House Market Weakening?

[Reality Bites]

There seems to be a growing feeling that the long heralded leveling of in the Irish Property Market is upon us, Interest Rent rises, Properties staying on the market longer, less bidding wars, The rises that occured between January and April have well and truly softened! (this is more than just cyclical) Savvy investors putting their properties on the markets, Rental yields low etc..
The last two years have been silly for all intents and purposes, with the popular conversation among thirty somethings was their property portfollio, it spread like a bad rash with people over valuing property and under estimating the financial burden on them.. if my best friend has a property then i sure as hell am going to get one as well at whatever it costs etc..

[strangeirish]

America sneezes, Ireland catches the cold? Same over here(U.S.) It's been on a slide since December. Investors having trouble turning their properties. Lots of homes on the market. Turning into a buyers market over here.

[dahamsta]

I've been sitting here like an evil demon for years, rubbing my hands together and smirking while I wait for the whole thing to fall apart -- it's the Irish way unfortunately, we're a nation of begrudgers. I did have the opportunity to get involved nearly ten years ago, when The Daddy offered to front me the deposit on an apartment in Ballincollig, but I decided against it, and in a way I'm glad because I might not still be self-employed if I'd gone for it.

The thing is, a few years ago when everyone was saying it was all going to collapse in a heap, I was pretty sure it was going to level out because it was till possible to cool the market at that time. But Gov.ie didn't take the opportunity, and although now a lot of people are saying it's going to level, it's obvious that that just can't happen. Property isn't golden like some people like to think, any market is susceptible to bad management. Something's got to give.

The problem is, I can't get any enjoyment out of it any more, because the chronic mismanagement by Gov.ie has led the market to a stage where it simply can't be recovered, and more importantly, they've led it to the stage where it's going to drag everything down with it. The market is going to collapse, this year or next year or whenever, but I won't be able to get any enjoyment out of it because it's not going to go down to my advantage: I still won't be able to buy a house.

All I can do is clear any debt I've built up over the years, and I hope to have that done by the time the year is out. I'd advise everyone else to do the same -- clear the credit cards and bank loans, pay off the car and the kitchen, work the body of the credit union loan, etc. If you have a house, use it to clear this other guff while you still can, or you'll feel it later. Like I said, it's not gold, it's just bricks and mortar.

adam

[dcfcsteve]

I know the British property market intimately (it's what I do for a living), but not the Irish one.

However - what I will say is that the media tends to jump at even the slightest sniff of doom when it comes to property. People love to hear doom and gloom scenarios - particularly when it's one in which a lot of them would have a vested interest.

More often than not there is zero economic evidence to support any of the doom merchants who push negative stories about the housing market. The strength of the Property market is more science than art. It is primarily a combination of a number of clearly defined economic indicators. It is not some sort of irrational, moody entity that takes wobbles every now and again just because the mood takes it, or because a few unknowledgeable journos think it has or should.

As far as I understand the economic situation in Ireland, the key economic indicators that determine the strength of the housing market are all positive :

- Interest rates : Low (though expected to rise slightly/slowly).
- Unemployment : At an historical low
- Employment : At an historical High
- Population : In continual growth.
- Economy : Growth expected to be 4.8% this year : more than double Eurozone average
- Property Stock : Not growing fast enough to meet growth in either demand or population.

There are therefore more people in Ireland than ever before, more jobs for them to do and less of them unable to find work. These people all need somewhere to live, yet there isn't enough property around for them. For those who do want to buy, the cost of doing so is historically low. For those who want to rent, the cost of borrowing for investment landlords is also low.

Given the above, would somebody care to explain the rational basis for why there should be some sort of housing crisis on the horizon ?

The things that would have the biggest impact upon the Irish housing market would be factors outside of the country's control - e.g. the impact of imported inflation and increased commodity prices upon jobs, interest rates and cost of living.

WEe've had prophets of doom re the housing markets in Britain and Ireland for about 6 years now - but they've yet to have been anywhere close to the mark.

[pete]

I do not believe interest rates are going to rise enough to in itself bring property prices to their knees.

Always a big difference between people who buy property to live in it & amateur property speculators.

The US market has been rising hugely in recent years are far too high a rate to be healthy.

Manay have predicted a crash in Ireland and while prices stayed even a few years ago the only real falls were in the high end making the overall market look stagnant.

[paul_oshea]

one of the biggest reasons, is economies of scale in ireland, too many people bidding for the same scale houses, why? because about 70% of irish people earn in and around the same salary, therefore leading to those same people bidding for the same property. here are a few others at a glance:
They include:
Supply vs. demand
Over hype of the strength of the Irish economy
Irish ethos that everybody should be a home owner (different in continental Europe)
Misconception that house prices will always rise
Super rich investing in large number of properties for rent
Financial institutions leading silly amounts of money
Historic extended low and stable interest rate (somewhat ignoring the 3 0.25 base point rises since last December
And feckin builders

had this argument with a lad already, but just to add onto the above list and expand in more detail:
In slightly more than one word, Ireland is so expensive because:
1. Workforce supply unable to meet demand
2. High growth in population (natural and inward migration)
3. Geographical size of the country i.e. the majority of the population live in relative proximity to major commercial centres. Consumers have lived or commute regularly to major commercial centres and therefore do not have serious objections to paying excessive prices in rural areas
4. Buoyant consumer outlook due to the rapid continuous growth since the early 90's in the Irish economy. Ireland have, in common terms, never had it so good and therefore have never experienced an economic collapse as experienced during the oil and housing crisis' in the 70's/80's in the UK [ever wondered why a house in an average area of Dublin is more expensive than an average house in London???].

[paul_oshea]

WEe've had prophets of doom re the housing markets in Britain and Ireland for about 6 years now - but they've yet to have been anywhere close to the mark.

steve, That will not happen in england at all, unless the north-south divide becomes huge. For example, which Im sure you should already know, but there is need in london and the home counties for a millon new properties by 2015, so a collapse within the next ten years in England is never going to happen.

If i were at an age 10 years ago where i could have bought a house, in the same job am i in now, I would have jumped at the chance. All my cousins, ahve made serious money on this, but alas i was too young and therefore missed the boat.
Anybody who didnt buy and had the chance years ago must be stabbing themselves in their testicles right now.

[dcfcsteve]

steve, That will not happen in england at all, unless the north-south divide becomes huge. For example, which Im sure you should already know, but there is need in london and the home counties for a millon new properties by 2015, so a collapse within the next ten years in England is never going to happen.

If i were at an age 10 years ago where i could have bought a house, in the same job am i in now, I would have jumped at the chance. All my cousins, ahve made serious money on this, but alas i was too young and therefore missed the boat.
Anybody who didnt buy and had the chance years ago must be stabbing themselves in their testicles right now.

They need so many new properties in the South of Engalnd, due to a rise in population (e.g. an extra 800,000 people predicted in London by 2015).

Likewise - Ireland has a rising population, and new property isn't coming on to the market at a fast enough rate to meet its needs. So why should Ireland also not be ruled out of the doom's merchants predictions of a wholesale crash ? It just doesn't add up.

[Student Mullet]

A lot of these new people coming in are foreigners working in the house building industry. That rising demand isn't going to stay forever and when it stops the foreign builders will move on to another country leaving empty houses behind them.

[dahamsta]

No-one there, so 300,000 homes not counted in census figures (http://www.unison.ie/irish_independent/stories.php3?ca=9&si=1636317&issue_id=14226)

MORE than 300,000 homes across the country will not be included in the latest census - because there was no-one at home.

Enumerators delivering and collecting the census forms were unable to contact the inhabitants.

Following inquiries among neighbours, postmen and women and apartment block management companies, the vast majority of those dwellings - some 275,000 - were identified as being vacant.[...]

[Macy]

Steve, part of the reason it's a house of cards in Ireland is because the majority of new jobs, and the vast majority of economic growth is from construction. So the thing that's fuelling the economy and thus the increase in house prices, is the building of more houses. This isn't sustainable, no matter how many times economists are called doom merchants and naysayers.

Rates are likely to continue to rise, and there's already data to suggest 50,000 households could be in trouble soon, with a further 80,000 facing difficulties with payments (I'll find the link and post back). There is also anecdotal evidence of crazy bidding wars at auctions no longer happening with the same frequency. We can only hope we chance upon the soft landing.

As to whether there's anything that can be done, I think it's too late. The Government had the opportunity to increase supply and control increases in the late 90's/ early 00's. There was, and continues to be, land zoned residential being sat on by developers. Several of the opposition parties called for windfall taxes and rolling taxes every year development didn't take place on the land. The Government did nothing (probably too busy stopping it's Galway tent mates like the Bailey brothers from having Revenue press charges).

[Reality Bites]

I think collapse may be too strong a word, but the madness of the housing market over the last 24 or so months has ended there is no doubt about it , I heard very recently that auctioneers were in shock at the bidding wars that were forcing the price sky high for very ordinary properties, I think when the dust settles alot of people may have a lot of regret, recent buyers that is!

[drummerboy]

I think the days of huge annual rises in house prices will come to an end in a year or two. However I don't see any collapse. What I think will happen will be minimal annual house price rises. Since the foundation of this state the price of property in this state has never realy fallen.

[paul_oshea]

[QUOTE]They need so many new properties in the South of Engalnd, due to a rise in population (e.g. an extra 800,000 people predicted in London by 2015).

[QUOTE]

You just repeated what i said?!?! :/

[paul_oshea]

probably too busy stopping it's Galway tent mates like the Bailey brothers from having Revenue press charges).

Since when has ballintubber been in galway. If you are going to sprout slander then at least get the area correct. :roll:

[Macy]

FF have a tent in Ballintubber as well as at the Galway Races? :confused:

[paul_oshea]

they have more than a tent, they have hellipads and several acres of land as well.

[Macy]

they have more than a tent, they have hellipads and several acres of land as well.
FF do? My point was (maybe made flippantly) that major builders, who are regulars in the FF Tent at Galway Races, who have been big FF donors, are FF members and have canvassed for the party as recently as the local elections, who have been found to have made corrupt payments to FF politicians, settle for €22 odd million with the revenue without a hint of them being prosecuted for tax evasion.

Now tie this one (of many) example of FF links with builders, and then consider the fact that FF did nothing to address the supply issues that would've slowed house price rises, have let builders off the hook of their social housing requirements, who continue to do nothing about zoned land that goes undeveloped that is held by developers etc....

(Probably off topic, so feel free to split this off.)

[Aberdonian Stu]

I used to believe in 'the bubble' but have long since seen the error of my ways. Even if I did there's no way I'd forecast a burst until after the SSIA money has been shovelled out.

[dahamsta]

there's no way I'd forecast a burst until after the SSIA money has been shovelled out.Very true. This is why I think people still have a chance to set themselves up to handle a recession when it happens (the question is not if, but when; and to what scale). The Government aren't going to help them, so they need to do it themselves.

Unfortunately, I think people will just keep borrowing while they can, and I'd say a good majority of the SSIA money will be flushed down the toilet on overpriced cars and "cheap" consumer electronics, both of which depreciate like a bitch.

But of course FF and the PDS don't give a toss about that, they only came up with the idea to win the next election anyway, because they screwed up everything else. Looks like they may have screwed this up too, if the polls are anything to go by...

adam

[Billsthoughts]

Wouldnt a collapse in the housing market be caused by investors selling up thus pushing prices down, then homeowners selling up in a panic(maybe too strong a word) for fear of being left with negative equity? Isnt that what happens in markets when they collapse? Nobody wanting to be left with worthless goods?

[monutdfc]

House Price Growth speeds up in May
http://www.rte.ie/business/2006/0628/houses.html

[pete]

How many times average salary is the average house price now? Surely house prices rising faster than average wages?

I remember 5 years ago you banks started adding 35 year mortgages & now they started adding 40 year mortgages. A 50 year mortgage is possible in the years to come but if prices not rising enough then no one will accept that.

Demand cannot be controlled by the state but FF will never do anything about supply of land for housing as party is funded by developers.

[dcfcsteve]

Wouldnt a collapse in the housing market be caused by investors selling up thus pushing prices down, then homeowners selling up in a panic(maybe too strong a word) for fear of being left with negative equity? Isnt that what happens in markets when they collapse? Nobody wanting to be left with worthless goods?

It's nowhere near that simple Bill.

Firstly - you need to define what would actually constitute a 'collapse'. If prices slid down 10-15% over a 12mth period, for example, to me that would be a 'correction' rather than a collapse. Personally, I'd need to see a 15-20%+ drop in prices across a shorter period (say, 6mths) before I'd consider there to be a collapse. I imagine economists and estate agents would think along similar lines.

Secondly, investors play a very small part in the housing market - no more than 10-15% in Ireland. Their actions would be therefore be extremely unlikely to cause a collapse all on their own.

Thirdly - the amateur ones aside, investors are the very people least likely to sell in a collpase, so long as they have tenants. They understand that negative equity is only ever an issue if you need to sell or release funds, so they'd just baton the hatches and sit tiight. The people who get fecked in a collapse are those who have to sell (unemployment, pay cut, bigger family, smaller family, divorce, job in a new place etc), and those who are stupid enough to panic sell without really needing to move. And if ordinary people aren't buying properties (which is what happens in a crash) then they have to live somewhere, so they therefore must be renting to a larger than normal extent - hence your investors are doing well. The fortunes of the rental market shadow the fortunes of the property sales market inversely to a very large degree.

Fourthly - you are saying that investors would start a housing collapse. Even if they had the power to do so (which they don't, due to their relatively small presence in the market), what is it that would cause those investors to sell-up en-masse in the first place anyway ?? They wouldn't just wake up one morning and all think to themselves "Do you know, I think I'll just get out of this property lark....". Withdrawal form the property market is extremely expensive and time-consuming, and not something that investors would just do on a whim. They would need to consider it to be a bad long-term place for their capital (which property has never been), and there would also need to be significantly stronger alternative investments for them to switch their capital into as well (stock markets aren't broadly doing any better than property at the moment, and they're not going to just leave it sitting in the bank at 5% interest). So what exactly would casue them to sell in the first place ?

Finally - a collapse in the housing market would be caused by a combination of factors. I outlined the key economic ones in an earlier thread - namely the cost of borrowing money (interest rates would need to go up significantly); unemployment/the fear of future unemployment; demographics (i.e. population changes); and the rate at which new property is coming onto the market. The only non-economic variable to add to that is the proverbial ghost that is 'confidence'. Once people get worried about the economy, their job and their financial situation, confidence in the property market will also get hit. It can then become a self-reinforcing phenomenon - but Ireland is nowhere near that level at the moment.

[beautifulrock]

Steve, whilst I agree with the majority of what you say in your post I believe that one of the greatest potential factors that could influnce a house price fall/correction is something from left field i.e more problems with the supply and price of oil or indeed more likely Mr Bush deciding that Iran is the next place to invade. As already stated the situation during the last downturn in the UK (89 -92) was triggered by a number of different macro and micro economic hits.

[dcfcsteve]

Steve, whilst I agree with the majority of what you say in your post I believe that one of the greatest potential factors that could influnce a house price fall/correction is something from left field i.e more problems with the supply and price of oil or indeed more likely Mr Bush deciding that Iran is the next place to invade. As already stated the situation during the last downturn in the UK (89 -92) was triggered by a number of different macro and micro economic hits.

I agree with you B Rock. I said in my second-to-last post that the most likely source of any threat to the Irish housinfg market would be global/external factors, such as imported inflation or increases in the costs of commodities (e.g. oil). I just cannot see what within Ireland, or even Europe, is going to cause a collapse in the short-to-mediium term.

[Dr.Nightdub]

Interesting article in today's Tribune saying why average house prices will continue to rise (currently increwasing at 14% a year). Sorry I can't link to it as I got the paper-and-ink version, but the gist of it was that it's down to the following factors:

1. Growing population (growing cos of high fertility rates and immigration) needs places to live
2. Trend to smaller household sizes means there'll be more demand for 1- and 2-person homes
3. Strong economy means more disposable income
4. Banks giving easy credit (and there's another article on the front page saying how all the warnings about further interest rate increases are not slowing down the demand for credit)
5. Supply not nearly keeping up with demand - in fact new home starts are actually declining

[Ringo]

I've been listening to this since i bought my first house 10 years ago. At the time i took out what i concidered to be a huge mortgage. They've been talking about a collapse since then. I'm now on my second house, which again i over stretched for, But after 3 years my mortgage is less than half the value of the house. While i believe the growth rate will slow, i can't seen negative equity here. For most people like me with a house for a few years, even a 25% drop in house prices wouldn't leave then in a negative equity situation. Does anyone really see that happening?

[Macy]

Negative equity - probably not for people in your situation. Problem will be the people that have continued to borrow on the increasing value, and people not being able to make their repayments.

btw The auctioneers today released a report that the house market is slowing, and they're having to reduce prices to get sales.

[Reality Bites]

'Property market slowdown beginning to take effect'
03/07/2006 - 08:06:28



Estate agents have reportedly signalled that the property market is finally beginning to cool after years of soaring prices.

Reports this morning say the experts warned yesterday that the first evidence of the long-predicted soft landing was beginning to emerge, with some homes seeing a drop in prices for the first time in more than 10 years.

Agents have also reportedly experienced a fall-off in the number of inquiries about homes and the number of people attending viewings.

However, this morning’s reports said auctioneers and valuers were sticking to their previous predictions that the market will experience a soft slowdown in prices rather than any property crash.

[dcfcsteve]

Negative equity - probably not for people in your situation. Problem will be the people that have continued to borrow on the increasing value, and people not being able to make their repayments.

btw The auctioneers today released a report that the house market is slowing, and they're having to reduce prices to get sales.

Negative equity is merely conceptual unless you have to sell.

Let's say that my house is worth €X today. Tomnrrow there is a property crash, and it becomes worth €0.5X. Not great for my sense of personal financial well-being - but as long as I can still meet the mortgage payments (which won't have changed because of a crash) I'm actually no worse off in reality. Fast forward a couple of years and it's back to being worth €X again.

As long as I haven't been unlucky or stupid enough to need/want to sell in the intervening period, negative equity has been purely conceptual regarding my position. I may have had a mortgage wherte a good fixed-rate deal expired in the intervening period, requiring me to remortgage, but for the vast majority of people this still wouldn't represent a problem due to the size of their mortgage.

Also, a slow-down is a very different thing than a crash. Slow-downs happen all the time and are no big deal. In fact, they're an essential dynamic to the functioning of the market. Crashes thankfully are much, much rarer, and are signs of the market failing (i.e. drastic self-correction).

[pete]

btw The auctioneers today released a report that the house market is slowing, and they're having to reduce prices to get sales.

Nothing new there. In 2002 when developers were finishing off my complex they knocked 10k off the price of last bunch of apartments. I think they then changed their mind & retained them for rental.

[Macy]

Steve, yes negative equity is only a problem if you have to sell. The problem is when rates rise and people can't make repayments, their house get's repossessed. Then if the house has gone down in value, the bank sells it it doesn't meet the mortgage and people are left with no house plus a debt still hanging over them.

[beautifulrock]

Steve, yes negative equity is only a problem if you have to sell. The problem is when rates rise and people can't make repayments, their house get's repossessed. Then if the house has gone down in value, the bank sells it it doesn't meet the mortgage and people are left with no house plus a debt still hanging over them.

Macy, what is say is accurate. However, in reality the mortgage lenders/banks rarely actively pursue this debt. The banks and mortgage lenders can also buy insurance against this shortfall.

[CollegeTillIDie]

Even Estate Agents are predicting a fall in house prices but they are predicting a soft landing rather than a collapse.

[sligobhoy67]

A lot of these new people coming in are foreigners working in the house building industry. That rising demand isn't going to stay forever and when it stops the foreign builders will move on to another country leaving empty houses behind them.

You reckon!?!? They will settle and stay - like the Irish, most stay, few ever return during their ecenomic lifetime

[paul_oshea]

intersting read:

http://www.washingtonpost.com/wp-dyn/content/article/2006/06/20/AR2006062001541.html

[Reality Bites]

Very good arcticle and good to get an outside view of the Irish housing market, its definitely an Irish phenomenon the over zealous twenty somethings trying to get on the housing market and driving up prices sprialling debt etc.. most Europeans don't buy till they are in there 40's, over here from 25 onwards there is massive pressure to get on board the ladder, silly really!

[paul_oshea]

Very good arcticle and good to get an outside view of the Irish housing market,

reality bites, i said hte exact same thing in an email to someone, worded the exact same way.

secondly i think it relates alot to the old irish mentality from british imperialism, how "jaysus id love to own a piece of land" which this journo commentated on.

[Dr.Nightdub]

Interesting snippet in the latest retail sales data quoted in yesterday's Irish Times (sorry, can't link, only have the hard copy). In May, sales of furniture, lighting, paint and hardware were all DOWN on April though still up on May last year. Given that these are all associated with house-buying or -improvement, it could just be another straw in the wind.

As for the foreign builders, the likes of David McWilliams have long pointed out the insanity inherent in getting eastern Europeans over here to build houses that are bought by investors to rent to eastern Europeans who are here to build houses that are bought by investors to rent to etc etc. It's a castle built on sand.

The articles on his site are well worth keeping an eye on - this one's a peach:
http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=373

[Paddyfield]

More tha 95% house in Ireland has doubled in value every six years since the 1950's. A family member sold a 3 bed detached house in Galway for IR£7000 in 1970.

[For ease of calcultion, let's say that is €9,000 (Euro)]

1970 - €9,000
1976 - €18,000
1982 - €36,000
1988 – €72,000
1994 - €144,000
2000 - €288,000
2006 - €576,000

Thus, the property will be worth over €1.1M in 2012.

This rough guide to valuation can be applied to a house anywhere in Ireland. The exceptions to the rule are where environmental circumstances have drastically changed. If your house in Dublin is 200 metres from the recently constructed Luas, then you are on a winner. If your house is along the river Dodder which bursts its banks a lot recently, then it will be a hard sell. The same can be said about a new Shoppping Centre opening nearby or a new prison or dump. Certain elements will dictate prices.

Nevertheless, all other circumstances being equal, your house will double in value in six years.

There have been corrections/soft landings/whatever before, most notably in the late 1980's when there was a stalemate, but prices will go up.

[Reality Bites]

Paddyfield the Japenese Housing market has been steadily falling for the last 14 years, so it not beyond the realms of possibility that we may for the time being have reached a plateau or softening that may led to a fall in the market, already in west dublin house guide prices of 400,000 have been reduced by 20,000 euros in places this has not happen in years!.. There is strong anecdotal evidence in existence suggesting that the house market has most definitely taken the foot of the accelerator for the time being..

[Reality Bites]

From Itulip.com
I think it would be madness to Buy Property in Ireland at the moment!

IMF: House prices may crash in Ireland
August 9, 2006 (IMF Report)

The International Monetary Fund (IMF) has warned that Ireland's personal debt levels and the spiralling cost of houses threaten to undermine future prosperity.

The IMF said the property market faces an "abrupt" downturn, and warned that the loss of competitiveness is undermining future trading prospects.

"Bank credit to property-related sectors has grown rapidly and now accounts for more than half of total bank lending. Household debt as a share of household disposable income rose to about 130% in 2005, among the highest in Europe," it said in a report.

"Growth has become increasingly unbalanced in recent years, with heavy reliance on building investment, sharp increases in house prices, and rapid credit growth, especially to property-related sectors."

AntiSpin: Could the IMF warning on Ireland's housing bubble apply to the US? Here in the US, housing related loans also represent more than half of total bank lending. In 2005, home mortgage debt outstanding amounted to $9.1 trillion. While this represents a hefty 75% of the $11.7 trillion in total depository bank assets in the US, it represents less than 25% of the $40 trillion of total credit market asset holdings. more