S
SteelBlue05
Guest
"Over a 50% drop" eh? A drop to below the cost of building the place in most cases. Did you just pluck that figure out from thin air?
I will predict a -20% minimum everywhere even in D4 embassy land and a fall of over 50% out in the Back of Ballivor type commuter places but this will all take up to three years to bottom out and will most assuredly not happen by December 2006 unless the ECB jacks by 25bp every montg from now on and a panic starts as well .
Here are my speculative predictions to come about by December 2006:
* commuterland 1 bed flats - 40%
* commuterland 2+ bed flats - 30%
* inner M50 flats and commuterland houses - 25%
* city centre flats - 20%
* middle class suburbia 2 bed houses and townhouses (no management companies) - 15%
* middle class suburbia 3 and 4 bed semi-Ds (no management companies) - 10%
Bill Bonner, en vacances in France:
The gods have gone over to the other side.
What is happening is that trends that worked so
beautifully on the upside are now slipping into reverse.
People still watch central bank policy setters as if it
were a live sex show. They don't want to miss anything.
But the thrill is gone. The magic no longer works.
The most important of these thrills is the housing
market. When house prices were rising - in Britain as in
the US, Australia, South Africa and across English-
speaking world - homeowners enjoyed what economists call
a "positive wealth effect". Interest rates fell. Housing
boomed as more and more people went to work in it the
industry. In America, 20% to 40% of all new employment
in the last five years was in the housing sector. As
everyone's house rose in price, people felt themselves
richer and spent more money.
But now house prices have stalled...and are beginning to
slip back.
>From Dallas comes news that house sellers are offering
incentives such as free maid service, swimming pools and
appliances - whatever it takes to move stuck
merchandise. The trouble is, after ten years of boom
conditions, there's a lot of merchandise to move. And
much of it is not really suited to buyers' interest.
For ten years, people have bought expensive new
apartments - "condos" as the outsized version in the US
is known - not because they really want a condo...but
because they think it is a way to magnify the wealth
effect. The more condos they own, the more effect they
get.
Or, they might have decided to get more bang by putting
up more bucks. A buyer signs up for a plusher, pricier
house than he really needs, realising that the wealth
effect is proportional to the investment. Property, he
sees, has been rising at 20% per year in many areas.
Twenty percent of £500,000, he tells himself cannily, is
more than 20% of £250,000. So he buys the half-million-
pound house, even though he really doesn't need it.
But now that that 20% per year froth has disappeared,
homeowners no longer have an interest in more house than
they need.
"Homeowners say 'downsize me'," reports Reuters. It
costs money to maintain a house. Property taxes, heat,
mortgage payments and maintenance are all proportional
to the size of the house. With nothing to gain, people
naturally want to cut out the unnecessary expense.
The positive wealth effect has gone...negative. The more
house you own, the more it costs you to hold onto the
house...and the more you lose when house prices go down.
Meanwhile, the Anglo-Saxon homeowner is also getting
squeezed by higher interest rates and higher fuel bills.
"Gas prices inch up to another record high," says an AP
report. The US national average rose to $3.03 last week.
Prices in the UK are nearing £1 a litre again.
Now our hapless consumer is in a bind. His real income
is flat or falling...while his expenses are starting to
rise. He has to cut back. Naturally, the first thing to
go will be the house he doesn't need....which makes the
negative wealth effect even more effective and even more
negative. Not just for the seller, but for everyone
else. Every house sold at a discount drops the value of
all equivalent housing stock - even for people who don't
intend to sell. All of a sudden, none of them are as
rich as they used to be. They, too, cut back their
spending.
We know what the Fed and Bank of England will do once
this trend builds up momentum; they will cut rates -
just as the Old Lady did in August last year. She took a
step back and cut to 4.50%. Now the Old Lady's been
forced by inflation to start crawling forwards again.
She's raised base rates to 4.75%.
But if the Bank of England or the Fed now cut the cost
of borrowing from here, the magic will have gone. And no
matter how many passes in the air these magicians make,
it will not come back. For, if they really could
manipulate the economy any way they chose, we need never
have worried. They could have jerked the economy around
like a puppet on a string. Want faster growth...just cut
rates. Want less inflation...just raise them.
But there comes a time when financial officials can
fondle rates as much as they want; they will never get
the response they're looking for.
As Nouriel Roubini explains in last week's Financial
Times:
"Once the housing and consumption slump starts, demand
for durable goods becomes interest-rate insensitive.
Indeed, the recent housing bubble has led to a glut of
housing stock, consumer durables and lingering excess
capital capacity in the rest of the economy. Thus, as we
saw in 2000-01, the housing and consumption slump will
dominate any monetary easing effort..."
In the US, the Fed can chirrup as much as it likes;
lower rates simply won't reverse the negative wealth
effect of a falling real estate market. Mortgage rates
may go up or they may go down (the Fed only controls
short rates), but people won't borrow at all if they
sense they will have a hard time making the payments.
This is because the old star-spangled circus magic has
turned into black magic...a kind of voodoo economics
curse, where the tricks all go wrong.
The magician pulls a rabbit out of his hat and it bites
him on the nose. He saws his pretty assistant in half
and finds her actually cut into two bloody pieces. And
the ace up his sleeve turns out to be an Old Maid.
It is what happened to Japan in the 1990s. Could it
happen in the US and Britain? We don't doubt it.
"Over a 50% drop" eh? A drop to below the cost of building the place in most cases. Did you just pluck that figure out from thin air?
never mind the cost of building, its simply the opportunity cost of the long commute over the short commute .
outer commuter belt of whatever town will get it hardest .
I'm quite bearish myself but I have to laugh at your ridiculous predictions. We haven't seen any significant signs of inventory build-up and already you are calling for a huge correction.
You will see these kind of drops (and probably worse) but they are at least two years off yet.
Housing has undoubtedly gone bear in the U.S. and they are only taking about falls in prices occuring next year!
If a 1 bed flat in commuter land cost ?250k last year, then it will probably cost about ?275k now. For your prediction to come true, the seller will need to drop his asking price from ?275k to ?150k. A drop of 45% by the seller.
Where is the motivation for such an enormous drop going to come from?
Making these kind of massive, stock market crash style predictions for the short term looks foolish and provides much ammunition for the bulls.
Anyone considered forwarding examples of widespread concealed asking price reductions to the Indo ?
I would think there's a story there.
Besides they might be happy to report to the public how myhome.ie facilitates EAs reducing asking prices surreptitously.
I really dont think you'll see places for sale for less than the cost of the build, it does matter.
just caught up on the last 10 pages, took a bit of time but I have read the whole lot so far. There's lots of interesting comments and I hope I can add something meaningful.
<font face="Arial">I got off the property merry go round in January....
Why not? - even at the height of our current boom it would cost more than €55,000 to rebuild that house in O'Malley park but it's selling for "just" €55,000. The value of a property is not simply related to the build cost.
Also - in a construction recession, building costs would be reduced significantly due to builders competing in a tougher market.
I'm sorry if I make you laugh, but I'm prepared to stick by what I predicted above. Unlike the US, the Irish market has a huge speculative element to it, driven mainly by incentive schemes such as section 23 coupled with a non-sensical property culture (or lingering 19th century Irish inferiority complex as I like to call it - new-found-wealth investors also suffer from this mindset).
I am on about the original build cost, not rebuild costs.
Now back to this over 50% figure you magically whizzed up, how did you get that?
Now back to this over 50% figure you magically whizzed up, how did you get that?
I live in Dublin and on my return from a year away I sold my only property which was in Cork. It had been rented for 2 of the 3 years I owned it. ...
...My tenants covered the rent and other costs and paid my ssia for 2 years, one of which I wasnt working.
It is completely irrelevant so i will not even answer that.I am on about the original build cost, not rebuild costs.
peripherality factors.Now back to this over 50% figure you magically whizzed up, how did you get that?
My point is try to keep the discussion factual or at least based on solid reasoning.
It is completely irrelevant so i will not even answer that.
peripherality factors.
As energy costs rise the Irish commuter belts 30 -50 miles out in little villages with no services will tank. Simple really .
These peripheral commuter belts will see the greatest falls and thats where the 50% drops will be because there will be far more sellers than buyers and the price will be set by whoever bails out last .
Inner commuter belts less so.
Good close to employment areas less so again.
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