House Market Weakening?

[lff12]

Meanwhile, back at the ranch

For the person who is seeing a slow market in North East Dublin, apparently the latest rental "craze" back home in Swords is rent allowance tenants. After years of turning them away apparently loads of rental properties are now being taken on - apparently 8 houses in one estate in Rivervalley at the same time. Since families on rent allowance can theoretically get quite a high rent in Dublin, I am guessing that private tenants are simply not willing to pay the asking price, and agents are falling back on the subsidised tenants as a last resort.

The main problem I see is that rents are not really rising. I've just moved out of a rented property in East Cork and you can get a 3 bed house there for as little as 700 euros a month. The rents on 1 bed apartments in the city have only gone up by about 100 euros a month in 4 years (from about 600 to 700 - less than inflation). The double problem is that where rents are eking their way upwards its at a fraction of the house price inflation.

Secondly I think its getting very hard for people on average salaries to buy without significant savings and parental support.

Which means its becoming difficult to make a profit on a buy to let property unless you have significant equity and small mortgage. From what I can see, the profitability of the sector is no longer there. Having said that with the boom in property investment over the last 10 years expect to see a continuous increase in the percentage of ex-rental properties on the market. Unfortunately many will be hard to sell due to the horrific condition to a lot of them and lack of investment.

 

[conor_mc]

Timing the market works both ways. However, judging by how rapidly prices have risen in the past year I very much doubt there was a significant number of people who needed to buy a house and could comfortably afford to do so but held off because some economists warned of an imminent crash. He only says this to discredit economists in the public mind and set in stone the idea that "Ireland is different".

In the aftermath of a crash will we hear a speech about how wrong the real estate agents were? How people who listened to them a year previously and believed their hype about never-ending capital appreciation far in excess of wage growth lost out massively by purchasing? Perhaps advising those still thinking of purchasing that the market may have further to fall?

See, now you've stumbled across a little-known truth.... Bertie's always right.....

 

[Calina]

Re: Meanwhile, back at the ranch

For the person who is seeing a slow market in North East Dublin, apparently the latest rental "craze" back home in Swords is rent allowance tenants. After years of turning them away apparently loads of rental properties are now being taken on - apparently 8 houses in one estate in Rivervalley at the same time. Since families on rent allowance can theoretically get quite a high rent in Dublin, I am guessing that private tenants are simply not willing to pay the asking price, and agents are falling back on the subsidised tenants as a last resort.

I think this is probably true in a lot of cases.

 

[Duplex]

After attempting to sell her property through agents for a year this lady in Boston tried to sell at auction, now she is attempting to sell the property herself. Phyllis seems to be of the opinion that the reason her property has not sold is due to ineffectual marketing, as opposed to the state of the market. I wonder if Phyllis will chase the market downwards, employing increasingly ‘innovative’ marketing methods in her struggle to get the market to accept that its wrong and she’s right?

After having her home on the market for nearly a year -- with about 30 showings, multiple price drops, and only one not-so-tempting offer -- Phyllis Troia decided to try something different. Very different. She and her husband put her Dutch colonial in Plymouth up for auction, to be sold to the highest bidder.

To kick-start the bidding war, Phyllis Troia welcomed 60-some-odd people into the home over Father's Day weekend. Her mother served fresh-baked cookies, her husband chatted up the guests in the living room, and her father escorted people around the property, nestled in a cozy Plymouth neighborhood just minutes from the beach.

After the weekend, there were nine bidders -- a very promising development. But in the end, she was not satisfied with the final two bids, and exercised her right to close the bidding. She's now moved on to a for-sale-by-owner model.

Troia, however, is happy she is taking the go-it-alone route to get what she thinks her house is worth. ``This is a great house," she said over and over, as people meandered through during her recent open house.

``We'll see what happens," she said. ``I have too much invested to walk away with a minimal amount of money."

 

[Guest107]

todays Irish Times. The permo fully 'securitised' €2Bn of its mortgages and thats €2Bn now available to lend out for more mortgages.

The merry go round is still in operation .

 

[room305]

After attempting to sell her property through agents for a year this lady in Boston tried to sell at auction, now she is attempting to sell the property herself. Phyllis seems to be of the opinion that the reason her property has not sold is due to ineffectual marketing, as opposed to the state of the market. I wonder if Phyllis will chase the market downwards, employing increasingly ‘innovative’ marketing methods in her struggle to get the market to accept that its wrong and she’s right?

Seem to be hearing lots of stories like this from the American market. Sellers are frequently withdrawing houses from the market, annoyed that buyers won't offer what (they feel) the house is worth. Forgetting of course, that it is the market that dictates the price - not the seller.

I think the first two years of the crash will be a bonanza time to be involved in the home improvements trade. Many will withdraw their house from the market and pour money into decking, kitchen refurbishments, bathroom redecorating etc. Convinced that if they put in enough work people will then pay what they believe is an equitable price (or what an equivalent house sold for a few months hence).

When the realisation hits that prices aren't returning to their peak anytime soon, that is when you will see some significant price drops ...

 

[Duplex]

Seem to be hearing lots of stories like this from the American market. Sellers are frequently withdrawing houses from the market, annoyed that buyers won't offer what (they feel) the house is worth. Forgetting of course, that it is the market that dictates the price - not the seller.

I think the first two years of the crash will be a bonanza time to be involved in the home improvements trade. Many will withdraw their house from the market and pour money into decking, kitchen refurbishments, bathroom redecorating etc. Convinced that if they put in enough work people will then pay what they believe is an equitable price (or what an equivalent house sold for a few months hence).

When the realisation hits that prices aren't returning to their peak anytime soon, that is when you will see some significant price drops ...

I came across this point by point explanation of the psychology of bubble markets, makes for interesting reading.

BUBBLE PREREQUISITES

FINANCIAL FUNDAMENTALS:
Low supply. Examples include:
The scarcity of homes in certain regions of the coasts
Stricter development regulations

Little or vague financial information available:
It is difficult to gauge market price changes
Realtors have an incentive to hide a softening market.

Excess liquidity in the pockets of buyers.
Low interest rates (and then interest-only loan payments)

Large capital gains have already been reaped by the "first-movers", and they're looking for new opportunities.

PSYCHOLOGICAL FUNDAMENTALS

Vividness of the concept
"I've got to have a roof over my head"
"I like real estate because you can see what you own"

Limited supply (Perception of scarcity)
"No more houses can be built on the coasts due to development restrictions"

Water-cooler or media frenzy: Groupthink and herding.
"You know, everybody's buying a house. Are you still a renter?"

Anticipatory emotions and impulsivity
Excitement about "getting rich" and fear of missing out.

Magnitude of potential payoff
"My friend made $300,000 after owning her house only one year."

Certainty of payoff
"Real estate has always gone up over any 5 year period. I'll just hold a few years if I have to."

Urgency
"You've got to get in now, since you don't know how long you'll be able to afford property around here"

Pursuit of gain (chasing)
Seminars on "How to get rich in real estate".
"It's proven, the surest way to wealth is real estate"

Now how do we know when the end is near?

Any stagnation or reversal in previously positive financial fundamentals paired with:

1) Historically high volume of turnover.
2) Positive expectations are disappointed in some investors.
3) Sellers begin dropping prices or relisting with other brokers.
4) Intense media focus - but ironically, this is usually favorable coverage of the bubble.

 

[walk2dewater]

Many will withdraw their house from the market and pour money into decking, kitchen refurbishments, bathroom redecorating etc. Convinced that if they put in enough work people will then pay what they believe is an equitable price (or what an equivalent house sold for a few months hence).

When the realisation hits that prices aren't returning to their peak anytime soon, that is when you will see some significant price drops ...

Exactly. We’re still not quite at the tipping point. Anyone expecting a stock market style correction in house prices any time soon will be disappointed. Property prices are sticky downwards due to the psychological re-enforcement by TV/papers/neighbours/EAs etc that your house is “worth” XYZ, an illiquid market with high transactions cost, and peculiar to today’s scenario, debt obligations. Debt obligations will put another psychological floor under what is deemed an acceptable sell price (“I cant sell for X, my debt is X+Y”).

In Ireland jobs, incomes and interest rates will all stay ‘good’ for the majority of would-be sellers for a while longer. The majority of potential sellers (jumbo mortgage owners) will be able to frustrate buyers seeking discounts. Rather than ratcheting down prices, would be sellers will withdraw, and adopt various coping strategies to muddle through weakening macro conditions.

Fortunately I reckon this will not be a long lasting situation, and I believe we’e just entered this period now in Ireland. Eventually, the relentless sucking up of liquidity by the ECB will force change to the market dynamics. Shifting power from sellers to buyers. Many jumbo mortgage holders who want to exit will eventually have cover debts and accept lower prices. By the time they realise this it will be too late and the market will have tipped in favour of buyers.

Watch whats happening in the UK. Jobs, incomes and rates have stayed ‘good’ for owners of large mortgages—so far. I sense this is changing though, and we might see a significant and undeniable slide in prices when BoE is forced to raise rates. I think the first real possibility of undeniable, irrefutable slide in the UK market is this Autumn.

 

[SidTheDweeb]

Surely the first wave of people to jump ship will be the IO mortgages, as they're purely purchased for capital appreciation. Sentiment suggesting zero appreciation will surely lead to a sell-off.

I just wonder how many homes in Ireland purcahsed over the last 5years are IO?

 

[soma]

I just wonder how many homes in Ireland purcahsed over the last 5years are IO?

Personally I wouldnt have thought there were *that* many, until about 1-2 months ago when an agent with one of the large EA firms said he "couldn't remember the last time a 1-million plus mortgage wasn't interest only".

 

[Glenbhoy]

Surely the first wave of people to jump ship will be the IO mortgages, as they're purely purchased for capital appreciation. Sentiment suggesting zero appreciation will surely lead to a sell-off.

I just wonder how many homes in Ireland purcahsed over the last 5years are IO?

According to the head man from one of the mortgage brokerages (IMC possibly?), he does'nt remember the last non-IO mortgage they arranged for a home in excess of 1M, this was in one of the papers a few weeks ago.
Re sticky downwards, WTDW, will increased rates not make it more diffcult to cope - and as Sid says, surely many of the new IO investors may not have a choice, considering that the initial capital possibly came from released equity on the family home.

 

[walk2dewater]

Surely the first wave of people to jump ship will be the IO mortgages, as they're purely purchased for capital appreciation. Sentiment suggesting zero appreciation will surely lead to a sell-off.

I just wonder how many homes in Ireland purcahsed over the last 5years are IO?

Truth is no ones exactly what's about to happen, what exact combination and timing of events awaits, except the outcome. That being much cheaper property and a nasty recession. It's like pushing a huge, heavy boulder toward a cliff edge. Slow going until that moment when the edge is reached and >51% of the rocks weight is hanging off the edge....

 

[redo]

Slow going until that moment when the edge is reached and >51% of the rocks weight is hanging off the edge....

Surely you mean > 50%

 

[walk2dewater]

Surely you mean > 50%

eemm, yeah
had a beer at lunch

 

[Neffa]

Truth is no ones exactly what's about to happen, what exact combination and timing of events awaits, except the outcome. That being much cheaper property and a nasty recession. It's like pushing a huge, heavy boulder toward a cliff edge. Slow going until that moment when the edge is reached and >51% of the rocks weight is hanging off the edge....

Well the rock moved another inch forward last month:

[broken link removed]

Borrowing up 29.5% while salaries (the thing you use to pay the mortgage) are up circa 5%.

Meanwhile house prices are growing at roughly 10-15%.

So, friends, is this house price growth driven by (a) Celtic Tiger fundamentals or (b) Cheap credit. I think we know the answer

 

[micheller]

Do I remember someone mentioning before that before the end of the bubble prices may surge even more?
What would that look like to us- same double digit growth we're seeing now or even more (is that possible given the current situation?)

 

[Remix]

So, friends, is this house price growth driven by (a) Celtic Tiger fundamentals or (b) Cheap credit. I think we know the answer

I thought it was more widely acknowledged now that the celtic tiger was the brief period between the mid 90's and 2001 ?

What we've had since is entirely different. The 'celtic' part is fine but perhaps time to consider another entry from the bestial world ? There's goats, monkeys, alligators, blood-sucking insects, poisonous snakes etc...

Maybe event the celtic pig - considering the amount of property hogging going on

 

[room305]

Do I remember someone mentioning before that before the end of the bubble prices may surge even more?

Yup, this is the point where finally even the most hardened skeptic accepts that this is indeed truly only a one-way bet and that they were foolish not to get involved earlier. They rush out to buy at any price at which point there are no "greater fools" left to climb onboard and the tipping point has been reached.

If the "soft landing" theory is to believed, in the face of worsening macroeconomic conditions we should be seeing moderation in growth, not acceleration. Of course the fundamentals that started this boom are no longer relevant (if indeed they ever were).

 

[Glenbhoy]

Yup, this is the point where finally even the most hardened skeptic accepts that this is indeed truly only a one-way bet and that they were foolish not to get involved earlier. They rush out to buy at any price at which point there are no "greater fools" left to climb onboard and the tipping point has been reached.quote]
So basically when W2DW announces that he has just bought, it's time to get out??

 

[room305]

So basically when W2DW announces that he has just bought, it's time to get out??

Isaac Newton foresaw the South Sea Company crash and sold his shares for £7,000 profit (undoubtedly everyone thought he was mad at the time).

Later, when the crash never actually materialised and the stock continued to climb to dizzying heights he began to doubt his earlier assertions, finally succumbed to the mania and bought back in only to end up losing £20,000 in the subsequent crash. It led him to say:

“I can calculate the motions of heavenly bodies, but not the madness of people”.