Current public sentiment towards the housing market?

[Guest126]

Yea markets operate on fear and greed.

The case of equities you mentioned was an example of fear, they bottomed out and were oversold IMO.

On the other hand, in the case of houses it is greed at the moment, they have topped out and (as with the tech bubble) are still being bought IMO.

 

[shnaek]

Did they have strong reasons for their change of heart or simply following the herd, then and now.

I don't know. We didn't get into much of a discussion on it. One girl is American with an Irish husband. She was comparing prices to San Fran prices and saying that they didn't make sense. Another was saying that they were looking around and couldn't see the value in the prices being asked.

But it was only a ten minute lunch break so we didn't go too deep into it. Perhaps it is a herd reaction, but isn't everything?! The herd has been pushing prices up, so the herd could just as easily push prices down. If you can anticipate the herd then you can see profit to be made.

 

[colc1]

Some of the other EU countries are now opening up their labour markets to the accession countries (Spain, Portugal, Belgium and Finland I think). All of the old 15 EU members are obliged to open up their labour markets by 2012. I think Ireland will be a less attractive location for Poles, Latvians etc by then.

I think the labour markets opening in these countries is a very important point why wouldn't the Poles, etc. go to somewhere with a better climate over the next few years rather than Ireland?

 

[colc1]

Perhaps it is a herd reaction, but isn't everything?! The herd has been pushing prices up, so the herd could just as easily push prices down. If you can anticipate the herd then you can see profit to be made.

Exactly the herd has been pushing up prices and the herd is now clearly getting more negative plus the census proves the huge immigration levels of recent years and that's not going to continue once at that level once the other countries like Spain open their labour markets as I was predicting in my previous post

 

[walk2dewater]

In order for prices to fall we need a market where buyers have power to extract discounts from sellers. Where sellers are forced to concede ever lower prices, thus driving market values lower and lower.

I think we are nowhere near such a position for the folllowing reasons:

First, inventory build up is the first tell-tale sign that sellers arn’t having their way, and I see NO evidence of this.

Second, the recent “crash” fears in the media are highly exaggerated. By Autumn, hindsight will demonstrate this to be yet another “crying wolf” episode. The few temporary bears will conclude that prices will continue to rise and they will therefore switch back to the bull camp. Sellers may experience even more pricing power than ever.

Thirdly, ECB rates won’t really hurt until >7%. And that’s 18mths away. And before this Irish banks will have time to develop and market 50yr+ mortgages or other forms of payment scheduling that maintain “monthly affordability”

Fourthly, and this is crucial, I think that there will be an EXTREME supply side refusal to discount prices, EVEN if buyers dry up. I have recently re-started discussing property trends with friends, friends of friends, colleagues etc. There is a scenario forming in my mind where families or other groups will “band together” to prevent ANY sales going through for discounts. I can see a situation where there is virtually NO sales activity. Estate agents and auctioneers may go bust in droves, but absolutely no one will break ranks and sell “below market”. This extreme supply-side response could only be broken by extreme circumstances, e.g. 80s style recession.

Any comments?

 

[Duplex]

The bell has tolled for the Irish Housing Bubble. Global indicators now point to a sharp slowdown, inverted yield curves, rising inflation, slowing US economy, geopolitical rancor etc. The lumpen masses will realise soon enough.

 

[colc1]

This extreme supply-side response could only be broken by extreme circumstances, e.g. 80s style recession.

Any comments?

Do you not think some kind of recession, maybe not 80s style, is possible with fewer houses being built, cheaper labour in newer EU states, etc?

 

[Guest126]

My comment is that rental yields are now about (and in Cork a bit less than) 3%.

How can we say that interest rates need to get to 7% before they hurt, if yields are 3%?

Do we think renters can afford to pay much higher rents than now?
IMO no they cant because economy is not booming ahead now.

Do we think rental yields will go lower?
IMO no because they are about 4% to 5% in major EU capitals such as Madrid, Paris, Amsterdam...eh what is so special about Cork please

 

[walk2dewater]

Do you not think some kind of recession, maybe not 80s style, is possible with fewer houses being built, cheaper labour in newer EU states, etc?

I do, but my main point is that I sense something in the Irish psyche that will resist tooth and nail succumbing to lowering the asking price. Moreso than in other countries. We are a very stubborn race and we have a fanatical relationship with property/land. Even if there's a job loss, illness or divorce, or punishing rates, family will rally around to make sure the mortgage gets paid, and no-way-Jose over-my-dead body etc. will they "give away" the house...

 

[Duplex]

We won't have data like this in Phoenix Arizona (on their bursting bubble).
But this is what I expect to happen here. And I don't think that interest rates will have to rise or (will) rise to 7%-8% (unless the Middle East goes critical.)

The property market is a bubble remember that, prices have risen because prices have risen, when prices stop rising the bubble pops it really is that simple.



[broken link removed]

 

[walk2dewater]

[I know I'm replying to myself here ]

What's to stop government giving subsidies/tax breaks/dole to jumbo mortgage holders in danger of being repossessed? Surely that would be a popular voting grabbing, policy?

 

[Guest126]

But who will buy at less than 3%?

 

[Howitzer]

[I know I'm replying to myself here ]

What's to stop government giving subsidies/tax breaks/dole to jumbo mortgage holders in danger of being repossessed? Surely that would be a popular voting grabbing, policy?

Once tax from property transactions drops, tax from consumer spending drops and unemployment increases then you'll struggle to come up with the cash for populist measures without breaking the EU budget guidlines, though I know everyone else breaks these on a regular basis.

 

[Persius]

...I think that there will be an EXTREME supply side refusal to discount prices, EVEN if buyers dry up... There is a scenario forming in my mind where families or other groups will “band together” to prevent ANY sales going through for discounts. I can see a situation where there is virtually NO sales activity. Estate agents and auctioneers may go bust in droves, but absolutely no one will break ranks and sell “below market”. This extreme supply-side response could only be broken by extreme circumstances, e.g. 80s style recession.

Any comments?

I'm no expert in the motor trade, but think there may be some parallels there.

The amount of new motor purchases has been roaring ahead since 2000. This resulted in loads of articles in the press about the forecourts being full of second hand cars as a result of the trade-ins. The conclusion was that there was oversupply of second hand cars, and it should be easy to get a bargain.

However as far as I can see, the garages simply refused to sell at a discount. From anecdotal evidence, many garages refuse to enter into any meaningful bargaining, and will simply hold on to a vehicle for an extra year rather than sell at discount. I guess they don't want to give the impression that they have any over supply or other problems. Otherwise they will get this reputation and everyone will be looking for significant discounts.

I could imagine something similar happening with property. Owners will simply refuse to sell at a discount. They will (still) be willing to subsidise their tennants in their investment property, or simply delay a move in their residential property.

Rising interest rates on their own won't make that much difference as people will probably cut back elsewhere instead. The only thing that will force sellers to accept lower prices IMHO is a large increase in unemployment where the seller can no longer afford his monthly repayments. However in this scenario purchasers will probably also be very afraid of losing their jobs and less willing to commit to long term morgages. There's another thread on propsects for the Irish economy, but no-one foresees large rises in unemployment for the next 2 years at least.

 

[Duplex]

The best example I can provide of what is likely to happen is what did happen here in Ireland in 2001. Prices fell, mortgage lending dropped, then 9/11. Five years 400,000 new homes later an economy built on houses and unsustainable debt, is where we are at.

 

[phoenix_n]

I do, but my main point is that I sense something in the Irish psyche that will resist tooth and nail succumbing to lowering the asking price. Moreso than in other countries.

Disagree totally. Firstly those that gained already will take a loss on their profit to get out of a falling market. Those that are paying a mortgage of 1600 on a falling asset when they could rent the same for 1000 will sell even at loss to stop the montly loss.

 

[Bedsit]

One point to remember here is that a lot of the second hand stock has been bought up immigrants and recent arrivals. This has kept the second hand market bouyant.

I'm no expert in the motor trade, but think there may be some parallels there.

The amount of new motor purchases has been roaring ahead since 2000. This resulted in loads of articles in the press about the forecourts being full of second hand cars as a result of the trade-ins. The conclusion was that there was oversupply of second hand cars, and it should be easy to get a bargain.

However as far as I can see, the garages simply refused to sell at a discount. From anecdotal evidence, many garages refuse to enter into any meaningful bargaining, and will simply hold on to a vehicle for an extra year rather than sell at discount. I guess they don't want to give the impression that they have any over supply or other problems. Otherwise they will get this reputation and everyone will be looking for significant discounts.

 

[ubiquitous]

I think that there will be an EXTREME supply side refusal to discount prices, EVEN if buyers dry up. I have recently re-started discussing property trends with friends, friends of friends, colleagues etc. There is a scenario forming in my mind where families or other groups will “band together” to prevent ANY sales going through for discounts. I can see a situation where there is virtually NO sales activity. Estate agents and auctioneers may go bust in droves, but absolutely no one will break ranks and sell “below market”. This extreme supply-side response could only be broken by extreme circumstances, e.g. 80s style recession.

Any comments?

One possible flaw in your argument would be the effect of the banks forcing people to sell against their will. Then again the banks have over the years forced quite a number of cash-strapped farmers to sell their farms and this phenomenon has not caused agri land prices to collapse, even though profits in agriculture have been falling for years. Its therefore impossible to predict with any certainty what will happen in the property market.

 

[walk2dewater]

Disagree totally. Firstly those that gained already will take a loss on their profit to get out of a falling market. Those that are paying a mortgage of 1600 on a falling asset when they could rent the same for 1000 will sell even at loss to stop the montly loss.

Good point, the sellers from which buyers can extract discounts will likely be the "investor" types.

However, isnt there STILL wide scope to "borrow from peter to pay paul" so that these investor-types can cope and hang in there for ages more? Particularly if overall sentiment maintains a seller market?

Bottom line is, I reckon reports of a buyers market as of TODAY are exaggerated. I'm betting on prices being higher 6-12mths from now.

 

[walk2dewater]

One possible flaw in your argument would be the effect of the banks forcing people to sell against their will. Then again the banks have over the years forced quite a number of cash-strapped farmers to sell their farms and this phenomenon has not caused agri land prices to collapse, even though profits in agriculture have been falling for years. Its therefore impossible to predict with any certainty what will happen in the property market.

Remember 1st and foremost banks want their principal back, and the best way to do this is to keep those monthly payments coming in. Friendly banker: "Falling behind on the mortgage there Mr Murphy?", "Well now that you've paid off some of the principal why not re-finance to reduce the monthly lump?"