When will the property market bottom out?

gurramok

Abnormal events like 9/11 and the Credit Crunch caused rates to go to historic lows.

Unless another abnormal event occurs within the next few years, the rates will return to normal levels

Globally, Oil is at $71 today in a so called recession. Just think of when demand picks up in a recovery, there is your inflation.

techdiver

ZYX wrote: »

But why 4%+? Over last 10 years when there was a Europe wide boom, interest rates averaged less than 4%. Why would they suddenly return to 4%+.

Maybe people should say when they see rates going tgo this level. Are we talking 5-10 years or are we talking 1-2 years?

The 4% rate was part of the problem in the first place. Credit was far too cheap and I believe that the ECB will become even more conservative when it comes to rates in the future. I believe we will see rate increases sooner then people think, before the end of 2009.

D3PO

ZYX wrote: »

But why 4%+? Over last 10 years when there was a Europe wide boom, interest rates averaged less than 4%. Why would they suddenly return to 4%+.

Maybe people should say when they see rates going tgo this level. Are we talking 5-10 years or are we talking 1-2 years?

I think hes referring to the mortgage rates rather than the base rate. Over the past 10 years the standard rate of a mortgage has spend much more time above 4% than below it.

ZYX

gurramok wrote: »

Abnormal events like 9/11 and the Credit Crunch caused rates to go to historic lows.

Unless another abnormal event occurs within the next few years, the rates will return to normal levels

Globally, Oil is at $71 today in a so called recession. Just think of when demand picks up in a recovery, there is your inflation.

But ECB rate was less than 4% before 9/11. As I said the average rate has been less than 4% and this was during a period of very strong growth. Why should the rate go above its "normal" level during a period of what will probably be slow growth. I have no idea what ECB rate will be. It just seems strange for expect it to go to an historic (for ECB that is) high. Does anyone know the answer or are we all just guessing. Or should I say can anyone use some afcts to back up their guess.

spockety

Probably guessing with regards to the ECB perhaps.

But one thing you can be sure of is that the banks are going to be looking for higher margins on their products to build back up their capital. So while the ECB might be at 'only' 2%.. banks could be looking for anything up to 5% on top of that to actually start making money :eek:

The_Conductor

blast05 wrote: »

There seems to be a perception that the recession we are going through is far worse than anywhere else. Take the Germans - German central bank predicting a 6.2% GDP drop - in Ireland best predictions for GDP is about 8.5%. Japan year on yea in quarter 1 was over 12%

And yet we still have people saying "the greatest drop in GDP of a developed nation since the great depression"

http://news.xinhuanet.com/english/2009-06/06/content_11496160.htm

Our GNP- which strips out multinational cash flows- is predicted to fall somewhere between 12 and 15%. In an Irish context- our GNP is a far better measure of economic activity- than GDP- given the predominance of foreign multinationals here.

quozl

blast05 wrote: »

There seems to be a perception that the recession we are going through is far worse than anywhere else. Take the Germans - German central bank predicting a 6.2% GDP drop - in Ireland best predictions for GDP is about 8.5%. Japan year on yea in quarter 1 was over 12%

ESRI have never been the most reliable, but
http://www.finfacts.ie/irishfinancenews/article_1016554.shtml

I don't see anybody comparable, Germany certainly isn't, Japan may give us a run for our money, but I have faith. Sadly.

blast05

predictions in ireland are for double digit GDP reduction

No, for double digit GNP reduction.
All i am saying is that how can we be talking about interest rates rising in the next 12 months when the leading economy in Europe is predicting an absolutely catastrophic 6%+ GDP fall.
And, the Irish media seems to have portrayed a myth that we are so far worse than anyone else. We are not, e.g. Japan.

TaxiManMartin

Im neither a bull nor a bear.
Im a believer in buying a house when it suits you only and not speculating that prices will go up, or speculating that they will fall either. The bloody bears are as bad as the bulls were a few years ago. Grasping at any report or piece of news that supports what they want to believe.

Just because i once thought that property was overvalued and probably still is, doesnt mean i was psychic and actually knew for sure.
Therefore im not going to spend the time when the market is in the toilet patting myself on the back for being a genius.

I notice some people like to pat themselves on the back a lot for predicting we were/are in a bubble. Dont. You couldnt possibly have known for sure where the market was or where it is now. You cant possibly know where its headed a few years from now either. You can guess, like everyone else.
We look at whats in front of us and guess. Thats all the top economists do too. Guess. Dont even pretend its anything else.

If you actually did know, you'd be unbelievably rich by now.

Senna

ZYX wrote: »

Over last 10 years when there was a Europe wide boom

There wasn't a Europe wide boom, stupid countries like us and spain just went mad on cheap credit. Inflation in Germany from 2004-2006 (i think before also) was less than 2%, which is less than the ECB wants it to be, so they were happy to let rates stay low. Inflation only began to rise in 2006/8 and what happened? ECB rates rose at the exact same time. When the ECB was at 4.75% last summer, German inflation was only 2.63% If it wasn't for the current world recession, meaning their exports have dropped, inflation would have continued to rise and the ECB rate now would/could be as high as 6% (going by inflation continuing to rising by .5% per year in Germany, it did from 2006 to 2008).

TaxiManMartin wrote: »

Im a believer in buying a house when it suits you only and not speculating that prices will go up, or speculating that they will fall either.

Its the biggest purchase of your life, why would you not want to spend less by doing some research?? Buying when it suits you is fine, but when the average house price is 8/9 times average wage, maybe its time for the average person not to buy, whether it suits them or not. Maybe your not average, so good for you.

TaxiManMartin wrote: »

You can guess, like everyone else.
We look at whats in front of us and guess. Thats all the top economists do too. Guess. Dont even pretend its anything else.

What do you base your guesses on? information to hand or flipping a coin? I'll prefer to listen to someone who can give an arguement to back up their guess. there's some good arguments for continued drops based on economics and historical data, and the only against arguement is "your wrong, i dont have a clue why you could be wrong, but your wrong"

Everyone can read this thread and make their minds up on their own, but facts, figures and sound argument win over in my head.

P.s. I'm a homeowner, i have nothing to gain (i lose) from house prices dropping, only the knowledge of what a mess were in resulting from high house prices.

gurramok

blast05 wrote: »

No, for double digit GNP reduction.
All i am saying is that how can we be talking about interest rates rising in the next 12 months when the leading economy in Europe is predicting an absolutely catastrophic 6%+ GDP fall.
And, the Irish media seems to have portrayed a myth that we are so far worse than anyone else. We are not, e.g. Japan.

They can recover faster with a balanced economy and a strong exporting tradition, thats the difference. Their GDP fall is based on their trading partners cutting back on demand for their goods. When that demand comes back, they will grow again.
(Trichet last said it will be mid 2010 when euroland as a whole will be fully on the recovery path, that does not mean Ireland will because of the following)

On the other hand, Ireland has to go back to 2001 when we last had any resemblance of a balanced economy, it was a credit binge on selling houses to each other since then.
Our GDP/GNP fall is mostly internal as we had 25% of our economy based on construction related activity, double of what Japan/Germany, even the UK had hence our catastrophic position and lack of any strong recovery in the near future as our export based industries stagnated since 2002 due to the housing credit binge.

The_Conductor

In all fairness- according to the OECD commissioned report in 2001- our housing market was ~20% overvalued- even at that stage, in comparison to international norms.

Its back to basics for all of us

gurramok

Oh yeh, i forgot that famous Central Bank report.

Any idea on how big construction related activity accounted for part of the GNP back then?

It couldn't have been nearly a quarter like it was in 2006? (hence my optimism:))

It sounds like this bottom in house prices when it comes will be a very long bottom

El Stuntman

gurramok wrote: »

Oh yeh, i forgot that famous Central Bank report.

Any idea on how big construction related activity accounted for part of the GNP back then?

It couldn't have been nearly a quarter like it was in 2006? (hence my optimism:))

It sounds like this bottom in house prices when it comes will be a very long bottom

house prices are the least of our worries right now :mad:

BlackWizard

Well so far 10 people are wrong off the poll

The_Conductor

BlackWizard wrote: »

Well so far 10 people are wrong off the poll

Yes- and its looking increasingly likely that the 64 people who voted 'sometime after 2012' are going to be proven optimistic

Gurgle

smccarrick wrote: »

Yes- and its looking increasingly likely that the 64 people who voted 'sometime after 2012' are going to be proven optimistic

So that would mean... never?

The_Conductor

Gurgle wrote: »

So that would mean... never?

Not at all. Simply put the Japanese are still 25% below their last bubble prices which peaked in 1990- which is almost 20 years ago. It could well take another 10 years at current forecasts for them to meet equal their former highs.

We do not have any fundamentals which suggest there is any reason to believe the Irish situation will be dealt with any differently. Some recent commentators are discussing a return to net outward migration, that our population growth has peaked, and depending on net migration patterns- could be set to decline again- all the while we have an acknowledged excess of both commercial and residential property units........

It really is crystal ball gazing- but in investment parlance, the risks are all on the downside.

astrofool

The Japanese prices have been kept low by being in deflation since that time as well, as well as having a 0% interest rate for years on end.

We're going to go where the Euro goes, inflation included.

The_Conductor

astrofool wrote: »

The Japanese prices have been kept low by being in deflation since that time as well, as well as having a 0% interest rate for years on end.

We're going to go where the Euro goes, inflation included.

We're going where the Euro goes from an interest rate perspective- not from an inflation perspective. The Irish economy is experiencing deflation (6% year to date- with Sean Barrett from the ESRI suggesting this could rise as high as 8%). It is a given that interest rates are going to increase- as the major Eurozone economies recover (and July figures from France and Germany have been very encouraging particularly in relation to exports).

Interest rates are going to increase- while Ireland is still in a deflationary spell- in order to ensure a target 2% inflation rate in the Eurozone (of which we are only a tiny constituent part) is not breached.

So- its highly possible we may get get years of deflation here. We can't devalue our currency- but we could potentially deflate our way out of being uncompetitive- however at the potential cost of loosing how many jobs- and have how many people emigrate?

Thanos

While it is inevitable that the ECB will raise rates, I do not think it will be for a while yet judging on what has been said.

"ECB President Jean-Claude Trichet said rates remained appropriate at the current level of 1%, adding that negative inflation rates in the bloc were temporary but that price developments were likely to remain dampened.
The euro zone's gross domestic product suffered a 2.5% plunge in the first quarter.
Trichet's comments are in line with analysts' expectations that the ECB will keep rates unchanged until the end of the third quarter of next year."

The_Conductor

Thanos wrote: »

While it is inevitable that the ECB will raise rates, I do not think it will be for a while yet judging on what has been said.

"ECB President Jean-Claude Trichet said rates remained appropriate at the current level of 1%, adding that negative inflation rates in the bloc were temporary but that price developments were likely to remain dampened.
The euro zone's gross domestic product suffered a 2.5% plunge in the first quarter.
Trichet's comments are in line with analysts' expectations that the ECB will keep rates unchanged until the end of the third quarter of next year."

Aka- analysts expect the ECB to commence increasing rates from the 3rd quarter of 2010. The stated 'normalisation of rates' by the ECB is from a current level of 1% to 4.5% (and analysts expect this to take between 2-3 years)- aka by sometime in 2013- its a reasonable expectation that interest rates will be 3-3.5% higher than they are at present.

Just what is this going to do to already shaky consumer confidence in many countries.

Keep in mind- Germany, France and (curiously enough) Italy- do not have high levels of private sector debt (unlike Ireland- where our private sector debt is now estimated at almost 215% of GDP (and rising rapidly- as our GDP is falling.......)

Totally aside from property prices- private sector debt is a noose around the neck for our economy- that is only going to get tighter as the major economies in the Eurozone improve........

astrofool

smccarrick wrote: »

We're going where the Euro goes from an interest rate perspective- not from an inflation perspective. The Irish economy is experiencing deflation (6% year to date- with Sean Barrett from the ESRI suggesting this could rise as high as 8%). It is a given that interest rates are going to increase- as the major Eurozone economies recover (and July figures from France and Germany have been very encouraging particularly in relation to exports).

Interest rates are going to increase- while Ireland is still in a deflationary spell- in order to ensure a target 2% inflation rate in the Eurozone (of which we are only a tiny constituent part) is not breached.

So- its highly possible we may get get years of deflation here. We can't devalue our currency- but we could potentially deflate our way out of being uncompetitive- however at the potential cost of loosing how many jobs- and have how many people emigrate?

I just don't think using Japan as a barometer makes sense given about the only similarity is the housing bubble bursting (and thats not a good thing, we're sorely missing a lot of good points about Japan).

We're going to get dragged kicking and screaming wherever the Euro goes.

bangersandmash

Interesting comments on the subject of "bottoming out" from Greencore today.

The property crash in Ireland may not be over yet, said Patrick Coveney, chief executive officer of Greencore Group Plc, which had planned to turn its former factories across the country into houses, offices and golf courses as property prices surged.

Greencore, the supplier of more than 100m ready-meals a year to UK retailers, said in 2007 it would convert a 398-acre plant in the town of Mallow into a center with a 1,000 homes, offices, a hotel and golf course. It has also planned developments at sites in Carlow and Athy.

“You would be insanely optimistic and absolutely naive to think there’s now a market for building out the sort of developments that were envisaged 18 or 24 months ago,” Coveney said in an interview in his office in north Dublin yesterday. “There may be in time.”

Greencore started outlining plans for the sites three years ago, just before the collapse of the property boom. Property values have since plunged as the economy fell into recession and credit dried up.

Development land and commercial property values will drop around 70pc from peak levels, Davy estimates.

It’s “not clear at all that it’s bottomed out,” said Coveney, 38. “I would question people who assert with seemingly absolute confidence that the property market is going to go up in years to come.”

http://www.independent.ie/business/irish/property-crash-may-not-be-over-greencore-says-1863979.html

SkepticOne

article wrote:

Greencore, the supplier of more than 100m ready-meals a year to UK retailers, said in 2007 it would convert a 398-acre plant in the town of Mallow into a center with a 1,000 homes, offices, a hotel and golf course. It has also planned developments at sites in Carlow and Athy.

“You would be insanely optimistic and absolutely naive to think there’s now a market for building out the sort of developments that were envisaged 18 or 24 months ago,” Coveney said in an interview in his office in north Dublin yesterday. “There may be in time.”

What a tragedy for the country if the market doesn't pick up. Greencore might be forced to turn these factories back into manufacturing and exporting businesses as opposed to what the country needs: offices, hotels and golf courses. And apartments, of course.

This is why NAMA is so desperately needed.

bangersandmash

SkepticOne wrote: »

What a tragedy for the country if the market doesn't pick up. Greencore might be forced to turn these factories back into manufacturing and exporting businesses as opposed to what the country needs: offices, hotels and golf courses. And apartments, of course.

This is why NAMA is so desperately needed.

Chin up, there's still hope! :rolleyes:

NAMA will have the ability to borrow up to €10 billion to finish uncompleted developments which it acquires.

The new agency will be able to sell, retain or finish property assets it will take over as part of its mission to clean up the balance sheets of the banks.

http://www.rte.ie/business/2009/0731/nama.html

SkepticOne

Will ten billion be enough to completely destroy manufacturing and exporting in Ireland? That is the big question people who care about Ireland are asking.

mathie

Can I ask those who don't think we're at the bottom of the property market why they think there's worse to come?

oceanclub

mathie wrote: »

Can I ask those who don't think we're at the bottom of the property market why they think there's worse to come?

Unemployment getting worse and the fact our tax bills are going to get far higher during to NAMA/the deficit are two notable reasons. ON top of that, there's a glut of property (Business Week today estimates there are currently 350,000 empties).

Pl.

mathie

oceanclub wrote: »

Unemployment getting worse and the fact our tax bills are going to get far higher during to NAMA/the deficit are two notable reasons. ON top of that, there's a glut of property (Business Week today estimates there are currently 350,000 empties).

Pl.

But unemployment is slowing down month-on-month ...

http://www.cso.ie/statistics/sasunemprates.htm

And further tax hikes have been ruled out ...

http://www.independent.ie/business/personal-finance/latest-news/tax-hikes-ruled-out-but-stealth-charges-on-way-1865980.html