Assuming that McWilliams first advised people to stay out of the market in 1999, would his clients not be significantly better off on average? I think that someone who bought in 1999 would have paid cumulatively less rent than interest on a mortgage. Prices are probably back to 1999 levels.
I think he was wrong that it was a bubble back then, but he was not far wrong.
I agree that he was not far wrong. He predicted a bubble that would spectacularly collapse which happened. It isn't the case that he said house prices will go down a bit and when they eventually did he claimed glory.
If you use the now discontinued PTSB house price index, then the peak average price was €310,000 at the end of 2006. If you use the CSO house price index you see that since the peak prices have dropped by 48%. That means the average national price is now about €161,000. Going back to the PTSB house price index reveals that the last time that average price was achieved, was around June 2000. So we are almost at 1999 levels, with so far no end in sight for a slow down in the decline.
It's not enough to get one part of the forecast right. One has to get it all nearly right.
Yes, you can completely negate a good decision with one bad decision. But why people sold property, because they believed the bubble was about to burst, and then put all that money into banks who would obviously be most affected by a property bubble is beyond me.
We sold our house in early 2008, as I was about to change job and I didn't want a longer commute than I had. At the time friends, family and the media suggested that we take our profit and buy a new home and possibly an investment property too. I did not buy this idea, even with pressure from my wife. At that stage prices had been declining for several quarters and the sub-prime crisis was slowly unravelling. 4 years later, we still rent, have one child with one on the way and are no less happy than if we owned the house. While I did invest a small amount in bank shares, I certainly didn't put all my eggs in one basket.
My point is, that you do not have to get everything right or have some magic ability to foresee certain possibilities.
In my opinion there were two separate bubbles. So someone could express an opinion about the first one that didn’t necessarily carry through to the second. It’d be like predicting a stock price to collapse for one reason, but it doesn’t, but then it does collapse several years later for some another reason, so you can be accidentally right.
In McWilliams case he was absolutely correct when he called the second bubble in the 2000s, the earlier one - maybe, it’s not as clear-cut.
Bubble #1 finished around 2001-2, after a very strong dollar and the dot com bubble had ramped up salaries across the MNC and related sectors. This briefly allowed workers in these sectors compete for housing against the clique of traditional Irish higher income earners. It was finished off by a combination of factors, 9/11, the dot com bust, weaker dollar and changes to tax relief due to the Bacon report.
However bubble #1 was never allowed deflate beyond a couple percent, there was construction industry/“Galway Tent” panic that prices hadn’t simply stopped rising but were dropping, so the tax relief changes were reversed and massive government spending was carelessly applied to the economy.
Unfortunately then the sight of people who’d been predicting the demise of bubble #1 being seemingly being proved wrong seemed to instil in the social partners a feeling of invincibility. If you’re “right” for 10 years it’s hard to think that you may just be lucky.
To see that first bubble end, you might notice the little stutter on the graph around 2002, the only dip from 1996 to late 2006. [broken link removed].
A great post and right on the ball. I would add to it that it wasn't just the Irish government that didn't let the first bubble deflate, they would not have been able to do this alone. What really kept the first bubble from bursting is the unprecedented level of easy money policy by the Fed, ECB and BoE. And the same cronies are trying to do the same thing now. Will they ever learn.
Nice chart ashambles. So there it is in glorious technicolour, today's prices are considerably ahead of 1999's. 1999, with hindsight was not a bubble by any accepted meaning of that term. Easy for McWiiliams to get it wrong as we had just experienced substantial price rises, but just as with the "blanket guarantee was a master stroke" David never admits to his mistakes.
The fact is that in the early 90's/1980s when interest rates were astronomical house prices were artificially low. More normalised interest rates caused an appropriate "correction".
Unfortunately the correction did not know when to stop and went out of control fuelled partly by still further falls in interest rates.
That chart only goes as far as 2010, a lot of decline has happened since. As I already pointed out above, prices are back to about June 2000 levels.
If you had not bought in 1999 and waited until now you would not be worse off for it. What you would have spent on rent you would have saved on interest, capital payments, house/life insurance and maintenance costs. And in many places today you can rent nicer houses than you could afford to buy and you have much more mobility and flexibility if things go wrong on the job front.