Housing Bubble Bursting

patrickolee

TCollins wrote:

Im sure others have noticed this too.

Yes, but don't feed the trolls... course I'm in danger of feeding it myself now.

SimpleSam06

patrickolee wrote:

Yes, but don't feed the trolls... course I'm in danger of feeding myself now.

Fixed that for you.

How exactly is this adding to the general discussion, Patrick?

chump

patrickolee wrote:

Yes, but don't feed the trolls... course I'm in danger of feeding it myself now.

Tell me this patrick, what age are you?

daveirl

This post has been deleted.

Victor

OK, chill out folks.

D'Peoples Voice

patrickolee wrote:

From the same article...
"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."

that's the previous 12 months, so relying on past performance as an indicator of future performance is unreliable.
Here is why, over the last 12 months, monthly growth was

April 06 1.4%,

May 06 1.6%,

June 06 1.2%,

July 06 1.1%,

Aug 06 1.0%,

Sept 06 0.7%,

Oct 06 0.5%,

Nov 06 0.13%,

Dec 06 0.06%,

Jan 07 0.1%,

Feb 07 0.0%,

Mar 07 -0.06%,

Apr 07 -0.08%,

May 07 -0.08%,

Clearly it has been reducing month on month. so including figures from 12 months ago is very misleading. To explain, if we assume that next month's house price survey (as measured by houses bought in April but loans drawn down in june) remains consistent with the previous two reports, that - 0.08%.
the annual figure for the previous 12 months falls to 0.6% from 2.1% approx. So although growth in the June report might be similar to that of the May report because very little MAY have changed between the two months, we have a 77% fall in the growth rate, because of June 2006 falling out of the sample. That is why you always use the most current growth rate and project that growth rate to continue for another 11 months.

davej

With regard to empty properties and the accuracy of the cso figures -
surely the trend over the past 5 years is measurable to a fair degree of accuracy?

i.e The figures themselves might not be accurate but we can still assume that the census was taken in a consistent manner to the previous census. Can we not then infer (with a small margin of error) how much things have changed since the last census?

davej

HelterSkelter

http://www.independent.ie/national-news/stamp-duty-pledge-fails-to-lift-sagging-home-sales-892556.html

Stamp duty pledge fails to lift sagging home sales
Sunday July 01 2007

MAEVE SHEEHAN

THE government's promise to abolish stamp duty has so far failed to impact on Ireland's ailing property market, according to latest house price figures for May.

House prices dropped for the third month in a row in May, as buyers stalled in the face of rising interest rates and uncertainty over stamp duty in the run-up to the general election.

But despite this the government may collect more in stamp duty this year than ever before - if figures for the first quarter of the year are anything to go by.

The average national house price has dropped 2.1 per cent in the first five months of this year to €304,166. But property analysts pointed out that the latest figures were compiled before the general election when the property market came to a virtual standstill as potential house buyers held off in the hope of changes to stamp duty.

They say they don't reflect the anecdotal evidence of increased activity from first time buyers in June.

But economists predicted that the renewed activity would prove to be little more than a blip in a continuing slowdown in the market.

Jim Power, an economist with Friends First, predicted continued weakness in the housing market throughout 2007. He blamed the dwindling prices on an expected three further interest rate rises over the next 12 months.

"There is mild evidence that first-time buyers are starting to come back into the market. The issue is that the market traditionally slows down for July and August so the real impact (of stamp duty) won't be felt until September," he said. T

The latest house price figures for May were published by Permanent TSB and the Economic and Social Research Institute. Overall average house prices fell by more than €6,000 since December.

The average price paid for a house in the capital in May was €2,712 less than it would have cost in December. But the most dramatic drop was found in the commuter counties of Wicklow, Louth, Meath and Kildare, where more than €11,000 was slashed off the value of the average house in these counties, with average prices falling to €332,937.

Despite the gloomy outlook, estate agents have reported an acceleration in the sluggish market since the general election returned Fianna Fail to power and ended uncertainty about the abolition of stamp duty for first time buyers. Houses at the lower to mid end of the market are selling faster than those at the upper end.

"In recent weeks, there are some signs of an increased level of transactions," said Jim Miley, chief executive of the property website, MyHome.ie. He said house prices are levelling out across the markets.

"Prices rose very sharply around the second quarter last year. So what you are seeing in the first five months of this year is that while prices are decreasing, they are still higher in May 2007 than they were in May 2006."

While house prices may be falling steadily, the levels of stamp duty collected on residential properties this year was higher than ever. New figures show that in the first five months of this year, the Revenue Commissioners collected €505m in stamp duty on residential homes. The figure is €50m more than for the same period last year.

Analysts said the figures reflected the fact that even though house prices have fallen by more than 2 per cent in 2007, prices are still higher than this time last year.

Figures published by the Dept of Finance reflect the slowdown, with €127m collected in stamp duty in January, falling €115m in February, €97m in March, €76m in April and €90m in May.

SimpleSam06

HelterSkelter wrote:

"Prices rose very sharply around the second quarter last year. So what you are seeing in the first five months of this year is that while prices are decreasing, they are still higher in May 2007 than they were in May 2006."

Keep on fiddling, Nero... The year on year reports for 2007 are going to lend new meaning to the term "watershed".

gurramok

Todays headlines are not from doom and gloom merchants but are facts about impending problems with the economy extremely over reliant on building houses.

'Housing Boom End 'To Hit Finances'
http://www.rte.ie/business/2007/0703/esri.html

'Long Slow House Price Collapse'
http://www.rte.ie/business/2007/0703/houses.html

the1andonly1

Not sure if this has been mentioned before, or if it belongs more in the economics forum, but one of the proponents of a bust in the housing market has a interesting website where he has published the document which was qouted in the Irish Times yesterday.

http://www.ucd.ie/economics/staff/mkelly/papers/housing.pdf

SimpleSam06

gurramok wrote:

'Housing Boom End 'To Hit Finances'
http://www.rte.ie/business/2007/0703/esri.html

Thats an interesting one there... from the article:

The ESRI report says the economy must shift resources to other areas as the housing boom comes to an end. While it is optimistic that this will happen, it warns that this could be endangered if high inflation feeds into wage demands. It expects inflation to average 4.9% this year, falling to 3% in 2008, but this is largely due to an assumption that there will be no more interest rate rises.

Shouldn't they have started shifting resources five years ago? And hasn't the civil service been doing exactly what these late bloomers are "predicting" for the last decade, with inflated wage demands which can't be refused without throwing the country into chaos? And an assumption of no further rate rises?

I'd love to have a job where I can spout any old nonsense and get paid for it.

seamus

So today finally, all of the economists have stopped trying to save the housing market by pointing at bull**** "blip" factors, and have settled into the agreement that yes, the prices of property are actually decreasing, haven't just "stalled", and will drop larger amounts as the next 12 months play out.

I'm still of the belief thought that they're half right on one thing - there's still a lot of latent demand out there that was pretty much yanked out of the market and caused it to stop abruptly. There's not nearly as much demand as the amount of building would suggest, but there are certainly a significant number of buyers who've been squeezed out by the interest rates rises and the price increases. As prices drop and correct themselves, if interest rates stay stable or begin to drop, then we should see a proper controlled collapse of the bubble, as the latent demand comes in to stabilise prices.

There's some speculation that interest rates may begin to come down again early next year to stabilise the inflation of the other countries with house market problems, e.g. UK & Spain, but if some of old Europe's inflation continues to grow, most notably Germany, then there may very well be more interest rate rises.

daveirl

This post has been deleted.

Afuera

seamus wrote:

As prices drop and correct themselves, if interest rates stay stable or begin to drop, then we should see a proper controlled collapse of the bubble, as the latent demand comes in to stabilise prices.

While I agree that there may be quite a bit of latent demand out there, I think that the speculative demand in the years leading to the peak was a very important factor in holding the market up. This is the only thing that can explain the huge divergence between the cost of renting vs the cost of buying in the last 5 years or so and would be backed up by Sherry Fitzgerald's report that showed 40% of new builds were being bought by investors. Stable/falling interest rates will not cause all of that demand to return. (Whether that stable climate will even be reached anytime soon is open for debate.)

Also, there's the huge problem created by developers overshooting the mark and flooding the market with too much supply (the builders never bothered to distinguish real demand from speculative demand, but the problem with that is that one of those can disappear overnight). The only way they can counteract the oversupply is by cutting back on new builds, which will lead to higher unemployment and less money in the economy.

iguana

seamus wrote:

There's some speculation that interest rates may begin to come down again early next year to stabilise the inflation of the other countries with house market problems, e.g. UK & Spain, but if some of old Europe's inflation continues to grow, most notably Germany, then there may very well be more interest rate rises.

The UK controls it's own interest rates it is not linked to the ECB. In the UK the base rate is 5.5% which is significantly higher than the ECB. And predicted to rise to 6% later this year by many economists.

indiewindy

The stress test rate is set at 2% above the current interest rate charged on mortgages

gurramok

True.

Plus France is starting on a roll with lowest unemployment in 25yrs i believe plus Nico's election success will mean it just might get stronger again as its economy is reformed.

Even Italy is starting slowly to get better.

Higher interest rates seems to suit all countries around except maybe Spain/Ireland(anyone else?), it looks the majority of countries will need higher rates as their economies take off and to prevent them overheating.

conor_mc

gurramok wrote:

True.

Plus France is starting on a roll with lowest unemployment in 25yrs i believe plus Nico's election success will mean it just might get stronger again as its economy is reformed.

Even Italy is starting slowly to get better.

Higher interest rates seems to suit all countries around except maybe Spain/Ireland(anyone else?), it looks the majority of countries will need higher rates as their economies take off and to prevent them overheating.

You could argue that lower interest rates could be the last thing Ireland needs!!

Can't see this topping out at 4.5% myself. Even if it did, I wouldn't expect the ECB to relax rates until well into 2009. There's just too much upside risk stored up in those M3 figures.

nesf

daveirl wrote:

This post has been deleted.

I vaguely remember the ECB saying at the last interest rate hike that they were approaching the top of the interest rate cycle. Did they say that? I can't find anything in the Times about it.

Colonel Sanders

can I ask what is probably a silly and/or simple question?

From what I know banks are meant to stess test borrowers so that if they borrow an amount, they should be still comfortably able to continue their mortgage payments if interest rates rise by y%. Just wondering what the figure for y is and if this is being enforced as I hear of people every day who have been exposed to no more than a 0.5% to 0.75% rise in rates and are really struggling already.

indiewindy

The stress test rate is set at 2% above the current interest rate charged on mortgages

Afuera

Colonel Sanders wrote:

From what I know banks are meant to stess test borrowers so that if they borrow an amount, they should be still comfortably able to continue their mortgage payments if interest rates rise by y%. Just wondering what the figure for y is and if this is being enforced as I hear of people every day who have been exposed to no mre than a 0.5% to 0.75% rise in rates and are really struggling already.

Officially, the financial regulator has advised that lenders have to stress by 2%. It appears that they have very little clout to enforce this though. They "gave out" to EBS a little while back because they were caught only stressing by 1% (they claimed that rates would never get beyond that so "why bother?"). As far as I know there were no actions taken against EBS for blatantly flouting the advise.

Colonel Sanders

suspected as much. I know a lot of people are shouting from the roof tops about irresponsible borrowing but this is also proof of irresponsible lending.

also is there any truth in a rumour I heard that banks are repossing properties but instead of booking it as a repossession they are leasing the property back to the original home owner? The obviosu idea being to distort stats on repossesions which would surely be a negitive indicator re. the property market. A few people have told me this but I'm far from an expert on the system

seamus

seamus wrote:

I'm still of the belief thought that they're half right on one thing - there's still a lot of latent demand out there that was pretty much yanked out of the market and caused it to stop abruptly.

Afuera wrote:

While I agree that there may be quite a bit of latent demand out there,

Yes and no to the latent demand thing. You see people have stopped buying it but are they the 40% of total buyers that were speculating or were they real buyers because the speculators will never be replaced until the next bubble.........

iguana

nesf wrote:

I vaguely remember the ECB saying at the last interest rate hike that they were approaching the top of the interest rate cycle. Did they say that? I can't find anything in the Times about it.

The opposite I'm afraid. Trichet said rates are still accommodative which is basic code for have lots of room to rise.

iguana

Colonel Sanders wrote:

also is there any truth in a rumour I heard that banks are repossing properties but instead of booking it as a repossession they are leasing the property back to the original home owner? The obviosu idea being to distort stats on repossesions which would surely be a negitive indicator re. the property market. A few people have told me this but I'm far from an expert on the system

I've been hearing rumours of this since 2002 but I've no idea if it's true or not. However it's the kind of action which makes sense to banks in a rising market, but doesn't once the market is falling. So if they were doing it I can't imagine they will be for much longer considering that the banks themselves have sold and leased back their own business properties.

nesf

iguana wrote:

The opposite I'm afraid. Trichet said rates are still accommodative which is basic code for have lots of room to rise.

Thanks, I must be mixing it up with something else.

Glenbhoy

iguana wrote:

The opposite I'm afraid. Trichet said rates are still accommodative which is basic code for have lots of room to rise.

I don't agree that it means there's lot's of room still to rise - possibly a 0.25 in Aug, definitely by September anyway - after that possibly one in december, possibly another early in the 2008, but afaik, most commentators think that may be the end of it - obviously hard to know, but as you all rightly point out, it's more to do with how Italy, Fra and Ger get on than anything that happens here.

BendiBus

Glenbhoy wrote:

I don't agree that it means there's lot's of room still to rise - possibly a 0.25 in Aug, definitely by September anyway - after that possibly one in december, possibly another early in the 2008, but afaik, most commentators think that may be the end of it - obviously hard to know, but as you all rightly point out, it's more to do with how Italy, Fra and Ger get on than anything that happens here.

I'd consider room for another 0.75% to be accommodative!