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Collapsing House Prices? We Ain't Seen Nothing Yet

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THE most comprehensive report on the Irish property market is out and it evidences the total destruction of wealth of a certain generation.

  • Rising Negative Equity
  • Dublin City Centre down by 50% & still falling
  • Potential to fall further

Soon coming to streets & towns near you.

Collapsing house prices? We ain't seen nothing yet

Wednesday August 18 2010

THE most comprehensive report on the Irish property market is out and it evidences the total destruction of wealth of a certain generation. According to the wonderfully detailed work done by Ronan Lyons at Daft.ie, asking prices countrywide fell by just over 4pc in the second three months of the year -- a slightly larger fall than in the first quarter.

The average asking price nationally in the second quarter of 2010 was just over €224,000 -- 36pc below its 2007 peak. The acceleration in price falls will come as little surprise, but the question now is how can a generation whose balance sheet has been so totally vaporised ever start spending again?

Back in 2007, I wrote a book called 'The Generation Game', which focused on how the generation between the ages of 30 and 40, who had got into the housing market via huge mortgages, would be financially eviscerated. This group was termed "the juggling generation" because they were trying to juggle being good parents and good workers, while still paying these huge mortgages.

The book focused on a generational gap between these commuter-workers and the older generation, many of whom had become accidental millionaires as a result of an unexpected windfall from the housing market.

Obviously, negative equity would swing against the jugglers in the predicted bust, much as positive equity had enriched the accidental millionaires in the boom. In the book and the related documentary, the housing boom was painted broadly as a massive transfer of wealth from one generation to another.

The figures from daft.ie show just how extreme the negative equity trap now is. Prices in Meath, for example, have fallen by 38.4pc from peak to trough.

The figure for Louth is over 40pc; Kildare's is 36pc and Wicklow's 36pc. These were the counties that were growing fastest during the boom.

The question is, where next for the property market?

Are we at the bottom or is there yet more negative news in the pipeline?

During the evolution of a housing crash, there comes a time when the fall in prices tells us less than other indicators, such as the time it takes to sell, the total stock of houses in the market or the amount of houses coming on to the market.

The time it takes to sell gives an indication of how realistic the asking prices actually are. All around the country, estate agents' windows are full of houses -- but if they are not selling, then the price asked is of limited value in determining the next phase of the market.

So, for example, the average time to sell is four months in Dublin, whereas it is up to a year in Connacht and 10 months in Munster.

The suggestion here is that prices in Dublin -- having fallen by 50pc in the city centre since the peak -- are not at the bottom yet but might be getting close.

In contrast, the rest of the country has a long way to fall.

The other concern, given what we know about unemployment and negative equity, is how many of the sales are forced sales, rather than voluntary sales? How much of the new stock reflects bankruptcy, rather than people thinking: "Okay, now I might put the house on the market because I think there is more activity"?

In terms of where prices go, it is now crucial to understand the change in mass psychology.

A property crash normally ushers in a period where people choose to rent over buying, particularly with so much choice out there and with so much uncertainty about job prospects.

Furthermore, to assess whether a house is good value or not, the prospective buyer has to do some basic maths to see why he should buy. And whether we like it or not, for a housing market like Ireland's to clear, investors need to come back into the game.

Let's look at it from the perspective of the investor, by looking at the return to buying houses now through the prism of yield. What percentage yield does an investor have to get to make it worthwhile investing in bricks and mortar for rent?

LET'S do the sums. With government bonds yielding more than 5pc, it's fair to suggest that an investor would need to get a yield of at least 7pc from housing. So taking the average house price at €220,000 and the average rent at €863 per month, we see that the investor gets -- with these prices and these rents -- a gross yield of just over 4pc. This is before he takes into account his funding costs. Why would he bother getting into the market just yet?

In order to make a 7pc yield at the present average rent, the average price of houses would have to fall to €135,620. This suggests a huge further drop in average house prices here.

This is quite stark reading, particularly when you consider that house prices overshoot, both on the upside and on the downside.

So even without the overshooting process, the investor would be crazy to get into the market at these prices. So too, therefore, would the renter be mad to buy the house that he is in at these prices.

Prices would have to fall by another 30pc for the renter in the commuter belt to choose buying over renting.

This is the central inconsistency which exacerbates the generation trap in Ireland. For the housing market to clear, prices have to fall much further; the basic maths can't be fudged. But when this happens, the negative-equity trap will tighten on the recent home-buying generation, whose only crime is that they were born in the wrong decade.

So for Ireland to recover, there will have to be a 'lost generation' who will be largely shut out of whatever economic future this country experiences.

This generation trap is the poisonous legacy of the Ahern-Cowen years.

"A lot done, a lot more to do."

Yeah, right.

www.davidmcwilliams.ie

Irish Independent

http://www.independent.ie/opinion/analysis/collapsing-house-prices-we-aint-seen-nothing-yet-2301078.html

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An excellent analysis. Thanks for posting.

During the evolution of a housing crash, there comes a time when the fall in prices tells us less than other indicators, such as the time it takes to sell, the total stock of houses in the market or the amount of houses coming on to the market.

The time it takes to sell gives an indication of how realistic the asking prices actually are. All around the country, estate agents' windows are full of houses -- but if they are not selling, then the price asked is of limited value in determining the next phase of the market.

Sounds familiar... eusa_whistle.gif

The suggestion here is that prices in Dublin -- having fallen by 50pc in the city centre since the peak -- are not at the bottom yet but might be getting close.

50% and STILL not at the bottom? :o:lol:

This is the central inconsistency which exacerbates the generation trap in Ireland. For the housing market to clear, prices have to fall much further; the basic maths can't be fudged. But when this happens, the negative-equity trap will tighten on the recent home-buying generation, whose only crime is that they were born in the wrong decade.

... and lied about their income on a mortgage application form. <_<

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In the 90s there was a weekly ad in Exchange & Mart for properties in Sligo £10,000.

A friend of mine bought a 24 acre farm (with crumbling house) for 26000 punts in 1995 in Co. Clare.

Granted Dublin is a different game, but me thinks Ireland has a long long way to go to in correcting to its previous, well established, state.

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THE most comprehensive report on the Irish property market is out and it evidences the total destruction of wealth of a certain generation.Soon coming to streets & towns near you.

Ah! It's from the great David McWilliams, thx. My favourite McWilliams article - relevant to the UK is the "Robopaddy comes unstuck" one

http://archives.tcm.ie/businesspost/2008/01/13/story29547.asp

British property market is no longer quite as safe as houses .

As I understand it, some of our UK HPI madness was kicked off by "equity" removed from the Irish boom...

Edited by dryrot

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An excellent analysis

I was in Ireland a few days ago in Kerry and absolutely concur with the conclusion that houses outside Dublin have to fall a lot further in price. Asking prices in estate agent windows just simply do not look cheap yet.

I also spent an evening with an estate agent and he was very open about the situation. He said the true value of houses and the loans attached to them is not being reflected in Irish bank balance sheets. It was clear he thought prices had a lot further to fall but one of the problems he faces is getting banks to agree to sell their repossessed property portfolios. He said what assets are inside NAMA are far worse quality than being publicly acknowledged. The whole market is in suspended animation he said. He also said asking prices were far above the actual prices that were being achieved. I certainly saw row upon row of clearly empty newbuild houses with others still under construction. For sale signs everywhere.

Interestingly, I read elsewhere that the Irish Govt is launchng an initiative to get the actual agreed sale rices of houses put in the public domain - not just asking prices. The problem is that no one trusts or believes what estate agents and other vested interests are saying about prices. The gap between asking price and actual selling price is so large that people are too frightened to bid for fear of overpaying. In the old days the asking prices represented someting close to the actual price paid. Not anymore.

On the issue of the 30 - 40 year old generation. A taxi driver told me that 20 young people had last week left the village and gone to Australia. These are the people that should be buying houses as they put their foot on the first rung of the ladder. Thay are not buying. They are leaving the country. The 30 - 40 year olds have no one to sell to. There are massive public sector wage cuts coming as Ireland can barely issue any more Govt bonds as the only real buyer is the ECB.

My conclusion was exactly as this article says, there is a lot further to go in Ireland before house prics touch bottom and the UK will follow in their footsteps.

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Ah! It's from the great David McWilliams, thx. My favourite McWilliams article - relevant to the UK is the "Robopaddy comes unstuck" one

http://archives.tcm.ie/businesspost/2008/01/13/story29547.asp

British property market is no longer quite as safe as houses .

As I understand it, some of our UK HPI madness was kicked off by "equity" removed from the Irish boom...

People were buying up in West Wales from Eire as much as they were from London.

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the negative-equity trap will tighten on the recent home-buying generation, whose only crime is that they were born in the wrong decade stupidity, greed and a general inability to think for themselves.

Right so we should should just forgive the very people who are instrumental in stoking the unsustainable demand that cause the bubble and ensuing bust. Sure the banks contributed with their willingness to lend but a large portion of the blame must lie with those who are were just too f*****g thick and greedy and deliberately blinded themselves to their impending folly, and who in many cases committed fraud to fund their self delusion.

Edited by goldbug9999

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Guest Steve Cook

THE most comprehensive report on the Irish property market is out and it evidences the total destruction of wealth of a certain generation.

  • Rising Negative Equity
  • Dublin City Centre down by 50% & still falling
  • Potential to fall further

Soon coming to streets & towns near you.

thanks for this

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Unless you are planning on buying in Ireland then who gives a shit? Ireland has the same significance as Mongolia!

Because the banks you just bailed out have lost billions lending to fuel the boom in that market and might need bailing out again?

Just like the collapse of Eastern Europe is trashing Western European banks and the collapse of Iceland had an effect on your council...

:rolleyes:

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Ah! It's from the great David McWilliams, thx. My favourite McWilliams article - relevant to the UK is the "Robopaddy comes unstuck" one

http://archives.tcm.ie/businesspost/2008/01/13/story29547.asp

British property market is no longer quite as safe as houses .

As I understand it, some of our UK HPI madness was kicked off by "equity" removed from the Irish boom...

The Northern Ireland property market sure as hell 'benefited' from the boom in the RoI as 'savvy' Irish 'specuvestors' ploughed money into buying houses and commercial real estate in places like Belfast and Derry. This also had the effect of inflating prices further out in the country.

Currently NI prices are down about 40% from peak three years ago.

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I wonder how long before they reform their bankruptcy laws so that this unrepayable debt can be cancelled.

Is it even on the agenda over there? It needs to be, judging by the statement that an entire generation has had its balance sheet vaporised. It's hardly in the Irish national interest that the 30-40 generation should be largely reduced to debt-slavery for the next few decades.

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Right so we should should just forgive the very people who are instrumental in stoking the unsustainable demand that cause the bubble and ensuing bust. Sure the banks contributed with their willingness to lend but a large portion of the blame must lie with those who are were just too f*****g thick and greedy and deliberately blinded themselves to their impending folly, and who in many cases committed fraud to fund their self delusion.

Fraud is a criminal offence; those who committed it should be prosecuted, no need to discuss further.

For the rest ... given bubble-inducing credit conditions, the bubble is inevitable. Real blame lies with policy makers (internationally) who created the conditions.

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The Northern Ireland property market sure as hell 'benefited' from the boom in the RoI as 'savvy' Irish 'specuvestors' ploughed money into buying houses and commercial real estate in places like Belfast and Derry. This also had the effect of inflating prices further out in the country.

Of course! I read somewhere Pan Peninsula was Irish money, too. Hav'nt heard too much about non-completions; keeping that quiet.

Currently NI prices are down about 40% from peak three years ago.

only about 30% overvalued now, then!

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This will have an effect on the UK.

The UK Govmint has supported HPI from 2001, and from 2007 up till now they have thrown everything at it. If HPC is allowed to commence it colud be brutal.

You seem to think there is a choice.

How NuLabour of you, I'm sure that reality revolves around your personal desires and not the cold hard fact that foisting a debt of £250,000 on people with no income, no job and no assets was always going to work out badly as it is mathematically impossible for them to ever repay the capital of that debt let alone the interest accrued on it.

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A little reminder that we've been there before from Spitting Image....

Edited by Dubai

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A little reminder that we've been there before from Spitting Image....

yep

funny how soon people forget

its coming back to haunt many many.

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You seem to think there is a choice.

How NuLabour of you, I'm sure that reality revolves around your personal desires and not the cold hard fact that foisting a debt of £250,000 on people with no income, no job and no assets was always going to work out badly as it is mathematically impossible for them to ever repay the capital of that debt let alone the interest accrued on it.

Are you some sort of part time shrink? Whats my personal desires in your opinion? "How very Nu Labour of me", ha ha.

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You seem to think there is a choice.

How NuLabour of you, I'm sure that reality revolves around your personal desires and not the cold hard fact that foisting a debt of £250,000 on people with no income, no job and no assets was always going to work out badly as it is mathematically impossible for them to ever repay the capital of that debt let alone the interest accrued on it.

Bang on the nail. It's as simple as 1+1 = 2....

It's just that Nieu Labia thought 1+1= 8.

Edited by eric pebble

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  • 140 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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