Future price of Irish properties

[redo]

Ok then how do you know the extent of the effect? I mean I could just state any of the other reasons and say that is the main casue. I am not into this makea a wild statemnet that people agree on but have no proof. Lots of people used to think the sun rotated around the earth. The evidence proved them wrong!

Stop picking on me please

 

[Neffa]

Ok then how do you know the extent of the effect? I mean I could just state any of the other reasons and say that is the main casue. I am not into this makea a wild statemnet that people agree on but have no proof. Lots of people used to think the sun rotated around the earth. The evidence proved them wrong!

What would you consider proof?

 

[Loki]

Loki

I’m not familiar with the Roman market I’m afraid. I base my analysis on historic yields which were in excess of double digits in the past in the Irish residential market. I believe that markets adjust to reflect true risk over time. For instance the market in Split in Croatia has seen rising yields as investors became aware of the fundamental value of investment incomes.

ANd this tells us that the market is over priced becasue of speculator in this country how?
I can point to the wave that hit Tialand and say it will happen here but it won't as the conditions are not the same.
Many FTBs buyers are buying what is built here so I don't see how the specultors are the main cause and I have also stated many are not short term specultors from my experience which is the real danger. If none of the specultors back out of the market there wouldn't be a crash right? I mean that is the basis of most of the crash theories. People get scared and sell say if they don't what would happen. How many speculators are needed to panic to cause the crash? Is there another cause I am missing?

 

[bearishbull]

i think the fact that yields are so low and still an asset price is rising at 10-20% is an indicator of specualtion in any market.question is what are they speculating on? speculating that they will get out before the bust? speculating that demand for housing wont be met despite the massive supply being constructed every year? speculating that ncb's predictions will come true?

 

[SteelBlue05]

Steel, cost and value are two different things. Nevertheless I would imagine that we will see some deflation in the cost of construction if a housing bust occurs.

Well yes, but I was making the point that you need to account for cost when throwing out such broad theories like "prices will decrease by 40-50%".

 

[Loki]

What would you consider proof?

Figures stating year on year the amount of investors in the market for starters.

Redo
If you don't want to be picked up on what you are saying don't post or only talk with people who agree with you. I am not "picking" on you if anything you are dismissive of me

 

[Loki]

i think the fact that yields are so low and still an asset price is rising at 10-20% is an indicator of specualtion in any market.question is what are they speculating on? speculating that they will get out before the bust? speculating that demand for housing wont be met despite the massive supply being constructed every year? speculating that ncb's predictions will come true?

I see what you are saying but a possible indicator does not make it fact. If you remove that as an indicator the points of argument you have are good but fall apart and are again based on so many maybes.

 

[Duplex]

Steel I have guessed at a figure based on my own ‘theory’, prices may fall further than 50% they did in Japan which is much more densely populated than Ireland. Prices fell last year by 13% in New York.

Loki I appreciate what you’re saying however markets are not populated by rational players, they react to sentiment; fear, panic, euphoria.

Psychologist Elizabeth Kubler-Ross suggested the process of grieving has five distinct stages. In a somewhat analogous fashion, participants in the housing bubble will pass through five emotional stages: euphoria, doubt, denial, disillusion, realism.

Kubler-Ross's five stages were: denial, anger, bargaining, depression, and acceptance. As people grieve the losses of their paper profits, or more tragically, the loss of their homes or entire equity, they may well pass through these very human feelings along the way.

My list is somewhat different, as it starts with the essential emotional building-block of any bubble: euphoria. This is the sense of empowering glee as prices rise, seemingly inexorably, as the participants re-calculate their ever-rising wealth--and all without any application of labor! (Or recently, any deployment of capital, either.)

This stage can be seen in the chart of KB Homes, a company which is a good proxy for the large residential builders. The euphoria is visible in the sharp rise of the stock price from mid-2004 to mid-2005.

The decline (which I marked for emphasis) from this peak is the doubt/denial stages. As doubt about the housing bubble grows, the stock price falls. Then, as denial kicks in, the price recovers--but importantly, never to the previous high. This "lower highs, lower lows" is the classic stock market definition of a downtrend.

A similar battle between doubt and denial plays out in the media every month when housing prices, inventory and sales figures are released. Every lower number spurs doubt, and every stabilizing number elicits denial: everything is OK, prices are stabilizing, etc.

At some tipping point, denial gives way to full-blown disillusion. As declines in prices and sales and fast-rising inventories become inescapable trends, the flimsy walls of denial participants have constructed give way, and they become disillusioned with their real estate investments. Some decide to hang on, others decide to bail, and still more stop looking at the very real estate section they used to open first, when their net worth was rising by the month.

As the declines continue unabated, year after year, participants finally make a realistic appraisal of the situation: housing was a bubble, and the deflation seemingly lasts forever. Investors give up and sell in disgust, banks give up the ghost and go bankrupt or sell their portfolios of non-performing mortgages for pennies on the dollar, and the ranks of working realtors thins to those few with connections to lenders, who are still dumping their foreclosed properties.

When nobody in their right mind would consider buying real estate as an investment, the bottom will finally be reached. Unfortunately, all this takes a long time. That we are just in the very first stages of the decline are apparent in articles such as this one from The Wall Street Journal: Back To Reality, about the quickening slide in vacation home values.

http://www.oftwominds.com/blog.html

 

[gearoidmm]

Figures stating year on year the amount of investors in the market for starters.

A figure has been quoted (to be honest I can't remember the source) that 40% of properties in Ireland at the moment are being bought as second homes and BTLs.

Combine this with the fact that up to 1/3 of 'investors' are subsidizing their tenants to live in their properties and I think you can call this a speculative market.

 

[Loki]

Loki I appreciate what you’re saying however markets are not populated by rational players, they react to sentiment; fear, panic, euphoria.

Well obviously not, as I am still asking how do you know speculators are keeping the prices high here?

Even if you can some how prove that you have to assume a portion of these will not panic and have to speculate about the effect of this. To say once A happen an unknown quantity of X will panic and casue a hughe price crash. It is all speculative but what you are saying and using as indicators is not close to accurate. THe idea is not to make wilder and wilder speculitvie commnets but to gather data and make a informed speculitive view. You need to accurately draw comparisons not show an example of a crash and it's outcome and call that proof of what will happen here.

I stopped coming here for a while becasue people going on about financial terms and calling it an indicator kept getting it wrong. People didn't even know what yield was yet siad it indicated the maket would crash. There are people here understandably hoping for a crash because the believe it will help them. THere are others hoping for continuel growth to reassure them their huge debt is worth it. It is easy to get these people to agree with their own rosy view.

I know your view it is clear but if you are going to say something state how it is relevant to Ireland. Economic theory is only good if you can prove what you are saying matches the theory and always remember it is theory not fact and if you miss some the information you will apply the wrong theory. Property has differnt qualities to consumer items and this must be considered.

 

[Duplex]

Who turned off the lights?


Loki I hope that you’re not trying to wind me up. Do you think anyone wants to see people suffer because of this madness? Go and complain to the directors of the banks that are happily exploiting the gullible and sacrificing our country’s future for their short term gain.

If and when this bubble does burst I will do my bit to make sure that some of these cynical b******s suffer as well. (by reference to due legal process,)

 

[Neffa]

Well obviously not, as I am still asking how do you know speculators are keeping the prices high here?

Equally, how do you know that they are not?

Some reasons for me to believe speculation (which for me equates to non-rational investment) is rife:

1. Since I came back from the UK, I have been amazed at how many people talk about property as the right/only long-term investment, have multiple homes, tell you that it is their new pension etc. "The best time to buy is now", "Agh sure it will only go up". "Stocks and shares are very risky - put your money in bricks and mortar" I did not hear such generally positive sentiment in the UK market. I firmly believe that it is deeply-set in the pysche of Irish people that property is all that counts.
2. Advertisements on national radio for investment in Turkey/Dubai/Cape Verde islands etc. etc. - You don't get that in the UK, which is hardly a bearish market on property.
3. International property investment exhibitions in Dublin - a new event and where the signs are that it is the new Gold Rush - read the Investment forums on this site and you'll see people investing in places they've never been to and don't understand the local taxation market.
4. Low rental yields and gap between rental prices and purchase prices while investors still buy based on "the long term"
5. Significant numbers of empty properties in new builds being held for capital appreciation

etc. etc.

 

[Neffa]

Loki I hope that you’re not trying to wind me up. Do you think anyone wants to see people suffer because of this madness? Go and complain to the directors of the banks that are happily exploiting the gullible and sacrificing our country’s future for their short term gain.

If and when this bubble does burst I will do my bit to make sure that some of these cynical b******s suffer as well. (by reference to due legal process,)

Just out of interest, how would you do this? Unless the Central Bank forces them through compliance to show that they are stress-testing applicants then I can't see what the come-back is. The banks are not advertising that the boom will go on - I think you'd have a hard time pinning anything on them.

 

[Neffa]

Many FTBs buyers are buying what is built here so I don't see how the specultors are the main cause and I have also stated many are not short term specultors from my experience which is the real danger. If none of the specultors back out of the market there wouldn't be a crash right? I mean that is the basis of most of the crash theories. People get scared and sell say if they don't what would happen. How many speculators are needed to panic to cause the crash? Is there another cause I am missing?

Yep - like the UK in 1989, it just gets too expensive and FTB's cannot make the numbers work. Demand/belief fell off and the rest, as they say, is history. The UK crash in 1989 happened without any real BTL/speculator element.

 

[askalot]

I feel that property is overvalued here, but not by that much looking at historical norms.

Not by much?

Can you please point me to the historical norm that supports average house prices at over ten times the industrial wage. Or the norm where the average monthly repayment is 45% of take home pay and that's when interest rates are at record lows. We are all floating on a sea of cheap credit that's about to get more and more expensive.

Start swimming!

 

[bearishbull]

was on the dart this afternoon and there must have been ten people out of twenty reading the property supplements in times etc. starting to feel a lot like mania /a fad/an obsession.i've given up discussing it with my friends who are like myself 25 and are taking interest only mortgages for somewhere in meath.
when enough people beleive something will keep going up for considerable future it will keep going up once its still affordable(affordable does not neccessarily mean worth the price though!),in the same way once something spooks a lot of the people who beleive prices can only go up things then go in reverse and the same people beleive things will continue going down once they've dropped say 5%,its human nature and herd behaviour and is why pyramid schemes still work despite being around for a hundred years and everyone being "aware " of them.

 

[Glenbhoy]

Posted by Askalot:
Can you please point me to the historical norm that supports average house prices at over ten times the industrial wage. Or the norm where the average monthly repayment is 45% of take home pay and that's when interest rates are at record lows. We are all floating on a sea of cheap credit that's about to get more and more expensive

Or perhaps you could point out which country you are referring to with your numbers?
I think you've got to consider household income, then you can safely halve all the numbers above. As I pointed out previously, there's very little difference in here and the UK in terms of multiples and affordability, likewise with the states and canada and we have'nt exactly introduced 150yr mortgages yet either.
Agreed there are definitely certain areas/addresses where the numbers make absolutely no sense, but in general, I would'nt put values much more than 25-30% overvalued.

 

[bearishbull]

Or perhaps you could point out which country you are referring to with your numbers?
I think you've got to consider household income, then you can safely halve all the numbers above. As I pointed out previously, there's very little difference in here and the UK in terms of multiples and affordability, likewise with the states and canada and we have'nt exactly introduced 150yr mortgages yet either.
Agreed there are definitely certain areas/addresses where the numbers make absolutely no sense, but in general, I would'nt put values much more than 25-30% overvalued.

i think thats not enough,i think it has to drop by at least 35% to offer "value" which is a 50% overvaluation based on current income and rent levels and on predicted interest rate levels circa end 2007.

 

[askalot]

Agreed there are definitely certain areas/addresses where the numbers make absolutely no sense, but in general, I would'nt put values much more than 25-30% overvalued.

25-30% overvaluation - a mere trifle! Mind you I suppose most things in this sainted isle are 20-30% overvalued.

 

[Glenbhoy]

Maybe Bearishbull, but what I look at mostly is net household income and the ability to service a mortgage with that.
Working on a reverse basis and presuming that this is really a Dublin property thread despite its' title
Average Dublin income - €35K per person
70% of FTB's are couples therefore the average gross household income is approximately €50K ie 70% of 70K (Does anyone else think that's pretty low?). Average Net income is thus 80% of 50K = 40K, banks will allow 35% affordability, possibly 40% thus 16K allowed to service the mortgage, this will service a loan of 300K over 35 years (after tax relief) at 5%. As average Dublin property is approx 380K at present, then this only represents a drop of approx 20%.