Property price bubble - when will prices peak / decline / crash ?

Bit cynical

Mirror game wrote: »

How do mean the normal sense there has only ever been one crash.

There have been many bubbles and many crashes around the world! Only one in Ireland, sure, but that bubble and subsequent crash shared many of the characteristics of the general case where buying became dominated by the belief in future rises rather than the fundamentals.

Mirror game

Bit cynical wrote: »

There have been many bubbles and many crashes around the world! Only one in Ireland, sure, but that bubble and subsequent crash shared many of the characteristics of the general case where buying became dominated by the belief in future rises rather than the fundamentals.

the belief in future rises, is just one of thousands of characteristics that contributed our crash.
No harm evaluating the bubble/crash historys of other countries to try and gain some small clues to our future but evaluating our own history would have to be far and away the main guide.

Bit cynical

Mirror game wrote: »

the belief in future rises, is just one of thousands of characteristics that contributed our crash.
No harm evaluating the bubble/crash historys of other countries to try and gain some small clues to our future but evaluating our own history would have to be far and away the main guide.

When you think about it, when upward prices are driven primarily by belief in future upward prices, although there may be many other factors, that is sufficient reason for a bubble. And because all bubbles eventually crash, sufficient reason also for the crash.

This is also why I don't think there's a bubble at the moment, of if there is, we're at the very early stages of one. There's a genuine supply shortage and this is driving up both property prices and rents. Doesn't matter what your beliefs are on the future movement of prices: you need somewhere to live and you can either rent or buy. If you rent, you pay increased rent because of shortage of supply and this justifies higher property prices. There's only so many units of accommodation and a lot of people chasing after them.

I generally agree that, other things being equal, you should probably buy at least for your self now rather than rent if you can.

jamesthepeach

I've changed my mind.

I did think the crash would happen at 4pm on the 27th of August 2017.

I'm now revising that to 6am on 2nd January 2018.

LirW

And I already planned everything for yesterday, thanks for that :mad:

super_furry

We’re in a market – in Dublin at least – where mortgage repayments are cheaper than renting. And I don’t see that changing for a while yet. A jump in interest rates and increased supply to the market are what's needed there and when it does happen, I think you’ll see more of a levelling off and dipping of prices as opposed to the late 2000s style crash.

KrakityJones

There has to be a correction and I suspect it'll happen quicker than most think.

This is being really simplistic but the average wage in Ireland is now 37,577 per year. Take your typical buyer being a working couple then average income would be roughly 75k per household.

Mortgage lending rules mean you can borrow 3.5x your income so the average couple can borrow roughly up to 263K.

The current average house price in Ireland as at May 17 stands at 338K

Now all the above is based on the average person making 35.5K per year. There are a hell of a lot of people who are not making this much, or certainly both parties in the household might not.

Going on those simple averages alone something doesn't add up. And you know how averages work - there are some serious earners in the top tiers skewing those averages.

What hope does an ordinary working person have to own a home today? Not much. So they continue to rent and given the state of rental market they can never afford a deposit, so continue to rent.

So who is buying the available ones? Those lucky enough to earn enough of course, but also investors who so long as this situation remains will do well and will continue to buy up more houses, making prices rise again. They build up their stock until eventually something happens in the international market that spooks these investors. Suddenly they start selling off and off we go.

We've not had many property booms/crashes in Ireland in the past - but we haven't had the money to fuel them either. 2007 was fuelled by borrowed money to the average person, the current money is coming from outside investors. It's the same regardless just different people buying.

Truth is no one knows. I personally think it will happen again very soon, within 3-5 years. I very non-scientifically base that on the headlines, the talk around me from friends looking to buy, the forum posts, the noises from politicians and the re-broadcasting of those same property shows. It feels exactly like 2004 all over again. The fact we didn't have them in the past so frequently is irrelevant, we are not the same country we were 30, even 20 years ago.

seamus

Sleeper12 wrote: »

Property increased 4.5 percent in 01. In 2001 prices slowed but did not decrease so there was no killing to be made. We were in the middle of the celtic tiger at the time. A dip isn't a crash either.

There was a panic in 2001. As the dot-com bubble burst and Ireland had hedged so much of its bets on a technology workforce, a slowdown in growth of house prices was seen by many as an omen of doom. They feared that prices would slow down and may even go backwards.

Naturally with so many of our politicians investing in property themselves and having "amicable" relationships with property developers, Charlie McGreevy moved to enact budgetary measures to protect against any slowdown in property prices due to the global economic downturn.

The ironic part is that if they'd done nothing at that stage, there would have been no "crash". Property prices would have returned to growing roughly in line with inflation and Ireland would have been largely insulated from the global downturn in 2008/2009 because we wouldn't have been overcommitted on property and construction.

In attempting to avoid a tiny slowdown in 2001, they steered the country towards a giant iceberg and put the throttle on full.

spit_baller

the dotcom bubble burst in 2000 , the dip - correction in 2001 was in response to 9 - 11 , it was pretty mild

the big jump was from 2003 to the very beginning of 2007

the difference between today and ten years ago is yield , in 2007 , many properties were yielding no more than 3% and many lower than that , rents are more out of whack than purchase prices , property in dublin is still considerably cheaper than the likes of auckland in new zealand and wages in auckland are considerably lower than in dublin , the average wage is based on the whole country , average wage in dublin is close to 50 k per annum than 40 k

while the bubble was a crazy time , the reality is the drop which ended in spring 2012 in dublin was completely overdone , this often happens in bear markets , you overshoot the bottom just like the top gets overshot during a raging bull market , the lows of spring 2012 brought dublin back to levels not seen since 1999 , i doubt those lows of 2012 are ever seen again bar some massive international event , the global recession which began in 2008 was the worst since the great depression , a perfect storm for a property market here which was already beyond bubble territory but the near 60% crash is no way normal , half that would be seen as a very severe correction historically

property isnt cheap in capitals , if you want a cheap house , you have to live in a city which no one rates , limerick for example

Bit cynical

Prices were more or less flat (adjusted for inflation) up to about 1996, possibly earlier, then they started taking off. There was some intense growth towards the end of the 90s in anticipation of joining the Euro (when interest rates would fall). There was a slight dip in around about 2000 when tax measures to dampen the market kicked but these were quickly reversed in 2001. After 911, there was a general easing of credit world-wide and this, combined with low euro interest rates pushed prices up at an increasing rate.

All that time there were people saying there was a bubble and that there would be a crash and they were right. But unfortunately they were drowned out. Who was going to listen to someone saying there was going to be a crash if they were saying that every year for eight years? I don't think those predicting a crash had any effect on the market whatsoever.

Rising prices were at that point the new normal and relatively conservative institutions like the banks were by that time full believers in the law, as they saw it, of ever rising prices. This is why, even after individuals and private investors had left the markets, banks continued to lend billions of their depositors money to developers to build unsold houses in ghost estates.

It was some time in early 2006 that the market quietly reached its peak though the figures did not reflect that until several months later with an apparent leveling off of prices. "Now is the long-awaited soft landing", an estate agent said in the papers.

However, there could never have been a soft landing. For two long, people had been basing their purchasing decisions purely on the basis of future price rises and not on any fundamental analysis of return on investment. Rent had not kept up with prices and supply was still being churned out.

The UCD economist, Morgan Kelly had perfect timing when he predicted the crash. He waited until he saw prices slowing dramatically or leveling off before he made the prediction. He knew that the crash would follow very shortly after that and it did.

Alan Ahearn some time later said that in many crashes, prices drop to 20% (i.e. by 80%) of their peak. That did not happen in Ireland. I think there are several reasons for that. 1. NAMA helped "put a floor" in the words of Brian Lenihan, under prices. 2. The ECB, in response to the financial crisis, loosened (eventually) monetary policy and 3. although rents did not keep up with asset prices, they did rise overall during that time - they weren't back at mid-nineties prices - and demand for accomodation, despite all the building was still high in urban areas.

I don't think we're near a "crash" as such now which is not the same as saying prices will continue to rise. They could merely fluctuate in line with supply and demand. For example, if credit restrictions on mortgages were to be relaxed as a response to political pressure, as I think they will, prices would rise.

I don't know if we're in a bubble at the moment. If we are, we're not in the mature stages of it. The mature stage I would define as the stage where, in hindsight, it is obvious that there's a bubble but at the same time, paradoxically, the greatest number of people are blind to the fact.

That is not the case now. The case can be made for owning property purely based on the alternative of renting without any assumptions of price movements one way or the other.

On that basis I say there will be no crash in the immediate future, because for that to happen, a bubble must develop and burst. Even if we're in the early stages of a bubble, it will take years to develop before it crashes and if it crashes early it won't be a major crash. The last bubble took over ten years to form and eventually burst.

So at the moment Dubliin prices are approaching boom levels maybe and other cities are quite expensive too.

Rents are through the roof.

Government is being bashed in the media to build 90k social housing units.

There's still demand left over from the recent time when very few houses were sold.

Over the coming decade or so it's extremely likely that demand will really slow down.

Graham

Augeo wrote: »

So at the moment Dubliin prices are approaching boom levels maybe and other cities are quite expensive too.

Rents are through the roof.

Government is being bashed in the media to build 90k social housing units.

There's still demand left over from the recent time when very few houses were sold.

Over the coming decade or so it's extremely likely that demand will really slow down.

Why?

I'm not disagreeing/agreeing with you, there's just nothing in your post to explain why you think demand will slow down.

Cyrus

KrakityJones wrote: »

It feels exactly like 2004 all over again. The fact we didn't have them in the past so frequently is irrelevant, we are not the same country we were 30, even 20 years ago.

only its not like 2004 again

Sleeper12

Graham wrote:

I'm not disagreeing/agreeing with you, there's just nothing in your post to explain why you think demand will slow down.

It can only slow down when supply meets demand. I don't think anyone knows for sure when this will happen because we don't know how fast they will build.
I'd hazard a guess that supply might catch up or start to catch up in 4 to 6 years.

Lots of people on here hoping for a burst bubble. I wouldn't hold my breath. Bubble hasn't started yet so if there was a bust in 7 years they will still be as expensive or more expensive than they are now. You won't hear properly investors talking about expecting a bust. It's only people hoping to get their first home thinking that there will be a bust

riclad

i Don,t expect a sudden crash in dublin, we need at least 20k house,s built every year to
meet demand .we also need more 1 and 2 bed units to be built for single people or older people
Theres no sign of any real plan to build 1000,s of houses.
Things like the help to buy scheme dont help anyone apart from the builders .We need a 10 year housing plan.i just see hear about raising the rent allowance rates and giving landlords more tax credits.

Ray Palmer

What a lot of people are thinking is rising prices means bubble in the most simplistic view. The problem is they have no other understanding of what happened in the past or how present actions have an effect. There are many people who now will never afford a property as they passed the age because of some uncertainty. That in turn made the requirement for rentals to increase permanently. We now have a situation where rents make it difficult to get a deposit which means more people will pass the age and again the need for more rentals is required.
The market has fundamentally changed forever as a result of the crash and crashes are not inevitable. In our current situation there simply is no quick solution and by that I mean a decade.

riclad

IF the goverment wants to solve the housing shortage,it will take 5-10 years ,even if they had billions to spend .Right now builders say its not worth building houses in dublin for someone on the average wage.Investors
or companys who own land in dublin will hold on to it to get the best price they can .Theres no easy solution to the housing crisis in the near future.
Maybe prices might go down in 5-7 years if the government built 60 thousand house,s for people on low incomes.

Ray Palmer

riclad wrote: »

IF the goverment wants to solve the housing shortage,it will take 5-10 years ,even if they had billions to spend .Right now builders say its not worth building houses in dublin for someone on the average wage.Investors
or companys who own land in dublin will hold on to it to get the best price they can .Theres no easy solution to the housing crisis in the near future.
Maybe prices might go down in 5-7 years if the government built 60 thousand house,s for people on low incomes.

I really don't think anybody wanted or wants the situation as it is.

Should the government build social housing they should not be allowed sell it so it is always there.

On the other side many people wanted the crash and a drop in rents from the crash and were very happy about it. The hate of landlords is a huge post colonial issue in Ireland. The are needed and will be needed more but they will likely be big companies soon which is another thing people wanted.

Arthur Daley

This bubble is particularly international in dimension. Irish property just another asset bubble like stocks, vintage cars, fine art, you name it, generated by excessive monetary stimulus by one of the big 4 central banks. The ecb in this case. Such central bank lunacy is unprecedented, truely global/ way bigger than any single market, but cannot go on forever, and so past cycles are probably not a great guide for the scenario we have been in since 2009.

Plus wall street vulture capital firms like GS/cerburus/lone star have access to too much cheap money and desperately seeking yield. So they put the squeeze on and they own a hell of a lot of property here.

This time it is not the Irish banks or the Irish govt fuelling the madness. But these large flows of international funding will run out of road eventually and drop Irish property like a hot potato.

So when a correction does come it will move extremely quickly and not be telegraphed at all, I would think. David Mc Williams did analysis some years back, which broadly concurred with work by many others in property markets that suggested prices should be broadly 14 times annual rents. So that probably makes most property here at least 20-30% overvalued. Considering we must see how current rents are also unsustainably frothy vs. average wages

riclad

In some citys in england thats the situation,
many young people who are working might never be able to buy a house .They pay high rents and house prices are rising beyond their ability to borrow .Some people in dublin may be working but have no choice but to
pay rent ,unless prices fall they might never be able to buy a house in dublin.
People who own houses or have a small mortgage may be happy that prices are rising.

jamesthepeach

Ray Palmer wrote: »

What a lot of people are thinking is rising prices means bubble in the most simplistic view. The problem is they have no other understanding of what happened in the past or how present actions have an effect. There are many people who now will never afford a property as they passed the age because of some uncertainty. That in turn made the requirement for rentals to increase permanently. We now have a situation where rents make it difficult to get a deposit which means more people will pass the age and again the need for more rentals is required.
The market has fundamentally changed forever as a result of the crash and crashes are not inevitable. In our current situation there simply is no quick solution and by that I mean a decade.

You make a very important point here.
The ability to get a mortgage is age limited.
I think a lot of people don't realize this as they wait.

dbagman

steddyeddy wrote:

The UKs' desire to leave the single market. I live in England/America and I was thinking of investing in a second home back in Dublin, but Brexit has put those plans back. House prices will lower once the full impact of Brexit on Irish trade becomes obvious. It would be madness to buy now IMHO.

In your opinion.....also it all becomes rather irrelevant if it's a home you're buying. I bought last year. Has gone up a good bit in value since. Couldn't care less. It's my home and I don't plan on leaving so I'll never see those gains. Value of it can fall through the floor and it will still be my home. One thing about a property crash, prices will always recover. If it's your home you can wait it out. Bubbles and bursts only really effect investors. I know a few of people that have come out of negative equity.

Diarmuid

dbagman wrote: »

Bubbles and bursts only really effect investors..

A housing market bust doesn't usually happen in a vacuum. Brexit could have a very serious impact on investment and employment in Ireland, which will have a significant impact on people paying down mortgages.

Cyrus

Diarmuid wrote: »

A housing market bust doesn't usually happen in a vacuum. Brexit could have a very serious impact on investment and employment in Ireland, which will have a significant impact on people paying down mortgages.

or it could drive house prices up further as jobs move here and people return to ireland.

brexit is likely to be positive for dublin and negative for the rest of the country further increasing the divide.

Graham

Graham wrote: »

Why?

I'm not disagreeing/agreeing with you, there's just nothing in your post to explain why you think demand will slow down.

Apologies, I didn't join my dots

Rents are through the roof - this will prop up prices IMO, there are still buy to let folk about, 2 flats a few doors down from me were sold recently, both bought buy to let

Government is being bashed in the media to build 90k social housing units - I reckon some housing will be built to address the social need

There's still demand left over from the recent time when very few houses were sold - eventually builders/developers will get building at an increased rate to satisfy this and the social housing demand

Over the coming decade or so it's extremely likely that demand will really slow down ............ the 90k will be built

Mickiemcfist

Augeo wrote: »

Over the coming decade or so it's extremely likely that demand will really slow down ............ the 90k will be built

If demand due to not building for the last 10 years has lead to a requirement of 90k houses, you'd have to expect that we'd need 180k houses built by the coming decade to satisfy demand. I don't see that happening.

Mickiemcfist

Mickiemcfist wrote: »

If demand due to not building for the last 10 years has lead to a requirement of 90k houses, you'd have to expect that we'd need 180k houses built by the coming decade to satisfy demand. I don't see that happening.

You are correct, I heard yesterday that Davy stockbrokers reckon we need 50k/houses per annum ...... dunno for how long they reckoned that was required for.

I suspect though that the high rents and increasing house prices coupled with lack of supply will indeed kick off an ole building boom again. That will further fuel house and rental prices (we'll get another lash of folk coming here to work) and it's quite likely a bubble will develop and overheat.

Followed by a period when there is little to no demand and possibly not much supply either but any property changing hands will do so at low prices.

Like, in 2008 to 2012 not many units changed hands but the ones that did were very cheap compared to 2007 prices.

spaceHopper

There has always been state interference in the housing market which in good times drives up house prices and in bad times stops them falling to their true value.
In the 60’s the first time buyers grant was introduced, prices jumped by that amount.

In the 90’s section 23 helped build Temple bar, it’s also way so my properties were built in Roscommon and Leitrim, a Dublin LL could offset all their tax against the cost of the property there.

In the 2004 they got rid of the first time buyers grant and instead abolished stamp duty for FTB’s on properties under 3175000, that a rush to buy and any property in places like Crumlin which was going for 260K jumped to 317K, then kept going.

During the crash money was pumped into the banks so that they could clean up their loan books, the banks didn’t move against many families instead went after buy to let investors those house where sold in bulk off the open market to investment houses. At the same time the government had tax policies with favoured such investment houses.

Now you have the help to buy scheme.

It doesn’t matter who is in government FF or FG they both play the same games.

You have to live somewhere do the maths and buy within your means. Buy in poorer part of town instead of 40 miles away and spending your life in the car and half your wave in fuel. Even if a crash comes you have a roof over your head and had you not bought you’d have paid x amount in rent! Also you only make a loss the day you sell till then it’s all only on paper.

Mickiemcfist

Augeo wrote: »

Followed by a period when there is little to no demand and possibly not much supply either but any property changing hands will do so at low prices.

Like, in 2008 to 2012 not many units changed hands but the ones that did were very cheap compared to 2007 prices.

I think that's possibly true, but it's easier for me now to buy a house at 400k than it was for me to buy the same house in 2012 for 200k. (unless I had cash) so unfortunately waiting for a bust won't work for certain people. The way it is at the moment for me anyway it's more cost effective to buy than rent, as long as that remains the case for the majority there will be an upside to property prices.

PokeHerKing

I know of 3 couples who bought houses in mid/late 2012 via mortgages. Average enough earnings and between 10-20% deposits each.

Obviously a very small sample but I'm intrigued at how often it's stated on these threads that the "banks wouldn't lend in the recession".

Is this from first hand experience or from data detailing a higher proportion of mortgage applications being denied?