Future price of Irish properties

[Neffa]

More evidence of an overheated market....

Source: Breakingnews.ie


Huge growth in mortgage lending
28/02/2006 - 12:35:44

Mortgage lending continued to grow at a massive rate last month with the Central Bank revealing an increase in borrowing of €1.5bn – the strongest January on record.

Despite an expected drop in the New Year, the annual rate of growth climbed to a new height of 28.8% in the first few weeks of 2006. This compared with 28.5% in December.

The unprecedented lending figures come as new a survey showed that the average price of a home for a first time buyer has topped €250,000.

According to the Permanent TSB/ESRI index, house prices overall rose by 1.2% last month, similar to the increases recorded in the final three months of 2005.

House prices for first-time buyers went up 0.7% in January, with the average price paid now at €251,281.

[broken link removed]​

The annual rate of growth in January moved up to 10.2% from 9.3% in December. Permanent TSB has already predicted a growth rate of around 10% for 2006.

The Central Bank said mortgage lending remained strong last month but the traditional January effect was evident, with the monthly increase falling to €1.5bn from the record €3.5bn in December. And it also revealed lending by finance houses increased by just over €3.4bn, or 1.3%, to €262.2bn in January.

The monthly bulletin showed residential mortgages increased by €1.6bn, overdrafts were €117m higher and loans up to and including one year grew by €182m.

--------------------------

We have borrowing growing at 29%, prices expected to grow at 10% and salaries (the thing which most people use to pay for all of this, either via mortgage payments or rent payments) growing at 5% (or thereabouts), in a market where interest rates are about to start their upward growth once more..........

So I think this puts to bed all the "it is based on fundamentals" nonsense you hear some of the bank/estate agent economists saying. It is based on slack credit, funding huge market demand, enabling high price growth in an environment of huge expected price rises - "I better get in before it goes up even more"

I think that is as close to the definition of a bubble as you can imagine.

 

[Neffa]

Call it whatever you like. I have outlined the "event" that is pending in earlier posts so won't describe the reasons or mechanism here. In my opinion, the "event" will be minimum 3 years long, likely much longer. It will involve periods of price drops, base forming, then massive gaps down; typical behaviour in bear markets. The tail end will record slower price falls than the beginning.

Some properties will find buyers only with massive discounts and will sit on the market for months and month on end, others will fair better. In terms of the general market, I think 50% fall overall is a reasonable minimum. That would only get us back to 2002 prices, which remember were double those of 1997.

By the bitter end, "property investment" will be a sour phrase with loaded connotations, and will be wildly out of favour.

Excellent post imho - just as the current market is driven by expectations of rises which are way out of kilter, the market in a crash is driven by fear of further falls which are in general way out of kilter too, but it pushes prices down even further.

People in Ireland find this hard to believe, but when I was working in the UK in 1991-97 everyone believed you were mad to buy property because of the carnage it had wrought in people's finances through the crash period. Those expectations/fear drove it down and it took a long time to recover. Many people had their fingers burnt badly.

BTW, I do agree with Loki on one thing! All-up, a crash puts an economy through a lot of pain and it will be a tough period. It is better in the long-run to have sensible asset prices but the 5-10 yr effect is messy following a crash.

 

[owenm]

Their is a lot of talk about figures and surveys by vested interests, i.e. PTSB house price index is not exactly an independent or all encompassing source. The dept of the environments web site contains data for house prices based on loans paid on a quarterly basis. The data for Q4 should be out in the next few weeks - for an unbiased set of figures.
http://www.environ.ie/DOEI/DOEIPub.nsf/wvNavView/RegularPublications?OpenDocument&Lang=en#I2

 

[gearoidmm]

I am looking for some advice. I am currently a first time buyer and looking to purchase my first home. I am currently working in Dublin and houses prices are unreal. I currently have 25K in savings and my SSIA is expiring May 2007 where I contributed to the maximum amount 254 euro per month. I would like to buy now before houses prices increase…. But the problem is where…. I was thinking about kildare/Meath. Any advice

From another thread in this website. This says it all really about the expectations of the general public.

 

[derryman]

Hey don't knock it - that's a €45k deposit - enough for a €0.5 million 3 bed semi @ 92% LTV - just a little matter of a basic salary in six figures now - two recently qualified 26yo accountants getting it on should sort that....

 

[Loki]

From another thread in this website. This says it all really about the expectations of the general public.

I think everybody knows that is what some people are hoping
And others are hoping this

I'd like to pay less for an apartment/house than I would have to now. I suppose that if this situation were to come to pass then a lot of people would be living on negative equity. I'm formulating a view on a market, not wishing people ill. But, if house prices did fall considerably, I would have a much smaller mortgage proportionally.

People are wishing for the property market to change not so much on fact or analysis but the hope of what they think is going to happen. Unless you have a survey of what people are ALL thinking one persons comment used as a gauge is a bit too much.

There is definitly an element of peoples' beliefs been driven by the situation they are in. Some people side with the view that they think will suit them best in the event.

When people ignore possible impacts to their theory it becomes a problem. Lets face it some people just aren't smart enough to truely analise the information so they take their cue from somebody else. People stating beliefs as fact is a prime example. It is simple wrong to say it is a property bubble as it can be only true if there is a crash. Like the weatherman can't tell you the wether next year but he can tell you what the storm was like yesterday. The weatherman is more scientific than an econonomist and he isn't consider to be accurate why an economist?

Definitions of Property bubble on the Web:
[SIZE=-1]A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in the valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic indicators, followed by rapid decrease that can result in many owners holding negative equity (a mortgage debt higher than the value of the property).
[/SIZE]Not a bubble untill there is a rapid decrease. No rapid decrease no buuble.

Now people claiming that we are currently in a bubble are either ill informed, stupid or beliving other people who are also wrong. You can point to as many indicators to suggest this is a bubble but only time can tell prior to that it is speculation. People are free to suggest why there will be drop but to say the investor will panic causing ahuge devaluation is a big assumption becasue many suggest all investors are specultive and easily scared. I am not picking holes in peoples' arguements more pointing out what people are saying is too solid and ridgid a belief. Losts of factors are not being considered.

 

[walk2dewater]

people claiming that we are currently in a bubble are either ill informed, stupid or beliving other people who are also wrong.

Fine, that's your opinion and you're welcome to it.

 

[bearishbull]

Now people claiming that we are currently in a bubble are either ill informed, stupid or beliving other people who are also wrong.

the thing is its not possible to say for sure untill a bubble bursts. damien kiebard a normally very positive bullish economist who writes in the sunday times and has called the irish economy very well over the years has said there is a bubble in asset prices here,i'll beleive him over your vague ill informed analysis anyday.

 

[roryodonnell]

Definitions of Property bubble on the Web:
[SIZE=-1]A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in the valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic indicators, followed by rapid decrease that can result in many owners holding negative equity (a mortgage debt higher than the value of the property).
[/SIZE]Not a bubble untill there is a rapid decrease. No rapid decrease no buuble.

Rapid increases on valuations of property...............check
Unsustainable levels relative to incomes.................check
Rapid decrease in prices resulting in neg. equity.......please wait

 

[Loki]

Fine, that's your opinion and you're welcome to it.

It's not an opinion it is a matter of definition and fact. You can't point to a dog and say it is a cat it is a dog.
Define a property bubble where a sudden price movement downward is not part of it if you beleive the definition I provided is wrong. You are more than welcome to say my definition is wrong and provide an alternative but it is certainly not an opinion. Although you did quote my opinion of people mis using the term.

 

[walk2dewater]

Moderator note: quoted reference to a previous gratuituous profanity removed.

-- ClubMan

He's being doing that most of the thread.. again in my opinion

Loki appears like one of those people who has so much riding on being able to sell their property on for a higher price in the future. Psychologically they cannot accept the idea that prices will fall because it is financially and emotionally ruinous to them. So they twist and turn and squirm out of any counter-point to their passionately held view, making up progressively wierder and convoluted arguements as to why prices cannot fall.

The Brits nicely sum it up, "Pride before a Fall"

WTTW

 

[Loki]

Rapid increases on valuations of property...............check
Unsustainable levels relative to incomes.................check
Rapid decrease in prices resulting in neg. equity.......please wait

The point is you can't tell the future and therfore are making up that it is a bubble untill that happens. It is not a bubble untill a crash plain and simple no matter who says it

the thing is its not possible to say for sure untill a bubble bursts. damien kiebard a normally very positive bullish economist who writes in the sunday times and has called the irish economy very well over the years has said there is a bubble in asset prices here,i'll beleive him over your vague ill informed analysis anyday.

AS I said untill there is an event it isn't a bubble all other is speculation. It is not a case of being sure it is a case of it isn't untill a crash Damien Kibert is also a radio presenter and heavily involved in the media world. His job is to entertain more than to be an economist at this point. You know nothing of my background and experience

You are starting to talk from your anus Loki.

You said it is a bubble only if house prices sunddenly fall, correct?
So if they do fall in the near future, then we HAVE been in a bubble, correct?

So how do you know prices won't fall (relative to the recent increases) in the near future?

Actually when prices fall we will have had a bubble and be in a crash.

Note I have not insulted one person directly yet a few of you have made personal insults try to be civil and understand when a term is being missused and attack that not me for pointing it out

 

[derryman]

Obvious apologies for interrupting a private party, but sometimes the real world commentary does get in the way.

Three bed semis are getting sold for half a million plus in D16 today , starry eyed couples are getting desperately endebted (but happy to live here) to achieve this - that is the reality - but hey the world goes on.

Coming over from the FOOL UK side, they have been wishing a financial housing meltdown upon their fellow citizens (all fall in a flowing tide) for three years , dispite interest rates doubling, IRAQ war involvement, a third term by a party with a really dubious accounting belief (keep borrowing, pay out all) etc, but you know something it still has not happened - that's the problem, prices are set in the margin of the market and the chancer sellers and dubious buyers are still in love - dispite the signs all around

LOKI - well done for defending the indefensible - never heard that angle
Guys - get a life - either invest and pray or don't invest and be happy

Where do I stand - on the edge, about to cash in or do I hold on for 10% more - Ireland was a grime place in the early eighties and you could get a D4 big house for 100k - pity we all had to live in london / yonkers then.

 

[roryodonnell]

Didn't mean to offend Loki. Sorry.

The theme of this thread is the "future price of Irish properties".

We can all sit back and with hindsight say, yes, there was a bubble for the last 5 years or so. I think most people on this thread seem to think house prices can't rise much more relative to incomes (one of the portents of a bubble as you agree to).

Anyway, apologies again. Is there any chance you can enlighten us as to your "background and experience"

 

[Loki]

Moderator note: quoted reference to a previous gratuituous profanity removed.

-- ClubMan

He's being doing that most of the thread.. again in my opinion

Loki appears like one of those people who has so much riding on being able to sell their property on for a higher price in the future. Psychologically they cannot accept the idea that prices will fall because it is financially and emotionally ruinous to them. So they twist and turn and squirm out of any counter-point to their passionately held view, making up progressively wierder and convoluted arguements as to why prices cannot fall.

The Brits nicely sum it up, "Pride before a Fall"

WTTW

I have accepted prices will fall you on the other had seem to have a problem understadning that some things have definitions and can never seem to provide a alternative definition when asked.

You just squirmed out of the second definition I asked you for. You appear to be unable to understand definitions either. Instead making up that my correction on terms are a pychological issue I have becasue you assume I am at risk from a crash.

Define property bubble so it can be named without a price driop and keep your comments on the issue

 

[walk2dewater]

Guys - get a life - either invest and pray or don't invest and be happy

or invest in gold, oil, natgas, C$/CHF, US$ Puts, S&P500 puts, US Builder Puts, or cash- yes cash is an asset class, though you wouldn't think it in Ireland at the moment- and be VERY HAPPY INDEED

 

[CCOVICH]

Keep this civil or this thread will be locked and people will be banned. This thread has been going for ages, but the tone has been lowered in the past few days.

Don't question the moderation on this and don't have me repeating myself.

Thanks.

 

[ivuernis]

Definitions of Property bubble on the Web:
[SIZE=-1]A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in the valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic indicators, followed by rapid decrease that can result in many owners holding negative equity (a mortgage debt higher than the value of the property).
[/SIZE]Not a bubble untill there is a rapid decrease. No rapid decrease no buuble.

Loki, you cannot seriously disagree that the property market since the late 90's resembles the inflationary period of a property bubble. As the saying goes:

"If it looks like an elephant, walks like an elephant, and has "I’m an elephant" tattooed to its rump, the odds are overwhelmingly in favor of its not being a duck-billed platypus."

Now people claiming that we are currently in a bubble are either ill informed, stupid or beliving other people who are also wrong. You can point to as many indicators to suggest this is a bubble but only time can tell prior to that it is speculation.

To say people who believe we are currently experiencing a property bubble are ill-informed, stupid or believing other people is both rude and a gross generalisation. Everyone is entitled to an opinion and the majority of opinions on this thread have been backed up be solid knowledge and reasoning of economics.

I remember Warren Buffet being pillared for avoiding the dot-com boom back in the 90's. People thought he was falling behind the times. He admittedly said he didn't invest in companies he didn't understand but he obviously understood enough to know the numbers didn't add up. There was a "paradigm-shift" taking place, it was the "new-economy" and the old rules didn't apply anymore but in the end it turned out that the did and then the market woke up to this fact and look what happened. Warren Buffet is now making similar noises about property markets being over-heated. Is he ill-informed? I very much doubt it. Is he stupid? Most certainly not. Am I for listening to his (and others with equally sound track records) reasoning? I don't think so. It's just his and other people's arguments are more compelling to me than those of the people who say prices won't drop or there'll be a "soft-landing".

 

[Duplex]

I agree with Loki, that we will not know irrefutably that the Irish property market has experienced a speculative bubble, until it has crashed.

But then if I was considering taking a walk somewhere in the west of Ireland and noticed that dark menacing clouds were cascading in from the west and that the wind was up and that the weather forecast on the radio had just issued a storm warning for my location, and the cows had begun to lie down in the fields etc.

I’d bring an umbrella.

 

[Calina]

Loki, leaving aside the semantic argument of Bubble or not Bubble, do you really think it is viable to assume that everything will be okay until it crashes (and then we know retrospectively that it wasn't okay)? I would consider that as head burying beneath the sand.

The bubble exists. You just don't recognise it until it bursts. Hence "bubble" metaphor.

And incidentally, while you may claim not to have insulted anybody here, you did say that anyone who said there was a bubble was stupid and ill informed. You also accused them of not recognising possible impacts on their theories. I'd have to say that you are every bit as guilty of that last sin as other people here.

If house prices continue to rise as facilitated by what I consider to be highly negligent banking and inertia on the part of the government, then I think when a correction does come, it will be altogether worse than if it had come four years ago. The greater the rise, the greater the fall, the greater the fall, the greater the long term impact.

I'm concerned at reports that up to 40% of newly completed units are lying empty with their owners either unable to rent them, or assuming that capital gains will make it worth their while. In the former, it says something about excess supply in the rental market, and in the latter, it suggests gambling. What no one has highlighted is that what has made asset crashes worse in the past is the high level of debt taken out to finance their purchases. This is true of tulips, South Sea stocks and stocks in 1929. People didn't just lose their own money, they lost money they didn't actually already have.