Propert Collapse - has it even started?

Dannyboy83

A) As, you've probably seen, Ireland's credit rating was downgraded from AA+ to AA-
The €4billion cuts to be achieved from Public sector paybills/reverse benchmarking is only the start. There is a further €5billion scheduled for 2011 and a further €4billion scheduled for 2012
C) This OECD report is suggesting that:
(i) Mortgage interest tax relief should be reduced, beginning with future borrowers, while a property tax should be used to fund local services, the OECD said, echoing recent recommendations of the Commission on Taxation. This is a double whammy for anyone trying to buy a house. It looks like it will be damn near impossible to buy a house in the next 5 years.
(ii) The Government should consider introducing full individualisation in the tax system, which would entail the abolition of higher standard rate bands for single-income married couples, in order to encourage the participation of women in the labour force.
(iii) On tax, the OECD said personal allowances should be cut in order to widen the tax base.Tax reliefs should be limited to the standard rate of tax and capped, while some reliefs should be eliminated.


Taking all of these forthcoming adjustments into account, houses prices are going to drop significantly more than the 40% originally predicted from 2007.

AARRRGH

Yep, I think we're only at the beginning. We have a very long and painful few years ahead of us. Anyone who thinks there will be a "recovery" in 2010, 2011 or 2012 (and god knows how many more years beyond this) are deluding themselves. I can't see anything other than a slow collapse.

Tipp Man

Well it has definately started, I think the question you mean is where will it finish, answer god only knows

clare_boy

The worst prediction I heard is 80% drop from mid-2006 high. We're at, officially, a 40% drop at the moment. (The Irish HomeBuilders Association published a report earlier this week with a list of new housing estates with prices now compared to three years ago - 40% drop appeared to be the norm between the two.)

So, where will we end up? I paid €600,000 for my house in 2006 and taking the current 40% drop it's now worth €360,000. However, is there anyone out there who would buy the house in the current market? Probably not. So, what's the true value? Hmmmmm....

It becomes a self-fulfilling prophecy - the more people perceive the bottom of the market still hasn't been reached, the more they hold off purchasing, the more the value plummets. A circle of hell!

In short, I haven't a clue if the market will drop more. If I had to guess, probably another 10%.

Dannyboy83

10% seems very conservative to me at the moment, but of course, it depends on the property in question.

I don't think we have seen anything like 40% in Cork, more like 20% I'd say although there is obvious variation depending on the location.

Emigration really seems to be kicking off now tho and I think the December budget will tell a lot. Its definitely gonna be a waiting game.

I'm going to say an immediate 10% by January 2010, and then a further 10 to 15% by December 2010, depending on how many of the recommended cuts are implemented. (or not!)

As you said yourself, the biggest thing is uncertainty.
There can't be a bottoming out on prices until 2012, so anyone buying before then will have to accept some negative equity......and tbh rent prices are still very high compared to France for example

NewDubliner

Tipp Man wrote: »

Well it has definately started, I think the question you mean is where will it finish, answer god only knows

Not knowing the form a property tax might take is a problem. This means people don't know if they will be taxed on house value or house size. Either way, it will have a dampening effect on the market for house extensions as if you improve your house (or your neighborhood), you'll have to pay more tax.

Uncertainty about future prospects and negative equity will inhibit trade-up and general house-movement activity.

These are all ingredients of a stagflationary downward spiral.

Right now, the government is giving people nothing to aspire to.

diverdriver

I think it has barely started. Frankly the recession has barely started in this country. People now on short time are going to be let go soon as companies start to fail more and more.

I also believe there is a lack of real comphrension about just how bad things are considering the number of people who have simply failed to grasp just how deep the cuts have to be both in the private and public sector. Prices have to fall much further if we are to even match Britain, never mind anyone else.

This year, I tried to buy a house. Now while many houses are still sitting there unsold. Inevitably houses in desirable areas did sell and invariably those where the one's I and my wife were most interested in. In the end we were outbid time and again and on one occasion we outbid ourselves to the point where we pulled out. In other situations, the vendors utter lack or realism was obvious. Sensible offers were turned down and houses taken off the market. No doubt in the hope of some sort of recovery. We gave up at that point.

Right now it's obvious that of all the houses we were interested in almost all have dropped further in value. It's clear that the people who outbid us have done us a favour and dropped themselves right in it.

clare-boy got it right

So, where will we end up? I paid €600,000 for my house in 2006 and taking the current 40% drop it's now worth €360,000. However, is there anyone out there who would buy the house in the current market? Probably not. So, what's the true value? Hmmmmm....

The true value is only what someone is prepared to pay. If a house is sitting there unsold, it is effectively worthless. There are a lot of worthless houses around right now.

omahaid

I think its even worse than that, I believe some houses are worth less than nothing. What happens when people try to sell and realize they cannot sell, cannot move and cannot repay their mortgages? They'll abandon them. This default is added to the banks debt and then onto another bailout funded by the tax payer. The house will be unsellable but the tax payer will have to pay for it, it's existence alone will cost money.

ardmacha

The €4billion cuts to be achieved from Public sector paybills/reverse benchmarking is only the start. There is a further €5billion scheduled for 2011 and a further €4billion scheduled for 2012

There is a common misconception that this means that the government will reduce spending by this amount in these years. The commitment is to reduce the deficit. There will be some recovery in sales of things like cars, leading to more revenue, and numbers employed in the PS will drift down due to lack of replacement. Consequently the starting position of the government in these years will improve and only part of the €4 billion will come from cuts as such.

it is inaccurate to say that the recession has only started or the house price decline has only started. These things have some way to run, but we have already seen the most rapid declines in both the economy and house prices, a further 10% on houses isn't too far away. But there will not be much of an increase after that. A property tax may reduce house prices (good) but will not make it any harder to buy a house.

P. Breathnach

omahaid wrote: »

I think its even worse than that, I believe some houses are worth less than nothing. What happens when people try to sell and realize they cannot sell, cannot move and cannot repay their mortgages? They'll abandon them. This default is added to the banks debt and then onto another bailout funded by the tax payer. The house will be unsellable but the tax payer will have to pay for it, it's existence alone will cost money.

Show me a house that you think is worth less than nothing, and I might give you €100 for it (if it is yours to sell). I won't take on the outstanding loan, though.

Negative equity is a real problem for some people, and they can not solve the problem by walking away. They are still liable for any shortfall after the property is taken by the lender and sold.

For most people, however, negative equity is not a problem, just an annoying circumstance. What I mean is that if they do not need to move, and they still have an income, they can meet their mortgage obligations.

SkepticOne

I did a graph a while ago that showed that the long term value of house prices in Ireland seems to be around the 110,000 mark (in 2006 euros). They hit around 400K in 2006 but now appear to be about 40% down from the peak. Still a fair bit to go if things have to revert to the long term trend. I would expect prices to undershoot somewhat before they settle.

omahaid

P. Breathnach wrote: »

they can not solve the problem by walking away. They are still liable for any shortfall after the property is taken by the lender and sold.

I can't see how these words will stop anyone from throwing the keys in the door of the bank. There was a thread on the Accommodation & Property forum where a guy wanted to do just that (don't know if he did). If he leaves a €400k mortgage to default, who pays?

omahaid

SkepticOne wrote: »

I did a graph a while ago that showed that the long term value of house prices in Ireland seems to be around the 110,000 mark (in 2006 euros). They hit around 400K in 2006 but now appear to be about 40% down from the peak. Still a fair bit to go if things have to revert to the long term trend. I would expect prices to undershoot somewhat before they settle.

Is that 110k and 400k the average house price?

P. Breathnach

omahaid wrote: »

I can't see how these words will stop anyone from throwing the keys in the door of the bank. There was a thread on the Accommodation & Property forum where a guy wanted to do just that (don't know if he did). If he leaves a €400k mortgage to default, who pays?

Legally, he is liable to pay.

I do recognise that you can't get blood out of a stone, but the bank is entitled to come after him in the future if ever he gets into a better financial position.

omahaid

P. Breathnach wrote: »

Legally, he is liable to pay.

I do recognise that you can't get blood out of a stone, but the bank is entitled to come after him in the future if ever he gets into a better financial position.

Legally he is, but will he? Will everyone? I doubt it. My point is that this house will not sell (therefore is worthless) and the loan is absorbed by the bank and as we all know the bank never loses money, someone else pays. If it is another bailout then the taxpayer pays for a house that is worthless.

AlekSmart

It looks to me that at some point in the mid future at least some of the housing/commercial development stock will HAVE to be demolished and ploughed back into agricultural use......We cannot eat concrete,nor will we be able to grow stuff in it either !!! :eek:

P. Breathnach

omahaid wrote: »

Legally he is, but will he? Will everyone? I doubt it. My point is that this house will not sell (therefore is worthless) and the loan is absorbed by the bank and as we all know the bank never loses money, someone else pays. If it is another bailout then the taxpayer pays for a house that is worthless.

I don't get the basis on which you say the house will not sell. It might not sell for nearly enough to cover the outstanding loan, but it will sell for some price.

omahaid

P. Breathnach wrote: »

I don't get the basis on which you say the house will not sell. It might not sell for nearly enough to cover the outstanding loan, but it will sell for some price.

But if it doesnt cover the outstanding loan then what? If person A buys the house for €400k, does a runner, bank sells for €200k, what happens to the other missing €200k? Normally it would be written of as a bad debt, but if this happens on a large scale then another bailout? The house, by the fact it exists, costs the taxpayer at least €200k. Its value is minus €200k, worth less then 0.

SkepticOne

omahaid wrote: »

Is that 110k and 400k the average house price?

Yes, the figures for the average price of a second hand house went from 110K where it had been fairly stable for the previous 25 year to 400K in real terms over the space of 10 years. Now going back down but we don't know at what point it will stop. It might undershoot the long term historical value.

P. Breathnach

omahaid wrote: »

But if it doesnt cover the outstanding loan then what? If person A buys the house for €400k, does a runner, bank sells for €200k, what happens to the other missing €200k? Normally it would be written of as a bad debt, but if this happens on a large scale then another bailout? The house, by the fact it exists, costs the taxpayer at least €200k. Its value is minus €200k, worth less then 0.

So you agree that the house can be sold for some amount. Okay, let's move to the next step. If there is an outstanding loan of €400k, and the house brings in €200k, then there is an outstanding loan balance of €200k. Now the bank has no security for the loan.

Strictly speaking, the borrower is still liable, and if he has any assets now or in the future, they will be chased by the bank. Of course it is possible that he has little or nothing, in which case the bank loses €200k, or the best part of it.

On the scale of things (the bank scale of things) a few losses of that size are chickenfeed. If it happens 1000 times, then the losses are a mere €200m -- still small beer by bank standards. If the other stuff like NAMA and recapitalisation are working, they can take that in their stride.

Of course, they would prefer to lose nothing. I think you will find that the banks will nurse as many cases as they can in order to avoid taking possession of houses. If that means reducing or suspending payments for a time, they will do it. The fact that people need a place to live, and that most people want to continue living in their present homes, will help them.

ardmacha

Yes, the figures for the average price of a second hand house went from 110K where it had been fairly stable for the previous 25 year to 400K in real terms over the space of 10 years. Now going back down but we don't know at what point it will stop. It might undershoot the long term historical value.

the first part of that 10 years saw a real doubling of national income, which is a sustainable basis for an increase in housing prices. The second part saw the bubble, those gains in house price are lost.

omahaid

P. Breathnach wrote: »

So you agree that the house can be sold for some amount.

I actually dont accept every house can be sold for some amount. There are housing estates around the country (I know of some here in Ennis) that are complete with only a handful of houses occupied. If one of these houses is deserted, mortgage abandoned, house unsold, what then? This is not an exceptional circumstance either. What is that house worth? Unsold, it needs to be maintained? Or will it be left to ruin? If it cannot be sold and the mortgage is not paid off, what is that house worth?

dodgyme

AlekSmart wrote: »

We cannot eat concrete,nor will we be able to grow stuff in it either !!! :eek:

Well you can grow stuff in it.... Mmm I think I have an idea to make money coming on. ..... mmm .... I'ill call it HAMA.... Hash Assets Management Agency.

segaBOY

AlekSmart wrote: »

It looks to me that at some point in the mid future at least some of the housing/commercial development stock will HAVE to be demolished and ploughed back into agricultural use......We cannot eat concrete,nor will we be able to grow stuff in it either !!! :eek:

I sincerely doubt it. If the EU agrees to go 100% free market with the rest of the world with regard agriculture trade South American imports will be cheaper than what Irish farmers can ever produce at-even with a collapse there are too many small Irish farms to compete, it's in the Irishman's psyche not to ever sell his land and rationalisation in the industry will not occur.

So we won't need any additional farm land.

peasant

omahaid wrote: »

I actually dont accept every house can be sold for some amount. There are housing estates around the country (I know of some here in Ennis) that are complete with only a handful of houses occupied. If one of these houses is deserted, mortgage abandoned, house unsold, what then? This is not an exceptional circumstance either. What is that house worth? Unsold, it needs to be maintained? Or will it be left to ruin? If it cannot be sold and the mortgage is not paid off, what is that house worth?

And then there will be the issue that those houses (most of them shoddily built to start with) will be totally outdated in relation to building regulations, energy values and so on. Also, standing empty for long won't have done them any good either.
Any potential buyer with a bit of money would be better off to get a new house built ...in order to make the land available my guess is that quite a lot of those ghost houses will have to be demolished.

william

My experience is that markets always overact react.

On the way up, prices paid were higher than they should have been. On the way down, prices will be lower than what they should be. Therefore don't sell if you don't have to and buy if you can at the right time - the latter two words being the hard part but if you get it right then there's money to be made.

I also have my own theory which I call my 'black sheep' theory. Anyone care to guess what that is?

diverdriver

It is perhaps overstating it to say a house is worthless. However for the past two years. I've driven past a house that was newly built in an established estate. It remains empty. Clearly someone offered to buy it. The vendor simply won't take the money offered, so there it sits. Is it worthless, maybe not but no one is buying it.

My wife's family sold their Mother's house back in 2005, three quarter's of a million Euro. The buyer turned it round a year later for who knows what. Nice one. The next buyers did nothing, squatters moved in but eventually they left and some remedial work was done. But it sits there empty now, much to the distress of my wife's family for they grew up there. the buyers no doubt rue the day they bought it but they cannot reduce the price to make it sell. They can do nothing with it. Is it worthless? No, but it sits there empty.

If you cannot move a house in a nice part of town in a good city. What hope is there?

ardmacha

If you cannot move a house in a nice part of town in a good city. What hope is there?

Of course you can move it, depending on the price. If the present owners put up for sale at €300,00, still in the top range of houses in the world in price, then it would sell in a couple of weeks.

P. Breathnach

ardmacha wrote: »

Of course you can move it, depending on the price. If the present owners put up for sale at €300,00, still in the top range of houses in the world in price, then it would sell in a couple of weeks.

I agree. There is a difference between a house being worthless and its being worth less.

The market is very uncertain at the moment, as many potential buyers are holding back in the belief or hope that prices will fall further. In the not-too-distant future, perhaps the middle of next year, I think there will be a meeting of sellers' and buyers' expectations and the market will start to function in a more normal way. It will probably be at a level a bit lower than the average seller's current expectation.

Yes, there are some areas that have a grotesque over-supply, and people selling in those areas will suffer a huge hit. Typically, those areas are in long-distance commuting range of Dublin. It will be tough for anybody trying to sell Dublin suburban houses that happen to be located in Wexford or Westmeath.

waffleman

P. Breathnach wrote: »

Of course, they would prefer to lose nothing. I think you will find that the banks will nurse as many cases as they can in order to avoid taking possession of houses. If that means reducing or suspending payments for a time, they will do it. The fact that people need a place to live, and that most people want to continue living in their present homes, will help them.

I know of a case where a family couldnt make the mortgage repayments and gave the keys back to the bank. They then arranged to rent the house back from the bank. Most probably to avoid uprooting the kids. To me this seems crazy - then again I dont know all the cirumstances like number of years left on mortgage etc.

ei.sdraob

I dont think theres much left to fall from here, maybe 10-20%

what we will have is a long slow stagnation period where prices would be static (which is almost same as falling assuming everything else is inflating)

in some areas the prices of new build detached houses (not apartments there to many of them and they have long way to go) are approaching or have approached the price of land + cost to build

the cost to build cant go down unless cost of materials and labor (min wage) does

the cost of land will be held up by NAMA and if the greens get their way and start dezoning