Housing Crash: Have We Reached The Tipping Point?

[the-analyst2007]

Housing Crash: Have We Reached The Tipping Point?

A friend of mine yesterday told me that he was putting his house on the market next week. I asked why. He said that the main reason he wanted to sell now was that he felt the house would be worth a lot less this time next year.

This got me thinking. Multiply this chaps view by a few thousand....are we about to reach the tipping point where supply will flood demand, where prices will hit rock bottom in comparison to the early 2007 highpoint?

[rockyracoon]

Hard to say really. There are so many different reasons for keeping a property (negative equity, place to live) and it ain't exactly a sellers market. There is a local builder in a small bit of bother. He was offered 250K apiece for two homes last year. He declined the offer. He accepted 200K apiece for the same two homes this year. There just isn't enough hard stats on the Irish property market to make future predictions within reasonable probability estimations, and there are the external factors of inflation and capital market liquidity to take into account. It's just going to have to play out but you can bet your bottom euro there is going to be some government/banking intervention if prices fall too low.

[myk]

Well not everyone will reach this conclusion at the same time. And many people will never come to this conclusion no matter what the housing market circumstances, most people bought their houses to live in. Not as an investment. I doubt there are many out there who will sell their house in order to rent for a few years so they can buy in at a better stage in the housing market. That is a big gamble on the housing market.

[droghedasouth]

if you look ar irish bank shares, it has taken about 1 year for them to fall to about 45% of their highs of February-March 2007.

Property is a far less liquid investment.

One can reasonably about 3 years of falls, with the occasional false dawn every spring, before it bottoms out.

[feargach]

Good point south-man.

Irish banks are basically a derivative of the Irish property market. Virtually all the loans on their books are for properties, or to property-related businesses.

The market has already rendered its verdict, and it's taking a long while for the reality to filter through the illiquid brixenmortar sector.

[Squire Allworthy]

If your friend sells his house then surely he has to buy another one or is he going to pitch his tent in the graveyard? So he is buying and selling in the same market. Where is the gain unless he is downsizing?

Most people sell houses because of family circumstances. Usually it is growing family need more rooms or family have left and the house is too big. Most people don't strictly speaking need to sell. They can build on an extra room or two or have a few rooms that they don't use.

People who NEED to sell are the likes of developers who have borrowed heavily to build; or people who have changed job; or perhaps selling due to a death in the family, or general people in financial difficulty.

Those in financial difficulty are selling below expectations and we are seeing a drop in the cost of new houses. The number of new house starts have dropped and this will be a decreasing factor as we come out of this year. Unless interest rates or employment increases we are unlikely to see an increase in repos entering the market.

The rest really don't have to sell and many are very resistant to dropping their price.

There may be some real bargains to be had in apartments in some remote area a year from now but don't expect house price drops to be even and the average family house may not drop in price by the amount some would like. If there is a drop of say 15%-20% this year and doldrums for a further few years with inflation that amounts to a drop of around 25%-30%. That is a big drop. That is a house of 240,000 being sold at 160,000 but it is over time and as inflation will be responsible for much of the fall you won't really see it in terms of asking price.

[feargach]

If your friend sells his house then surely he has to buy another one or is he going to pitch his tent in the graveyard? So he is buying and selling in the same market. Where is the gain unless he is downsizing?

Have you seen the current difference in price between renting and buying?

Our theoretical friend is gaining the potential to live in a much better located, far more palatial residence, while paying LESS money every month.

Or he could be gaining by moving to rented living similar to what he's just sold, and using the massive wads of money saved to retire before he's fifty.

Or maybe he uses the same massive wads of savings to start his own business and be his own boss.

http://www.daft.ie is your friend. Do a few searches for identical dwellings in the same development and marvel at the immense difference between renting and buying.

[returning officer]

These graphs say an awful lot about the state of the property market.
http://daftwatch.atspace.com/

Compare the inverted plateau of the Dublin supply graph to the continued incline of Cork.
http://daftwatch.atspace.com/daftcounty_1.html
http://daftwatch.atspace.com/daftcounty_15.html

These are useful counties to compare as they are similar figures so the graphs are less likely to be distorted by small changes.
County Cork has a population of 481,295 and 6849 for sale adds on daft.
County Dublin has a population of 1,187,176 and 5739 for sale adds on daft.

There are also 120 apartment devlopements in Dublin and 70 new housing developments in the County.
http://www.cso.ie/statistics/popofeachp ... ty2006.htm

[Squire Allworthy]

feargach

I take your point but most people in Ireland and the UK just don't think like that. They like to own their homes.

[feargach]

Always remember the Sheeple principle: "when people are free to do as they please, they generally imitate each other".

When the guy at the desk next to you stands up and tells everyone that this is his last day in a job, that he's selling up and retiring permanently to a beach house on a Spanish sun island, and he doesn't even have any grey hairs, people will pay attention but not change their behaviour.

But when everybody knows somebody who's done the same, the "follow-the-leader" effect will start to kick in.

Remember, what's "normal" today used to be weird and mould-breaking at one point in history, and we're not talking about Brian Boru either.