THere doesn't need to be a lot of them for them to own a large part of the market. So if your view is they aren't buying for the short term then the prices won't crash as people will be holding onto them and not panicing. Over the long term property does generally raise and I think that is what most small investors are thinking.glendale said:I don't think a lot of these people are 'real investors' with substantial porfolios.I don't think people are buying for the short term gain I think people are buying becauase they think that the current captial appreciation will continue for a long time. I think it won't, when they realise this they will sell. Some people have blind faith in property, ""you can't go wrong".
This is what I think, it isn't fact but opinion. You obviously have a different point of view. None of us can predict the future.
I think its the people who are as you say "doing the wrong thing logically" that will cause problems.
Glenbhoy said:My understanding had always been that this was all linked - ie, stock market crash, followed by economic recession, followed by decreased economic confidence, job losses etc which inevitably led to a crash in house prices.
walk2dewater said:Some posters have said that there's no bubble, will be no crash etc. Other posters have pointed to economic reasons why there should be a crash etc. I will cut the bone and explain why a severe collapse in prices is an inevitable dead certainty.
The reason is precisely this: There is a widespread EXPECTATION that you cannot lose, that property is a one-way bet, “money for old rope” as someone once put it to me. Under these expectations dips would mean “buying opportunities” and everyone expects the “the long-term” will bail them out under all circumstances. In the frenzy to grab a piece of the perceived risk-free action no one wants to be left out. This is the essence of asset bubbles, this is why we’re in one, and this is exactly the reason why a severe fall in prices is guaranteed.
Here’s why price stagnation after a classic speculative bubble tops out doesn’t happen:
Imagine if you took away these expectations of price growth and replaced them with expectations of price stagnation? Would first time buyers be scrambling to get in at ANY price? No, they are expecting prices to stagnate. Would existing owners want to trade up at ANY price? No, they too are expecting prices to stagnate. What would owners of property do where monthly revenues fall short of monthly costs and there’s no more price appreciation? Would all of them take it on the chin forever? Remember they're not expecting further price growth. Under these new expectations of the future, which side of the transaction would have the pricing power, buyers or sellers?
And all bubbles top out. Eventually the game ends cos there are no more participants. Buyers simply dry up, either they can't find the means to participate or they cop on to what's going happening. What happens next is sellers have no one to pass the bag on to-- that's why the price growth slows, next it stops, then next, expectations of further price growth are ruined.
A bubble by definition is price growth based on EXPECTATIONS of further on-going price growth and NOTHING ELSE. €700k apartments in Dundrum only make sense if you think you can sell them for more later. Otherwise, why on earth would you pay that much?
Ireland is full of people who cannot imagine the market going against them because it’s psychologically too painful. It means early retirement replaced by working longer. Well I have news...
WTTW
Loki said:THere doesn't need to be a lot of them for them to own a large part of the market. So if your view is they aren't buying for the short term then the prices won't crash as people will be holding onto them and not panicing. Over the long term property does generally raise and I think that is what most small investors are thinking.
I get it is just your opinion but it is shared by many and nobody can say why they think there are so many investors casuing rises and why they assume so many will jump at the first sign of trouble.
Neffa said:Sorry - this is not correct. I lived in London during that period. The UK was not even close to recession in 1987 - the Tories were returned in a wave of economic euphoria and the late 80's were the preserve of the champagne lifestyle and yuppies. The stock market crashed as it was overbought and by 1990, when the housing market crashed the stock market was back to 1987 levels:
See the FTSE graph here: [broken link removed]
The housing crash helped drive the UK into recession, not the other way round.
It is equally logical to assume that people earning more money and high employment can afford more. The banks beleive the ability to pay back loans has increased and how people will be working longer mean house prices go up. Less assumption on what I have said as it is all common knowledge that we have more employment, banks give more money and longer terms. Yours is based on assuming intent of people and giving reason to peoples' actions. I don't think that is reasonable to assume, suspect or base your purchasing on that but it is personal choiceCalina said:The problem as I see it is that given the way that prices are rising, it is reasonable to suspect that quite a lot of people are panic-buying. In that case, you can't, per se, expect them not to panic when the prices either stop rising or are on the way down. There are a lot of people saying "if we don't buy now, we'll miss the boat, we'll never get our feet on the ladder, we'll be in rented hell at the mercy of landlords forever till we die". I actually can't call that a rational assessment. Queuing at new developments doesn't actually make me feel like anything approaching rational consideration is being applied.
Loki said:Well that is a belief system close to religion not science or even close. Nothing is ever overvalued if people are willing to pay for it is a fact not beleif. THe economists can't be wrong and right. What you are saying is you believe the economists are correct.There is belief that what they say is correct by not what is happening but "signs" that lead to show how they are right yet the end figure is still not going down. If you use international comparisons what were the signs accross the world telling the UK? Japan? US? You only believe house prices are overvalued it is not a fact no matter what you say now it is only a fact after the event. At what point in your belief were they right? I have never beleived there is a direct correlation between rent and house price. Rent is more based on location than house price is and always has been from my experience
Economists are a bit like chess players the calculate possible ways for the person to move into check mate and ignore the threat. They are also assuming the pieces the other player is trying to go for. THey are ignoring cultural issues and various other real world factors cumilatively they effect the market. Re you considering the change in demographics in terms of increased single people and marriage break ups? What about the post colonial driven demand to own housing? THe fact that irish home ownership will probably have to drop in line with most other EU countries?
I disagree with you I believe that the stock crash casued the housing crash in the UK as do other people.
beattie said:There is speculation from some commentators who I would have considered quite dovish that interest rates will hit 3.5% before the year is out. That will put a major squeeze on many in the buy to let sector as costs rise IMO
http://www.rte.ie/business/2006/0223/germany.html
Loki said:It is equally logical to assume that people earning more money and high employment can afford more. The banks beleive the ability to pay back loans has increased and how people will be working longer mean house prices go up. Less assumption on what I have said as it is all common knowledge that we have more employment, banks give more money and longer terms. Yours is based on assuming intent of people and giving reason to peoples' actions. I don't think that is reasonable to assume, suspect or base your purchasing on that but it is personal choice
Loki said:Crashes are not a result in over pricing but sudden change in a point of view or fear. It is silly to claim there is a right price or wrong price for anything. I might as well claim that a sudden under pricing casues a crash than you claiming years of overpricing
Why not try and be a bit more balanced and argue your point instead of saying people are wrong and stop assuming you are 100% correct.
Actually I was not assuming good or bad about it it one way or the other. I stated as other possible reasons than the view people were panic buying which I beleive is assuming intent which can't really be calculated.Calina said:That's assuming you consider longer term loans to be a good thing, along with higher salary multiples when calculating how much someone can afford to pay back.
Neffa said:A price is what someone pays which is objective. How much value there is is subjective. I think current prices offer poor value by historic/international standards and therefore I believe that they are too high.
I don't disagree about the causes of rises but it is this vague "at some point" I think is a weak arguement. People quote 30% construction cost and claim super normal profits but foreget the tradition of construction market then jump back into traditional models claiming it is a problem. There really has to be a general formula to say a true value. If you were to believe some of the reports houses would be worth less than the materials it is built of in the heart of the capitol. It is possible but extremely unlikely.Neffa said:Actually, I do believe that the present boom (i.e. a positive crash) is caused by years of under-pricing and pressure being released as prices catch-up. I lived in London during the 1990's and property there was certainly very cheap through 1992-93. At some point, we crossed over into a world of over-pricing and only time will tell when that was.
Neffa said:I'm open-minded to data arguments about why the present situation is sustainable but I've not heard any other than "Ireland is different", "It is a post-colonial phenomenon" etc. Can you present any data/fact based arguments to support a long-run 5%+growth in the market? All I hear sounds a bit like "technology is different", "the old economy is dead" all over again.
Glenbhoy said:Some interesting posts from everyone, pity I'm busy today!
Neffa:
A quick point on UK and Irish wage to house values, to my mind this pretty much identical:
UK National average wage: £22,411 Average House Price (per friday last) £185K ratio is therefore 1:8.4
Irish national average wage €32K (couldnt find confirmation) Average House price €278K ratio is therefore 1:8.5
The fundementals are supply and demand. I am not advocating a pyramid scheme and I never said there wouldn't be losers. A crash is not an inevitability. THe irish property stock is due a change which will effect the markets and economists aren't examininng it.thewatcher said:Loki,
you remind me of a conversation i had with a friend of mine one night.This girl was quiet intelligent and a primary school teacher no less,for two hours she tried to convince me that the scheme she was about to get involved in was the greatest thing since sliced bread and you could not lose.That time it was the "women empowering women" gifting scheme,she had completely convinced herself there was no downside to the scheme and everyone would win.You seem like a fairly intelligent person who has their head stuck in the sand,just this time it's the property pyramid.
you can't beat the fundamentals !
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