Future Shock: Property Crash

[Ceist Beag]

One point about that lad Kelly - his closing advice made me laugh. Basically he said to first time buyers - "Don't buy now as the market is going to collapse because people cannot sell" ... surely the first would have a direct impact on causing the second!!

 

[whathome]

If either of these programmes (Future Shock or Primetime) save even a few first time buyers from setting off at this time on the zombie like shuffle towards a possible financial nightmare then it's a good thing. Maybe a few more people at least will be aware of the very real risk they take on when buying property in the current market.

Future Shock presented an alternative to the hype and rubbish that's been fed into the Irish media from vested interests over the past few years. It would have been better without the creepy music but the arguments were for the most part well formed and presented well.

The key thing for me is the educational factor, this kind of programme is necessary so that people fully understand that a property crash can happen. Property buyers need to take this into account when assessing the risk on a huge financial commitment.

The programme didn't say what would happen, it said what might happen. If the property market is based on solid fundamentals then Future Shock has absolutely no chance of causing a crash. If a property bubble exists however then the programme might help to deflate it before a bigger problem grows.

I can see from previous comments that Future Shock was difficult viewing for AAM posters that have borrowed heavily for property in recent years. No doubt that the financial institutions and estate agents will have been horrified that someone could present this view but fair play to Richard Curran for enlightening people to the risk.

 

[paddyd]

Surely they [Friends First] have as much if not more of a vested interest in getting people out of property and into equities? This accusation is pretty facile in my opinion.

Not entirely.

Power does his bit last night on Prime Time to defend the property market, and low and behold, in todays Indo: Friends First reopens Irish Property Fund

Would certainly make me question his "we're not a vested Interest" claim. In fact, kinda makes him look a fool.

I had hoped Prime Time would bring some balance to the Future Shock arguement, but the opening piece just talked about (potential) losses of 40-60%, as opposed to Future Shocks claim of 35%. They still tried to be sensationalist.

 

[ubiquitous]

Its laughable to suggest that someone of Jim Power's experience and track record is a fool. Its also laughable to suggest that his defence of the Irish property market is motivated by the fact that Friends First are opening a property fund today.

A short- or medium-term dip in property prices would actually play into the hands of a property fund whose primary purchase is to buy (not sell) property and who therefore have a vested interest in buying up properties as cheaply as they can and holding them for the long term in order to eventually realise a capital gain on exit.

Had Power taken the opposite view last night people would have been accusing him of talking down the market to suit his employer.

 

[conor_mc]

Its laughable to suggest that someone of Jim Power's experience and track record is a fool.

Not having a go at Jim Power myself (at least he can debate his point, instead of spinning it) but surely history is littered with people of JP's "experience and track record" who have been made look very foolish by market reversals?

To think that he must be right because he's done well for himself is just as laughable.

Friends First may not have a vested interest directly in property, but they do have a vested interest in the continued prosperity of Ireland. Their problem is that Ireland and property are virtually inseperable at the moment.

 

[ubiquitous]

Jim Power is not infallible. For all I know his view on the property market may be 100% wrong. However, just because someone is wrong on a particular topic does not mean they are a fool. There is a big difference.

 

[KalEl]

Its laughable to suggest that someone of Jim Power's experience and track record is a fool. Its also laughable to suggest that his defence of the Irish property market is motivated by the fact that Friends First are opening a property fund today.

I agree...in fact it's pretty offensive to a man in Power's position. His argument was polished and backed up with facts. He believes in the fundamentals that have supported the property boom.
It's fair to attack auctioneers and lenders when they come out with wooly vested interest stuff but these consistent attacks on guys like Power, Hughes and McLaughlin are pathetic. Personal and professional integrity mean far more than spouting rubbish you don't believe in for your employer...and you could see this on Primetime when Power was visibly perturbed at the suggestion.

 

[shanegl]

Re: McLaughlin and Hughes, I find it very hard to believe that any economist for any bank would be allowed to publically talk down property. What they tell their employers in private may be another thing altogether. Their jobs are dependant on their employer's continued profitibility. I can't see how anyone could take their public statements as unbiased.

 

[robd]

Its laughable to suggest that someone of Jim Power's experience and track record is a fool. Its also laughable to suggest that his defence of the Irish property market is motivated by the fact that Friends First are opening a property fund today.

A short- or medium-term dip in property prices would actually play into the hands of a property fund whose primary purchase is to buy (not sell) property and who therefore have a vested interest in buying up properties as cheaply as they can and holding them for the long term in order to eventually realise a capital gain on exit.

Had Power taken the opposite view last night people would have been accusing him of talking down the market to suit his employer.

The primary purpose of any type of fund is to sell units of that fund. They make their money based on a yearly % fee of the fund value. The fund needs to perform well to attract interest and thus money into it (and thus increase the earnings of the fund manager/provider). Buying and selling of poperties or equities etc. is merely a consequence of the primary objective. If they are buying properties that are decreasing in value then the unit price of the fund would also be decreasing and thus the interest in the fund may be poor, making the primary objective hard. I also belive it would be hard to exactly value a property fund as the value of property is somewhat subjective compared to equities.

 

[mollser]

I notice numberous VI's have come out slating the program, saying that 'it was oneside, will cause a crash etc etc'. If the market was so stable, no TV program on its own could possibly cause a crash.

Secondly, I note that the IT came with a supplement, 'Property Barometer' sponsored by MyHome.ie. In the editorial, under "The Buy Now or Wait" debate, it closes with

"First time buyers would be well advised to have a serious look at buying now given the wide choice of property available in what has become a buyers market".

Talk about not presenting both sides of the argument - this is dangerous propaganda for many FTB's on the brink of buying as it, too, does not outline risks etc...

Also then comes the laughable 4 page spread selectively taking 2 periods to compare property prices - the second being the 'last 12 months'. Every county, bar Louth, showing a nice green upwards arrow. No notice whatsoever is drawn to the comparatives from Q406 to Q107 showing sizeable drops in most markets, including my beloved South Dublin of some €32k.

Personally I found the program one sided and a bit over the top, however if thats what it takes for people to look closer at the equally one-sided propaganda coming from the other side to make a balanced opinion ala the IT today, I'm all for it.

 

[KalEl]

I notice numberous VI's have come out slating the program, saying that 'it was oneside, will cause a crash etc etc'. If the market was so stable, no TV program on its own could possibly cause a crash.

Secondly, I note that the IT came with a supplement, 'Property Barometer' sponsored by MyHome.ie. In the editorial, under "The Buy Now or Wait" debate, it closes with Talk about not presenting both sides of the argument - this is dangerous propaganda for many FTB's on the brink of buying as it, too, does not outline risks etc...

Also then comes the laughable 4 page spread selectively taking 2 periods to compare property prices - the second being the 'last 12 months'. Every county, bar Louth, showing a nice green upwards arrow. No notice whatsoever is drawn to the comparatives from Q406 to Q107 showing sizeable drops in most markets, including my beloved South Dublin of some €32k.

Personally I found the program one sided and a bit over the top, however if thats what it takes for people to look closer at the equally one-sided propaganda coming from the other side to make a balanced opinion ala the IT today, I'm all for it.

Don't you see that a programme like this and the coverage it's receiving on the airwaves and in the papers can bring about a crash?!
also, I think your analysis of the IT supplement is flawed to say the least. On the one hand you're claiming prices in South Dublin have dropped by €32K, then simultaneouisly you're attacking the IT for advising buyers that now might be a good time to buy as there are bargains to be had!
Back to the programme...Jim Power had rational arguments about the fundamentals of our economy which are driving the property market.
Professor Kelly's argument was a rant about other booms in different countries and sometimes regions (Arizona?!) alaways leading to busts.
So Power is saying here are the underlying factors which lead me to believe X. Kelly is saying what happened in the past leads me to believe Y.
I know which i think is more logical and reasoned.

 

[conor_mc]

Don't you see that a programme like this and the coverage it's receiving on the airwaves and in the papers can bring about a crash?!

Yeah, you see you can't have a crash without a bubble.

When will people realise that rising house prices has been the problem, subsequent falling house prices merely a resultant symptom!

 

[mollser]

Don't you see that a programme like this and the coverage it's receiving on the airwaves and in the papers can bring about a crash?!

Just like the onesided stuff coming from the VI's may have caused a frothy bubble?? As I said, if the market was so stable, no tv program on its own could possibly cause a crash!

also, I think your analysis of the IT supplement is flawed to say the least. On the one hand you're claiming prices in South Dublin have dropped by €32K, then simultaneouisly you're attacking the IT for advising buyers that now might be a good time to buy as there are bargains to be had!

My point is that those price drops are being camoflauged in there by a smoke and mirrors exercise using 12 month statistics! The 'grab a bargain' viewpoint is one that could be extracted from it. Another would be, wait for the current interest rate cycle increase to run its course and see what impact this alone has on the market, continue to save and hold your fire. Which, IMO, would be RATIONAL thing to do, not jump 2 feet in because of MINOR price drops. Whose to say that these drops won't continue - why buy now?? (This view is shared by most of my colleagues, and has been 'reinforced' by that show, which, IMO is good thing.)

 

[jmayo]

Did not Jim Power admit that if certain scenarios occurr then there would indeed be drop in house prices?
His three scenarios were the following:
1. Interest rates shoot up - they have increased by over 1.25% over last year and are forecasted to rise to 4% by summer. Important point here is we have no control over them anymore.
2. Unemployment rises - well when building does slow, as forecasted by almost everyone on either side of argument, then because of the percentage of the work force involved there has to be a consequential increase in unemployment.
Almost 81,000 units were completed in year 2005, not sure what completions are for 2006 and those forecasted for 2007, but can close to that number be sustained as Supply meets Demand?
3. Multinationals close and leave - well Jim wake up and smell the roses, they are already downscaling and leaving.
Here is sample headlines from amonst others, ElecltricNews, Breaking News and from RTE over last couple of years.
05-07-05: BSN Medical factory in Thurles, County Tipperary is to lay off 40 of its 122 full and part-time workers in order to outsource manufacturing to Asia and the USA.
03-08-05: Maxtor - which makes hard disk drives and storage products in Bray - is shifting production to Budapest. Around 24 positions will be affected.
24-08-05 Quantum Corporation, which established its Irish operation in 1991, is to shut down the factory in Dundalk with loss of 250 jobs. Moving operations to Eastern Europe.
21-02-06: NEC announce closure of Ballivor plant with loss of 350 jobs. Production moved to Malaysia.
15-09-06: A total of 157 jobs are to go at Braun Oral B Ireland Limited in Carlow. 97 permanent jobs and 60 temporary jobs will be lost at the plant.
20-12-06 Some 90 positions were axed by Creative Labs in Blanchardstown, Dublin. Firm announced it was to cut a further 140 jobs in the New Year.
11-01-07: ClientLogic is to cut 138 jobs at its technical support centre in north Dublin.
08-02-07: Pfizer's has announced that 65 jobs will be shed as a result of the closure of part of its main plant in Ringaskiddy. The company also says it plans to sell off its factory in Loughbeg and part of its operation in Little Island, where a further 480 people are employed.
13-02-07: The loss of some 70 jobs in Alcatel-Lucent will represent an economic body blow to the Dublin West area.
08-03-07: The mobile phone company Motorola is to shut its plant in Cork with the loss of more than 300 jobs.

Add all the little job losses and what to you get?
A fair amount of these jobs are the in the so called "high end knowledge based" area and not just jobs on assembley lines. The other noticeable point is that they are not only in ICT but also in Medical/Pharmaceutical.
Will people only notice when someone like Dell announces it is moving operations to Poland?
I do not claim that this list is comprehensive, but it does highlight the fact that we are haemorraghing jobs in mutlinationals operations as they seek lower cost locations.

 

[Duplex]

Well Jim Power did seem to suggest that the housing market was more than a little exuburent over the past couple of years, describing it as insane, in the RTE Primetime discussion last night.

"If we saw another two or three years of the sort of insanity we've seen over the past couple of years in the housing market then I would agree with Morgan."

 

[Sunny]

Rates were never going to stay low. It was to Ireland benefit that they started to rise. We would have risen them earlier if we had control of them. Affordibility is the main issue and does not seem to be a problem yet. None of the banks are announcing loan loss provisions increases which you would expect to see if people were struggling.
House completions will probably fall to around 60,000 this year but this is only one sector of construction. We still need schools, roads, railways etc etc.
What about all the multinationals who have increased jobs recently. Not going to through a list but to give an example from my own industry finance. Citigroup recently announced 17,000 job losses worldwide so they could move to lower cost economies. 1400 people employed in Ireland. Number of job losses 0. Wachovia are setting up a large European operation here. Citco announced 250 jobs in 2006. Even Intel made a large investment in their plant as late as last year.
Not saying there aren't problems but there are two sides to every story.
In my opinion one of the biggest problem this country needs to face up to is the inflationary pressures that state regulated industries like electricity and gas are creating. It is this that will drive foreign investment out of the country.

 

[KalEl]

Did not Jim Power admit that if certain scenarios occurr then there would indeed be drop in house prices?

Was I watching a different programme? He was taking the michael out of Little and Kelly, admitting that yes if your aunt had balls she'd be your uncle! That if v w x y and z happen then yes we could/would have a crash...hence the rather cutting comment about mark Little losing his job. (that is the presenter's name, isn't it?)

 

[room305]

Jim Power had rational arguments about the fundamentals of our economy which are driving the property market.

Jim Power is right - the fundamentals of our economy do indeed support a thriving property market. High employment, young demographic, inward migration and so forth. The question you need to ask yourself is, do the fundamentals support them at these prices?

It's an important distinction and one I don't see being asked very often. The fundamentals of the nineties tech boom were sound and almost everything the bulls said eventually came to pass - increased productivity, easy access to niche markets, new media age etc.

That the "fundamentals" underpinning the tech boom were sound is of little consolation to investors who bought Nortel shares at $850 a share in 2000.

 

[conor_mc]

Was I watching a different programme? He was taking the michael out of Little and Kelly, admitting that yes if your aunt had balls she'd be your uncle! That if v w x y and z happen then yes we could/would have a crash...hence the rather cutting comment about mark Little losing his job. (that is the presenter's name, isn't it?)

So on the one hand we have Power saying everythings hunky-dory and will continue to be hunky-dory forever.

On the other hand, you have Kelly saying forget about external shocks and all that, this bubble will crash.

Frankly, I think the seeds of the crash are in the construction sector itself (inevitable slowdown in construction = inevitable job losses!) and that external shocks won't trigger anything, they'll just exacerbate the inevitable crash if they happen.

 

[Duplex]

Was I watching a different programme? He was taking the michael out of Little and Kelly, admitting that yes if your aunt had balls she'd be your uncle! That if v w x y and z happen then yes we could/would have a crash...hence the rather cutting comment about mark Little losing his job. (that is the presenter's name, isn't it?)

Jim Power described the housing market in Ireland over the past two years as insane. Hardly a ringing endorsement.