Housing Bubble Bursting

DublinDilbert

I was driving into rathfarnam yesterday and there's a house for sale as your coming up the hill from bushy park, on the for-sale sign it had another sign stuck on top with "asking priced reduced to sell" in big letters...

now i know it doesn't tell us how much the price dropped by ( could only be 5K), but it does indicate that things have changed in the market place, no way would this of been seen 12 months ago!! :eek:

LegacyUser

Caught your interest didn't it!

iguana

bubby wrote:

Caught your interest didn't it!

But the thing is most people looking for a house search according to their highest maximum amount. So if a house drops it's price it will appear as a new listing to most people who are in it's new price range. They need never know how long it was on the market for or that it's owners have dropped the price.

However when a new house appears in their price range which says PRICE REDUCED on it's advert the buyers know it has been on the market a while and that the vendor is getting anxious. So they may feel they are in a strong position and bid lower, or wait a while to see if it drops further.

Akrasia

Today's independent has the most straight talking article I have seen so far on the property market.

House prices plummet by up to €10,000 every month

THE value of average priced homes in some areas of the country is plummeting by €10,000 each month.

Estate agents last night confirmed that - despite recent concessions for first time buyers - there has been an alarming drop in house and apartment prices across the country over the past three months.

Experts say the drop is being fuelled by the growing number of homeowners who are selling their properties because they can no longer afford to meet mortgage repayments.

They are being forced to drop the price of their homes in a desperate bid to sell as nervous buyers continue to sit on the fence.

Industry sources have said after years of double digit growth, it is now "not unusual" to see the price of a home drop by €10,000 - or more - each month.

Fears

And they are privately expressing fears that sales will not pick up in September, when the buying season traditionally begins again.

Many investors who enjoyed meteoric equity rises a number of years ago are now finding the rental income no longer covers the mortgage because of recent interest rate hikes.

Those who borrowed the maximum amount in the past year to buy a home are also feeling the effects.

"Apartment owners are being hardest hit, particularly those on the outskirts of Dublin, because there is such a supply of them," said one estate agent, who did not wish to be named.

"Areas such as Lucan, Swords and Tallaght were seeing three-bed semis being built up until about five years ago, but that's history now. The investor isn't buying there now, and an owner/occupier isn't buying because they want a house."

He said investors have pulled out of the market, with some selling up, but he dismissed concerns of panic amongst investors as many own several properties.

People have been hard-hit by eight successive interest rate increases, with those who bought in the past year most vulnerable.

Many First Time Buyers (FTBs) also drew down 100pc mortgages, with others opting for a 40-year repayment term.

Although the government and many estate agents are denying there is any hint of a 'crash', the signs are indicating that prices are dropping dramatically.

Is this it? Is this the official start of the media recognition of the Irish housing crash? It's the first article I have seen where mention of a crash has been reported in the positive and not dismissed out of hand or as an outside remote possibility.

Sources have said the Permanent TSB/ESRI House Price Index - largely regarded as the most accurate gauge of house prices - is no longer reflecting what is happening in the market.

"The Index is saying prices have fallen by about 2 or 3pc so far this year. That's totally understating what is going on," said one auctioneer.

"Nobody wants to buy on the way down, everyone wants to buy at the bottom. But no one knows how long it will be till we get there."

He added that there are "very few transactions" happening at the moment and he doesn't expect the market to pick up again until early next year.

gurramok

It confirms that some people are being hit hard by their jumbo mortgages and being forced to sell.
And at least the article now confirms that the ESRI index is indeed way out of date, this opinion was dismissed as wishful thinking by the bulls.

El Stuntman

also, the ISEQ graph is beginning to resmble a ski slope as investors bail out of the Irish financials

tipping point anyone?

nesf

Akrasia wrote:

Today's independent has the most straight talking article I have seen so far on the property market.

You do realise that they're just playing to a demographic that's out there don't you? Plenty of dramatic language, "house prices aren't falling they're PLUMMETING!" etc. It's not straight talking, it's playing to a crowd, nothing more.

Akrasia

nesf wrote:

You do realise that they're just playing to a demographic that's out there don't you? Plenty of dramatic language, "house prices aren't falling they're PLUMMETING!" etc. It's not straight talking, it's playing to a crowd, nothing more.

It may well be, but it's the first article I have seen in any establishment newspaper that isn't full to the brim with bullsh1t by estate agents and 'economists' saying 'there's nothing to worry about, everything will be fine, prices are expected to rise in x number of months'

nesf

Akrasia wrote:

It may well be, but it's the first article I have seen in any establishment newspaper that isn't full to the brim with bullsh1t by estate agents and 'economists' saying 'there's nothing to worry about, everything will be fine, prices are expected to rise in x number of months'

The Economist has been criticising the market for years in an intelligent and informed manner every so often. There's been the odd article in the Post over the years querying the stability of the market etc. Expecting the broadsheets to not be biased in their coverage is naive tbh. They are after all in the business of selling papers.

At best you can find one who isn't biased too much and the bias that is there is in the direction of your own thinking.

Supercell

If house prices have already fallen 10% in an economy with inflation of 5% then "plummeting" is bang on, it's a crash, no fancyful "easing" prices or "soft landing" bull**** changes that fact.

SimpleSam06

nesf wrote:

They are after all in the business of selling papers.

Their effect on the zeitgeist cannot be denied however. Sentiment will turn faster if the papers are belabouring the point, assuming it hasn't turned already.

nesf

SimpleSam06 wrote:

Their effect on the zeitgeist cannot be denied however. Sentiment will turn faster if the papers are belabouring the point, assuming it hasn't turned already.

They have a duty (imho) to not cause or add to a crash by spreading undue fear. In theory they could create a crash out of nothing.
Not that that's the case here or anything. Reporting things is fine, it's the editorial spin that's put on things that can be questionable.

Cantab.

nesf wrote:

They have a duty (imho) to not cause or add to a crash by spreading undue fear. In theory they could create a crash out of nothing.
Not that that's the case here or anything. Reporting things is fine, it's the editorial spin that's put on things that can be questionable.

"A duty" - A duty to whom exactly? The Irish nation? The Irish government? Where's all this crap coming from?

I wonder did the media have "a duty" not to talk up the property market too? I don't suppose you've any idea how much money the Irish Times spent buying myhome.ie do you? Property advertising revenues have been massive in recent years - some of the "articles" passed off (the 'reputable' newspaper titles included) have been nothing short of an absolute disgrace.

It's time people started realising that this property crash is good for us: investors have been putting all their money into property and innovative, export-orientated businesses have suffered as a result. Think of the labour output over the years that has been wasting on building houses - imagine if this labour was spent on designing chips or new drugs? Trinity College's undergraduate population is now over 60% female - why? cos all the boys are off learning a trade, driving fast cars and picking up birds in Redz on a Saturday night.

We've a lot of inward thinking to do in this country. The party's over and the media are part and parcel of everything that's wrong about modern Ireland.

A Random Walk

Cantab. wrote:

"A duty" - A duty to whom exactly? The Irish nation? The Irish government? Where's all this crap coming from?

These Celtic ostriches want us to keep our heads in the sand and our mouths shut so as to allow them to sell their houses to poor misfortunes who are lured into taking out loans of 10x their income.

I think those of us who know what is really happening in the market have been far too polite towards these people. The construction industry have no right to demand that we all keep quiet about their little scam.

nesf

Cantab. wrote:

"A duty" - A duty to whom exactly? The Irish nation? The Irish government? Where's all this crap coming from?

A duty to not hype things out of all proportion, nothing more. Reporting the facts, ie that house prices are falling, is not hyping things out of proportion. Similar to how irresponsible media reporting just added to the boom, it could have similarly damaging effects with a market going in the opposite direction. Ever heard of the Bloomberg effect?


I absolutely love how anyone not crying out that the sky is falling gets jumped on here. Groupthink ftw etc.

chump

nesf wrote:

A duty to not hype things out of all proportion, nothing more. Reporting the facts, ie that house prices are falling, is not hyping things out of proportion. Similar to how irresponsible media reporting just added to the boom, it could have similarly damaging effects with a market going in the opposite direction. Ever heard of the Bloomberg effect?


I absolutely love how anyone not crying out that the sky is falling gets jumped on here. Groupthink ftw etc.

Your recent posts are nothing short of ludicrous nesf. I'm disappointed.

Of course these articles are hyperbole. We know that. But they've been this way on the way up - and now they'll be this way on the way down. It's how the media works.

There's no point stating the obvious and making an argument out of it. (in general) The media in Ireland is particularly fickle and full of utter rubbish - and it has been for ever.

So what do we take from this article?
That the Indo seems to have copped onto the falling market and has decided to row with it - we will see a lot more of this nonsense. And it will likely have a similar effect to the effect it had on the market on the way up - and that's open to opinion.

Supercell

nesf wrote:

I absolutely love how anyone not crying out that the sky is falling gets jumped on here. Groupthink ftw etc.

The problems here nesf is that it really is falling this time, its the the ostriches that won't/don't/can't/ see it that are in for the biggest pain.

Its reverse chicken little time, the people that think Ireland Inc is grand are the chicken little's of today..actually the sky really is falling this time.
The bears of yesteryear are the boy who cried wolf before (Aesops tales)

This time last year the public thought that house price increases might level off, and rise with inflation..a "soft landing", but no way would they actually fall in prices....these days it seems that house prices falling is a soft landing too!!

Lets be honest here and call it for what it is..there is no soft landing, prices are falling, inflation is high ..its a crash..

daveirl

This post has been deleted.

nesf

You know, crashes have pretty much the same driving forces as booms. What happens is an idea that the market is going to crash sprouts and people start believing it. If the number of people, or more accurately the number of the correct kind of people, grows to a certain level you get a feedback loop essentially where people reinforce each other constantly and create the reality that they "predicted". They also tend to get fiercely protective of and fixed in the mindset of "the view".

The most bemusing thing is that the people who are driving the crash usually are laughing up their sleeves at the "sheep who created the boom".

A Random Walk

nesf wrote:

You know, crashes have pretty much the same driving forces as booms.

I disagree. Booms (I nearly typed "boobs") are based on irrational exuberance where as we all know now manic psychology takes over and rationality is discarded.

The crash happens when rationality re-establishes itself. You can't "talk yourself into a recession" but you can "talk yourself out of a boom". Once prices hit "rational" smart money returns so creating an effective floor.

nesf

A Random Walk wrote:

I disagree. Booms (I nearly typed "boobs") are based on irrational exuberance where as we all know now manic psychology takes over and rationality is discarded.

The crash happens when rationality re-establishes itself. You can't "talk yourself into a recession" but you can "talk yourself out of a boom". Once prices hit "rational" smart money returns so creating an effective floor.

Yes, but the patterns of mania spreading or rationality setting back in are similar. The idea flows outwards and becomes the mantra of the masses holding/buying/selling the product. The driving force in either direction is similar, it's the opinion of the masses, we just label it differently.

The crash won't be truly in full swing until all the voices start singing it is so. Wouldn't you agree?

daveirl

This post has been deleted.

A Random Walk

nesf wrote:

The driving force in either direction is similar, it's the opinion of the masses, we just label it differently.

Yeah but I suppose my point is that one is based on firm foundations, the other is based purely on hope. At some stage things have to come back to equilibrium (the real value) and will do so irrespective of what anyone says. It's like stretching a piece of elastic - no-one really knows how far it can be stretched to, but once it snaps back it doesn't matter what people theorise about where it's going to end up because it can only end up in the one place.

I think that's what's happened in this country. The mania has gone on as long as it possibly could and has run into a brick wall. Prices will go back to wherever the equilibrium point is.

nesf

A Random Walk wrote:

Yeah but I suppose my point is that one is based on firm foundations, the other is based purely on hope. At some stage things have to come back to equilibrium (the real value) and will do so irrespective of what anyone says. It's like stretching a piece of elastic - no-one really knows how far it can be stretched to, but once it snaps back it doesn't matter what people theorise about where it's going to end up because it can only end up in the one place.

I think that's what's happened in this country. The mania has gone on as long as it possibly could and has run into a brick wall. Prices will go back to wherever the equilibrium point is.

The thing is that the equilibrium is whatever the market wants it to be. There is no "true value" per se.

The blunt truth is while the elastic might reasonably be expected to always snap back, we don't know how far it can stretch or how far it'll come back. There is no real value that we can rationally expect house prices to come back to, the equilibrium will be set at whatever point the "mania of rationality" fades at.

Then the whole dance will begin again, etc.

miju

nesf wrote:

The blunt truth is while the elastic might reasonably be expected to always snap back, we don't know how far it can stretch or how far it'll come back. There is no real value that we can rationally expect house prices to come back to, the equilibrium will be set at whatever point the "mania of rationality" fades at.

Then the whole dance will begin again, etc.

excellent post nesf and one which I have to 100% agree on. I've a funny feeling though the unique Irish trait of one-up-manship is going to have a big effect on how low the prices will go.

I've honest to god already had conversations of the content "hah sure billy paid x amount for his house im planning on waiting till x amount then ill have saved so much more than he had to pay sucker" of course with each new round of drops this will somewhat kickoff the whole process above again of seeing how much they can save by being "savvy".

IMHO I believe this reverse sentiment is whats going to seriously devastate the market more than anything else and its something I've said will do it from the get go.

EurasiaEndtoEnd

Hi everyone,
I've been reading this thread for ages and have decided to throw my 2 cents into the pot. I am Irish, and have been living in Japan for over 20 years now. I was here as the famous bubble inflated in the late 1980's and have seen the long, long drawn-out deflation take place over the past 15 years.
Exactly ten years ago, when the property market seemed to be flattening out, I bought a 50 sq.m apartment in suburban Tokyo. The person who sold it to me had paid 40m Yen in 1989 for it. He made money in stock options at a software company and, as his two children grew older and needed more space, he decided to cut his losses. I bought it for 17m Yen ! ( Please figure out the exchange rate yourselves ... if you are interested enough ). ( Btw my reason for not giving Euro equivalent prices is that the rates have fluctuated immensely over the period that expressing everything in current Euro prices seems meaningless to me ).
No sooner was my housewarming party over when the flattening-out tipped over again and the real bottom was only reached in the last few years. Despite Greater Tokyo having a population of around 33m ( with all the attendant pressures on land usage and so on ) property here is no longer seen as an investment vehicle. A generation were burnt by the property bubble here and while people do speculate in stocks there is little appetite to play games with the property market. Property is bought to provide shelter and that's about it.
If Ireland is lucky, the property crash underway now will be shorter and sharper. What happens in the crash stage is that market activity dries up and prices become hard to gauge. This puts more people off buying and the market gums up. The cycle is only broken when people who bought long enough ago to still make a profit at drastically lower prices enter the market and offer prices low enough to tempt buyers.
I have lost value on my property, although with my loan interest rate at 2.25%, the loss hasn't been too painful. My apartment would actually cost more to rent than the mortgage payments are.
I sincerely hope that Ireland does not suffer a similar 15-year drip, drip decline like Japan did. The sooner the bitter medicine is taken the better for everyone in the long run.

The_Conductor

EurasiaEndtoEnd - I'm glad that someone who has lived through the Japanese deflation has finally posted on this thread. I tried to use your example as an analogy a few times (even on this thread) and the amount of blank stares was not funny.

Personally I do think that we are in for a similar ride though- not the short sharp shock that a lot of people are gambling on.

Nesf- regarding a measure of "true value" - you're totally correct about there being no usable measure. Back 2300 years ago this was recognised by Publilius Sirus when he pronounced "Everything is worth what its purchaser will pay for it"...... Estate agents are reporting a complete and utter lack of interest in the market on the part of buyers. Hence- houses are not worth what they are being offered for sale at.

There does appear to still even now be a band of die-hards, who refuse to believe that property can go anyway except up. This band is increasingly no longer populated by estate agents and their ilk. Interesting times.....

SimpleSam06

smccarrick wrote:

Personally I do think that we are in for a similar ride though- not the short sharp shock that a lot of people are gambling on.

Japan had control over its interest rates, as well as an extremely powerful export market and home grown industries. Actually I think a long drawn out effort would be best for the economy, if not for individual aspirations of home ownership. However, as was pointed out before, we are in the globally unprecedented situation of falling equity and rising interest rates - we are unique.

smccarrick wrote:

Nesf- regarding a measure of "true value" - you're totally correct about there being no usable measure.

How about a simple common sense one like "one average person can afford to buy their own home"? This would just about half property prices, or more in a few cases.

digitally-yours

SimpleSam06 wrote:

How about a simple common sense one like "one average person can afford to buy their own home"? This would just about half property prices, or more in a few cases.

Thats not common sense in reality. In theoury you are right

The reasonable price will be

Raw material + labour + land + direct expenses<planning permissions and etc > = cost of house

on top of this i would say there should be about 5% for making money

that will be reasonable price.

Apply this above to any house in dublin and u will see that 5% profit is almost 50%<in some circumstances> what the prices are !

SimpleSam06

digitally-yours wrote:

The reasonable price will be

Raw material + labour + land + direct expenses<planning permissions and etc > = cost of house

on top of this i would say there should be about 5% for making money

Ah but you are basing your reasonable price estimates on materials and labour, which can all fluctuate both up and down in price. Didn't a previously posted article cite bricklayers going from a euro a brick to fifty cent a brick? Land in particular is arbitrary. Even the very existence of the boom indicates that materials and labour are not a good rule of thumb for house prices, although it might seem like it makes sense. I mean, who randomly decides a 5% profit margin, and how is it enforced?

The price that will be paid for a house is what the market can bear, limited in this case by the amount the banks can lend. The banks cannot lend as much (rising interest rates), and that amount is rapidly decreasing, so the practical cap on prices is lowering. As market sentiment turns, the actual prices that will be paid become considerably lower than the cap set by the banks, so the market will, I feel settle when one person can reasonably comfortably afford a house on their own (not an apartment).

The reason I say this is that it has historically been the norm, and not just in Ireland. And don't anyone come back with "but New Yorkers have been living in apartments forever!" Dublin is like the one hundred and fiftieth largest city in the world, its nowhere near a major metropolitan hub on that scale.