When will the downward spiral in the stockmarket end?

barryl said:
I also believe that over the next 6 months is a good time to purchase an investment property in ireland,buyer markets can be short lived
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I give up! Banks will now allow as a maximum 70% LTV, under the current climate for BTL investment. Net cost yields need to be at 7%+ to cover mortgage payments, excluding apartments which have larger management costs. The IO days and self certs are over. The fundamentals of property are five to six times income is bubble territory, and that’s according to vested interest of Nationwide/ONS surveys. So that's the most basic fundamental within the property, now try getting a loan above x4.5 time’s income. Impossible in my opinion to achieve - unless the banks are still mad to give out credit. If you are using other assets as collateral, compared to 12 months ago these are having major write downs and anyhow, each investment must now make sense on its own, to them.

Fundamentals within s/exchange have changed, principally the credit that washed over the markets through crazy hedge fund leverage and consumer leverage is gone. IMO there is no bounce. Markets are on a long term correction without these instruments of credit, madness, intertwined. Good luck though if that's what floats your boat?

I'm not a doom merchant, far from it. But 12 months from now across many asset classes, real value will only emerge. Patience is a virtue. As mentioned previously by other posters, a month or two of +ive growth to confirm things rather than -ive, would be my view only. No one is trying to buy rock bottom, that's near impossible.
 
Thomas22 said:
Once the global property markets (mainly the US, the UK and yes Ireland)have significantly readjusted then the stock markets will start to return to normal.
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That's really one of the most naive things I've read all year (but it's only the seventeenth, so the year is yet young...). Of course it is entirely right, but leaves so much unsaid!

The problem in the US is that the consumer has no money. He's broke. He's taken out all the home equity he can, he's maxed out his credit cards, and his car is bought on credit. The company he works for builds, sells, or finances real estate so his job prospects don't look great either. The bank he keeps his money at didn't do too badly in the sub-prime farango, but it has lots of ARM mortgages that reset to higher rates this year, next year and into 2010. It also gave lots of loans to commercial real estate developers to build condos in Florida, shopping malls in Fresno, and real estate offices in Frisco. Commercial real estate declines about 5 quarters after residential real estate. It's just started to pop.

Much of this is not priced into global stock markets. A recession in the US is not priced into the US markets yet. The US consumer is 70% of GDP in the US. If he has no money, where is economic activity going to come from?

The US is 25% of global GDP. Who is going to take up the slack? Do you really think that commodity and oil prices will remain high in this environment? Who are the BRICs going to export to? Us? Do we have vast amounts of spare cash? Or indeed of credit?

So the likelihood is that a US recession will spread around the world.

The median time for a house price deflation to work it's way through is 4 and a half years (I believe the research shows). The US is still in year 2. We are still in year 1, the UK has just started year 1. (The Japanese are in year 17). For those of you who remember the UK house price crash of the nineties, house prices took ten years to recover in real (inflation adjusted) terms and they fell for four successive years (at varying levels).
 
yoganmahew said:
That's really one of the most naive things I've read all year (but it's only the seventeenth, so the year is yet young...). Of course it is entirely right, but leaves so much unsaid!
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It isn't naive I know what the problem and I know the length of time that is going to take to work its way out of the economy. I agree with you that is going to take 4-5 years (minimum) for the global house price bubble to deflate.

Most people seem to think the "sub-prime" market going sour that has caused the problem. It isn't!

The problem stems from the fact that house prices in the US are falling.
If house prices continued to rise in the US then we wouldn't have any of the current problems as distressed owners could simply have refinanced or sold at a profit. With these options no longer available default rates have soared. Leading to bank loses, tightened credit markets, more falling house prices, more defaults and the cycle continues.
 
Thomas22 said:
The problem stems from the fact that house prices in the US are falling.
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The problems stems from the banks inability to prospect CDO's it bought from marginal mortgage companies, who had sold 120% mortgages to people with zero chance of affording long term. That is, if interest rates increased. This phenomenon also was being sold in Ireland, UK and further afield to a lesser extent, but world banks bought these CDO AAA products which are now junk bonds status.

The MBO, CBO, SIV's and all the other beautifully named and inventive products the banks dreamed up, for the ABX or Credit markets, have exploded in their faces. The lack of credit now available, as a result of banks consolidating, adds to the bad timing of other cyclical issues. Hedge fund and consumer leverage, now that it has gone the other way, must readjust into market valuations.

yoganmahew said:
The median time for a house price deflation to work it's way through is 4 and a half years (I believe the research shows). The US is still in year 2. We are still in year 1, the UK has just started year 1. (The Japanese are in year 17). For those of you who remember the UK house price crash of the nineties, house prices took ten years to recover in real (inflation adjusted) terms and they fell for four successive years (at varying levels).
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Absolutely correct, house markets typically follow a 14 year cycle. Buying on year one of a seven year downturn [if it follows pattern] both nominally and in real terms, is a mistake. Catch a falling knife.
 
MichaelDes said:
The problems stems from the banks inability to prospect CDO's it bought from marginal mortgage companies, who had sold 120% mortgages to people with zero chance of affording long term. That is, if interest rates increased. This phenomenon also was being sold in Ireland, UK and further afield to a lesser extent, but world banks bought these CDO AAA products which are now junk bonds status.

The MBO, CBO, SIV's and all the other beautifully named and inventive products the banks dreamed up, for the ABX or Credit markets, have exploded in their faces. The lack of credit now available, as a result of banks consolidating, adds to the bad timing of other cyclical issues. Hedge fund and consumer leverage, now that it has gone the other way, must readjust into market valuations.



Absolutely correct, house markets typically follow a 14 year cycle. Buying on year one of a seven year downturn [if it follows pattern] both nominally and in real terms, is a mistake. Catch a falling knife.
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I'm not really disagreeing with your analysis of the problem I just think the problem has a different source than you do.

I think that if the property market was still rising it wouldn't matter whether the people could afford the mortgages or not. Any time they were at risk of missing payments they could simply re-finance or sell up.

When property markets are falling this option no longer exists so the banks face loses on defaulted mortgages with collateral that is no longer worth enough to cover the loan.

I agree that the CDO's and other exotic instruments have magnified the loses but if the property market was still booming the loses wouldn't be nearly as significant in the first place.

I also agree that there is no point trying to "catch a falling knife" but I would go further, IMO anyone who buys property in the current market needs to book an immediate appointment with a shrink.
 
barryl said:
OF COURSE NOT! ITS GROSS YIELD
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good answer barryl.

A man will do well to fiund 5.4% net these days.

Out of curiosity - what are the details on this 5.4% property
i.e. price,location,rent etc.

I'd be surprise if it actually exists.
 
barryl said:
THIS BOND IS MORE RISKY AT PRESENT BECAUSE INFLATION IS AS HIGH OR HIGHER THEN THIS RATE,SO WHATS RISK FREE ABOUT THAT?
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What makes you think that a property investment is going to be better or even match inflation over the next 10 years?
 
Thomas22 said:
What makes you think that a property investment is going to be better or even match inflation over the next 10 years?
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1 res.property has a long history of beating inflation over any 10-15 year period in Ireland
2 average income also has a long history of increase in Ireland

3population growth forcast to increase
 
"Past performance is no guide to the future" and after the longest and most extreme period of house price inflation this country has ever seen i think that statement is very important. To see where we COULD be headed you need to take at the previous property bubbles in Japan and the UK and just at Ireland.
 
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