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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?
House Price Growth speeds up in May
http://www.rte.ie/business/2006/0628/houses.html
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.
It's nowhere near that simple Bill.Quote:
Originally Posted by Billsthoughts
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.
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.Quote:
Originally Posted by beautifulrock
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
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?
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.
'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.
Negative equity is merely conceptual unless you have to sell.Quote:
Originally Posted by Macy
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).
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.Quote:
Originally Posted by 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.
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.Quote:
Originally Posted by Macy
Even Estate Agents are predicting a fall in house prices but they are predicting a soft landing rather than a collapse.
You reckon!?!? They will settle and stay - like the Irish, most stay, few ever return during their ecenomic lifetimeQuote:
Originally Posted by Student Mullet
intersting read:
http://www.washingtonpost.com/wp-dyn...062001541.html
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!
reality bites, i said hte exact same thing in an email to someone, worded the exact same way.Quote:
Very good arcticle and good to get an outside view of the Irish housing market,
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.
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/Articl...&ArticleID=373