Current public sentiment towards the housing market?

[thewatcher]

W2DW, your prediction of one final hurrah maybe coming true...
Irish house prices increased by 15.2% in year to June; Rate of increase more than trebles in first half of 2006

Could the final hurrah not have been the first 6 months of this year,it always seemed strange to me that the "soft landing" was called in the space of about 2 weeks after the highest price rises since 2001.
It seems to me that a lot of people are banking on the market going back into overdrive come september,if this doesn't happen panic will set in.

 

[singinvestor]

It seems to me that a lot of people are banking on the market going back into overdrive come september,if this doesn't happen panic will set in

It'll be intersting to see how much PR(relative to previous years)will come out of the construction industry and EAs this autumn. If there is any sense of a perceived market correction in the brewing, you can be assured property pundits will do all they can to calm everyone's nerves and prop up the market with media releases on rising population stats, soft landing theories, affordability, how wealthy we are due to property, etc. One only has to look at the conflicting messages coming from EAs in the media today on accelerating prices and how we are heading towards a soft landing and warnings from the CB on how "vunerable" our economy is to rising house prices. At the end of the end of the day, it's as much about fighting for the hearts and minds of buyers as it is about selling property!

 

[ivuernis]

Could the final hurrah not have been the first 6 months of this year,it always seemed strange to me that the "soft landing" was called in the space of about 2 weeks after the highest price rises since 2001.
It seems to me that a lot of people are banking on the market going back into overdrive come september,if this doesn't happen panic will set in.

Perhaps. Although in my area (Cork) I have not seen prices rise as spectacularly as the BoI data would suggest.

As for the reason why there is a €100k difference between the national averages produced by the BoI and ESRI/PTSB reports I do not know. Having looked at the BoI report they get their values for house prices from the Department of the Environment.

 

[binman]

It's been about 20 pages since anybody mentioned the SSIAs. I think that these are still a factor, albeit not as significant as they were once thought to be.

My feeling is that the extra cash flooding onto the economy between now and next May is going to keep consumer spending firmly in the black. That extra spending should help to keep unemployment down, at the expense of yet more inflation.

I can see the cash providing an underpinning of sorts in certain parts of the property market (particularly STBs). That said I think there will be far fewer investors stumping up the deposits on rentals in less desireable locations. And, as we all know, when the chips are down it's all about location.

 

[bogwarrior]

Interesting article in todays Sydney Morning Herald regarding the impact of rising interest rates on local (and interstate) property prices. Sydney, as you probably know, also underwent a massive growth in prices from the mid-90s until early 2004. In 2004-2005 property prices stalled, and now by the looks of it, the prices are dropping, particularly in the saturated apartment market in the city centre. Bear in mind that interest rates are currently around 7% and the lowest they were was around 4.5% a few years back.

Interest rate rise 'final straw for property'

 

[Duplex]

Merrill Lynch have declared US housing a bear market.

This past week Merrill Lynch declared that housing is in a bear market and that a "buyer's market" for homes should last for "years." Merrill notes that the unsold inventories of homes continues to pile up, and that resale prices are flattening in the single-family market, while declining for condominiums...

http://www.nationalmortgagenews.com/columns/hearing/

 

[walk2dewater]

We are coming up to a total panic “must get on the ladder” phase.

This Thursday some people will see that they qualify for a smaller mortgage at their current incomes. They will also realise that fixed rates are heading higher. Both these factors will result in a wall of desparate buyers.

This is how the Sheeple think.

 

[room305]

Room305,
before betting the family home, here are a few (no doubt controversial) points to consider;

It's not the family though. That's one of the reasons I'm selling. If I owned a home that I was happy to live in for the next 15 years then it would be a different story.

[1]. interest rates may return to low levels in the next 2 years. See the cost of fixing your mortgage at http://www.bankofireland.ie/html/gws/personal/buy_house/legal_interest_rates/index.html#doclink2
1 year fixed: 4.49%
20 year fixed 5.49%

I'd be surprised if they did but then again it is difficult to call the economy at the moment. Certainly if we have widespread recession and deflation, interest rates will be dropped. At the moment interest rates aren't really a major factor for me and I could reasonably comfortably afford the 20 year fixed rate quoted above.

[2]. As the US dollar drops relative to the euro, this may (a) threaten to cause recession in Euro zone, (b) make exports more expensive. These factors will put pressure on the ECB to keep interest rates low

See above.

[3]. What if globalization means this time it really is different! (i.e. HousePrice /Income remains at 10 instead of 2.5) Since the economy is now more globalized than ever before, it is less likely that a situation like the UK in 1989 will re-occur. In the UK they were going into a recession but had to increase interest rates regardless because they wanted to keep the STG /DMARK constant.

See the third last paragraph in http://www.bloomberg.com/apps/news?pid=20601085&sid=aALvocHK7jks&refer=europe

Do you genuinely believe owning a large mortgage is a good position to be in in the event of a recession? Unless you work in the public sector where you can remain oblivious, I would want to be both debt free and highly mobile.

[4] Interest rates are on the way up now because the Germans are confident about the future, but that confidence is likely to be shaken when the US stop living beyond their means

See above.

[5] What if Irish banks AIB and BOI are not selling up to cash in on investment. Instead their profits are lagging behind those of internet only banks.

Their profits aren't lagging behind and I doubt they would cash in in such a case anyway, if the expected significant capital appreciation in future years. Nobody wants to face a crowd angry shareholders in five years time baying for blood and demanding to know why they sold the company assets for a song. They are obviously betting this is a highly unlikely scenario.

[6] Other factors such as energy cost, and cost of goods from China starting to rise will tend to increase inflation (and influence higher rates) but it is difficult to predict which factors will prevail.

I think you could take your pick of any of these possible scenarios: deflation, inflation, hyper-inflation, stagflation. In not one of them would you want to own a large mortgage.

[7] It will be just a difficult to know when to buy back into a fallen market as it is to get out. While you are prepared to rent for 7 years, you will be inconvienced by landlords who want to sell up themselves.

If the market crashes those landlords will struggle to sell. They certainly won't be willing to kick us out while the house is on the market and yes, it may be inconvenient if we have to move a few times but we'll cope.

[8] What rate will you get on your lump sum? 5% gross taxed at 22% DIRT is less than 5% on your PPR. And you are paying out rent with only minor rent relief. Calculate exactly how much you will gain by selling up now. E.g. Simulate a 7% rise in property values for the next 4 years, followed by a crash of 15% and 3 years of decline at 2%. Deduct expenses for selling, rental, DIRT tax on your savings.

Would you consider a 7% rise for the next four years realistic? Followed by a decline of only 21%? Assuming on average 4% p.a. growth in average wages, in your scenario, this would still leave the average house trading at around 10x the average wage. It is far more likely that prices will return to the historical average of between 3x-6x annual wage.

As for putting the money on deposit - we won't be doing so. The money lump sum will be invested for the next 5-10 years while we pay rent from our income.

The internet is a big place - make sure you research positive factors such as such a
- low tax for investors (no annual property tax in Ireland)
- low tax for corporations
- high Irish borrowing is not all just for lifestyle (growing population, investments in UK and elsewhere)
- Irish are more inclined to store their wealth in property than equities.
- stable, law abiding, English speaking

It sure is difficult to predict, and I wouldn't bet the family home on the outcome!

These and other factors started the boom but sometime around 2001 things became very much divorced from reality. A return to these prices is highly likely over the next several years.

Once again though, this isn't the family home we are betting. The main danger for us is that when the market collapses we will be left unable to sell and will be stuck living in a home that is unsuitable for our future needs (e.g. if we decide to have children etc.). On balance I would rather take my chances in the rental market than be stuck with a large mortgage in a very uncertain economic climate.

 

[phoenix_n]

Merrill Lynch have declared US housing a bear market.



[URL="http://www.nationalmortgagenews.com/columns/hearing/"]http://www.nationalmortgagenews.com/columns/hearing/[/URL]

Duplex quotes part of todays indo in his blog.

"Figures in a research report by Davy Stockbrokers estimated recently that up to four out of every 10 mortgages sold to first-time buyers are now 100pc homeloans"

4 in 10 of FTBs. Thats near criminal what they are doing. In a normal market you might agree with it but the way property is been traded like shares these days makes it very dangerous. To give some large sums of money to people with no clear track record of savings to speculate in a market is going to cause tremendous problems in the near future.

 

[thefisherman]

thats it, property is now being traded almost like shares-and like shares one must be prepared to sell to lock in profits, more and more investors will be selling as the property market is unstable.

 

[phoenix_n]

When demand falls and developers off load their apartments at massive reduced prices ( because they can take the hit and still realise a reduced profit ) then many a FTB will find themselves in the evitable position of being in debt. Somthing all our folks warned us against.

 

[Persius]

We are coming up to a total panic “must get on the ladder” phase.

This Thursday some people will see that they qualify for a smaller mortgage at their current incomes. They will also realise that fixed rates are heading higher. Both these factors will result in a wall of desparate buyers.

This is how the Sheeple think.

Does indeed sound like following the herd, but may actually be not so stupid if you think the interest rates are more likely to come down again

Room305,
before betting the family home, here are a few (no doubt controversial) points to consider;
[1]. interest rates may return to low levels in the next 2 years. See the cost of fixing your mortgage at [broken link removed]
1 year fixed: 4.49%
20 year fixed 5.49%
...

Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result. This is bad for Germany (the world's largest exporter) and will affect growth there, and throughout the eurozone. The ECB may be forced to drop rates again to prevent the Euro rising too much against the dollar.

I sometimes think the most likely scenario to force interest rates, and thus Irish house prices down, up is a continuing boom in the US and a simultaneous recovery in Germany. But neither of these things seem to be really happening. Since the Fed and the ECB dropped the rates so aggressivly post 9/11 everyone seems to be working off a new mean interest rate of about 4 % rather than 8 % in the past (maybe it really "is different" ).

 

[room305]

Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result. This is bad for Germany (the world's largest exporter) and will affect growth there, and throughout the eurozone. The ECB may be forced to drop rates again to prevent the Euro rising too much against the dollar.

You seem to be forgetting about inflation.

 

[walk2dewater]

Does indeed sound like following the herd, but may actually be not so stupid if you think the interest rates are more likely to come down again



Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result. This is bad for Germany (the world's largest exporter) and will affect growth there, and throughout the eurozone. The ECB may be forced to drop rates again to prevent the Euro rising too much against the dollar.

I sometimes think the most likely scenario to force interest rates, and thus Irish house prices down, up is a continuing boom in the US and a simultaneous recovery in Germany. But neither of these things seem to be really happening. Since the Fed and the ECB dropped the rates so aggressivly post 9/11 everyone seems to be working off a new mean interest rate of about 4 % rather than 8 % in the past (maybe it really "is different" ).

Persius, you have hit on the crux of the issue. Central banks are caught in an end-game where the choice is either hyperinflation (cut rates/stop rising rates when recession occurs) or deflation (raise rates aggressively to fight inflation but cause massive recession). My money, literally, is on the former—see my gold thread.

Either way, inflation or deflation is going to be UGLY. And for related reasons I highly doubt we will avoid falling property prices.

 

[Del3D]

Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result. This is bad for Germany (the world's largest exporter) and will affect growth there, and throughout the eurozone. The ECB may be forced to drop rates again to prevent the Euro rising too much against the dollar.

I sometimes think the most likely scenario to force interest rates, and thus Irish house prices down, up is a continuing boom in the US and a simultaneous recovery in Germany. But neither of these things seem to be really happening. Since the Fed and the ECB dropped the rates so aggressivly post 9/11 everyone seems to be working off a new mean interest rate of about 4 % rather than 8 % in the past (maybe it really "is different" ).

I would agree this except for our reliance on the US through multinationals. A sudden pull out by an "Intel" in that scenario would have an incredible impact on our house prices! Lets face it in the case of Intel, with a drop of 15% in worldwide staffing currently proposed... it may not be that far away.

 

[redo]

I would agree this except for our reliance on the US through multinationals. A sudden pull out by an "Intel" in that scenario would have an incredible impact on our house prices! Lets face it in the case of Intel, with a drop of 15% in worldwide staffing currently proposed... it may not be that far away.

It would be most felt in the West Dublin area

 

[SteelBlue05]

It would be most felt in the West Dublin area

Thats too narrow a view. Intel is a huge link amongst hundreds of companies. There are supply chains between these companies and Intel and bewteen companies supplying Intel and other companies. If you were to map it out it would look like a big map of airline routes with Intel being one of the links with hundreds of routes in and out.

The consequence of Intel being removed from that map would have far reaching effects, way beyond West Dublin.

 

[redo]

Thats too narrow a view. Intel is a huge link amongst hundreds of companies. There are supply chains between these companies and Intel and bewteen companies supplying Intel and other companies. If you were to map it out it would look like a big map of airline routes with Intel being one of the links with hundreds of routes in and out.

The consequence of Intel being removed from that map would have far reaching effects, way beyond West Dublin.

Agreed, but mostly felt......

 

[SteelBlue05]

Agreed, but mostly felt......

Seriously I dont think you can say that with any confidence. Check out the book called Nexus from Mark Buchanan.

 

[phoenix_n]

I personally think that the initial soft landing will be independent of rates or economy. The purchasing of property in the last 4 years was based more on projected capital appreciation which indeed proved correct. Now that supply has increased and rental market suppressed these gains are not there anymore. When you can get a better return on your income from Northern Rock rather than Brick and Mortar the hard fact is driven home. The interest in the market will be gone and will be replaced by fear. Rising rates will only compound that belief.