100% Mortgage Anyone

Bluehair

MorningStar wrote:

It's not property "traditionally" goes up in time it property always goes up it's just a matter of time.

Tell that to the Japanese, they're waiting about 20 years now for the decline to bottom out never mind go back up in value.

MorningStar

Bluehair wrote:

Tell that to the Japanese, they're waiting about 20 years now for the decline to bottom out never mind go back up in value.

http://www.japanconsult.com/japan_real_estate_news_bloomberg.htm

Only 15 years and due to reckless behaviour of their government and still had some of the most expensive property in the world. It is also recovering and it was still always more expensive than the cost to build. Investor in property should always be looking at large scales 10 years being the smallest but 25 beeing normal. It is a matter of time it may be a long time but it is time.

Their whole economy crashed not their property market on it's own. We have additional protection or lack of control depending on how you look at it in the EU. We simply are not able to mess up in the manner Japan over estimated their bank funds to cause the crash in the manner they did. What will casue a crash here? Nobody has actually given a theory other than it can't go on which has never been the cause anywhere ever for any price crash. A down turn in demand will be caused by what?

SkepticOne

But prices must at some stage peak. If they didn't peak then we'd eventually see 10 million euro semi-ds. Prices can not grow indefinitely in real terms.

What happens normally, though, is that regulators step in before truly insane prices occur and prick the bubble, like Greenspan did with the US stock prices and is now doing with the US housing bubble i.e. progressively raising interest rates until the bubble bursts.

We don't have those controls here. Therefore the bubble will be bigger than expected before it bursts and the results more devastating.

MorningStar

SkepticOne wrote:

Prices can not grow indefinitely in real terms.

That does not make it a bubble and ignores other possibilities. As we are the highest percentage of home owners in the world maybe that is the bubble in the market not the prices but number of homeowners! Maybe that is the thing that will change. There is actually nothing stoping houses prices going up but demand. To effect demand you need to get the people who want a home to be satisfied with what they have or get them what they will be satisfied with. Supply and demand the simple economic principle cannot be denied. Never in the history of the world has the price crashed for no reason something has to happen yet nobody is giving a reason for a possible crash or burst. Property could be the possesion of only the rich in Ireland or maybe the old. WHat people seem to be ignoreing is that in less tahn 90 years the whole irish property ownship market changed dramatically.

SkepticOne wrote:

We don't have those controls here. Therefore the bubble will be bigger than expected before it bursts and the results more devastating.

The US generally never see a whole country go up in property prices there are a lot of state interactions way before the federal bank is used. If we weren't in the euro we would have done something by now but we might not have any money to do anything .

I am open to other ideas here but nobody seems to be giving any it's all just "it can't keep going up" all I ask is what is going to give and how far back is it going to go?

SkepticOne

MorningStar wrote:

That does not make it a bubble and ignores other possibilities.

Please explain how house prices could rise to 10 million (in real terms) and not be a bubble.

Those who rationally believe that house prices will rise indefinitely need to explain what specific factors will cause house prices to rise to this level.

The 10 (or 20 for that matter) million figure should not be considered mad or not valid. It is simply the logical conclusion of the idea that house prices can continue to rise indefinitely in real terms.

Obviously prices are governened by supply and demand. My question is what factors affecting both supply and demand will make this happen?

MorningStar

SkepticOne wrote:

Please explain how house prices could rise to 10 million (in real terms) and not be a bubble.

No need to be flipant or literal. I explained the point. You have yet to give a reason why it is a bubble and why it must crash. Instead you just repeated the view it must crash without any explanantion after I repeated a request for reasoning. You are failing to see other possibility other than crash as far as I can tell. Bear in mind property did belong only to the rich niot so long ago it could easily turn back.
Adding comments later makes it a bit difficult. House prices could become so high if they were un hampered by other factors. At some point the government will interfer. Right now they have no plans. There is potential for a bubble as sometime yet you have no logic saying it is one or that it will burst. The hypothetical price rise to 20 million won't happen due to intervention, theretically it already happened before with Royal families and countries restricting landownership.

SkepticOne

If it is not a bubble then it will not crash. Prices will rise to a certain level and stay there only changing when changes in the fundamentals change (e.g. interest rates, employment, immigration, supply of housing etc).

The real point I wanted to dispute is the idea that property goes up over time given enough time. The only reason property goes up when it does is either a) a positive change in the fundamentals or b) the self-fulfilling belief that property will continue to rise in price.

I overstated the bubble scenario in my last post. I believe that most of the rises to date can be explained by changes in the fundamentals. However I think we are in danger of a bubble developing or one may have started already. There is no way for me to prove this. You can only identify a bubble with certainty after it has crashed.

My reasons for this belief is based on personal conversations with people with regard to the market. There seems to be a general belief that property is something that rises. This belief seems to be based purely on the fact that property has risen in the past and therefore will continue to do so. No one seems to be interested in looking at what returns they can make assuming no change in prices. The general assumption is that property will continue to rise simply because that is what property does. Therefore it doesn't matter if the apartment being bought for investment purposes does not get tenants because the shortfall will be made up by capital appreciation.

Prior to the Nasdaq crash in the US, no one was able to prove that there was a bubble either. There were those who warned about it but they could not prove it. All they could do was point to the reasoning used by those buying into the market.

SkepticOne

MorningStar wrote:

House prices could become so high if they were un hampered by other factors. At some point the government will interfer. Right now they have no plans. There is potential for a bubble as sometime yet you have no logic saying it is one or that it will burst. The hypothetical price rise to 20 million won't happen due to intervention, theretically it already happened before with Royal families and countries restricting landownership.

This is why I think there is a bubble.

Let us assume there is no intervention ever and that market forces reign supreme.

How could a semi-d be worth 20 million? How much rent would have to be obtained from the occupiers to make it worth investing in a single semi d as opposed to just about any other investment you can think of?

is_that_so

I for one would not go for a 100% mortgage, particularly having witnessed the collapse in the late 80s in the UK. It's not a like for like comparison but given our enthusiasm to get into debt , who knows how quickly things can go bad. Much of that UK collapse was fuelled by panic, as prices began to edge down, with mortgages at 130% plus of value. People just left keys with estate agents and walked away. If the latest credit figures are to believed we are heading for 120% of income and then we can throw a 100% mortgage on top. If problems arise they are more likely to come from this quarter than a property crash.
Caveat emptor I think they say.

As regards prices I can see them stabilising and easing gradually. This is better all round. It means hard-saved deposits might still be about 8% in six months time.

What we are missing for a crash is a surge in unemployment. Hopefully that is one part of the 70s and 80s we won't have to relive.

MorningStar

SkepticOne wrote:

Let us assume there is no intervention ever and that market forces reign supreme.

How could a semi-d be worth 20 million? How much rent would have to be obtained from the occupiers to make it worth investing in a single semi d as opposed to just about any other investment you can think of?

You are assuming that somebody buys at 20million and are not considering that property gets passed through families. It doesn't have to be worth investing in for others not to be able to afford it. Think about farm prices. Farms are worth more for land than they can produce in many many years yet they haven't crashed it due to family they survive. Before you say that's the crazy property prices it has been going on like this for a long time.

Property does increase in value over time it always hasl. It's just a mnatter of time. THat does not mean it will always in your life time.

SkepticOne wrote:

You can only identify a bubble with certainty after it has crashed.

That's not true but I know what you are saying about the speculative nature of it all.

SkepticOne wrote:

My reasons for this belief is based on personal conversations with people with regard to the market. There seems to be a general belief that property is something that rises. This belief seems to be based purely on the fact that property has risen in the past and therefore will continue to do so. No one seems to be interested in looking at what returns they can make assuming no change in prices. The general assumption is that property will continue to rise simply because that is what property does. Therefore it doesn't matter if the apartment being bought for investment purposes does not get tenants because the shortfall will be made up by capital appreciation.

Not speaking ill of you and your friends but how many years dealing and studying the property market do you have? The assumption the property market will keep on going up indefinitely in the short term is a a simple one. Anybody who relies on that theory is running huge risks but nobody here has suggested that or have I heard a sole person say it in the real world. Due to the fact ireland has such a high ownership ratio I would think this will give first as it an unusal spread compared to all others and it's next rival (Italy) is running out of people so it explains the high ownership. In other words people are destined not to be able to afford property and right now I think too many people can afford property so prices still have to rise. Have you heard many people say I give up on the idea of owning property? These people are in reserve to cusion any possible burst or crash.
There are afew things to happen yet like that will effect the property market. The increae in divorce and therfore the increase of single dwelling properties. The lack of marriage also looking for an increase in single properties. Both will result in many 3 bed semi's being split and sold as seperate dwelings. THe decreased need for family home due to smaller and split families. This will also increase the rental market. The housing market will change radically in 15 years on those alone and they are predictible. Kids raised in cars might hate the idea of commutes and not be willing to own or travel by car.
THe property market is more social observatiuon than people think. In case you think I am mad look at what happened in London, houses in many areas are split now rows and rows of them.
It's all speculation but based on facts your ponit seems to be I talked to some friends and we think it can't go on. Do you think there is a bubble? What caused/casuing it? What will burst it? Your question about house prices going up to 20 million doesn't answer it, it's a question.
I have no problem with opinion but is all your opinion just based on it can't keep on going up and that's it?

Thomond Pk

This is finally getting back to the central point and that is the equity put in by the purchaser, with a 100% mortgage over 30 years it is still at 90% of the principal after 5 years. If you lose your job after three years what is stopping you from simply walking into your bank and handing the keys over to the manager and telling them oh by the way I'm not in a position to pay my commitment and you may as well have the house becuase I have nothing to lose. As I have already changed my fx I don't expect to see you again.

MorningStar

THomod>
They will want you to be decalred bankrupt and seize what little possesion you have. If they don't do that they will make sure you never get credit from anybody else but loan sharks. It's not a genius move they will still do fine and you will be impovrished in some manner.
What you should do is tell them you can't afford the mortgage and they need to reduce your payment. You can live at a fraction of renting prices then.
Not good for credit rating either way and not great idea to raise children in that kind of set-up IMHO.

SkepticOne

MorningStar wrote:

It's all speculation but based on facts your ponit seems to be I talked to some friends and we think it can't go on.

No, my point was kind of the reverse of that.

My opinion was based on talking to people who had invested or were talking about investing and their general belief that property was something that simply rises. It was the fact that they had no rational explanation (or interest in one) for this that led to my opinion that we are entering a bubble or are in one.

On the point of the hypothetical 20million semi-detached:

You are assuming that somebody buys at 20million and are not considering that property gets passed through families. It doesn't have to be worth investing in for others not to be able to afford it.

But what would be the point of this? Surely people buy houses mainly either to live in or to invest in. Anything beyond that is irrational. We are talking 20m of pure sentiment.

Are you really saying that ordinary market forces would not step in long before houses would reach that mad height? Think of what you could do with 20 million if it wasn't invested in that house.

I think to a certain extent this illustrates why there is a bubble. It is the belief that house prices can rise indefinitely even without any rational reason to do so whatsoever.

I take your point about farms, but historically we value land somewhat above its immediate economic value. A certain percentage of the price of farm land can be attributed to sentiment. There may be some who cling on to farm land no matter how expensive it becomes, but there are plenty who sell up when they can get out with sufficient money. We see this when farm land becomes rezoned around Dublin.

Thomond Pk

MorningStar wrote:

THomod>
They will want you to be decalred bankrupt and seize what little possesion you have.

You have to be in the Country to be declared bankraupt and if the market is soft wasting money on bankrauptcy procedings is the last thing credit institutions will be pursuing.

At least with a wedge down you have the ability to re-arrange your repayment schedule, traditionally you did with 20% equity on a 20 year mortgage. With no equity on a 30 year mortgage there is no room for manouvere given that the average age of mortgagees is early 30's and terms are now averaging close to 30 years. This brings the typical borrower to a position where if they reschedule they will be well into retirement

MorningStar

From what you are saying I think you are misunderstanind the difference between theory and real world. I don't think house prices will go up indefinitely but there is no reason for a crash I don't think anybody does. There is also no evidence that we are in a bubble. There is a huge demand for housing and there is not enough coming for the demand in 5 years time. Supply and demand, people who can't afford now aren't saying they won't buy just they can't afford. In other countries they just don't plan on buying they rent.
You are way to caught up in the 20 million house idea. Farms are bought and sold no everybody can afford one but those who can do. THe same will happen to houses at a lower price limit. Certain people will own more than one and some will own none. People will have to rent. Ireland is playing catch up with the rest of the rich world where some peoplw are on the top and others are at the bottom. Who knows it might mean there willl be a socialist revolution in 50-100 years. It's an irish thing to want to own your own house more so than most other countries which has to do with the history.

SkepticOne

I didn't want to labour the point. We agree that prices can't rise indefinitely.

MorningStar

Thomond Pk wrote:

You have to be in the Country to be declared bankraupt and if the market is soft wasting money on bankrauptcy procedings is the last thing credit institutions will be pursuing.

At least with a wedge down you have the ability to re-arrange your repayment schedule, traditionally you did with 20% equity on a 20 year mortgage. With no equity on a 30 year mortgage there is no room for manouvere given that the average age of mortgagees is early 30's and terms are now averaging close to 30 years. This brings the typical borrower to a position where if they reschedule they will be well into retirement

So you are suggesting get a mortgage screw them over and leave the country? No the greatest plan in the world if you want to live your life. The traditional thing you have mentioned hasn't been like that for a good few years. 10% and 25years has been the norm for a longer time. Things have been changeing along time. Retirement won't be 65 or the generations behind me for me so refinance to 40 or 50 will appear for some. There are intergenerational loans in China.
The bank want your money not the house. Not saying people won't do what you are saying but the majority won't`and the banks won't loose out in the long run as was proven by the effect the crash had on the north of England.

Thomond Pk

The problem is not the rise in prices it is the rate of proce growth and the relationship between price and the terms of finance provision.

Prices could in the real world rise for long sustained periods at 4-5% p.a. once the capacity to repay exists. The problem with long term high LTV mortages is that lower standards of stress testing are used.

Thomond Pk

MorningStar wrote:

So you are suggesting get a mortgage screw them over and leave the country? No the greatest plan in the world if you want to live your life.
The bank want your money not the house. Not saying people won't do what you are saying but the majority won't`and the banks won't loose out in the long run as was proven by the effect the crash had on the north of England.

I agree with the facts you present but being the conservative type, (I invest in insurance shares they are not volatile and they pay 4-5% dividends) So I am probably the last person that would ever be caught in a negative equity trap, as I wouldn't let an LTV rise above 80%.

The point I am making is that many people confronted with a similar situation would simply hand back the house or worse have it repossessed. It is also not just in a crash situation that houses and cars are repossessed.

I do not think that just because someone has concerns about 100% mortgages that they are predicting a crash, but at the same time it is 'disaster myopic' not to draw a link between high LTV's and increased economic risk.

lomb

looks like the population will increase by a million and a half within 20 years, putting immense pressure on nice dublin houses...

Bluehair

Thomond Pk wrote:

The point I am making is that many people confronted with a similar situation would simply hand back the house or worse have it repossessed. It is also not just in a crash situation that houses and cars are repossessed.

I actually think this is not at all unlikely. Many many ftbs are buyings 'starter homes' with the idea of trading up on the equity growth in a few years time.

If there is a crash (even minor) I could easily forsee the dawning prospect of being stuck in a 1 or 2-bed tiny property for the next umpteen years being more than enough motivation for younger buyers to toss the keys back at the bank and make a fresh start abroad.

Bluehair

lomb wrote:

looks like the population will increase by a million and a half within 20 years, putting immense pressure on nice dublin houses...

Using stats like this is the very definition of property speculation. Nobody knows what the growth rate will be over that kind of time frame and yet there are many people betting their future on it

ionapaul

lomb wrote:

looks like the population will increase by a million and a half within 20 years, putting immense pressure on nice dublin houses...

Where did you hear / read this? Isn't the population of the Republic of Ireland currently around 4 million? That seems like an amazing population increase within 20 years, doesn't it?

MorningStar

Bluehair wrote:

Using stats like this is the very definition of property speculation. Nobody knows what the growth rate will be over that kind of time frame and yet there are many people betting their future on it

It's all speculation but people can make educated guesses based on history, economic models and demogrphics.

You can be sure the population will increase at the moment but 20 years does seem like a streach. A 5 year prediction can normally be pretty accurate. The Social demographic in Ireland has radically changed and is going to do it some more.

lomb

ionapaul wrote:

Where did you hear / read this? Isn't the population of the Republic of Ireland currently around 4 million? That seems like an amazing population increase within 20 years, doesn't it?

irish times today, from statistics office? it is an amazing increase, without doubt, it will put enormous upward pressure on individual houses in time to come as theres less and less of them, with all the high density/low amenity//leasehold properties being built now...

MorningStar

lomb wrote:

irish times today, from statistics office? it is an amazing increase, without doubt, it will put enormous upward pressure on individual houses in time to come as theres less and less of them, with all the high density/low amenity//leasehold properties being built now...

What do you mean by pressure on individual houses? I don't disagree but are you talking big estate houses or just the 3 bed semis?

I think it is a bit much to predict the population based on current population and growth. If the economy takes a down turn people wouldn't stay. But THe Dublin city population has actually grown unlike practicly ever other European city. Another indicator that it isn't a bubble but just noraml supply and demand

ionapaul

But aren't you at all concerned that when the historical fundamentals (LTV, ratio of annual income to mortgage, etc...) are no longer accepted or adhered to, something may be amiss? Or is the property market in Ireland so unique that we are witnessing a new paradigm, a new economy, where the old methods of valuation and fiscal responsibility do not apply...hmm, am I channelling CNBC circa 1999 or something?

digitalninja

woody wrote:

The reason why property prices are so high is because of landlords and investors that is an actual fact, what right have you or anyone else got to have two houses. Why should we rent, why should families be on the breadline and up to there eyes in debt because a few thousand investors helped ramp up the price of houses..

I thought the British Landlords went in 1922, just to be replaced by greedier Irish ones.

How can you class yourself as hard working, when you sit back and let people with no choice pay over the odds rent, your mortgage and build up your bank balance on their back, I'd say our four fathers are turning in theirs graves over there lovely republic becoming a greedy capitalist state.

I dispise investors on the grounds of what they do to FTB, real people who work hard to get a house.

People with two houses or more should be heavily taxed to the extent that it makes it impossible for them to make a PROFIT..Invest your money elsewhere and lets get the debt and prices decreased in the country before the banks own the whole island.

WELL SAID.

lomb

MorningStar wrote:

What do you mean by pressure on individual houses? I don't disagree but are you talking big estate houses or just the 3 bed semis?

Anything like large nice houses(large semis with good amenity like nice schools near by, its the old southeast dublin again like blackrock, D6,D14,D4 etc etc, rakes of nice schools, shops etc. i reakon percentage wise they will increase disproportionately. many have 40-50 ft back gardens. of course most of these are already very dear starting at about 550k, so my advice is slightly late....

estate houses will also increase with good amenitys nearby very much disproportionately definately. i wouldnt be so sure about the likes of commuter towns, as many are vastly underserviced and many people when they have kids will want to move, as theirs no good schools nearby and even to get to the schools that are near would need a car. with 2 people working (needed to pay the bills)thats asking the impossible. also driving 4 hours a day will turn anyone into a zombie. this would depress the commuter towns relative to prized properties like the above.

also very good are large period houses in nice areas that are well serviced (are very large internally and have hugh gardens and also are excelently serviced with nice schools nearby etc) but they already are out of reach of anyone except a businessman, and a rich businessman at that starting at around 2million inc stamp duties....

All my advice is a little late but with the demographic increase the shortage of prime propeties will intensify. all property IS going to increase over a long length of time. anyone who denies this is an idiot. the key is inflation is compound and so even if prices rise 2% a year it is compound, so after 30 years it would double anyway. the only thing that causes a sustained crash like happened in japan would be deflation.

MorningStar

digitalninja wrote:

WELL SAID.

Except there are actually no facts to back it up. By adding the word "fact" to a post doesn't make it so. :rolleyes:

ionapaul wrote:

But aren't you at all concerned that when the historical fundamentals (LTV, ratio of annual income to mortgage, etc...) are no longer accepted or adhered to, something may be amiss? Or is the property market in Ireland so unique that we are witnessing a new paradigm, a new economy, where the old methods of valuation and fiscal responsibility do not apply...hmm, am I channelling CNBC circa 1999 or something?

What historical concerns? (what are people using LTV to represent). There was a few experts on the radio today explaining house prices even though still going up property inflation has gone down! The Irish property market is actually pretty unique. A large young house buying population with a previous generation at 80-90% home ownership. Theoretically we have full employment and the largest grouping of population at one place for the whole country. Poor transport links and low density housing. We are also the highest home ownership in the world. We are pretty unique. Home ownsership could easily move to a model where a larger portion of the population can't afford a house. like in other countries. This is not new economics it's very old. If you are really worried about prices check the cost of construction against the cost of the house in the market. Generally it's not that bad.