Housing Bubble Bursting

iguana

ChewyLuey wrote:

I think its fair to say that many people didn't even know that interest rates were low in the first place when they bought over the last few years, nevermind that they were likely to rise. It almost seemed like a non-issue for many until the gradual rate rises started.

Imo anyone who didn't know that was burying their head in the sand. Rates had been rising in the UK since 2003 and the majority of people in Ireland have cable/digital and watch enough UK news so would have known about it. And while it meant nothing to the ECB rates it should have been enough to make people aware that it could happen and what the consequence would be.

However, as partrickolee pointed out, fixed rate mortgages are expensive in Ireland, even now. When I took out my UK mortgage the BoE base rate was 4.25% and I fixed at 4.9% for 3 years. And it's a very flexible fixed term as I am allowed to overpay by 10% of the outstanding amount each year without penalty. The base rate in Ireland is now 4.25% but the AIB charge 5.7% for their 3 year fixed term.

I had a decent deposit which I know makes a difference, but on the otherhand my husband is the higher earner and is self-employed so they cancelled each other out in terms of the interest rate deal we could get.

Colonel Sanders

iguana wrote:

Imo anyone who didn't know that was burying their head in the sand. Rates had been rising in the UK since 2003 and the majority of people in Ireland have cable/digital and watch enough UK news so would have known about it. And while it meant nothing to the ECB rates it should have been enough to make people aware that it could happen and what the consequence would be.

as my first boss told me 'never forget, people are stupid'. Some of the soundest advice ever. Its amazing how financially ignorant and illiterate people are. we have cable TV in the house (4 of us rent) but all the 2 girls i live with (both mid to late 20s) watch is reality TV and other tripe shown on MTV and E4. Anytime I put on the news there is a groan from one of them. People haven't a clue about markets etc. They saw prices rising, thought they would continue to rise and felt the 'must get on property ladder even if I end up living in a sh!thole in somewhere I don't actually want to live' urge without any reference to value etc.

patrickolee

Colonel Sanders wrote:

as my first boss told me 'never forget, people are stupid'.

Have you given any thought as to why he would have said that to you?

Colonel Sanders

Not really, maybe you're onto something :eek:

Iristxo

This house http://www.myhome.ie/search/property.asp?id=300334&rt=search&np=&searchlist= claims to have gone down in price by 70K :eek:
Now I know that not to be true because I monitor this area regularly. I can't remember exactly but think they put it up for 570K originally, a few months back, when the buble had started to burst already. I know for fact houses on the area peaked at 595K so I consider the reduction to be 8% (still quite a lot, though). Sought after Dublin South suburbs and all that.

This house has been in the market for over a year now http://www.myhome.ie/search/property.asp?id=291479&np=&rt=search&searchlist=

Houses in Woodfield and Orlagh have traditionally had very similar asking prices.

miju

sorry luckat i hace ask a uestion. why were you accompanying your plumber around especially when he left you in the van. sounds very strange

dochasach

iguana wrote:

Imo anyone who didn't know that was burying their head in the sand. Rates had been rising in the UK since 2003 and the majority of people in Ireland have cable/digital and watch enough UK news so would have known about it. And while it meant nothing to the ECB rates...

Actually rates in the U.K. or any powerful economy eventually do have an impact on ECB rates regardless of whether the connection is solidified in a common currency and common central bank. Imagine if U.K. rates rose to 15%, who in their right mind would have their money in a Euro bank or in risky Irish property if they could get a dependable return. It would even be advantageous to borrow money in Ireland and invest it in a British bank. (Such a carry trade is running like mad between the U.S., China and Japan because interest rates and currency valuations are so far out of whack with the real economies.)

But a Euro->GBP carry trade would tend to cause excess ECB money supply to dry up unless the ECB did something to attract investors, such as raise the ECB interest rate.

Colonel Sanders

Iristxo wrote:

This house http://www.myhome.ie/search/property.asp?id=300334&rt=search&np=&searchlist= claims to have gone down in price by 70K :eek:
Now I know that not to be true because I monitor this area regularly. I can't remember exactly but think they put it up for 570K originally, a few months back, when the buble had started to burst already. I know for fact houses on the area peaked at 595K so I consider the reduction to be 8% (still quite a lot, though). Sought after Dublin South suburbs and all that.

and some poor suspecting person out there will say "hey what a bargain" and try buy! Estate agents and banks are trying every trick in the book to keep this bubble afloat

luckat

George Hook has just run an interview on NewsTalk with a trying-not-to-be-happy insolvency consultant who says business is "picking up" for him after a slow few years, and insolvencies are growing especially in the construction sector and pub trade.

Do-more

David McWilliams will have an article in Sunday's Business Post on whether it's possible to talk down the market, no doubt he will be quoting this thread!

gjim

SimpleSam06 wrote:

This is getting way off topic, so I won't post anything more on this subject. So to wrap it up...

You'll "wrap it up", eh? How kind of you. And you introduced this off-topic subject.

A few simple things first.

Could you please point out where in my post I mentioned race or racism and if you can't, retract your claim that I used racism in my argument?

Could you please point out where in my post I mentioned a causal relationship between the proportion of immigrant workers and the wealth of a country and if you can't, retract your claim that I don't know the differece between causality and correlation?

Could you attempt to have the intellectual honesty to admit that pointing out that many of the wealthiest countries in the world have a high number of foreign workers presents a slight problem for your "theory" that allowing immigrant workers inevitably leads to the impoverishment of a country?

I mean your claim that the phenonomon of countries having to deal with large numbers of immigrant workers is "extremely new" is so silly that I wouldn't know where to begin. People have been migrating for work since history began. Even if you mean within the last two centuries, it's ludicrous.

The one thing I specifically asked for was ONE SINGLE example of your theory that first world western countries are reduced to poverty by immigrant workers. And this is it?

If you want an example of a single sector where exactly what I described happened, just take a look at farm labourers in the southern US states when Mexican migrants moved in. Its no longer possible to make a living as a farm labourer in these states, at least if you want to live in the US.

Seriously? It neither addresses the challenge of identifying a country nor does it show (for obvious reasons) that southern Calfornia, for example, has been reduced to third world existance.

So you cannot give a single example of a country where this phenomena occurred nor can you deal with counter-examples like Australia, Luxembourg, Switzerland, the UK, the US, Ireland, Hong Kong, etc. etc.?

You know most people can be convinced to alter their opinion about something if presented with reasonable proof. You never know, if you stuck to trying to prove your point using examples or reasoning instead of acting like a blowhard, you might actually get somewhere.

SimpleSam06

gjim wrote:

A few simple things first.

It's over, man.

Go home.

nesf

conor_mc wrote:

That tells me that the money market reckons that 6% will be indicative of an average ECB rate for the next 10 years, it does not tell me that they will not rise above 6% at some point over the next 10 years.

Not really. It tells you that a bank doesn't expect (probability wise) to lose money over a 10 year period by giving someone a fixed rate of 6%. It doesn't mean that the banks actually expect the average to be around 6% necessarily.

patrickolee

nesf wrote:

Not really. It tells you that a bank doesn't expect (probability wise) to lose money over a 10 year period by giving someone a fixed rate of 6%. It doesn't mean that the banks actually expect the average to be around 6% necessarily.

Far more succinct than I could have put it... exactly.

pjbrady1

We have had over the last few weeks a number of Bank/EA/Govt. economists comment on inflationary pressures without looking at the proveable (and damn near right upon us) truth about the cost of everything from when you rise in the morning, go to work, come home, pay that mortgage, feed and entertain ourselves.
The following three costs are upon us and will have a detrimental affect on disposable income and leave no wriggle room in this housing crash:
1. Oil/Gas - Up above 70$ and staying up. The panic buying potential of America/Europe/China is enormous. $100 this year will be effortless. (ya heard it here).
2. Food - Biofuels/Meat prices/Fish prices/Energy inputs/Machinery costs/Fertiliser/Asian buying power. The list of rising costs and competition for product here is large and sustained. Groceries order will have no affect. Cut throat competition was already in the supermarket sector let no stern jawed Eddie Hobbs tell you otherwise.
3. Drink - Grain and Oil costs will put the price of this up
4. Metal based products - Sure we're making everything in Asia now. But the asians have started buying stuff as well. Hence metal prices will be sustained at a high price for the next decade.

What this should mean is that people will have no other option but to devote their wages to buying consumables rather than saving to purchase assets (property/shares).

The way the VI economists talk you'd swear high oil prices was a blip (and a possible risk!!!) and that we had control over the cost of all our consumables.
The very fact that fertiliser is made using natural gas should be on page one of modern economic textbooks.

Victor

nesf wrote:

Not really. It tells you that a bank doesn't expect (probability wise) to lose money over a 10 year period by giving someone a fixed rate of 6%. It doesn't mean that the banks actually expect the average to be around 6% necessarily.

Many fixed rate products have a fixed rate product balancing them on the other side of the balance sheet.

The 6% you are getting in your high interest rate deposit account is financed by someone else fixed rate mortgage.

gjim

SimpleSam06 wrote:

It's over, man.

Go home.

Like I said, a bunch of b*llsh*t.

miju

can we please get back on topic and leave an personal arguments / gurdges to the PMs thanks

nesf

Victor wrote:

Many fixed rate products have a fixed rate product balancing them on the other side of the balance sheet.

The 6% you are getting in your high interest rate deposit account is financed by someone else fixed rate mortgage.

Indeed. It's all about the banks not losing money on average across the board. It is a business after all.

miju

Just wanted to post this up here as well as I think its a great example of how a "house valuation" is just a figure pulld out of an EA's ass.

Also perfectly explemfies what will drive prices down more and more

http://www.thepropertypin.com/forum/viewtopic.php?t=2603

Victor

Thats only a spread of 12.5% - not out of this world - especially as there are some differences in hte apartments.

335 v 345 is nothing.

nesf

Victor wrote:

Thats only a spread of 12.5% - not out of this world.

335 v 345 is nothing.

Agreed. That they were within that close a range indicates that the figures aren't just "pulled out of the EA's ass". They are in the business of selling properties and you would imagine that on average most of them aren't that bad at picking a figure around which people will buy at. That and they are trying to set figures that match demand to some extent not necessarily "realistic figures".

miju

Victor wrote:

Thats only a spread of 12.5% - not out of this world - especially as there are some differences in hte apartments.

335 v 345 is nothing.

yes but 329 v 370 is and to be honest the differences are pretty miniscule. i live in these apts myself so would be fairly aware of their similiarity which was why I found it so interesting in the first place.

luckat

miju wrote:

sorry luckat i hace ask a uestion. why were you accompanying your plumber around especially when he left you in the van. sounds very strange

I just have this thing for plumbers...

And also we were going to several places, in one of which (not the one where I stayed in the van, of course) I had to look at a new kitchen mixer tap to verify that it was the one I wanted. It was. A thing of beauty, and I hope a joy forever.

SimpleSam06

miju wrote:

Just wanted to post this up here as well as I think its a great example of how a "house valuation" is just a figure pulld out of an EA's ass.

Good find, and I found one of the comments below quite interesting, that only the lowest priced ones would go, and hopefully other owners would take the hint. To be honest the prices would need to half before anyone would look at them unless they expected capital appreciation.

I don't think people realise just how big of an effect even a slight downturn in the market has. Many or most of the properties available today - not even a frothing at the mouth to get on the property ladder type person would touch them unless they could expect appreciation. Its not just investors who are getting turned off. In other words, it doesn't matter how expensive it is, the banks will lend the money and the punters will keep buying as long as it can be sold on for more... Of course once you stop that train, you have a long, long way to fall.

Appreciation = why not buy, you can't lose
Depreciation = Don't buy unless you want to live there forever

Its as simple and as stark as that. It's painfully obvious to even the most blinkered of punters. With that in mind, I'd say FTBs will be backing away from the market in larger droves than predicted, as well as investors.

The appreciation/depreciation statement above is also why a soft landing can't happen. The idea being that once the limits of affordability have been reached, prices will stall at or just above inflation. However once price rises are at that level, you are straight away into depreciation territory (you simply can't trade up, at best you can break even, excluding carraige costs), which means you are on a downward cycle until housing reaches its approximately "true" value.

miju

SimpleSam06 wrote:

To be honest the prices would need to half before anyone would look at them unless they expected capital appreciation.

I agree I rent on of these apts and honest to god the build qaulity is abolutely terrible in these apts. Regading capital appreciation the first four properties are the first phase ones which at their current prices would yield about 60-70k price appreciation if they got their asking prices.

The bottom three are 3rd phase and were selling for €320,000 when bought from the developer so am watching thse more closey regarding the negative equity thing

Do-more

ECB asked to monitor 'poor credit' lending companies.

The industry, which includes groups that provide 100% mortgages, is already worth €4bn in Ireland.

One company that set up in Ireland in 2005 has already repossessed 30 houses

Looks like the ECB will be busy!

luckat

A bunch of people this morning on Snobs on Sunday (RTE Radio, can't remember the real name of the Sunday morning discussion programme that's so nicknamed) were talking about negative equity, and to some extent pooh-poohing the seriousness of it.

"If your house loses value, you can just sit tight in it," they were saying.

What they didn't seem to realise was that in Britain, when it happened, mortgage repayments got so high that people couldn't pay them, and so their houses were repossessed by the mortgagers.

I remember meeting a couple with two good professional wages, and they couldn't afford to have kids. Her wage paid the mortgage, and his paid for food, transport and clothing. That was it. No wiggle room. Always wondered what happened to them afterwards.

If you buy a house today for €400,000 and your repayments are €1,500 a month, say, and then interest goes up and up and you find you're paying €3,000 a month, it's very easy to find that you just can't pay it.

miju

to be honest luckat its not going to get anywhere near that paid with regards to mortgage payments

nesf

luckat wrote:

A bunch of people this morning on Snobs on Sunday (RTE Radio, can't remember the real name of the Sunday morning discussion programme that's so nicknamed) were talking about negative equity, and to some extent pooh-poohing the seriousness of it.

"If your house loses value, you can just sit tight in it," they were saying.

What they didn't seem to realise was that in Britain, when it happened, mortgage repayments got so high that people couldn't pay them, and so their houses were repossessed by the mortgagers.

I remember meeting a couple with two good professional wages, and they couldn't afford to have kids. Her wage paid the mortgage, and his paid for food, transport and clothing. That was it. No wiggle room. Always wondered what happened to them afterwards.

If you buy a house today for €400,000 and your repayments are €1,500 a month, say, and then interest goes up and up and you find you're paying €3,000 a month, it's very easy to find that you just can't pay it.

Negative equity is only a problem if you have to sell or are forced to sell. Otherwise you can indeed just sit it out. UK interest rates are a fair bit more volatile than ECB interest rates though to be fair.