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Irish Market Starts To Crumble


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Only seven of the 43 houses auctioned yesterday sold either under the hammer or immediately afterwards - an abysmal result that will force estate agents and vendors to reassess prices. Altogether, it's been a washout week in the auction rooms with over 70 per cent of properties failing to sell.
The
reality
is that the market has run out of steam
, after record gains in house prices in the first quarter of 2006. However, agents were adamant that the underlying market is still strong and that the high failure rate at auction has been triggered by an oversupply in the mid to upper end of the market
.

How quickly a market can turn? :o

At least the EAs are still adament that the madness can only continue which will be some comfort to the Irish Sheeple.

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The manic Dublin market is swept by the chill winds of reality.

70% unsold in washout week for auctions

Orna Mulcahy, Property Editor

Only seven of the 43 houses auctioned yesterday sold either under the hammer or immediately afterwards - an abysmal result that will force estate agents and vendors to reassess prices. Altogether, it's been a washout week in the auction rooms with over 70 per cent of properties failing to sell.

Irish Times

70 % unsold is very high in terms of houses not clearing at auctions. Auctions are the best barometer of what a house is actually worth. During a boom an auction in your street can increase the value of your house by 30% to 40%, during a crash it can devalue your house by 30% to 40%. Auctions are an excellent barometer. Interesting times ahead in Ireland.

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The text below has popped up on a couple of other boards. It seems to describe pretty well what is happening here.

********************************************************************************

One small step for rates….one giant leap for repayments

Why some buyers have seen housing costs rise nearly 50% in the past year.

The housing market is stalling. Anecdotal evidence suggests that houses are taking longer to sell than this time last year and the number of For Sale boards is increasing. So what’s happening? Shouldn’t the combination of a booming economy, full employment, SSIA spending, low interest rates and unprecedented levels of immigration see these houses being snapped up? For the answer, step back just 12 months and imagine you are a Dublin house buyer.

It is August 2005. You spot a perfect little semi-detached for €500,000 and decide to go for it. You must move fast, the market is red-hot and prices are rising. You have only enough deposit to cover the stamp duty and other moving costs, but your friendly high-street bank offers you a 100% interest only mortgage on the full €500,000. The mortgage rate offered is 3.5% (fixed for one year) and your monthly payments are €1,458 – steep, but just about affordable.

Now roll forward 12 months to this August. The housing market has risen dramatically with industry figures suggesting that prices have jumped 15%. An identical house next door then goes on the market. “Offers over €575,000” the agent says, and you congratulate yourself that you’ve netted €75,000 in a year. But despite your own house selling in a matter of days a year ago, this one sits there for weeks with no offers. Why?

Put yourself in the position of a buyer today paying the asking price of €575,000, again on a 100% interest only mortgage. You will need to borrow 15% more now, but there’s another, much bigger problem; The European Central Bank have tweaked their base rate four times since last December, from 2% to 3%. Your lender has moved its standard mortgage rate accordingly from 3.5% to 4.5%*. You know this yourself because soon your own fixed rate period will end, increasing your repayments to €1,875 per month and it’s going to hurt. But by cutting back on luxuries, using the bicycle more and the car less, and booking a cheaper holiday, you can still scrape it together. And besides, you’ve “made €75,000” on the house, so it’s worth it, right?

In just 12 months the affordability picture has changed dramatically. A year ago you moved in for €1,458 per month, but now the buyer finds that the repayments will be €2,156 per month, thanks to a 15% increase in the purchase price and a 28% hike in the standard mortgage rate from 3.5 to 4.5 per cent. This represents a total increase of 47.8% on the cost just one year ago. Another way of looking at this is that if interest rates had remained unchanged, the increase in monthly repayments is the same as if the purchase price of the property had risen from €500,000 to nearly €740,000 in just one year!

Now if your nerves can stand it, let’s jump forward another year. It is now August 2007 and interest rates have eased up another 1%. Even assuming flat growth of 4.5% in house prices (in line with inflation in the economy), the property is yours for a staggering €2,754 per month, nearly double the price of two years ago. With buyers now very aware of further interest rate rises ahead, it is no wonder that the market is stalling.

* Bank of Ireland, standard variable mortgage rate, September 2006.

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Irish property has ungergone the longest boom ever recorded by the OECD, over the past 10 years alone an average 14.9% pa rise (approx 10% if CPI taken into account)

A census was carried out in April 2006 this year, that found over 300,000 unoccupied homes, approx 30,000 of these are holiday homes, no one was living in the remaining 275,000 houses (some of this, but not all, may be that the enumerators did not speak Russian). 10% of the 4.2 million population of the Irish republic is non-national (english, poles & chinese being the larger groups), despite this influx, rents have decreased or at minimum remained static in both real and nominal terms since 2000. Based on todays prices some Dublin prices are more expensive than Manhattan, New York and rental yields are 2% or lower on residential property.

The record gains made this spring also convinced many potential sellers to enter the market before ECB interest rates start rising.

The construction industry is due to complete a record 90,000+ units this year with this number expected to be closer to 100,000 units. The construction industry employs 1 in 8 of the workforce (This in the highest ratio in the EU), there are approx 2.1 million people working in Ireland.

Fitch estimated that bank credit to the private sector in Ireland would increase to 190 per cent of GDP this year, one of the highest ratios of 100 countries surveyed, the bulk of this is mortages, also GDP in Ireland is distorted by the earnings of multinational corporations, that figure is worse. Most of the top companies listed on the ISEQ index are heavily involved in the boom (Banks and construction)

ECB interest rates are also rising this year, with at least 2 more .25% raises due this year (October & December), this is having a knock on effect on first time buyers who find the amount they can borrow has been reduced.

The politicians have also managed to magnify the downturn, the Minister for Housing Mr. Noel Ahern, has threatened to tax speculators and flippers out of existence in the December budget, so the flippers have stalled and some have also started offloading their property before the taxman wipes out their gains. Minister Michael McDowell (with an eye on the upcoming election) has also hinted that they will remove stamp duty for first time buyers in the budget, this has made the first time buyers pause until Spring 2007.

Anecdotally asking prices are being reduced by up to 20% since the summer in some areas as inventory builds, It was noticed in the summer that people were not even turning up to some of the auctions.

A sample of the headlines

House price boom shudders to a halt Evening Herald, Sept 26, 2006

Dublin property prices falling by up to 20 per cent Sunday Independent, Sept 24, 2006

Interest rate hikes put the brakes on house spree Irish Independent, Sept 07, 2006

Property boom 'is over' Irish Independent, August 29, 2006

First Time Buyers even those on good wages are priced out, the ministers comments and interest rate rises have made more of them pause.

The absence of FTB's is having a knock on effect collapsing chains so existing homeowners can't move easily.

The return on property in the rental market is not there anymore and capital appreciation has stalled, the specuvestors are leaving.

The insiders also sold out this year (Banks, and larger estate agents), the smart investors exited in Winter 2005/Spring 2006.

There is also record inventory coming on the market.

The boom is over, roll on the dead cat bounce in Spring 2007.

All the data is reported here as it comes in. :)

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I cannot believe that 70% of properties failed at auction last week. Absolutely staggering and surely unprecedented in this country. Wow.

It also shows just how long it takes for vendors to face reality...they will refuse to accept anything but top, top dollar for a very long time and thus prices (nationally) appear a lot more robust - and for a lot longer - than is actually the case.

So one day everything is rosy, and then boom, the next day asking prices are down 10% as all vendors realise at the same time that they have overvalued their properties.

Just shows how easy it is for the whole snowball gets rolling.

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I've said it before, and I'll say it again - take the guaranteed capital gains out the equation, and people suddenly start to notice the number of 0's at the end of the asking price.

Sellers - if you have no buyers, there is no market. With no more price discovery, get ready to chase those offers down. Whee.

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It's amazing that such astute, critical and above all open-minded observers such as the bot and the rest of you should have failed to pick up on this bit:

However, the rates are still historically low, the economy is buoyant and there's been no fall off in immigration - all reasons why the housing market should remain strong.

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Guest Shedfish

It's amazing that such astute, critical and above all open-minded observers such as the bot and the rest of you should have failed to pick up on this bit:

However, the rates are still historically low, the economy is buoyant and there's been no fall off in immigration - all reasons why the housing market should remain strong.

but 1 or 2 bedroom terraced cottages cost (nearly) half a million GBP(! not euros). what does your instinct tell you?

"This private garden can only be described as an extension to the accommodation" well, no sh!t.

and i just noticed, it's a bungalow. not even any stairs for that price

Edited by Shedfish
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Ireland's miracle economy was built on vast EU subsidies, and various tech companies taking advantage of low wages. Remove the money, and like a bodybuilder without the steroids its all going to start looking pretty flaccid. And the tech companies can easily spot cheaper wages in the East so dont expect them to be hanging around propping things up for long. Dublin's embarrassing part-completed motorway (with disasterous private toll bridge to boot) will stand as a monument to the false economy of the 90s....

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Ireland's miracle economy was built on vast EU subsidies, and various tech companies taking advantage of low wages. Remove the money, and like a bodybuilder without the steroids its all going to start looking pretty flaccid. And the tech companies can easily spot cheaper wages in the East so dont expect them to be hanging around propping things up for long. Dublin's embarrassing part-completed motorway (with disasterous private toll bridge to boot) will stand as a monument to the false economy of the 90s....

Almost correct. Interest rate policy has been set to suit the German economy, which has been struggling with recession for years.

This allowed the Irish economy to totally overheat, and now it's on the cusp of going bang.

Once again Ireland will be the basket case of Europe. With heaps of cheap,empty houses.

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but 1 or 2 bedroom terraced cottages cost (nearly) half a million GBP(! not euros). what does your instinct tell you?

"This private garden can only be described as an extension to the accommodation" well, no sh!t.

and i just noticed, it's a bungalow. not even any stairs for that price

This advertisment has to be some sort of joke. If you buy that you are a mug - plain and simple.

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Guest Shedfish

This advertisment has to be some sort of joke. If you buy that you are a mug - plain and simple.

if there was one less 0 in the figure it would make more sense. unfortunately it's typical (if on the high side) of others in the area. it really is the maddest of the mad. one day very soon people will see it (and 'opportunities' like it) for what it is

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Actually, the build quality on new houses is very high. Superior to new builds in London anyway.(I have experience of both).

Do not be in any doubt the build quality and standard, room sizes etc is far superior to new builds on the mainland. I am more familiar with the North, but one thing they do know over here is how to build property well.

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  • 3 weeks later...

Duplex , either you one of the other Irish posters posted a great link to an Irish financial forum a while back but i 've lost the link...... House prices the main topic of conversation of course.....

Please provide the link again...

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