Property Crash

[dahamsta]

And we're not even counting people working in estate agents

Screw them, they're all the dregs of society anyway.

[pete]

I'll repeat it, 250,000 directly employed in construction. If 50,000 of them are out of work will that not have a knock on effect on the economy? And we're not even counting people working in estate agents, builders providers, etc. etc. .

I would doubt if 20% of the construction industry was made unemployed as that is a very hire number. I suspect a large number are emigrants who will leave the country.

There are i think 2m people employed in this country so 50k is 2.5%.

Estate Agents will have to take a drop in salary & move back to their job in McDonalds!

I think the big problem is that too much tax raised by construction taxes such as stamp duty. A reduction in this might stimulate the sector but could also means a large reduction in tax revenue (however recent figures showed i think a 7 or 9% rise since last year)

What is the solution?

[BohsPartisan]

What is the solution?

There is no solution to cyclical economic behaviour under capitalism as that is the nature of the beast.

[OneRedArmy]

There is no solution to cyclical economic behaviour under capitalism as that is the nature of the beast.

What you mean it doesn't always go up and up?

If the price correction stays around the 10% level it will be a positive for the overall economy.

As always, we need to be looking to German, French and other Euro economy growth rates as the big risk remains interest rates continuing to rise, which are completely out of our control.

To Pete, your quote about price drops being irrelevant in the long-term for most buyers (which is the estate agents/bankers stock line btw) is true, however it becomes fundamentally a non-issue in a rising interest rate environment when people can't afford their mortgage payments.

In the UK in the early 90s this led to huge rises in repossessions, which led to forced sales at rock bottom prices, which fuelled further price falls and so on. Its hard to now exactly what the impact will be here as the Family Home Protection Act has always made repossessions the very last resort for lenders, but there is no doubt that defaults are on the way up (with the sub-prime bottom feeders getting hit first).

[BohsPartisan]

What you mean it doesn't always go up and up?

I know that but it seems some people think "this time it will be different".

As for repossesions, they are happening already at a rate that would be alarming if the full extent of it was common knowledge. The current lenders' tactic is to reposess and become the landlord.

[OneRedArmy]

As for repossesions, they are happening already at a rate that would be alarming if the full extent of it was common knowledge. The current lenders' tactic is to reposess and become the landlord.

I'm not sure about that, at least in respect of primary family dwellings (as opposed to say investment properties).

I know the sub-prime lenders have secured a lot of judgments in the past 6 months but I'd be surprised if many have actually been repossessed.

In terms of the big name lenders, repossessions have been extremely rare.

[Ringo]

http://www.independent.ie/business/p...ke-695645.html

[OneRedArmy]

http://www.independent.ie/business/p...ke-695645.html

Without all the facts, it would appear a possibility that the person in this article wasn't entirely truthful in their mortgage application, as applications are stress tested to ensure a 2% rise in rates (what we've seen over the last year) can be absorbed by applicants on their current income.

[Macy]

I suspect a large number are emigrants who will leave the country.

Why would the construction industry let go those that it is exploiting/ paying below agreed rates?

Without all the facts, it would appear a possibility that the person in this article wasn't entirely truthful in their mortgage application, as applications are stress tested to ensure a 2% rise in rates (what we've seen over the last year) can be absorbed by applicants on their current income.

Most likely they were economical with the truth, however, it's not like the lenders haven't known about this practice for years and have failed to factor it in into their stress testing. In my experience, the banks were actively trying to encourage us to take out more products that would've increased our outgoings, with one insisting we switch our credit union loans into their much higher interest rate loans! Also we had lenders telling us "you shouldn't have put down your credit union loans as we've no way of checking". We were also encouraged to put in for more than we actually wanted or needed in several places. If this was/ is the common practice then people will be in trouble if there's a downturn.

The other unknown is what rate they stress tested against. Is it practice to stress test at the normal lending rate or the new customer discounted rates?

[Ringo]

it seems they can't pay the standard rate, you'd wonder what kind of brain they have, as it appears the person is a professional. They deserve everything they get for being so stupid. No doubt they bought an over priced piece of $hit, because its on the Southside & oisin & orla can go to the local gael scoil, where they won't have to deal with imigrants.

[BohsPartisan]

I'm not sure about that, at least in respect of primary family dwellings (as opposed to say investment properties).

.

I was told this by someone who works for a major lender. Maybe its not true but I don't see why they'd want to make this up. Seems its primarily happening at the top end of the market, your five bedroom houses that people bit off more than they could chew with.

[OneRedArmy]

Most likely they were economical with the truth, however, it's not like the lenders haven't known about this practice for years and have failed to factor it in into their stress testing. In my experience, the banks were actively trying to encourage us to take out more products that would've increased our outgoings, with one insisting we switch our credit union loans into their much higher interest rate loans! Also we had lenders telling us "you shouldn't have put down your credit union loans as we've no way of checking". We were also encouraged to put in for more than we actually wanted or needed in several places. If this was/ is the common practice then people will be in trouble if there's a downturn.

The other unknown is what rate they stress tested against. Is it practice to stress test at the normal lending rate or the new customer discounted rates?

You stress against the full rate.

Agree on the above, but we all have a personal responsibility, it shouldn't be the banks responsibility to verify every piece of information is correct.

The lender who told you not to put down your loans should be disciplined, clear breach of ethics and something the Financial Regulator needs to be focusing more on.

[Macy]

Agree on the above, but we all have a personal responsibility, it shouldn't be the banks responsibility to verify every piece of information is correct.

I agree to some extent, but it's not always that easy when prices are rising so fast, you're being told it's a sure bet and getting the hard sell from a broker.

Financial Regulator would do fook all, even if you could prove it. Afterall, it approved the 100% and 110% mortgages, where people have much more potential for being trapped by negative equity.

Ringo - in which case whats the point of stress testing, or even having a financial regulator? A case like that raises as many questions about the effectiveness of the stress testing as it does about the person themselves.

[pete]

Sub-prime is called that for a reason. Maybe its irresponsible to give mortgages to some people but I suppose thats why they charged higher rate. If someone is taking out a mortgage with a sub-prime lender then presumably they have bad credit history so is it any surprise they fail to make the repayments.

There will always be repossessions but I would be surprised if Main Street Banks did this unless no other option as they get bad media coverage. Much easier to increase the term or other solutions.

[Poor Student]

There will always be repossessions but I would be surprised if Main Street Banks did this unless no other option as they get bad media coverage. Much easier to increase the term or other solutions.

The repossession figures for AIB and BoI are very low. The smaller banks were more reckless in giving out 100% mortages but bigger banks like the AIB don't tend to give more than 92% to those who aren't earning reasonably high. The bigger banks are also more stringent in their stress testing. I think the ECB is bringing in stronger mandatory stress testing but the bigger banks already meet the suggested levels. So the bigger banks don't really have to repossess as they were careful enough and lost a lot of custom by doing so. You'll notice AIB and BoI's share of the mortgage market isn't as high as their share of other banking products.

Housing prices have dropped for 3 consecutive months up to May. June's results should be out soon. Do people still feel we're heading for a crash?

I don't really understand this reduction in construction levels too well, but will the dropping levels not compensate and halt price drops with the supply dropping to meet the same or increasing demand?

[Saint Tom]

The repossession figures for AIB and BoI are very low. The smaller banks were more reckless in giving out 100% mortages but bigger banks like the AIB don't tend to give more than 92% to those who aren't earning reasonably high. The bigger banks are also more stringent in their stress testing. I think the ECB is bringing in stronger mandatory stress testing but the bigger banks already meet the suggested levels. So the bigger banks don't really have to repossess as they were careful enough and lost a lot of custom by doing so. You'll notice AIB and BoI's share of the mortgage market isn't as high as their share of other banking products.

Housing prices have dropped for 3 consecutive months up to May. June's results should be out soon. Do people still feel we're heading for a crash?

I don't really understand this reduction in construction levels too well, but will the dropping levels not compensate and halt price drops with the supply dropping to meet the same or increasing demand?

AIB or BOI have never been the biggest mortgage lender. IP now PTSB have traditionally held that mantle, and to suggest their credit policy is any more reckless than said rip-off merchants is folly. All mortgage applications are stress tested by two per cent of the full rate applicable after discounts. Standard lending criteria for people earning less than a combined income of €75k also dictates that their borrowings should not exceed 35% of net monthly salary, anything underwritten outside these guidelines being done so only by profeessional underwriters. You cannot blame the banks for the stupidity of people biting off more than they can chew and not disclosing material facts that do not become apparent on an Irish Credit Bureau report eg (credit union loans, maintenance payments, interests outside of ireland). When will Irish people stop feeling sorry for themselves and realise that financial independence is knowing your budget and not blaming the big bad banks for not dumbing down already dumbed down and regulated information?

latest economic reports from the institution I work for indicate a 9% devaluation by middle of 2008 and things will resume at normal levels (pre crazy years). People forget here that the biggest factor was the supply of new housing finally catching up with demand, which it did for the first time last year in a long time

[dahamsta]

Saying it's all down to stupidity of people is as bad as saying it's all the banks' fault. It's a naive overview at best.

adam

[Poor Student]

Saint Tom, I wasn't blaming the big bad banks, I was just saying that you won't see AIB or BOI having to repossess as much as they don't give out mortgages as easily.

There's an article in the Indo today about prices on the outskirts of Dublin in some properties are dropping 10k a month due to over supply and other market pessimism: http://www.independent.ie/national-n...h-1044153.html

[Reality Bites]

Having first hand knowledge of the House Building industry I would make the following comments on the Hard / Soft Landing theory: From about September last year Sellers started to find the market shifting over to Buyers markets due to increased Interest Rates and over inflated property prices of the last decade or so, this day has well and truly died as affordability crumbled for first time buyers and rental yields for investors no longer kept up with mortgage repayments this scenario propagated itself well into 2007 and remains to this very day leading to the scenario we now have with over inflated prices being reduced to near market value..
I can tell you now that Developers are only shifting units in large schemes in single digit figures and not the double or triple figures they have come used to over the last few years, so what have they done they have stopped building and taking up their Planning Permissions (PP's remain for 5 years after Grant) the Bigger one can afford to this this while the smaller Builder will feel the pressure with demanding Cashflow.
What does this mean for the average Joe wishing to purchase well my gut instinct is this there may be one more rise in rates in September but the cycle is showing signs of ending as the German economy the main driver in interest rates rises shows signs of slowing and the increased trouble the US economy finds itself in will drive Trichet to cease rate rises as the Euro becomes more and more uncompetitive against the US Dollar. So then Rates will stop rising, prices in House will have remained stagnant or reduced by 10% over a 12 months period Stamp Duty is now gone.. If the avearge Joe is mindful of the fact that Builders will not be producing the same volume of housing for 2-3 years there will be a drastic drop in supply leading to the standard convention on which Economics is based on Supply & Demand- Reduced Supply means Demand Increases and with it Prices, So its my two Cents that this Autumn may be a Golden opportunity to nick in and buy a house without all the hassle of bidding or waiting lists as we may not see a cycle like this for another 10 years!

[OneRedArmy]

Having first hand knowledge of the House Building industry I would make the following comments on the Hard / Soft Landing theory: From about September last year Sellers started to find the market shifting over to Buyers markets due to increased Interest Rates and over inflated property prices of the last decade or so, this day has well and truly died as affordability crumbled for first time buyers and rental yields for investors no longer kept up with mortgage repayments this scenario propagated itself well into 2007 and remains to this very day leading to the scenario we now have with over inflated prices being reduced to near market value..
I can tell you now that Developers are only shifting units in large schemes in single digit figures and not the double or triple figures they have come used to over the last few years, so what have they done they have stopped building and taking up their Planning Permissions (PP's remain for 5 years after Grant) the Bigger one can afford to this this while the smaller Builder will feel the pressure with demanding Cashflow.
What does this mean for the average Joe wishing to purchase well my gut instinct is this there may be one more rise in rates in September but the cycle is showing signs of ending as the German economy the main driver in interest rates rises shows signs of slowing and the increased trouble the US economy finds itself in will drive Trichet to cease rate rises as the Euro becomes more and more uncompetitive against the US Dollar. So then Rates will stop rising, prices in House will have remained stagnant or reduced by 10% over a 12 months period Stamp Duty is now gone.. If the avearge Joe is mindful of the fact that Builders will not be producing the same volume of housing for 2-3 years there will be a drastic drop in supply leading to the standard convention on which Economics is based on Supply & Demand- Reduced Supply means Demand Increases and with it Prices, So its my two Cents that this Autumn may be a Golden opportunity to nick in and buy a house without all the hassle of bidding or waiting lists as we may not see a cycle like this for another 10 years!

Given that rates are unlikely to go down in the short-medium term, property is as unaffordable as ever, regardless of no stamp duty or any small (c10%) fall in prices.

Only a builder would avocate buying in the next 6-9 months. I'm in a position to buy and will be staying out of the market until at least Q2 next year, if not longer. The way I see it, the only downside is that prices are pretty much the same, with at least a 1 in 3 chance they could fall another 10% between now and then.

Also, rental yields for investors haven't kept pace with mortgage payments for at least the last 5 years. Recent rent increases will have been eaten up by the rise in mortgage repayments.

Factor in all the unlet apartments that people couldn't be bothered renting as the capital appreciation kept them happy (oops, need to get someone in quick!) and the demand and supply equation looks slightly different.

And finally, assume a lot of the foreign builders return home as there are fewer houses to build and demand falls further.....

Bottom line is that the fall has a while to run yet.