# Have the media exaggerated the exaggerated the seriousness of falling house prices?



## 3CC (18 Jul 2008)

_HOUSE prices will fall by almost a half before the economic downturn ends, a leading economist predicted yesterday.

Prices have already dropped by some 25pc since the height of the housing boom at the end of 2005, said Jim Power, chief economist with Friends First. But he expects a further slide of "up to 20pc". 

"People may be interested in buying again but they cannot get access to credit. So, if you are in an environment where buyers cannot get credit but there's a lot of excess supply, to me it is clear [prices] are going to adjust further in a downward direction," said Mr Power. "At the end of it I wouldn't be at all surprised if there is a 40pc adjustment from peak to trough." 

Yesterday the giant Swiss bank Credit Suisse came up with a similar forecast, saying Irish house prices could fall 30pc to 40pc. 

The gloomy picture was presented in the Friends First quarterly economic outlook yesterday, with Mr Power predicting 2009 would be even more challenging. He also predicted job losses spreading outside of the construction sector. 

"The economy is going through a very difficult housing market adjustment which is being exacerbated by a lot of negative external developments, such as exchange rate movements, and the whole global credit situation," he said. 

He expects no growth for two years, with a 1pc decline this year followed by expansion of 1pc in 2009. 

"We are not going to wake up on the first of January next year and find this is all over." _

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Am I missing something here? 

The national HPI from the ESRI peaked in Feb 07 at 139.5 and was 123.4 in May which is a drop of 11.5%. How does Mr Power get a figure of 25% drop? And prices did not peak at the end of 2005, it was over a year later!

I wonder if it is possible that this statement is being taken out of context?

Don't get me wrong, everyone knows that house prices a dropping but let's not get carried away.

Why is that when prices are going up, that everyone thinks they are property investors and when it is going down they think they are victims of government ineptitude. Those with a sensible view on investing realise that prices fluctuate. House prices will bottom out and rebound. In the long term, they are a good investment. Warren Buffet and others often have advocated a buy and hold approach and do not recommend trying to time the market to get in or out.

If you want to move house then do so, it will cost you less to trade up now than a year ago. I you are happy where you are for the longer term, stay put and this will all blow over. If you want to worry about something, think about your pension which for anyone over 40 has probably taken a bigger hit in recent times than your houses; or your job which will have a much greater effect on people day to day.

Thankfully, the long term outlook for pensions and jobs is probably not too bad.

Also, I notice that the media have given much less coverage to falling oil prices than to equivalent rises.

We can all accept bad news but can we have some balance... please!


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## ccbkd (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

Heres some balance for you, the Japanese property downturn lasted for 14 odd years, I suspect 2 years is optimistic, you can expect this to last at least another 5 years and with inflation taken into account and annual falling value 30-40% decline is conservative.... forget about making money on property for the forseeable future!


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## 3CC (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

ccbkd

Yes it did. But that was the longest downturn in property prices in global history. It may be that the Irish situation follows that, or it may not. Personally, I have no idea which will transpire to be the case but I feel that assuming one scenario is a bit rubbish. And if the media do it, it is irresponsible. I think that their current reporting is one sided and from what i can see of their coverage of the Jim Power statement, possibly misleading.

With something like property prices which are so emotive for the general public, there is always a media frenzy. It happened when prices were rising and it is already happening when prices are falling. And the result of this is to magnify the extent of fluctations giving higher peaks and lower throughs.


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## shnaek (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



dmkelly said:


> Why is that when prices are going up, that everyone thinks they are property investors and when it is going down they think they are victims of government ineptitude.



Brilliant! I'm going to use that quote this weekend. Don't worry, I'll credit you with it


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## ivuernis (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



dmkelly said:


> Personally, I have no idea which will transpire to be the case but I feel that assuming one scenario is a bit rubbish. And if the media do it, it is irresponsible. I think that their current reporting is one sided and from what i can see of their coverage of the Jim Power statement, possibly misleading.



I heard the interview in question on the radio and Jim Power's exact sentiment was that he said there was already a 25% drop from the peak and he said he would not be surprised to see a further drop of upto 20% in certain areas. 

I think the last bit is important, as to expect any price correction to be uniform across the country is unrealistic, certain areas will see bigger declines in other areas. 

I do think the media, especially RTE, have a certain responsibly to give informed commentary but sometimes I think they ignore certain facts as they can get in the way of a good sensationalist headline. They've done this in good times and bad and just as they over hyped our so-called prosperity in the so-called "boom" I think they will go over the top now as well.


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## bacchus (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



dmkelly said:


> And prices did not peak at the end of 2005, it was over a year later!


 May 2006 was the recorded peak.



> _Yesterday the giant Swiss bank Credit Suisse came up with a similar forecast, saying Irish house prices could fall 30pc to 40pc. _


That's excellent news. My rental yield may increase, it'll be cheaper to upgrade my PPR, and i'll catch the investment property wagon again.


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## Jimbob2 (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

I think it's fair to say that property prices have fallen by 25%. The PTSB/ ESRI index only accounts for houses which have sold. I suppose it's the only real way to judge it, but it doesn't account for houses on the market which haven't been sold/ can't find a buyer. These must include houses which have drastically reduced their asking prices and still can't sell. I'd be interested to see a survey of by how much asking prices have reduced; I'd bet it's more than the ESRI index.


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## bacchus (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



Jimbob2 said:


> how much asking prices have reduced


Have a look here 



Jimbob2 said:


> I but it doesn't account for houses on the market which haven't been sold/ can't find a buyer.


until a property is sold, the drop is just a virtual notion. That's why i can't understand people freaking out because the value of their PPR is dropping while they have no intention of selling anyway.


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## 3CC (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



Jimbob2 said:


> I think it's fair to say that property prices have fallen by 25%. The PTSB/ ESRI index only accounts for houses which have sold. I suppose it's the only real way to judge it, but it doesn't account for houses on the market which haven't been sold/ can't find a buyer. These must include houses which have drastically reduced their asking prices and still can't sell. I'd be interested to see a survey of by how much asking prices have reduced; I'd bet it's more than the ESRI index.


 

Sure it is the case that some houses do not sell and are withdrawn. But that is presumably because they are not cheap enough to attract a buyer. Those that are cheap enough are sold and are recorded in the ESRI index. There are plenty of people who still think their houses are worth what they were last year. Maybe if the ESRI index took in asking prices of houses withdrawn the fall might be less as those houses are overpriced?


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## 3CC (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



bacchus said:


> until a property is sold, the drop is just a virtual notion. That's why i can't understand people freaking out because the value of their PPR is dropping while they have no intention of selling anyway.


 

Well said. I am genuinely not facetious when I say that if you have no intention to trade down, then you are beter off worrying about the weather than the price of your PPR.

The weather will have a much greater impact on your quality of life.


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## DerKaiser (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

trouble is the collective wisdom is that we are all worse off by falling house prices.  nonsense.  The only people who are worse off are those intending to make a transaction which will reduce their property exposure.  This will mainly consist of those who are in over their head because their incomes aren't all they'd hoped for.  If you're staying put nothing has changed, if you're trading up you'll ultimately have a lower mortgage.
Bottom line, if I was happy to service a €1500pm mortgage two years ago, how am I worse off now??
As regards the index falls there's probably a few months lag meaning prices of houses trading hands at the moment are 15% of their peak.  Factor in inflation of 5% p.a. and they are 25% down in real terms had you left the property idle, but given a conservative rental income of 3% p.a. the real hit is probably approaching 20%


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## diarmuidc (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



DerKaiser said:


> Bottom line, if I was happy to service a €1500pm mortgage two years ago, how am I worse off now??%


You are not. However you may live in an economy that was driven by construction. When the bubble bursts, and all those people employed in that industry are out of a job, you might be impacted. That's the problem.


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## Persius (18 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



Jimbob2 said:


> I think it's fair to say that property prices have fallen by 25%. The PTSB/ ESRI index only accounts for houses which have sold. I suppose it's the only real way to judge it, but it doesn't account for houses on the market which haven't been sold/ can't find a buyer. These must include houses which have drastically reduced their asking prices and still can't sell. I'd be interested to see a survey of by how much asking prices have reduced; I'd bet it's more than the ESRI index.


 
On top of that, the PTSB/ESRI index is based on "expert" valuations on what properties would fetch if sold today. It's NOT based on actual figures of prices achieved in sales. The only people with access to this information are revenue (as they collect stamp duty etc), but they're not making this information available to others.


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## charliemacck (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

I think its about time we got a grip on ourselves. The government will not allow property prices to collapse altogether. At worst we will see perhaps another two years of small price drops, but increased growth thereafter. This hysteria has to stop!


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## bacchus (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



charliemacck said:


> The government will not allow property prices to collapse altogether



So tell us how the Irish gvt will go about it?


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## jpd (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

They will use taxpayers money (increasing taxes or borrowing as required) to purchase empty properties from developers ( or by giving subsided loans to house-buyers to permit them to buy properties they couldn't otherwise afford, same thing)

The next generation can worry about the higher taxes/loan repayments


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## room305 (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



charliemacck said:


> I think its about time we got a grip on ourselves. The government will not allow property prices to collapse altogether. At worst we will see perhaps another two years of small price drops, but increased growth thereafter. This hysteria has to stop!


 
Since when did the government dictate house prices? It's pretty naive to assume that one of the largest housing bubbles in human history will "at worst" result in "two years of small price drops".


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## charliemacck (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



room305 said:


> Since when did the government dictate house prices? It's pretty naive to assume that one of the largest housing bubbles in human history will "at worst" result in "two years of small price drops".


 
Well, as JPD says a good idea would be for the government to support builders and home owners at this time. One good idea is to buy up some surplus housing stock, there are plenty of poor people who need social housing. Stamp duty should be immediately stopping and mortgage relief should be increased substantially. It would be immoral for the government to sit back and allow the pessimists to run the housing industry into the ground.


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## gurramok (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

Govt is running a 3bn deficit this year and maybe up to 9bn next year and you expect them to buy all those unsold houses and apts?!


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## charliemacck (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



gurramok said:


> Govt is running a 3bn deficit this year and maybe up to 9bn next year and you expect them to buy all those unsold houses and apts?!


 
Of course it won't be possible to buy them all, but the government can do its bit to support those who helped build the Celtic Tiger. There are people in this group who obviously would love it if those people were left to hang out to dry. Many of these people did not know that property prices would ever go down and please god hopefully they will not drop much more.


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## gurramok (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



charliemacck said:


> Of course it won't be possible to buy them all, but the government can do its bit to support those who helped build the Celtic Tiger. There are people in this group who obviously would love it if those people were left to hang out to dry. Many of these people did not know that property prices would ever go down and please god hopefully they will not drop much more.



There must be tens of thousands of houses and apts unsold, its a big bill if they were even to buy only a handful!

Why not let them drop in price?

Cheaper housing benefits the ordinary joe and jane buyer and the economy plus the houses would be sold alot faster if they had cheaper prices and hence some builders can retain their jobs!


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## cromulent (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



charliemacck said:


> Many of these people did not know that property prices would ever go down and please god hopefully they will not drop much more.


 
A strange statement for someone professing to support the building industry. The reason the building industry has collapsed is because houses became so expensive that no-one could afford them anymore.

That, and the fact that most of what they're building is crap inspired by speculation and greed rather than utility. Greedy short sighted developers failed to grasp the simple concept that people do not want to live in poky shoeboxes.

Luckily for the building industry (and potential future housebuyers) Dublin City Council has now imposed minimum design standards for new apartments (only 10 years too late mind), and a rising tide lifts all boats - so standards of new builds will rise across the board, resulting in a better quality of life for the eventual occupiers - be they owner occupiers or tenants. The increase in quality will promote higher demand leading to more jobs in the building industry.

Secondly, basic economics tells us that when you have excess supply in a market, you must reduce the selling price until you reach the point where demand exists. At that point the market is in equilibrium, and from then on prices can start to rise again if demand exceeds supply. 

Right now supply of properties both for sale (new and second hand) and for rent exceeds demand by a considerable margin in the Irish property market.

So both prices & rents have to fall until equilibrium is reached. It ain't that hard really. Although Jim Power has apparently only recently figured this out, many others managed to arrive at this conclusion a long time ago.


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## 3CC (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*

I think this thread is drifting off topic a bit. 

My original point for discussion was that the media have exaggerated the seriousness of falling house prices and as a result have fulfilled the prophecy to a degree. Although the media did not cause house prices to fall, intense media sensationalism is magnifying the effect and could result in an overshoot in prices terms.  

I have read a lot about affordability being a major aspect here but the average house price (currently around €275k) is affordable. A quick look at the daft mortgage calculator indicates that a couple on the average wage (€35k each) would get a 92% mortgage of €308k over 25 years. So the average couple can more than afford the average house.

Again, my point is not to predict house prices. My point is that saying 'we are at the end of the largest bubble in history and therefore prices will fall by another gazillion percent or that prices will fall for at least the next 5-15 years' is nonsense. It may transpire to be correct or not but there is no reason to believe it at present. It is a logical jump over a large ignorance gap.

If you have a point, then justify it. If not, it is an opinion with no basis and you need to check out http://www.thepropertypin.com


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## ajapale (19 Jul 2008)

*Re: Have the media exaggerated the 'housing crisis'?*



3CC said:


> .......... and you need to check out http://www.thepropertypin.com



Yes, thepropertypin.com would be a good place to continue the discussion.


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