Future Shock - RTE last night

[Lone Shark]

Now I'll put my cards on the table first - I'm a long standing property bear. I would have been in a position to buy in 2003 if I wanted to (with a 95% mortgage of course, but that's what all the cool kids were doing at the time!!  ) and I looked at the market and decided that it was overvalued. Obviously we all know how it went since then, and I haven't changed my opinion.

However that said, up to now the tone of the debate in the media was always the same. On the negative side, we had an economist, usually an academic, who expressed grave concern in a measured fashion, while on the other side we had a vested interest, usually either a mortgage lender or an estate agent who talked up this famous "soft landing" - a phenomenon as yet unheard of in any world asset market anywhere.

All that said, even I was taken back by the stark negativity of this programme. The facts do speak for themselves, but I thought the tone, the music, the camera shots of desolate housing estates, the reference to that guy in England who died of a tumour a month after his house was repossessed - it was all very biased, but even so I imagine it will have scared a lot of people. Maybe I'm wrong, but I thought that maybe if the same facts were presented without the doomsday music and "what if" stuff it mightn't have been as harrowing viewing.

That said, they didn't touch on the oversupply in the market, which was a rather large omission. I read an interesting article last week about how they were talking about 3.5 million unoccupied units in the US for a population of 250 million, and how this number is a recipe for disaster. I wonder what they'd make of Ireland's 200,000 units for 4 million people?

[Declan]

an estate agent who talked up this famous "soft landing" - a phenomenon as yet unheard of in any world asset market anywhere.

Thats the nub of the matter I think. Why do we think that our experience will be any different than other parts of the world?

[stephenite]

an estate agent who talked up this famous "soft landing" - a phenomenon as yet unheard of in any world asset market anywhere.

Thats the nub of the matter I think. Why do we think that our experience will be any different than other parts of the world?

It's the luck of the Irish don't you know - we'll be grand

[blast05]

The crash is more likely to become a self fulfilling prophisy with the extra amount of negative sentiment and talk that will arise from that program last night. One thing though, the crash that they envisaged on the program was driven by a rapidly falling dollar. I'm no expert on current fluctuations but how likely is this ?

[GweylTah]

The crash is more likely to become a self fulfilling prophisy with the extra amount of negative sentiment and talk that will arise from that program last night. One thing though, the crash that they envisaged on the program was driven by a rapidly falling dollar. I'm no expert on current fluctuations but how likely is this ?

Because USA interest rates will need to be increased substantially so as to boost the value of the dollar.  Higher interest rates = higher mortgage charges = more depressed property market.

Prediction: there will be a property correction in South of Ireland soon, lets hope its a soft landing.

[downredblack]

Come on don't you really hope it's a mother fcuker of a pile up ?

[Lone Shark]

People talk about the crash maybe happening or maybe not, but I've yet to see a plausible alternative. For as long as this data has been kept (which is pretty long in most countries) the average house price is five times the average working wage in any one country. This has been skewed a little by the change in the last 30 years where there tend to be two working wages in any given house, but even so most mature markets tend not to go beyond a factor of six, maybe seven in cases where land supply is an issue (which is most definitely not the long term case in Ireland - any shortage of land is due to regulations and our developer-friendly government rather than it not existing)

In Ireland this is running at just over ten. That, combined with the huge housing residual supply being held but not used, which as I mentioned above was not touched in the programme at all, is much more likely to precipitate the correction than the US dollar moving.

The dollare situation, to my extremely untrained eye, is as yet unsure. Many analysts are shorting the dollar, and certainly the US cannot continue as it has done. However they could devalue (probably the easier thing to do politically, though maybe not economically) or they could raise interest rates hugely, try to draw in foreign capital investment, create a credit crunch at home and tighten their belts the old fashioned way. However with the current property situation over there, that would not be a popular move. There are arguments for saying it's the right move, but with a presidential election in a year, how likely are they to take the right move over the popular one?


Gweyltah, I assume you were taking the p, if not, how do you plausibly see this soft landing working out, with so many people out there overstretched and possibly desperate to sell with nobody buying because they're waiting for the crash to end. 

[GweylTah]

Come on don't you really hope it's a mother fcuker of a pile up ?

I would if it only affected speculators and those builders that are rip-off merchants, but not for those who would have negative equity on their own dwelling.

One crowd of people would love a crash: first time buyers.

[Donagh]

One crowd of people would love a crash: first time buyers.

Like most things you obviously know fcuk all about economics.

[GweylTah]

One crowd of people would love a crash: first time buyers.

Like most things you obviously know fcuk all about economics.

I don't even know why I'm bothering, given your form, but care to explain why you disagree that first-time buyers WOULDN'T want a crash. Forget me, forget the abuse, just give us your answer. A board awaits.

[dubnut]

A board awaits.

Speak for yourself Gweltyah 

[Lone Shark]

One crowd of people would love a crash: first time buyers.

Like most things you obviously know fcuk all about economics.

I don't even know why I'm bothering, given your form, but care to explain why you disagree that first-time buyers WOULDN'T want a crash. Forget me, forget the abuse, just give us your answer. A board awaits.

I'll take this one.

Because in a crash situation, many people are affected by negative equity and labour mobility is greatly restricted. Houses are worth feck all, but nobody's selling becuase they can't afford to. The overall economy is bolloxed so the tax burden has to be raised to match it. Banks are busy repossessing all round them and going conservative, so there is a long standing credit crunch. Previously people needed maybe €40k to get started on a €400k house, but now the banks will only lend 80% at most, and that's to the best of customers. So even if the house is now worth €250k, an almost 40% fall, the FTB needs a bigger deposit, will be paying higher interest rates and is getting crushed by excessive taxation.

The people of Ireland needed this to be managed back in 2001 when house prices were more or less as they should be. Of course it became a contest between what was best for the people of Ireland and what was best for the developers and landowners of Ireland. Under our current government, that wasn't much of a contest.

[Billys Boots]

Well First-time Buyers are a tiny minority of the population, and while their views are important, these views are far outweighed by those of the 250,000-odd folk directly employed in the construction industry, and all the folk indirectly employed in the off-shoot service sector.  A crash would be a disaster for the economy (and employment) in this country.  My gut feeling is that the Government are putting a lot of resources into hiding this 'downturn' in the run-up to the May election, but it's as plain as the noses on our faces that there are already huge problems in the construction industry.  I heard yesterday that there will only be 50,000 house-completions in 2007, compared to 90,000 in 2006.

[GweylTah]

A board awaits.

Speak for yourself Gweltyah 

Empty vessels make most noise, you obviously have no founded opinions on anything, just mantras and what's coming out of Connolly Houe or wherever to be repeated, a waste of time.

Cheerio.

[GweylTah]

Lone Shark, surely, in economics, equilibrium (or close to it) is seldom achieved or, if it is, is not for long.

That first time buyers have been hoping for interest rate rises to dampen the housing market or at least achieve a correction is virtually unheard of, what that's what it's reached.

Maybe wanting a crash is putting it too strongly, but while if that happened people might not want or be able to afford to sell their OWN homes, investment properties would come onto the market, for first time buyers to take advantage.  This happened in the south east of England in the mid 1990s in similar circumstances, no reason why it couldn't happen in Ireland.