money pit so I would imagine a lot of these being added to the market.

Sponge Bob

Todays Tribune has an article about the impending demise of the commuter belt which is based on a report to be issued next week by a UCD Planning Ecomonmist Brendan Williams . It seems there is a large pipeline of development to come on stream , especially in N County Dublin, over next year. These homes will be at Kildare and Meath prices but without the commute duration .

That will affect Kildare and Meath prices and that in turn will cause mayhem further out in the Midlands. Lets see.

ronbyrne2005

jmayo wrote:

Ah yes Gurgle but you picked a Toyota as your example.
You should see the long term drop in prices of Alfas. The Cape Verde of the car world I reckon.

Pjbrady, Austen Hughes sounds just like a developer builder buddy of mine.
He maintains the US was built on the fact that population grew so economy grew.
But I keep thinking he missed point that they provided everything that population wanted i.e. the food, the clothes, the cars, the coal, the wood, the homes.
We don't, we import it all or as good as.
All we provide our growing population is houses, built from lots of raw materials imported. My buddy did admit we don't import the sand, gravel, cement and water.

True, america used protectionism and had had it's own central bank controlling monetary policy to grow their economy from a strong domestic base, and as the dollar is now falling american exports are becoming more competitive and why likes of AMD and other capital intensive industries are locating new plants there.

In newspapers today governement are talking about 100k new social housing units over next 7 years, i think this is a ploy to bail out investors when their investment properties in middle of nowhere collapse in value. Governement will buy these houses(through councils) at above free market rate to reduce the impact of oversupply and falling prices. yes an election is near!


interesting debate
http://www.davidmcwilliams.ie/2007/01/13/audio-put-your-house-where-your-mouth-is