When will the property market bottom out?

oceanclub

mathie wrote: »

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

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

"Slowing down" means the rate of increase is slowing. It's _still_ getting bigger.

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

I'll try not to be narky but have you been reading the economic news lately at all?

P.

mathie

oceanclub wrote: »

"Slowing down" means the rate of increase is slowing. It's _still_ getting bigger.



I'll try not to be narky but have you been reading the economic news lately at all?

P.

Yeah but obviously the wrong stuff
Care to point me in the right direction?

The_Conductor

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?

Totally aside from all the other reasons- the main factor governing house prices is affordability. Relative affordability has improved significantly since 2007, however- interest rates which are currently at a historically low level, are predicted to rise to 'normal' levels over a period of time, starting towards the end of next year.

Ireland may be in a depression- however France and Germany- the two power houses of the Eurozone, are actually expanding again.

ECB policy is dictated by larger members- and if we imagine our economic mess here will stop rate rises- we will be sorely disappointed.

20goto10

smccarrick wrote: »

Totally aside from all the other reasons- the main factor governing house prices is affordability. Relative affordability has improved significantly since 2007, however- interest rates which are currently at a historically low level, are predicted to rise to 'normal' levels over a period of time, starting towards the end of next year.

Ireland may be in a depression- however France and Germany- the two power houses of the Eurozone, are actually expanding again.

ECB policy is dictated by larger members- and if we imagine our economic mess here will stop rate rises- we will be sorely disappointed.

You're suggesting banks are still lending without adequetly stress testing. I don't think that is the case. You will not get a mortgage today that does not take rate rises into account.

The main reason why I think it hasn't bottomed out yet is because there are still people out there refusing to drop their prices. They will eventually and the sooner they do it the better for everyone, not least themselves. But that goes on a property by property basis. Some people have dropped their prices significantly. I don't think you can simply watch the rte news and hear a statistic that house prices have fallen x% and apply that reduction to your asking price and expect to get it.

Tech3

mathie wrote: »

And further tax hikes have been ruled out ...

Is this Ireland your referring to? I recall the national debt will be around 30 billion by the end of the year. The only way to repay this debt is taxing people until they have no disposable income whatsoever.

The_Conductor

20goto10 wrote: »

You're suggesting banks are still lending without adequetly stress testing. I don't think that is the case. You will not get a mortgage today that does not take rate rises into account.

The main reason why I think it hasn't bottomed out yet is because there are still people out there refusing to drop their prices. They will eventually and the sooner they do it the better for everyone, not least themselves. But that goes on a property by property basis. Some people have dropped their prices significantly. I don't think you can simply watch the rte news and hear a statistic that house prices have fallen x% and apply that reduction to your asking price and expect to get it.

I'm not suggesting banks are not adequately stress testing (if current reports are to be believed, the opposite could very well be the case), what I am suggesting is that totally irrespective of stress testing- if mortgage repayments were to increase by between 50 and 60% on average (regardless of people's means to pay- or whether they were stress tested at these levels), that these massively increased repayment levels- would further negatively impact on sentiment, and further erode property prices.

You know- I really think that a sizeable portion of the Irish populace has not learnt any lesson whatsoever from the boom and burst- and are blithely accepting the 'rent-is-dead-money' mantra of their peers.........

oceanclub

smccarrick wrote: »

You know- I really think that a sizeable portion of the Irish populace has not learnt any lesson whatsoever from the boom and burst- and are blithely accepting the 'rent-is-dead-money' mantra of their peers.........

It's one reason why there's no popular uproar against NAMA; it hasn't sunk yet and the figures are so absolutely huge, people feel there a sense of unreality about it all. Instead, people think it's all temporary little upset and that everything will be back on track next year or the least after.

It's like the way that the same people who would probably be upset if they were €10,000 in cash in the red, are rather blase about their house now being €200,000 in the red.

And I watch with horror as people I know are even now buying depreciating assets because "it's so cheap" based on a temporary interest rate that's going to go back in probably the next year.

P.

BobbyD10

oceanclub wrote: »

And I watch with horror as people I know are even now buying depreciating assets because "it's so cheap" based on a temporary interest rate that's going to go back in probably the next year.

P.

This is an important factor that is very much to the fore when I purchase.

I am working on rates circa 5%(prob should be even higher) when I am repaying a mortgage. When I can comfortable afford same then I have hit the right time.

Obviously the more the drop in house prices, the lesser the repayments, so will continue to wait some more.

The_Conductor

Its actually incredibly depressing.
Irish property appreciated in value by over 240 billion in the last 15 years. How much of this was/is vapour- that has yet to evaporate?

People keep bitching at me in this forum- when I hold up the Japanese example- and point out that when they peaked in 1989- it took 5 years to bottom out- when it did in 1994- commercial prices were just 1.2% of their peak values and residential values were in the region 8.5-11% of their peak values. (Even at these ~90% falls in value Tokyo residential prices were still in the top 4 in the world). They stayed in the doldrums like this for much of the following 10 years- and the Japanese model (and shattered consumer confidence) was held up as the hell of irrational exuberance. When prices did begin to rise in 2007- it was a very brief respite and before the current economic crisis whacked them for 6 again in 2008. Tokyo residential property prices are now- 20 years later- at absolute monetary values of less than 30% of the levels they were at in 1989.

Anytime I bring this up- there are normally bleats about the Irish situation being special, how our exports are holding up- which means we'll recover, how our currency union is our saviour- etc etc etc. Its a load of bollox.

There are multiple facets to the Irish property market- the residential market is comprised of the first time buyer market (which as a % of total sales, is at a 25 year high). The other elements of this market- are those who wish to trade up (largely comprised of those who purchased in the bubble years 'to get a foot on the property ladder' and irrespective of whether they are in negative equity or not (and most of them probably are) are incapable of selling- and thus incapable of moving. The third element of this market- is the buy-to-let market. Rents are falling- and with the forecast chop in rent allowance which has set an artificial ceiling below which rents have not fallen, its very probable property will only be of interest to this sort of investor if/when a stable PE yield can be attained.

The commercial market on the other hand is a different kettle of fish. Dublin currently has 27% of its office space vacant- and nationally the level is approaching 40%. This would be even higher- but for the fact that many developers received permission for change of use designations (a la the hotel in Tallaght where rooms are being let on a monthly basis as apartments, or the apartment blocks in Portlaoise that have been gutted internally as office space etc). There are 13 units vacant in the Stephen's Green shopping centre (which in my reckoning would be considered to be the creme-de-la-creme of Irish retail space). One of Irish Life's pension funds is the landlord- and they have been meeting with tenants offering terms that would have been unimagineable not very long ago (including rumoured 6 month rent-free periods for prospective new tenants). In short- commercial yields are in freefall- and thats when there is occupancy- regardless of the sector its in.........

Frankly- the downsides are incredibly awful- before you even begin to look at the wider Irish economy and whats coming down the road at us (aka NAMA and various financial instutions (ACC and RBS for starters) pulling out).

We used try to attract high value jobs here- with our low tax regime. Our headline tax rates are now the 4th highest in Europe (53% of gross for employees over 75k)- and net social welfare entitlements exceeding the net average industrial take home pay for a family with a wage earner on up to 20% above the average wage levels). Its not worth people's while working any more- why would you- when you're giving the bulk of it straight back to the tax man?

From a position in 2006 where 13.8% of our gross tax take was required to service our national debt in 2006, we are going to be just shy of 24% this year, and just shy of 29% in 2010 (and this is assuming that the Department of Finance haven't screwed up their forecasts, yet again). NAMA brings us into similar territory to Italy- whose national debt is an international joke in financial circles.

Where is the upside to all of this? If people are optimistic that we will have an upswing in 2011 (or indeed in the next 5 years) what are your thoughts on the uniquely appalling Irish financial figures? The very best I see on the horizon is an upswing in some traditional countries Irish tend to emigrate to- allowing our mobile workforce find gainful employment elsewhere- and even then- any taxes they might pay would accrue to a different government, not our own........

Where are the positives?

The_Conductor

BobbyD10 wrote: »

This is an important factor that is very much to the fore when I purchase.

I am working on rates circa 5%(prob should be even higher) when I am repaying a mortgage. When I can comfortable afford same then I have hit the right time.

Obviously the more the drop in house prices, the lesser the repayments, so will continue to wait some more.

If you've only factored mortgage interest rates of 5% into your longterm equation go back to the drawing board. The ECB consider rates in the region of ~4.5% to be 'normalisation' of rates- and retail rates tend to trade in a range above the ECB base rates (as oppossed to tracking it). Irish financial instutions have been trading at a far lower margin because of political pressure from the financial guarantee- than have their international competitors. It has been flagged that the margins will have to rise- if the financial health of Irish banks and building societies are ever to be restored- some suggest even doubled. This could mean a long term rate of around 6.5%.

This isn't scare mongering- on the continent where they sell mortgages at a set rate for the life of the mortgage- a 6% rate is pretty standard. To be perfectly honest- there is a lot to be said for the security of knowing what your repayments are going to be indefinitely......

eman66

smccarrick wrote: »

...

People keep bitching at me in this forum

....

In numerous forums and threads you say what you mean and tell it like it is as far as you see it. What more can anyone do.

Your views, opinions and advice have been very valuable to me, at least, and I have no doubt, many others also.

Thanks a million.

beeno67

20goto10 wrote: »

The main reason why I think it hasn't bottomed out yet is because there are still people out there refusing to drop their prices. They will eventually and the sooner they do it the better for everyone, not least themselves.

That makes no sense at all. The reason the market has not bottomed out is that people are buying at current prices.

Firetrap

Yes but how many people are buying?

The_Conductor

Firetrap wrote: »

Yes but how many people are buying?

I don't think there are figures out there other than outstanding lending to private individuals- which actually contracted by almost 600m in the year to the end of June (though a lot of this contration is accounted for by actuarial write downs on loans by financial institutions, not repayments of outstanding loans). On this basis- you could make an assumption that by and large consumer lending has pretty much ceased.

I find the reports of an upsurge in interest from first time buyers to be seriously circumspect- in the absence of hard data. As a percentage we are told they are now at their highest in almost 25 years- but if this is purely on the basis of the sales of 10 units- its meaningless.

Personally I think they are delibertly not releasing absolute sales figures- as they consumer sentiment is shot already- without highlighting the destruction of this market (yet again).

On a related note- the new car market appears to have started chugging along (albeit at a low level). Sales year to date are around the 61,000 level. I don't think this is the abyss the industry are making it out to be- it seems like a sane level- we have the youngest car fleet in the EU after all.......

SkepticOne

If the market were to be allowed to adjust on its own at the current rate of decline we'd be looking at about 4 to 5 years to hit the long run price. However we can expect the government ease the rate of decline thereby dragging the process out.

The_Conductor

SkepticOne wrote: »

If the market were to be allowed to adjust on its own at the current rate of decline we'd be looking at about 4 to 5 years to hit the long run price. However we can expect the government ease the rate of decline thereby dragging the process out.

I'm not convinced of this argument- the proposed property tax- if there is an annual tax of an average of 1k per property (which is the proposal), will if anything give the property market yet another boot in the goolies (and thats ignoring the other cost of ownership coming down the line- such as water charges and the total abolition of mortgage relief (not just the 7 year relief) within a 4 year period.

NAMA is definitely going to be viewed as a support structure- however if you look at the flip side of the coin- there are other measures which will in all probability have a far more longterm downside effect- than the unknown fillip associated with NAMA.

20goto10

beeno67 wrote: »

That makes no sense at all. The reason the market has not bottomed out is that people are buying at current prices.

How do you know what people are paying for houses? When the media and economists talk about the state of the market they are talking about asking prices. There is no database of the actual selling prices of properties in Ireland, everything is based on asking prices.

Kawabata

I think there's a lurking dragon in the NAMA proposal which many people haven't picked up on yet.

NAMA is primarily a device to target impaired assets in the commercial property sector. However, supposedly at the IMF's suggestion, the Government's proposal allows NAMA to take over impaired residential property loans. In other words, NAMA has scope, if the Government so wishes at the behest of interest groups, to tide over for 'x' number of years all those growing numbers in negative equity with their residential mortgages.

So NAMA's capacity to put an artificial floor under residential property prices isn't yet fully appreciated! How effective this would be in the long term is another matter. For the sake of the long-term economic viability of the country, I hope to god NAMA doesn't go down that route.

mathie

Looks like the right answer is Q3 2009 ...

http://online.wsj.com/article/BT-CO-20090917-703535.html?mod=rss_Bonds

bangersandmash

mathie wrote: »

Looks like the right answer is Q3 2009 ...

http://online.wsj.com/article/BT-CO-20090917-703535.html?mod=rss_Bonds

Irish Finance Minister Brian Lenihan Thursday said the property market is reaching the bottom of its cycle, as prices have fallen so much

I'm just glad it was confirmed by a credible impartial source :rolleyes:

mathie

Kawabata wrote: »

I think there's a lurking dragon in the NAMA proposal which many people haven't picked up on yet.

NAMA is primarily a device to target impaired assets in the commercial property sector. However, supposedly at the IMF's suggestion, the Government's proposal allows NAMA to take over impaired residential property loans. In other words, NAMA has scope, if the Government so wishes at the behest of interest groups, to tide over for 'x' number of years all those growing numbers in negative equity with their residential mortgages.

So NAMA's capacity to put an artificial floor under residential property prices isn't yet fully appreciated! How effective this would be in the long term is another matter. For the sake of the long-term economic viability of the country, I hope to god NAMA doesn't go down that route.

Does this look even more likely after the details of NAMA on wednesday?

mathie

bangersandmash wrote: »

I'm just glad it was confirmed by a credible impartial source :rolleyes:

Oh come on now! When has ever lied to .... oh right.

Amhran Nua

Kawabata wrote: »

However, supposedly at the IMF's suggestion, the Government's proposal allows NAMA to take over impaired residential property loans. In other words, NAMA has scope, if the Government so wishes at the behest of interest groups, to tide over for 'x' number of years all those growing numbers in negative equity with their residential mortgages.

This is interesting, how would it work do you know, they suspend payments for a while, or allow interest only payments, or does NAMA pay off the mortgages to the banks?

Simply suspending payments will completely ruin the banks and do the opposite of what NAMA purports to do. Payments in lieu means the taxpayer gets to pay the mortgages of those who purchased during the boom, neither option seems very palatable.

The_Conductor

Amhran Nua wrote: »

This is interesting, how would it work do you know, they suspend payments for a while, or allow interest only payments, or does NAMA pay off the mortgages to the banks?

Simply suspending payments will completely ruin the banks and do the opposite of what NAMA purports to do. Payments in lieu means the taxpayer gets to pay the mortgages of those who purchased during the boom, neither option seems very palatable.

The current NAMA bill has a minimum loan of EUR5m for any assets that NAMA will be entitled to consider (they are not a commercial bank nor do they have the staff to manage a 'mortgage portfolio' for residential properties). If the intention was to include residential mortgages in the package- it would be far simpler for the government to simply nationalise one of the main mortgage lenders- given their asset sheets- BOI would make most sense, killing two birds with the one stone.

mox54

we're still in the midst of an economic thunderstorm and still getting battered and living in a bubble.....we need to get real and realise we've lived a self created dream for ten years and blew our own trumpet too loudly...our property market is bollo$%D and will remain so for some time, well past 2012, its back to the good old days of poor poor irish except its also poor stupid delusioned irish!!.

Amhran Nua

smccarrick wrote: »

If the intention was to include residential mortgages in the package- it would be far simpler for the government to simply nationalise one of the main mortgage lenders- given their asset sheets- BOI would make most sense, killing two birds with the one stone.

So basically if this power is used, the situation gets considerably worse for the taxpayer, with even less incentive for the banks to restart lending, since the mortgages and hence profits will continue to roll in one way or the other.

The_Conductor

Amhran Nua wrote: »

So basically if this power is used, the situation gets considerably worse for the taxpayer, with even less incentive for the banks to restart lending, since the mortgages and hence profits will continue to roll in one way or the other.

No- what they would do is increase the margins on their products- and once they had sufficient margins (which would be at least double where they are at the moment), and sufficient capital on their balance sheets (I see a figure of 14 billion needing to be raised by the Irish 5 covered by the scheme todate), they would then grudgingly start lending to the most secure customers.

In the interim the Irish jobs market is going to worsen- and with it, the government finances- our credit rating, already the lowest in the Eurozone, is under negative review, and if its downgraded again- our sovereign borrowing will become more expensive- and continue the downwards cycle.......