Prices of houses need to fall to 2005 level - AIB

eirmail

seamus wrote: »

Thanks, puts it in a much more sensible light. So 266,000 (15% of total stock) dwellings assumed unoccupied. Probably close enough to the actual figure - there would be a certain amount of dwellings where people actively avoided entering census figures and others where people just never encountered the census takers but I doubt that would amount to more than 20,000.

If my memory serves me correct the census was nearly 2 years ago around april 2006. So you have to add in the empties built since then.

seamus

And deduct the new buildings sold since then as well as the amount of those 266,000 which subsequently became occupied. Simply adding on the number of dwellings built since the census was taken is pointless.

Much like employment, there's no such thing as 100% occupation. Afair (I can be corrected though), "normal" vacancy rates are around 8-12% of the total stock?

punchestown

uberwolf wrote: »

SimpleSam06 wrote: »

Tens of thousands of people (more?) bought in the last two or three years, and every single one of them is in a worse situation than if they had not bought.
QUOTE]

I bought, I'm not worse off.

Bully for you mate! I know of about a dozen friends that have bought in the last 12-18 months (some on an interest only mortgage) and their circumstances have definitely gotten worse as they were wrongly under the impression that house prices could only continue to increase. I know of one couple who are mortgaged for €420k, a house three doors down from them sold last week for €320k. How many years of toil will it take to pay back €100k dead money as that is effictively what that is? This in turn will have a knock effect as to whether they can have children or not. I have used the analogy of a stocks share price in another thread on this subject and as with all these 'markets' there is a right time to buy, a wrong time to buy, a right time to sell and a wrong time to sell and the last 18 months have most definitely been the wrong time to buy.

gurramok

Err Seamus, the UK are at the top of their bubble now and prices over there have begun to fall.
UK and Ireland are nearly in the same cycle timewise, both starting to fall.

How far the prices return to '06 levels here is anyones guess, most bears will say donkeys years, most bulls will say very soon which is clearly wrong

And the banks themselves(was it Austin?) did say 120,000 people here are stretched on bubble purchased property so thats one part of kippys myth destroyed

And prices have fallen(recorded drops) in Galway with rising inventory like everywhere else.

Anyway, did kippy not read the housing bubble thread where all this was discussed?

eirmail

seamus wrote: »

And deduct the new buildings sold since then as well as the amount of those 266,000 which subsequently became occupied. Simply adding on the number of dwellings built since the census was taken is pointless.

Much like employment, there's no such thing as 100% occupation. Afair (I can be corrected though), "normal" vacancy rates are around 8-12% of the total stock?

Exactly what I meant , I just phrased it as "add in the empties built" . Which are the total built minus the ones that were filled.

seamus

punchestown wrote: »

How many years of toil will it take to pay back €100k dead money as that is effictively what that is? This in turn will have a knock effect as to whether they can have children or not. ... a right time to sell and a wrong time to sell and the last 18 months have most definitely been the wrong time to buy.

If and only if they plan on selling now, though. That's the key.
If they plan on holding onto it for another ten years and at that time the house down the road is worth €550k, are they still paying off €100k "dead money"? How does it impact their decision to have children - unless they had planned to move before having kids? The amount they've borrowed hasn't changed, the value of their house doesn't impact how much money they have day-to-day. Somehow this seems to be missed by some commentators and they claim that dropping house prices will somehow bankrupt people.

Err Seamus, the UK are at the top of their bubble now and prices over there have begun to fall.
UK and Ireland are nearly in the same cycle timewise, both starting to fall.

Starting to fall? Have you been asleep for the last 12 months?

eirmail wrote: »

Exactly what I meant , I just phrased it as "add in the empties built" . Which are the total built minus the ones that were filled.

But we don't have those figures do we?

gurramok

seamus wrote: »

If and only if they plan on selling now, though. That's the key.
If they plan on holding onto it for another ten years and at that time the house down the road is worth €550k, are they still paying off €100k "dead money"? How does it impact their decision to have children - unless they had planned to move before having kids? The amount they've borrowed hasn't changed, the value of their house doesn't impact how much money they have day-to-day. Somehow this seems to be missed by some commentators and they claim that dropping house prices will somehow bankrupt people.

Thing is missing here is that it's 'some' people are and will be stretched. That 'some' amount will have an affect on the economy as it's quite big.(still minority of course in general population terms but enough numbers to affect retail(for example) buying sentiment)

seamus wrote: »

Starting to fall? Have you been asleep for the last 12 months?

Pedantics!:rolleyes:...UK last few months, IRL last 18months (yes have proof, its buried in the monster AAM thread(public sentiment) of falls i dug up around Aug'06)

seamus wrote: »

But we don't have those figures do we?

This has been discussed to death before here on boards, do a search for previous threads and even take a look at my previous contributions on the issue!:D.

Just look up urban areas at the census. Alternatively, take a walk around a school night evening and count how many blocks have majority lights out in a particular recently built area.
Or take the word of the IAVI(!:D) who recently said 40,000 apts alone are vacant in Dublin area.

martian1980

seamus wrote: »

Starting to fall? Have you been asleep for the last 12 months?

Both the Nationwide and Halifax reported house price falls last month and predict at best prices to remain flat on average this year with falls in most of the country off-set by small price rises in London.
reference: The Times Newspaper, Feb 6, 2008 http://business.timesonline.co.uk/tol/business/economics/article3317814.ece

Afuera

seamus wrote: »

The amount they've borrowed hasn't changed, the value of their house doesn't impact how much money they have day-to-day. Somehow this seems to be missed by some commentators and they claim that dropping house prices will somehow bankrupt people

Seamus, I think that the danger is that people may be relying on the ability to withdraw equity from their properties to fund their lifestyle. I have seen figures on the number of Irish mortgage "top-ups" before (can not remember where though, maybe someone else has the link to hand?) and it is not an insignificant amount of people who were availing of this until recently. I think it may have been as high as 30% of all issued mortgages in 2006 were classified as mortgage top ups.
In many cases this was used as a method for people to cover their financial debts due to wedding costs, purchasing furniture, fixtures and fittings, cars, holidays etc. When property prices were rising quickly it provided an easy safety net for recent purchasers to deal with unexpected expenses. With house prices in decline, this safety net is removed and they are left with little or no options if they run into financial troubles while they are in negative equity.
Up to now it was no problem if a homeowner fell into financial difficulty as they could just remortgage to get themselves out of it. Since this option no longer exists, I think it is reasonable to assume that the number of bankruptcies will rise. It is not that the falling prices of properties are bankrupting them per se, but the fact that they do not have easily built up equity will cut off a major lifeline.

The_Conductor

seamus wrote: »

Much like employment, there's no such thing as 100% occupation. Afair (I can be corrected though), "normal" vacancy rates are around 8-12% of the total stock?

Its actually considered to be between 4 and 5% (excluding properties which are either holiday homes or otherwise not considered to be normally available for habitation (including those in various degrees of construction or renovation)).

S.

punchestown

seamus wrote: »

If and only if they plan on selling now, though. That's the key.
If they plan on holding onto it for another ten years and at that time the house down the road is worth €550k, are they still paying off €100k "dead money"? How does it impact their decision to have children - unless they had planned to move before having kids? The amount they've borrowed hasn't changed, the value of their house doesn't impact how much money they have day-to-day. Somehow this seems to be missed by some commentators and they claim that dropping house prices will somehow bankrupt people.
Starting to fall? Have you been asleep for the last 12 months?
But we don't have those figures do we?

Seamus, you are ever the optimist and I admire you for that. You like to see the glass as being half full and you are adamant that the current descent is just a blip and punters should not worry as 10 years down the line, house prices will have doubled again. Its the Bertie school of economics and I like it. I am involved in another pyramid scheme of sorts and I get questions from worried investors all the time but I simply tell them to ignore the facts and figures and take it for granted that there will be another level of investor willing to come on board the ladder on the lowest rung and gurrantee the current investor, their windfall.
The reason it impacts their ability to have children is for a number of reasons. Firstly they wrongly assumed that prices could only rise. They wanted to see a rise of €100k over the first five years which they then could re-mortgage for, thus giving them a 6 figured sum to cover the cost of childcare whilst they both continued to work. Secondly a downturn in the economy could easily see one or both of them lose their jobs as well as see a further decline in the value of their home. They bought into the whole step of the ladder ****e hence they thought the short term pain of living in an estate (with a huge population of bleeders (the ones scrounging off the state etc..) was a small price to pay for the long term gain of moving to a nicer, more affleunt part of the city.
You take about the amount they borrowed not having changed. Were you not aware of interest rate rises the last 18 months or was the head buried in the sand like it seems to have been when making some of your other assertions? Quantifying a house purchase over the last 18 months, the way you have, I could apply the same principle to buying a car. I take out a loan for an overpriced neccesity (need the car for work as I need a house to live) I immeadiately drive off the forecourt and the car loses about €1500 (but sure that doesnt matter, the amount Ive borrowed hasnt changed and the value of the car doesnt impact how much money I have day to day) Despite advise from experts in the industry, I remain adamant that the price of the car will return to a value greater than what I paid for it!!:rolleyes:

seamus

punchestown wrote: »

Seamus, you are ever the optimist and I admire you for that. You like to see the glass as being half full and you are adamant that the current descent is just a blip and punters should not worry as 10 years down the line, house prices will have doubled again. Its the Bertie school of economics and I like it. I am involved in another pyramid scheme of sorts and I get questions from worried investors all the time but I simply tell them to ignore the facts and figures and take it for granted that there will be another level of investor willing to come on board the ladder on the lowest rung and gurrantee the current investor, their windfall.

And you seem to be adamant that we're going to go the way of Japan? Sure regardless of inward migration or investment we're never going to need any more housing. We're done, right? I am by no means certain that prices will rise in the long-term, however based on other countries' and Ireland's past performance, it is the most likely scenario. If in ten years time that €320k house is worth less then €320k I'll happily come back here and put my hands up.

As you quite rightly point out, a bubble is a bubble when the prices are propped up by invested borrowings instead of actual new entrants or actual money.
The excess borrowings have dried up. The money and the new entrants (IMO) have only paused temporarily because the market ate itself.

The reason it impacts their ability to have children is for a number of reasons...

Poor planning so as opposed to it being "the markets fault". They gambled and broke even instead of coming out loaded.

You take about the amount they borrowed not having changed. Were you not aware of interest rate rises the last 18 months or was the head buried in the sand like it seems to have been when making some of your other assertions?

Particularly now that we're linked with the ECB, interest rates tend to be cyclical. While they may be paying more in interest next year, the interest rate may drop below what they initially borrowed it at, later on.
Besides, that wasn't my point. The drop in the price of their house has not changed the amount that was borrowed. A drop in a person's house price has no direct effect on their day-to-day spending.

Quantifying a house purchase over the last 18 months, the way you have,

In fact, everyone else has been quantifying it over 18 months. I've been quantifying it long-term. The fact that you'd compare a house purchase to a vehicle purchase demonstrates the short-sightedness with which you're looking at this.

gurramok, I tend to dip in and out of these ones, but I'll try to dig up some of your posts when I get time.

jmayo

I think Kippy potrays his age with the comment about beleiving taxes were very heavy in the 1980s for those lucky ones that were employed.

I believe a lot of the optimists are the younger (God now feel ancient) generation that were born in 1980s or very late 1970s.
During their adult lives they have only known an era where house prices increase, income tax rates decrease or remain steady, cheap credit rates and there is wholesale employment.
The 1970s with it's fuel crisis, the 1980s with vat on kids shoes and emmigration of even the third level educated doesn't exist for them.
Hence the view that life is good and always will be.

The comment that long term property is a good investment, it is only in the short term it may not be, will not be of much comfort to those investors who paid too much in first place, have saddled themselves with huge mortgages and who will experience cash flow problems when rents to not cover their mortgages.
When they are forced to sell at below their original purchase price they will really experience the kick in the ass.

Of course house prices will increase over time, much the same as people's salaries and the cost of living increases over time.
Everytime and everywhere there has ever been a price bubble with huge price increases there was envetiably a correction and often a very severe one.

faceman

I admire seamus and kippy for holding the fort.

Houses are a long term investment be it PPR or otherwise.
With alot of comments and media reports you would think that everyone who bought a house in the past 5 years is up to their eyes with debt. That is simply not the case.

My parents bought their first house 31 years ago for IR£7,000. They struggled to make ends meet and they both worked in government jobs. When i bought my house, i had a very comfortable lifestyle. Swings and roundabouts. its about affordability. Not everyone is mortgaged to the max.

The biggest threat to affordability is job losses. Not everyone who loses their job owns their own home, not everyone working in ireland is an irish national who intends to own their own home in ireland.

Repossessions are on the up. I know the stats for the level of repossessions at present. Most of us probably do. Can anyone however tell me what the level of repossessions were at this time last year? The percentage of house repossessions at present in relation to mortgages out there is almost negligible.

The real question then is if prices continue to drop by a further 30%, whats the immediate impact? Owners are in negative equity if they want to sell. But unless there are huge job losses across the country, the fallout is minimal.

Remember prices cant keep going down for the same reason they cant keep going up. The ECF could possibly cut interest rates by 0.75% this year. If that happens, coupled with falling prices, demand is going to spark off again.

someone mentioned the central bank saying in 2000 that house prices were overvalued in '00. they were wrong simple as. In fact they often are. How often do they revise their economic forecasts? regularly actually.

Demand for houses continued for over 6 years since the CB released that report. A house is worth whatever someone is willing to pay for it. There will always be a demand for houses in areas where there is suitable employment.

anyway roll out the mud slinging. Be nice though, its the weekend.

mastermind2005

faceman wrote: »

Remember prices cant keep going down for the same reason they cant keep going up. The ECF could possibly cut interest rates by 0.75% this year. If that happens, coupled with falling prices, demand is going to spark off again.

amatuer speculation is one thing predicting the future is another....

economic changes happen over years and consist of many different variables, not just interest rates and slightly lower prices than a year before.:rolleyes:

SkepticOne

faceman wrote: »

The real question then is if prices continue to drop by a further 30%, whats the immediate impact? Owners are in negative equity if they want to sell. But unless there are huge job losses across the country, the fallout is minimal.

Ultimately high property prices, like high fuel or other essential prices, are detrimental to the economy. Money is put into property when it would otherwise be invested in productive industry. So in the long run if prices level off at a much lower level there will be a positive impact on the economy. But of course there will be some tough economic medicine that must be taken while the adjustment happens.

Supercell

High property prices are a total social catastrophe in the making.

The arrival of dual income housing as the norm is going to destroy the country in about 25-30 years or so.
Think about it, all these couples with one or none kids - just who is going to buy all these places when we grow old and want to downsize or sell up?, or cash our "investment" properties?

Just who is going to look after us when we grow old, many of us won't have kids to take care of us, our "investment" houses are worth far less than what we thought they would..

Unless prices go back to a level where a single income earner can afford to buy the family home things look very bleak for our seniors.

Unfortunately I believe the mentality that forever rising prices are are great will win and there is going to be genuine hard time for many of us as we enter old age and suddenly find our houses massively devalue as there's not enough ftb kids kids coming onstream to buy them from us and let us sail into the sunset.

Seriously has anyone in this country stopped to think for a second about what houses are built for?....in the end someone has to live there..falling birth rate caused by dual income becoming the norm can only lead to one conclusion and its not pretty.

gurramok

Its the immigrants Longfield

Bulls have this imagination that over 100,000 well paid immigrants will keep arriving here every year until our retirement years, recession or no recession which is lunacy economics.

A population increase in recent years of 100,000 only occurred in '06 and '07(from CSO) do not translate to a 30 yr increase of the same, it goes in cycles .

Then we haven't factored in lower birth rates, our traditional emigration rates(42,000 left our shores here last year) and normal credit reach(ya know no more easy credit of 2% ECB days)

faceman, have a look at who has been buying the houses pre '06 for example.(from CSO) http://i181.photobucket.com/albums/x283/gurra2011/Misc/rangeofincomesofborrowers.jpg

Sanity left after 2003, the wealthy minority were buying them to make a quick buck in alot of cases(speculators and BTL's), alot of fake demand there.

SimpleSam06

faceman wrote: »

I admire seamus and kippy for holding the fort.

Eh what fort is that exactly? The one that priced most individuals out of a home to live in?

faceman wrote: »

Remember prices cant keep going down for the same reason they cant keep going up. The ECF could possibly cut interest rates by 0.75% this year. If that happens, coupled with falling prices, demand is going to spark off again.

Its not that simple, I'd say. First off its fairly unlikely that the ECB is going to drop rates, despite panic dropping by the Fed, and that ignores the interbank rates.

Secondly the prices are falling, which has a momentum of its own. People aren't going to buy in masses like before because there is no pressure on them to do so. Why buy now when you can wait a year or three and pay 100k less? Why buy in three years when you can hold out for 50k more? Investors, excluding a rarefied section of the BTL crowd, are out, so thats 40% of the demand gone right there.

A large part of the market always was public sentiment, and now that vested interests have spent a great deal of time and money forming that into a coherent force in their favour, they are finding that when it turns against them, its every bit as effective.

faceman wrote: »

someone mentioned the central bank saying in 2000 that house prices were overvalued in '00. they were wrong simple as. In fact they often are. How often do they revise their economic forecasts? regularly actually.

They were right at the time, but they did not have in their posession a crystal ball to see the global interest rates slashed in '01.

johnnyskeleton

kippy wrote: »

Fair enough but I dont think that many people will find themselves in this situation as is being bandied about on threads like this and if they do, they may be able to renegotiate their mortgage and/or employment terms.

I disagree. There are thousands of people in these situations, and thousands more who are borderline. While they will make up only a small portion of the total number of homeowners, I believe they will have a disproportionately large effect on the market because a) their stories will scare other people into being more cautious and b) their need to sell quicly means they will drop prices, thus putting downward pressure on the prices of similar houses.

For most of these people, renegotiating their mortgage and/or employment terms is not really an option. They are often mortgaged up to their teeth (and in any event their credit rating may be affected because of their difficulty) and it's not as simple as saying "Hi boss, i can't pay my mortgage, so you have to pay me more", especially if people are out of their jobs due to recession.

kippy wrote: »

The danger has always been there of the situations you speak off that people find themselves in and there is no doubt that some people will struggle, but I tell you one thing, people in this country will never again struggle like the people who have gone before us.
Kippy

The danger of your circumstances changing has always been there, but whereas before people had a safety net in the deposit they had paid and the reasonably stable house prices, now people have taken out mortgages with little or no deposit and have taken loans for much more than the house is worth. So while in the past people could extricate themselves from this situation by selling, and they would usually have some change left afterwards, if someone sells now it might not be enough to pay off what they borrowed in the first place.

johnnyskeleton

faceman wrote: »

Repossessions are on the up. I know the stats for the level of repossessions at present. Most of us probably do. Can anyone however tell me what the level of repossessions were at this time last year? The percentage of house repossessions at present in relation to mortgages out there is almost negligible.

In addition to what has already been said about this post, it will take a long time for the full extent of repossessions to come through. Given that it will take, by my estimation 7-24 months before a bank will commence legal action (less than 7 months is not worth their while taking an action, 24 months is when things just get silly), and a further couple of years for the cases to come to court, and then add that judges are unwilling to evict families, I don't think we will see an increase in actual repossession for another 2-4 years yet.

I would also say that repossessions are the pointy end of the wedge, causing a disproportionate effect on consumer confidence and on sale prices.

Afuera

Afuera wrote: »

I have seen figures on the number of Irish mortgage "top-ups" before (can not remember where though, maybe someone else has the link to hand?) and it is not an insignificant amount of people who were availing of this until recently. I think it may have been as high as 30% of all issued mortgages in 2006 were classified as mortgage top ups.

Just to follow this up, I stumbled across the report which shows how many topups were issued in Ireland for 2006. The latest version of it is found here:
http://www.ibf.ie/pdfs/IBFPwCMortgageMarketProfileQ307.pdf

It's actually worse than I thought! Over 30% of the mortgages issued in 2006 were for topups/withdrawing equity. There were a total of 66,598 topups issued during that year. Given that we have around 1.8 million households in total in the country, it means that 1 in every 27 households availed of a topup during that year alone.

SimpleSam06

Afuera wrote: »

It's actually worse than I thought! Over 30% of the mortgages issued in 2006 were for topups/withdrawing equity. There were a total of 66,598 topups issued during that year. Given that we have around 1.8 million households in total in the country, it means that 1 in every 27 households availed of a topup during that year alone.

How many of those were for the full value of the house though, as opposed to €60k for a new car?

Afuera

SimpleSam06 wrote: »

How many of those were for the full value of the house though, as opposed to €60k for a new car?

The average topup was for nearly EUR 100k. The amount of them taken out though reveals the extent that topups were having on people's disposable income in Ireland.

The figures here show a shocking amount of money being pumped into the economy with absolutely no work done to earn it. EUR 6 billion extra entered the Irish monetary system through this method in 2006. It's no wonder that inflation is so high as there's no productivity backing up this cash, it's just money from thin air. If the average wage in the country is around EUR 35k it means that it's like we had an extra 170,000 people working that year (or nearly 10% of the workforce).

Without rises in property prices withdrawing equity will no longer be possible so it is another credit tap that is going to be turned off. The big unknown variable here is how many will need the safety net of that equity which will not materialize during house price deflation.

A homeowner who runs into financial troubles is only a very short step away from being bankrupt if they are in negative equity.

johnnyskeleton

Afuera wrote: »

The average topup was for nearly EUR 100k. The amount of them taken out though reveals the extent that topups were having on people's disposable income in Ireland.

Do these top up figures include second mortgages taken out by separating couples/parents financing children/people purchasing a holiday home abroad etc?

As long as these aren't a sign of people continuously mortgaging out their homes to the maximum to fuel spending on luxury goods, I don't see this as being that significant.

If these top ups indicate people living beyond their means then that is a problem, but I think mortgage top ups are generally given out on very conserative criteria, and so wouldn't be as unstable as, for example, the first time buyers market, or dodgy investment properties.

Afuera

johnnyskeleton wrote: »

Do these top up figures include second mortgages taken out by separating couples/parents financing children/people purchasing a holiday home abroad etc?

The figures show all the topups that were taken out during the periods in question. There is no information provided on what the topup was used to purchase afterwards. In fact I do not think the banks ever really cared one way or the other so long as the LTV was kept at a reasonable level.

johnnyskeleton wrote: »

As long as these aren't a sign of people continuously mortgaging out their homes to the maximum to fuel spending on luxury goods, I don't see this as being that significant.

Regardless of whether it was used on luxury goods or not, it represents a very large cash injection that will have to have an impact when it is removed from the economy. Its removal would represent a 10% pay cut across the board for all those working in the Irish economy.

johnnyskeleton wrote: »

If these top ups indicate people living beyond their means then that is a problem, but I think mortgage top ups are generally given out on very conserative criteria, and so wouldn't be as unstable as, for example, the first time buyers market, or dodgy investment properties.

This is just another form of easily accessed credit. Like credit cards, mortgage topups are a very strong indicator of people living beyond their means.

kippy

Afuera wrote: »

This is just another form of easily accessed credit. Like credit cards, mortgage topups are a very strong indicator of people living beyond their means.

Nonsense.
Its people making the most of what they have before they die. I see nothing wrong with this practice so long as you can afford the repayments.
I know I said I wasnt gonna post on this thread anymore but ffs, some of the comments since my last are as negative as possible.
How many of the naysayers actually have property and have experienced a situation such as what we are going through before?

Kippy

martian1980

kippy wrote: »

Nonsense.
Its people making the most of what they have before they die.
Kippy

Great Idea! I think I'll do that too! Now, where'd I leave that credit card?

Afuera

kippy wrote: »

Its people making the most of what they have before they die. I see nothing wrong with this practice so long as you can afford the repayments.

Much as the banks would like everyone to believe it, debt is not equal to wealth.

kippy wrote: »

How many of the naysayers actually have property and have experienced a situation such as what we are going through before?

Rather than trying to throw the thread into an ad hominem battle, have you got any facts to support your "alternative" view of the situation?

What situation are you refering to?
The oversupply of property for sale on the market?
The overreliance of the economy on a single indigenous industry?
The overreliance of the economy on multinationals from a certain country that is entering a recession?
The lack of control of our own currency?

kippy

Afuera wrote: »

Much as the banks would like everyone to believe it, debt is not equal to wealth.


Rather than trying to throw the thread into an ad hominem battle, have you got any facts to support your "alternative" view of the situation?

What situation are you refering to?
The oversupply of property for sale on the market?
The overreliance of the economy on a single indigenous industry?
The overreliance of the economy on multinationals from a certain country that is entering a recession?
The lack of control of our own currency?

Whatever your arguments things will not be as bad as people are predicting on this forum. We wont be slipping back into the 80's type recession.
No one said that debt was equal to wealth.
Kippy