Housing Bubble Bursting

jobless

SkepticOne wrote:

Reduction in supply would certainly have a moderating effect on price drops. However why it is happening is important, imo. Is it that a) builders are concerned for those to whom they have sold properties and are therefore cutting back on supply to keep prices up or b) builders can't sell their properties and are forced to cut back?

reduction in supply will also mean a lot of job losses, a lot of the foreign workers will leave the country thus increasing the supply of homes for rent/to sell....

patrickolee

Well definitely not a) anyway :-) ... but i don't think it would be totally b) either (although some of the builders probably) . Most are also likely to be worried about the signs that they see and hear and don't want to get burnt, the same as everyone else in the economy. A good way to reduce their risk, is to pull back slightly and ease up (or even stop) on new developments. I doubt they are conciously doing it in order to prop up prices, but may inadvertenly.

SkepticOne

patrickolee wrote:

Well definitely not a) anyway :-)

I have heard this seriously stated as the reason for slowdown in output on Newstalk one morning.

iguana

SkepticOne wrote:

CSO Census 2006.

According to the last census there are 300,000 empty properties in the republic. Even accounting for holiday homes and the currently uninhabitable that makes a huge amount of empties in Ireland. 12% of the property in the 4 bigger cities of the republic are empty. And 14% of the property in Waterford city is empty. This is not including properties that have been built since the census.

The indiginous population is decreasing and a slowdown in construction will see a reduction in the number of migrant workers. There is NO shortage of supply in Ireland and there won't be for a very long time.

patrickolee

SkepticOne wrote:

I have heard this seriously stated as the reason for slowdown in output on Newstalk one morning.

Gosh... well I might swallow the 'cutting back on supply to keep prices up' part... but not the 'builders are concerned for those to whom they have sold properties'. I can't see any business man been so generous.

D'Peoples Voice

patrickolee wrote:

Gosh... well I might swallow the 'cutting back on supply to keep prices up' part... but not the 'builders are concerned for those to whom they have sold properties'. I can't see any business man been so generous.

I'd say builders are concerned for those who have bought off the plans but have not yet signed the deeds for the finished product. Hence, finishing the houses early may lead to some buyers refusing to sign the deeds and draw down the loan because of the state of the market.
If builders were so concerned for buyers, they wouldn't be building shoe boxes in the first place!

SimpleSam06

D'Peoples Voice wrote:

If builders were so concerned for buyers, they wouldn't be building shoe boxes in the first place!

The builders are bailing, plain and simple. If they were half so cute as they like to make out, they'd have finished bailing in May 2006, mind you... What I want to know is what they are doing now they aren't building! All taking early retirement?

SkepticOne

patrickolee wrote:

Gosh... well I might swallow the 'cutting back on supply to keep prices up' part... but not the 'builders are concerned for those to whom they have sold properties'. I can't see any business man been so generous.

To be fair to the person on Newstalk, he did not say that the reason for cutting output was out of concern for those who have bought properties he just said that they were cutting output to maintain prices. But the only reason I can think of for a builder to forgo profits in this way would be out of concern for recent buyers.

I should add that I don't believe builders are in fact cutting output to maintain prices. They are being forced to cut output because demand has fallen off greatly with the rise in interest rates and the bubble bursting. They are also reducing prices but they are hiding these price reductions in the form of incentives (first year mortgage paid, white goods thrown in etc).

A lowering of output and prices is exactly what you would expect in a post-burst bubble scenario. Can't sell at previous prices so lower them. Lower prices means less incentive to produce so output declines.

jdivision

SimpleSam06 wrote:

The builders are bailing, plain and simple. If they were half so cute as they like to make out, they'd have finished bailing in May 2006, mind you... What I want to know is what they are doing now they aren't building! All taking early retirement?

Commercial property and developments abroad. Standard developer margins on residential property (somebody wondered about it on previous page) is 33 per cent of cost price excluding Vat. If the site was bought a few years previously it was usually circa 70 per cent and if it was bought before it was rezoned the profit was astronomical. In Rosbwall Malahide for example it'd be around 500 per cent.

jdivision

D'Peoples Voice wrote:

I'd say builders are concerned for those who have bought off the plans but have not yet signed the deeds for the finished product. Hence, finishing the houses early may lead to some buyers refusing to sign the deeds and draw down the loan because of the state of the market.
!

They'd then be entitled to keep the 10 per cent deposit and as far as I know they could then try and rent the houses out long term thereby avoiding Vat payments when they sell them on

patrickolee

SkepticOne wrote:

To be fair to the person on Newstalk, he did not say that the reason for cutting output was out of concern for those who have bought properties he just said that they were cutting output to maintain prices. But the only reason I can think of for a builder to forgo profits in this way would be out of concern for recent buyers.

Ah, that sounds more plausible alright. At least your honest, thanks for that. I can think of two other reasons a builder might slow his output to maintain prices. Quite often when a builder(or developer) is doing a development he will keep several of the properties for himself/herself. So out of a block of 100 apartments he might keep 5 and rent them out. If a developer does a development every year, you can imagine how many properties he might accumulate. I know this because i was unfortunate enough to rent a house in Mount Argus from the fella who built that estate, I won't mention his name, but suffice to say he is one of the most unpleasant landlords you could imagine. Used to go around every year on what I can only describe as a power trip, to inspect his properties in the estate. I digress. Point is, many builders/developers have a very real interest in maintaining the price levels from having a large amount of their own wealth tied up in property.

Another reason they would want to avoid a crash situation, is that if they fork out, say 2 million for a site, it will be 2 or maybe 3 years (and several more million investment) before they get to realise their profit from the project. So they have a long pipeline. Many would have money tied up in the pipeline, so to speak.

SkepticOne wrote:

I should add that I don't believe builders are in fact cutting output to maintain prices. They are being forced to cut output because demand has fallen off greatly with the rise in interest rates and the bubble bursting. They are also reducing prices but they are hiding these price reductions in the form of incentives (first year mortgage paid, white goods thrown in etc).

I agree

SkepticOne wrote:

A lowering of output and prices is exactly what you would expect in a post-burst bubble scenario. Can't sell at previous prices so lower them. Lower prices means less incentive to produce so output declines.

I agree again!

But I'd say far more important than all the stuff either of us have discussed above, is good old fashioned fear on the part of the developer just as much as the FTB/readers of this forum. They'll reduce their output to reduce their risk and exposure to a fall. Logical enough. In doing so, they may inadvertenly lessen or avoid a bubble burst.

Glenbhoy

jdivision wrote:

They'd then be entitled to keep the 10 per cent deposit and as far as I know they could then try and rent the houses out long term thereby avoiding Vat payments when they sell them on

They can also legally enforce the contract, normally, a booking deposit is paid first, then the 10% (or whatever) within 21/30 days, at that point, whilst final contracts have not been signed, there is little or no recourse for the purchaser (only if the court deems the building to be substantially different from that for which the contract was signed).
There are also many rumours going around presently about developers struggling badly to meet interest repayments on developments in progress, cashflow problems are starting to impact badly I'm hearing.

nesf

SkepticOne wrote:

CSO Census 2006.

Except that you shouldn't take the Census estimate as being close to the truth. It includes not only actually empty homes but everything from holiday homes and homes "between renters" to homes where simply they didn't for whatever reason get a census form (which with gated complexes is very possible). Take the census figure with a large pinch of salt tbh.

daveirl

This post has been deleted.

nesf

iguana wrote:

The indiginous population is decreasing and a slowdown in construction will see a reduction in the number of migrant workers. There is NO shortage of supply in Ireland and there won't be for a very long time.

Honestly I don't believe you can say that. Especially over the long to medium term. We moved from a state of net migration and large household sizes in the 80s to a country with net immigration and small household sizes in the last decade or so. It is far more complicated than just our indigenous population levels and really a country's supply level is a very hard thing to judge in a housing market simply because of how location dependent the market can be. Just because you've an oversupply in Meath won't mean automatically that you won't have a shortage in Wicklow etc.

nesf

daveirl wrote:

This post has been deleted.

They try to do that alright but it's very hard for them to count with a large degree of accuracy the number of permanently empty homes. They probably will always overestimate the number with their present testing methods. The numbers they provide are useful, I just would warn against people taking them as "gospel".

D'Peoples Voice

Just looking at the most recent ESRI/PTSB house price survey for May (that is loans drawn down in May for houses bought in March or so).
I make the annual rate of house price growth then to be MINUS 9.189% annualised.
[( 1 +(-0.8%) ) ^ 12] - 1 = -9.189%
http://www.businessworld.ie/rankednews2.htm?s=index.html;s2=rankednews2.htm;r=4;a=1761492

patrickolee

From the same article...

"The period under review in this index coincided with the run in to the recent General Election when uncertainty about Stamp Duty was at its height. Together with the intense competition in the First Time Buyer [FTB] sector in particular, this may account for the decline in prices amongst FTBs of 1.8pc in this index."

and

"Measured over the past 12 months (up to and including May), the average price paid for a house in Ireland was just 2.6pc higher in May 2007 than the price paid in May 2006."

iguana

nesf wrote:

Just because you've an oversupply in Meath won't mean automatically that you won't have a shortage in Wicklow etc.

But when the 5 cities all have pretty high levels of oversupply there is a problem.

SkepticOne

Dublin prices down 1.3%. Commuter counties up slightly. Sort of the reverse of last month when people were saying that there was still plenty of demand in Dublin.

It shows that you can't rely on a single months data to prove anything. It will take four or five months data to show a definate downward trend. There may also be a spurious 'up' month which will be jumped on by the vested interests in an attempt to claim that the slump is over.

Uuuh Patsy

SkepticOne wrote:

Dublin prices down 1.3%. Commuter counties up slightly. Sort of the reverse of last month when people were saying that there was still plenty of demand in Dublin.

It shows that you can't rely on a single months data to prove anything. It will take four or five months data to show a definate downward trend. There may also be a spurious 'up' month which will be jumped on by the vested interests in an attempt to claim that the slump is over.

I would suggest that the majority people who keep this thread going also have a vested interest in there being a crash, and will just as easily jump on any information that might back up there point of view.

miju

quite a few of the posters here actually have bought houses already so the motivation of bear posters on this thread cant be called into question IMHO.

on the other hand the only people on this thread talking up house prices etc are home owners. go figure..........

nesf

iguana wrote:

But when the 5 cities all have pretty high levels of oversupply there is a problem.

No, not really. The areas within "commuting distance" might have oversupplies but the cities themselves generally are undersupplied, especially Dublin.

Edit:

Look, all I'm saying is that houses aren't homogeneous products. A three bedroom semi in the wilds of Mayo is not equivalent to an otherwise identical three bedroom semi in Ballsbridge. When talking about supply and demand it's very hard to talk about it in a generalised context without losing a lot in the process. The bubble bursting almost definitely will result in localised changes (what happens in Navan won't mirror exactly what happens in Cobh, for instance).

iguana

nesf wrote:

No, not really. The areas within "commuting distance" might have oversupplies but the cities themselves generally are undersupplied, especially Dublin.

Afaik, the 12% relates to properties within the city boundaries.

nesf

iguana wrote:

Afaik, the 12% relates to properties within the city boundaries.

Sorry for the late edit above, didn't see this post.

Very true but the city boundaries for most (if not all?) of our cities are tiny compared to the "greater city area" which is where a lot of the new construction and the boom happened.

BlackIguana

patrickolee wrote:

From the same article...

"The period under review in this index coincided with the run in to the recent General Election when uncertainty about Stamp Duty was at its height. Together with the intense competition in the First Time Buyer [FTB] sector in particular, this may account for the decline in prices amongst FTBs of 1.8pc in this index."

These are house prices that completed in May. So the process of having viewings, putting in offers, agreeing a price would have been a few months (I'd say 2 months) earlier, on average. I think continuing to blame the negative data on Stamp Duty is getting tired and a bit silly at this stage....

patrickolee wrote:

and

"Measured over the past 12 months (up to and including May), the average price paid for a house in Ireland was just 2.6pc higher in May 2007 than the price paid in May 2006."

Yes. But you KNOW (because you know the monthly data) that this puts a positive spin on things . At this stage reporting 'past 12 months' figures disguises the rise and then the fall (which looks like marking the beginning of a 'house price crash' IMO).

It is very hard to put a positive spin on these latest months data. But they're trying...........

gurramok

nesf wrote:

Sorry for the late edit above, didn't see this post.

Very true but the city boundaries for most (if not all?) of our cities are tiny compared to the "greater city area" which is where a lot of the new construction and the boom happened.

Have a look at the census data from April '06.

It quite specifically says that there are 40,000 unoccupied housing units in the Dublin city & suburbs(all council areas, that area with 1.045m peeps).

These are non-holiday homes, these are NOT temporarily absent by people, these are gaffs that the census guys got hard info from the neighbours that they have never been occupied.

To the man and woman on the street, not withstanding lack of occupancy due to movers/change of renters, most of these have been held by speculators, especially the ones in new apt blocks built during the boom.

Anyone living in a recently built apt block can verify the empty units lying idle for years.

gurramok

BlackIguana wrote:

It is very hard to put a positive spin on these latest months data. But they're trying...........

Ah yes the spin.

On the Six-One news, ya man from PTSB(O'Grady) was insinuating that the soft landing had arrived due to 3 months of price falls.
Just so happens that a bust/crash takes at least of couple of years(more likely more) to pan out so we are going to get a hell of alot of these out of date reports reporting price falls.
Next on the list of excuses for the slump is not stamp duty but 'buyers are waiting to see what TRS will be coming in Dec '07 budget'..LOL

nesf

gurramok wrote:

Have a look at the census data from April '06.

It quite specifically says that there are 40,000 unoccupied housing units in the Dublin city & suburbs(all council areas, that area with 1.045m peeps).

These are non-holiday homes, these are NOT temporarily absent by people, these are gaffs that the census guys got hard info from the neighbours that they have never been occupied.

To the man and woman on the street, not withstanding lack of occupancy due to movers/change of renters, most of these have been held by speculators, especially the ones in new apt blocks built during the boom.

Anyone living in a recently built apt block can verify the empty units lying idle for years.

All very true and I don't disagree with any of that other than possibly the accuracy of the unoccupied housing units (as said before I feel that their over-estimated to some extent). My point is about localisation of demand and how in the cities there are still areas, and probably will always be areas, that are "undersupplied" in the sense that there is more demand than can be satisfied. Versus areas outside of the cities where oversupply is far more common (as a breakdown of national supply/demand). The problem with the housing market is national figures not really telling us all that much. Yes there's been a dip in prices (and afaik volume traded, which is as important) over the past 6-9 months but that doesn't tell us a whole lot about what's happening at a local level which is more telling imho.

Shane™

nesf wrote:

The bubble bursting almost definitely will result in localised changes (what happens in Navan won't mirror exactly what happens in Cobh, for instance).

The severity of drops may be localised, but just as on the way up, in the case of a fall there will be a knock on effect and all areas will be hit (if/when a drop occurs).

For instance if Navan prices fell by 20% the properties in Cobh will not look like such a good buy and may adjust to remain an alternative option.