Thursday, January 21, 2010

Now That’s What I Call a Housing Crash

€100,000 wiped off the value of average home

Dublin house prices fell by 4.3% in December. There have now been 34 consecutive months of house price declines. Irish house prices fell by 18.9% in 2009, and have fallen 31.5% from peak. The rate of decline accelerated over the last three months of 2009. This is what is awaiting the UK - Ireland have not been able to temporarily postpone the crash by printing money like us.

Posted by little professor @ 08:48 AM (2486 views)
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22 thoughts on “Now That’s What I Call a Housing Crash

  • It’s coming to the UK….unless the currency is sacrificed to preserve the bubble,

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  • This is what happens when the market is allowed to find it’s own way without VI govt intervention. It will happen here, it has to. Like hpwatcher says, the gov has a choice, trash housing or trash the £. The turning point will be the election. If the tories win, house prices will be allowed to fall while they can blame labour. If labour win, toss a coin.

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  • mark wadsworth says:

    Their houses still look very pricey to me 🙁

    Timmy T: “If the tories win, house prices will be allowed to fall…”

    The Tories are the ultimate Home-Owner-Ists, that is their whole raison d’etre. No way will they “allow” house prices to fall. It may well be that they fail to prop them up (in which Labour, for once, have been very successful) but that is another matter. They would rather be flayed alive than “lose” one single square inch of The Hallowed Greenbelt and couldn’t give a stuff about social mobility or affordable housing.

    There was a poll on ConHome and among Tory PPC’s “Preserving the English countryside” ranked about fourth in their list of concerns, I’m not making this up.

    As I posted here yesterday, the Scottish Tories are whining about the SNP ending the sale of council houses. It appears that under this policy, council houses were flogged off for an average of £14,000 each – had they kept them, they could have collected more than twice as much in rent, which in turn would have been enough to build quite a few hundred thousand new ones as well. So any concept of “value for taxpayers’ money” is straight out of the window when it comes to Home-Owner-Ism (continued page 94).

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  • Talking of crashing currencies – haven’t we already done that ?

    EG
    Peak Irish House prices 311K Euros / the then exchange rate of roughly 1.55 = £200k
    Current Irish House prices 213K Euros / current exchange rate of approx £1.10 = £193k

    Not much change really as far as we’re concerned

    Now lets look at ours

    Peak UK £200k x the then exchange rate £1.55 = 310k euros
    Current UK £165k x current exchange rate £1.10 = 181.5k euros

    Now that’s over 40% crash, except we don’t benefit one bit.

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  • My fella is Irish and we both hope at some point to move over there, depending on employment of course. Mr TS was sensible enough to put his savings into Euro some years ago. So we watch the market carefully.

    I have said here before – don’t be fooled into thinking that the Irish government is less corrupt and complicit in supporting the bubble than their counterparts in the UK. They would dearly love to be able to devalue their currency (which would also reduce the amount of cross border trade lost to Northern Ireland) and print money. As it stands, they have forced two of the bailed out banks to put a moratorium on starting repo orders for one year (this expires next month which will accelerate the decline). They have also set up NAMA, a bad bank solution which is nothing more than back-scratching for their banker and developer chums at the expense of current and future tax payers. Indeed, getting any recompense from NAMA for the tax payer DEPENDS on the re-inflation of the bubble.

    This analysis is fairly sound – http://www.independent.ie/opinion/columnists/david-mcwilliams/david-mcwilliams-were-being-robbed-by-our-supposed-protectors-2010941.html

    “The ‘insiders’ within the system in Ireland decided that the young people of Ireland were less important than their bondholders. As a result, the Government has deemed that our workers will pay the bill. In short, we are in the process of being robbed by the people who are supposed to protect us.

    The Government sees only two solutions to this banking disaster. One is the NAMA solution, which is based on a hope that the bad assets on the banks’ balance sheets will turn good through another land boom. So not only will the banks get away with it, but another land boom will be stoked up by the same management who just got out of jail. As a result, the next generation of young workers will pay.

    The second solution is that if there is no reflation of land prices, the banks’ balance sheets will then have to be sorted out by writing off all the property loans and the bill is given to the taxpayer. Once again the young people of Ireland pay for the mistakes of the ‘insiders’.”

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  • str @ 4

    I completely agree with your analysis – unless you put your deposit into Euro before the Sterling crash, you’re not going to benefit immediately by moving to Ireland in the short term or buying a holiday home.

    However, if I were to move to Galway, because my current wages are in a currency which has crashed, a job in academia (even after the 5% pay cut) at the same level I am on now, pays around 35% more than in UK. So a move to Ireland, if I found an appropriate job, would reduce the earnings/ prices ratio and enable us to have a much better quality of life.

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  • Exactly and my worry now is even if we were to see a 40% fall this would simply take out the Pound. The markets are not going to be very impressed with the UK if we start slumping again when most of the world is recovering. Kicking the hpc into the long grass has and will continue to be a costly mistake for the entire country.

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  • mark wadsworth says:

    Tenant, good anecdotal.

    Mr F, hang about, if we broadly agree that Irish house prices fell because their currency didn’t; and that ours didn’t fall because our currency did, then is it necessarily true that “if we were to see a 40% fall this would simply take out the Pound.”? I mean, it might be true, it might not.

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  • The other difference between Ireland and the UK is that over there, there is a fundamental and severe over-supply of properties. If anything, their boom was even more insane than ours, so to an extent it’s to be expected that their crash is and will continue to be more severe.

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  • tenant super
    Yes, academic salaries are pretty good in Ireland, though I wonder whether that might change given their financial state.

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  • LTF, I think you are right to wonder…acadmic salaries in Ireland were insane during the tiger years. I’ve a friend who lectures physiology at NUI Dublin and he feels that salaries are about 20% higher than they should be (they rose far and above the rate of inflation in the last decade). There will probably be a decade of freezes following the recent 5% cut. Plus you have to buy medical insurance and pay bin charges. No council tax yet but that’s only a matter of time.

    But even taking this into account, we’ll still be far better off. NUI Galway has a whole specialist department for my subject so that’s where I’d probably end up. You can buy a 4 bedroom detached house on 1/4 acre in one of the commuter towns like Tuam asking price 160k euro and prices still have more to unwind. Where I live now (LB Southwark), a small 2 bedroom terrace ex-council house with miniscule garden is £295K. And it isn’t just housing; schools are better and boarding a bus isn’t a scrum!

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  • Trash sterling.
    Trash property.
    Trash economy.
    Trash low rates.

    Which one? or all of the above. Does not look good.

    More creative offshoring of property in order not to reduce prices perhaps, followed by a thin air miracle sterling rebound?

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  • Yep, Ireland is a nice place to live, and NUI Galway to work. I enjoyed my few working visits to Ireland and wouldn’t mind living there myself.

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  • @8 mark wadsworth

    What is your feeling on this? Can you see a possible falling house price/rising pound scenario over the coming years?

    Traditionally falling prices drag a currency down and rising prices lift a currency, but that certainly has not been the case over the last six months, quite the opposite in fact.

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  • MW – “The Tories are the ultimate Home-Owner-Ists, that is their whole raison d’etre. No way will they “allow” house prices to fall”
    They won’t have a choice. If houses are to be kept inflated, the currency will be trashed and the IMF will have to bail us out on their watch. If they let houses fall, they can blame it all on Labour’s poor management of the economy letting them get overpriced in the first place.

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  • mark wadsworth says:

    Mr F, the problem is that GBP is already at rock bottom. Sure, we’re in a mess, but so is everybody else. If EUR is overvalued, then by definition some other currency, i.e. GBP is undervalued. House prices in themselves do not affect our balance of trade, and certainly don’t worsen it, so no reason to assume there’s a correlation, and even if there is, there is no reason to assume causation. TT’s subsequent comment suggests that there is an inverse correlation (i.e. reduce interest rates to prop up prices -> lower currency).

    TT, OK, the Tories may fail to keep the bubble inflated (that’s anybody’s guess), but it won’t be for lack of trying!! I get the strong impression that they are not too keen to win the next General Election anyway.

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  • What political party has any will to let the market correct? Absolutely none of them as far as I can see.

    The only fairly senior politician who has had anything sensible to say about house prices is Saint Vincent Cable, Archbishop Emeritus of common sense. And even he, in his dotage has now started wittering on about ‘rescuing the market’ and ‘mortgage rescue plan ‘.

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  • mark wadsworth says:

    Tenant, that’s where they all, bar St VInce of Cable, have a blind spot. They’ll blame high house prices on immigrants or reckless lending or reckless borrowing or anything at all except light taxation and/or restrictive planning laws.

    All this guff about “affordable housing” and “shared ownership” and so on is there to mask and/or exacerbate the problem, and not to burst the bubble.

    But I still see a political opportunity – maybe 60% of voters are rabid Home-Owner-Ists, but there are three parties fighting for the H-O vote (now that St Vince has been shoved back in the box) = 20% each, so all it would need is one anti-HO’ist party to mop up the other 40% and hey presto.

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  • I agree, however, I think it would take about two decades before an anti home-ownerist party could garner support. Generation Y and subsequent generations are not yet angry enough or even aware of how much they’re being shafted. Also, the priced out generation, doesn’t bother voting, and have, in my opinion, been infantilized by the fact they cannot afford to live independently.

    Personally, I don’t have a huge problem with the bubble which is a market phenomenom. How many STRs here profiteered by selling at the peak? It’s the props to try and prevent nature taking its course that I find so distasteful. It’s like trying to put another colostomy bag on top of one that’s already full, instead of flusing the $h1t away.

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  • “Peak UK £200k x the then exchange rate £1.55 = 310k euros
    Current UK £165k x current exchange rate £1.10 = 181.5k euros”

    That’s why all the Europe (especially the Italians, I hear) is buying properties like crazy in the UK, thereby incidentally propping up the market…

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  • If we look at the USA, where there is still, despite the new Obama regime, much for frank and open society. There has been consistent and steady house price falls. They have been less pain-avoident, and using these difficult times to adjust / restructure their economy. Developments in communications technology such as twitter, and the blogosphere have meant routes-to-market changes from marketing right through to sales. Lots of companies have blogs, there are new jobs being created to handle communications. What has the British response been? To preserve house prices, to preserve the status quo, to preserve vested interest and remain stuck in the past. Of course this and many other factors are going to mean a reality check at some point. The problem is that feeling of vertigo we have now, that the balloon has been allowed to carry us up far higher than a safe drop down. We have had a stimulous-based economy followed by more stimulous, this creates a hollowing out as the real work-to-be-done is not done. I cannot see how we can avoid a tumultuous crash.

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  • Skeptical First Time Buyer says:

    @16.

    I think there is reason to assume causation, it’s just the time scale is quite long. Housing bubble generally go hand in hand with high labour rates, at hurt the competiveness of an economy in the international context.

    If you track forward from 1900 and certainly from 1950 we have a continued decline in sectors that have found themselves unable to compete, against international competition (US same problem), resulting in loss of jobs in wealth creating sectors key to exports like manufacturing.

    Yes you get market and currency manipulation by countries like china, and imbalances in terms of workers rights and safety, but the house prices have a big role to play.

    And from what I can see of history, big successful manufacturing sector -> lots of exports and a rich country

    Britain 1850s
    America 1920s (early)
    China 2000s

    And of our first world competitors who is doing the best economically?

    Australia (which has higher land taxation than the UK and a large manufacturing and exports sector led buy mining)

    Granted we can do nothing about resources we have that are (or are not) in the ground as the case maybe, but high labour rates driven by high living costs benefit none of us in the long term not even the VIs

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