Future price of Irish properties

[walk2dewater]

the crash will happen , might be 10 months or 10 years ,but every day that passes means it will take a bigger crash for people who bought in 2004/2005 to be in negotiate equity...

How big is a crash? This post confirms my belief that people really don't grasp what sort of monster we're dealing with. The apex of a correction, the darkest moment if you like, where prices fall precipitously, is the point where sellers are forced to sell and buyers know it. The game is effectively up. There is no safety net below which prices cannot fall. If no one wants what you have to sell the market value of what you're selling is ZERO. Sellers who have to sell become panicked, fear of extraordinary wipeout losses pulls in more sellers, and the scarce few buyers around demand extreme discounts for "catching a falling knife"; todays extreme discount then becomes tomorrows best market price, as so on, until prices become so battered that some base is eventually achieved. The base appears because buyers cannot extract any further concessions from sellers.

Spouting ideas that prices will only fall by "10%" or "40%" is unrealistic. In a full blown bust, sellers look into an abyss. Rational economic valuation is ignored on the down as much as it was on way up.

WTTW

 

[jhegarty]

How big is a crash? This post confirms my belief that people really don't grasp what sort of monster we're dealing with. The apex of a correction, the darkest moment if you like, where prices fall precipitously, is the point where sellers are forced to sell and buyers know it. The game is effectively up. There is no safety net below which prices cannot fall. If no one wants what you have to sell the market value of what you're selling is ZERO. Sellers who have to sell become panicked, fear of extraordinary wipeout losses pulls in more sellers, and the scarce few buyers around demand extreme discounts for "catching a falling knife"; todays extreme discount then becomes tomorrows best market price, as so on, until prices become so battered that some base is eventually achieved. The base appears because buyers cannot extract any further concessions from sellers.

Spouting ideas that prices will only fall by "10%" or "40%" is unrealistic. In a full blown bust, sellers look into an abyss. Rational economic valuation is ignored on the down as much as it was on way up.

WTTW

there is a point where every crash will end.....houses will always sell for more than €1

 

[gearoidmm]

I don't think that the relatively small rise in interest rates this year is going to have much of an effect of house prices. The market is still being driven by investors buying-to-let. The place to watch out is in the rental market. As long as people are able to get a reasonable rent on their properties, even if it doesn't cover the mortgage, there will be that belief that eventually the price will rise and they will make money. A rise in interest rates or a slowdoen in the rate of house price inflation will not change that (as is evidenced by what happened last year - the rate of house price inflation was 2.5% for the first 7 months of last year and no-one took any notice of it).

Panic selling will only occur if there is significant over-supply in the rental market and people have properties going unrented for months on end. There is no sign of that happening yet. As long as there is some money coming in people will still convince themselves that everything is going to be alright. This market is no longer anything to do with fundamentals but is all to do with expectations and blind optimism.

 

[Loki]

How big is a crash? This post confirms my belief that people really don't grasp what sort of monster we're dealing with.

Sorry what are you saying? House prices will crash and all house prices will crash and nobody will be able to sell their property?

Where will people live? Why will people need to sell their homes? If it is only investment property I think you are mixing up financial information and reality.

AFAIK in the UK crash many properties recovered within a year or two. The properties that stayed in negative equity were mostly up north in areas of large unemployment at the time of pruchasing let alone after the crash. even in negative equity it doesn't mean you are actually in day to day trouble.

If you own a house close to good services you will be protected from a crash and recover quicker. Many investment properties are in such places. Crashes aren't actually as bad as people think and certainly not enevitable espically in a country with an increasing population let alone high employment and the highest home ownership.

 

[walk2dewater]

Sorry what are you saying? House prices will crash and all house prices will crash and nobody will be able to sell their property?

Where will people live? Why will people need to sell their homes? If it is only investment property I think you are mixing up financial information and reality.

AFAIK in the UK crash many properties recovered within a year or two. The properties that stayed in negative equity were mostly up north in areas of large unemployment at the time of pruchasing let alone after the crash. even in negative equity it doesn't mean you are actually in day to day trouble.

If you own a house close to good services you will be protected from a crash and recover quicker. Many investment properties are in such places. Crashes aren't actually as bad as people think and certainly not enevitable espically in a country with an increasing population let alone high employment and the highest home ownership.

Where will people live? In their houses of course. I'm talking about the PRICES of houses not the physical thing. The price of something is set by the transaction between the marginal buyer and seller-- I didnt have to put my house up for sale to observe the market price of it change over time, the marginal activity in the market did it for me.

And yes, during the crash you won't get a very good price for your house; buyers will be extremely scarce and will be in the position to force big discounts out of sellers, a true buyers market. Sellers who cannot get a good price will, if they have the option, withdraw from the market leaving the pricing to the 'have to' or forced sellers.

What is the point of the rest of your post? The only protection anyone has from a general market crash is if you don't need to sell your house. It's the sellers during market crashes that get scr*wed. If you don't need to sell, what's the problem?

WTTW

 

[walk2dewater]

belief that eventually the price will rise and they will make money. ...people will still convince themselves that everything is going to be alright..

This is exactly the sentiment that is destroyed during a crash... everything will NOT be alright for people starting the crash in a highly leveraged position...

 

[ubiquitous]

Many people quote huge drops yet in many cases that means houses prices would drop below construction costs.

I think that this point misses the fact that the sharp property price inflation of the past 10 years has generated a parallel surge in construction costs. (In 1995/96 it was eminently possible to build a house in most parts of the country for IR£30-40,000 plus site costs.)

If there is a sharp downturn, it would be reasonable to expect at least some deflation in construction costs. If, on the other hand, there is continued buoyancy in property prices and construction, then construction costs will continue to surge ahead.

 

[Loki]

Where will people live? In their houses of course. I'm talking about the PRICES of houses not the physical thing. etc...

I don't get what your point is. There is a big monster out there is what you have said and you suggested houses in real terms will be worth nothing (streaching logic there I think). I am asking you what makes you think a price crash will be so devistating and the reality of what damage it will actually casue. All your dark doom saying doesn't really make any sense. A very small portion of the population will be effeced in the worst case senario you are suggesting. Pension fears are actually a bigger problem in such a crash. Many pension funds rely on property.

I think that this point misses the fact that the sharp property price inflation of the past 10 years has generated a parallel surge in construction costs. (In 1995/96 it was eminently possible to build a house in most parts of the country for IR£30-40,000 plus site costs.)

Minimum wage and union rates increased along with changes in construction regulation. In 95 you could not build a house for €30k with land. When I was pricing a house in 94 it was €140k to build it and I owned the land. A small 3 bed semi in Dublin city. Now that was without the 10% for the drawings or council fees which are part of the process.

 

[walk2dewater]

I don't get what your point is.

.

I couldn't be clearer.

 

[bearishbull]

your quite clear walk2dewater.

 

[Neffa]

Sorry what are you saying? House prices will crash and all house prices will crash and nobody will be able to sell their property?

Where will people live? Why will people need to sell their homes? If it is only investment property I think you are mixing up financial information and reality.

AFAIK in the UK crash many properties recovered within a year or two. The properties that stayed in negative equity were mostly up north in areas of large unemployment at the time of pruchasing let alone after the crash. even in negative equity it doesn't mean you are actually in day to day trouble.

If you own a house close to good services you will be protected from a crash and recover quicker. Many investment properties are in such places. Crashes aren't actually as bad as people think and certainly not enevitable espically in a country with an increasing population let alone high employment and the highest home ownership.

Errrr...in a word, no. Crashes are worse than people think because people in Ireland have never seen one so people tend to think it will be ok. It is not a blip, it leaves a real mess. It is true that better areas recover quicker - in the nice areas of London, it took 7 or 8 years to recover post the 40-45% correction in 1989/90. In the less-nice areas it took longer because they fell further.

We owned a house in Chiswick (W4, 9th most expensive postcode in the whole of the UK and certainly one of the nicest areas in London) and it took from 1989 to 1997 to recover the value. Oh, and in the middle of that period, interest rates doubled. Nasty.

As other posters said, once the "property is a one-way bet" belief goes out the window and uncertainty enters the market, then everyone hesitates and it takes a long time to go away. The sentiment on this board and elsewhere is that oh, there'll be a blip, then we'll go back to 10% growth again the next year - that was certainly not what happened in the UK and has not happened in Japan or other markets to have suffered a crash. It took 8 years in the UK and Japan has still not recovered nearly 20 years on.

 

[jpd]

I'll concur with Neffa. It was not pretty watching property prices in the UK during the crash in the early 90's - we had an investment property and fortunately did not have to sell it and only had a small mortgage on it.

And again, in France we also lived through a slump of 25% in prices in the 90's in Paris - it took over 10 years for prices to recover to the levels seen in 1989-90. Although this time interest rates did not also rise.

I feel that as property prices have never actually fallen in nominal terms in Ireland, most people have no idea of the effects of prices falling 10-15% o(or more) - especially if interest rates are rising as well.

It will probably turn into a seller's market - as did the UK and France, at least for those with spare cash!

IMHO, it's only a question of when and not if.

Joe

 

[woods]

The problem with a lot of people is that they will see the value of their house as being the highest value that it reached before it drops (if it drops) and not the price they paid for it, and will be measuring their loss from there.
We did not make one penny on the first 3 houses that we owned in Ireland because there had been no increase in value while we had them. We were lucky to get our money back so all we had was the benefit of having a home for the years that we were there.
Most home owners in the country have seen an increase in the value of their property and the drop will have to go below this average gain before it would get to be a problem for the economy.
The increase will have to come to a stop but I do not think that it will come to a sudden jarring halt that will catapult us all out of our orbits.

 

[extopia]

It will probably turn into a seller's market - as did the UK and France, at least for those with spare cash!

You mean buyer's market, right? What we have now is a seller's market - i.e. the seller has more power than the buyer.

 

[Neffa]

The problem with a lot of people is that they will see the value of their house as being the highest value that it reached before it drops (if it drops) and not the price they paid for it, and will be measuring their loss from there.
We did not make one penny on the first 3 houses that we owned in Ireland because there had been no increase in value while we had them. We were lucky to get our money back so all we had was the benefit of having a home for the years that we were there.
Most home owners in the country have seen an increase in the value of their property and the drop will have to go below this average gain before it would get to be a problem for the economy.
The increase will have to come to a stop but I do not think that it will come to a sudden jarring halt that will catapult us all out of our orbits.

You are quite correct in that most people do not lose money per se but crucially they lose the ability to move as they have to sit out until the market stabilises. However, as fewer people move, major domestic purchases such as white goods, furniture, kitchens, bathrooms etc also slowdown which has a significant knock-on effect for the general economy. So a general weakness affects the overall economy. Not to mention the drop in stamp duty for the government.

I would also speculate that a great deal of the immigrant labour in Ireland at present is directly or indirectly associated with property and construction so if that slows down, they may return to their home countries or go elsewhere in Europe, cooling the demand for rental property in due course. I've no proof of this, just a personal opinion.

 

[walk2dewater]

I said in an earleir post something like, "it's the sellers during market crashes that get scr*wed". Who will the sellers be when the irish market sours? Who will be able to ride out the related recession, keep their jobs or get new ones, pay their mortgage and muddle through? I expect the vast majority will manage ok, but also a significant minority won't.

Who will this significant minority be, why will they end up selling into a bad market? Any ideas?

 

[Loki]

You guys still just claim there will be a crash yet don't seem to accept this is speculation.
The effects the price crash actually has a on a country is dependent on the reaction. It also depends on how the central bank reacts and as we don't control it some elements of the traditional market are gone.
If the experts have gotten it wrong for so long what have they said to explain how they can't get it right? If you were to listen to them 6 years ago and not have bought you would be in trouble if you wanted to buy.
There may not be a crash at all. It appears anybody who is irish and doesn't own wants to own. This could keep demand pretty constant.
In the event of crash how we react to selling will come in. I think the whole zero value of property is way over the top. It amounts to a piece of fiction as very few people would suffer like that. Irish people have the highest home ownership in the world and I beleive that we have a very low house turnover even now.
It's all speculation you could be right or I could be but the point I would make is the experts have been wrong for 10 years by memory but at least 6 at what point do you decide they don't know what they are talking about or they are missing something in their understanding? Economists can miss social elements.

 

[hmmm]

Economists can miss social elements.

Exactly. Economists are sensible rational people. Year after year they declare the housing market is at unsustainable levels, yet year after year prices go up. They have not been "wrong", their analysis appears correct which is that prices are overvalued.

What they can't factor into their algorithms is the mass hysteria that is driving the housing bubble worldwide. For a rational investor, they can choose to ride the fundamentals or they can ride the momentum in a market.

 

[roryodonnell]

Exactly. Economists are sensible rational people. Year after year they declare the housing market is at unsustainable levels, yet year after year prices go up. They have not been "wrong", their analysis appears correct which is that prices are overvalued.

What they can't factor into their algorithms is the mass hysteria that is driving the housing bubble worldwide. For a rational investor, they can choose to ride the fundamentals or they can ride the momentum in a market.

The Economists are saying that there WILL have to be a house price correction. I think they resemble a broken clock. Yes they may be broken but they will tell the time correctly twice a day.

 

[Loki]

Exactly. Economists are sensible rational people. Year after year they declare the housing market is at unsustainable levels, yet year after year prices go up. They have not been "wrong", their analysis appears correct which is that prices are overvalued.

What they can't factor into their algorithms is the mass hysteria that is driving the housing bubble worldwide. For a rational investor, they can choose to ride the fundamentals or they can ride the momentum in a market.

Economists therofore can't predict anything as people do things based on social order not on economic principle. If economists ignored the weather effect of food production they would always be wrong if they ignore social order on housing they will get it equally wrong. There analysis is either correct or not. If they say x will happen and it doesn't you don't get to say they got the calculations right so they are right. X didn't happen their prediction has been wrong I don't accept that as their logic makes sense that makes them right.
Property prices aren't hysteria people use a lot more reason. You may not agree but you calling it hysteria is actually the over reaction and as unreasonable as somebody yelling that prices can only go up.
Fundmentals you are talking about is not supply and demand but safe bets. The safe bet is to say house prices can't keep going up and must at some point drop. It is not quite like gravity and has a high probability of being right over time. It is not analysis of the real world but predictions that are vague enough to be correct. Buying a house makes a lot of sense for many people renting and wanting to seatle down.