Property market 2012?

It appears that the majority of auction purchases are on a cash basis.

independent.ie/national-news/threequarters-of-property-auction-buyers-paid-cash-2973753.html

As a result, with every purchase made, there is one less buyer out there.

The market is going to continue to fall in 2012 and will do so into the future until the banks start lending again. Interestingly, the market in Dublin appears to be functioning to a degree, while outside the Pale, there may be a long, protracted fall in property prices as demand does not appear to be strong.

In addition to this, many graduates are planning to emigrate. These are the people who would have constituted the source of “population growth” that was supposed to sustain property prices. So much for our politicians predictions :angry:

irishexaminer.com/ireland/ireland-faces-loss-of-entire-generation-178358.html

very interesting…no massive influx of foreign money into our property market …no massive influx of first time buyer money into our property market…the speculators buying these properties will ensure that the supply of rental properties stays high and more importantly because they are buying them so cheap, they can absorb lower levels of rent compared to other landlords that purchased near the peak…anyone thinking we are near the bottom can think again!

Will daft Publish the 2012 buyer attitudes survey?
That will provide a good insight into he market

Well said Enoch, This is the most dangerous problem our economy is facing and politicians don’t seems to be aware of it , in relation to the property market the new graduates are supposed to be in few months or years first time buyers , this means a sharp fall in first time buyers numbers, it is a shame that tax payers bailed out the banks , but these banks are turning their backs on us .
Also the graduates are the future of this country , how is this country going to function , there will be shortages everywhere . And all that time & money spent to prepare and educate them is going to be for nothing !!!

Nonsense

With every puchase made there are a number of possibilities, some below:

  1. the vendor is emigrating in which case there is one less buyer but also one less property. Supply amd demand fall by the same amount.
  2. it was an executor sale in which case there is one less buyer and one less property but it’s possible that some of the beneficiaries are looking to buy in which case they now have more cash to buy. Supply and demand fall by the same amount.
  3. the vendor was in negative equity and replaces the buyer exiting the market but at a lower price point or enters the rental market. Supply falls but demand doesn’t.
  4. the vendor was not in negative equity but now as they need somewhere to live they will replace they buyer, with more cash in their pocket, possibly at a higher price point if trading up or lower if trading down. Alternatively they add to demand in the rental market. Supply falls but demand doesn’t.

My prediction is a continued decline in property prices. In the order of 1 to 2% per month.
We cannot talk about ‘demand’ in the normal sense with property.
Demand is created by the banks. Through marketing and credit.
As Steve Jobs said. ‘Customers don’t know what they want. We tell them what they want’
The same goes with Irish property.

50% gone over the next 3 years. Rent.

My guess is for a 10% drop in 2012, and the same for the following 3 years.

@ Esselte

You are missing the point slightly. The majority of buyers at auction are cash buyers. The vast majority of them, once they have bought, they are out of the market (unless they have limitless funds and want to build up a property portfolio :unamused: )
There has been a drastic cut in mortgage credit availability (look at the central bank figures), and the criteria for accessing credit has been tightened.
The numbers of people coming into the market as FTBs will be less with emigration, never mind credit tightening.

Even if you look at the examples that you cite, all of them except 4 result in a vendor and a buyer out of the game.

1 vendor has emigrated - buyer out of game
2 vendor is dead and the beneficeries will not have enough for a cash purchase unless it was a valuable property with few beneficeries. -buyer(s) out of game
3 vendor is renting (buying? at lower price :laughing: what happened to the negative equity?)
4 vendor may buy if upsizing or downsizing - buyer out of the game

Not exactly a recipe for a buoyant market.

I used to think that there would be a point where we reached the bottom, and that it would somehow be related to the curve of prices over the last couple of decades, so that when we reached 1998 prices, or 1997, or whatever, that we would be back to sustainable and affordable levels.

However I’ve come around to the view expressed on here by many, that unless the banks start lending prices will continue to fall. given mass insolvency of banks, deleveraging, and the continuing debt crisis, it’s unlikely we’ll see a huge splash in lending

I dont see a real surge in demand. There is certainly a bit of pent up demand, but there’s a lot of people trapped in NE who can’t trade; a lot of potential FTB’s leaving the country; people deciding against buying for reasons of mobility etc. Foreign investors aren’t a likely source of demand in my opinion - would you invest in a property portfolio in Greeece right now, knowing that your euros invested could be paid back in devalued drachmas in a few months? The same logic applies to Ireland and will for a while. Any foreign investor who does due diligence will see the potential downsides to rental income.

On the supply side, we still have a huge overhang of empty houses and apartments. Even in South Dublin there’s hundreds of empty NAMA apartments. People die all the time, so there will always be executor sales. We have been applying very expensive brakes to the supply of property hitting the market, leaving valuable properties empty rather than recognise what they are really worth, but that cant last forever. So there will be no shortage of supply of housing in the near future

In short, there will be an excess of supply over demand for the foreseeable future. Combined with the lack of finance available, we could overshoot the bottom by a long way as we go down. There might be a flurry of activity as people get their savings out of cash and buy a home, fed up of waiting for the bottom, but I think the trend is inexorably downwards, I reckon 20% in 2012

Another 15% off this year for all but the very best priced property setting the pace at the margins, frontloaded to the first quarter or two. So H1 -18%, H2 -12%

I largely agree with FirstBass’ analysis, although I think that the drop in 2012 might appear more exaggerated than it actually is due to the pricedatabase coming on stream mid year. Once you start to be able to track falls by selling prices rather than asking prices, you will have what looks like an immediate drop of anywhere between 10 - 20% but is in fact due to not comparing like to like. What are considered 2011 house ‘prices’ in current statistics are probably in the most case signficantly higher than the actual prices paid for said houses.

So maybe in the region of a 15% perceived drop by mid year, possibly followed by what will appear to be a stabilisation in the market as vendors who have been holding out for unrealistic prices finally give up the ghost and sell for what the market will pay, followed by a further downward trajectory towards the end of the year. By end 2012, the sale price of houses at maybe 10% less than the sale prices of houses at end 2011.

All this assuming the global and particularly eurozone financial situation remains more or less as is currently - lurching from almost crisis to almost crisis but with the euro surviving and flat or slightly negative growth. If there is a big bang and the euro collapses, all bets are off. I have no idea how you would predict what the exact impact would be on Irish house prices. A decrease in euro terms y-o-y of 30%? 50%? 95%? Haven’t the faintest clue.

Just to add, part of the rationale for my prediction is that decent houses in decent areas still look very overpriced to me. Looking at my own situation before my OH was made redundant earlier in the year, we had a household income well above 100k, which probably put us in the top 10% income wise of the population? On the basis of 3 times first income, 1.5 times second income, we could have borrowed maybe 330 in a very very very best case scenario. Say that was 80% LTV (which would require pretty substantial household savings) - we could have bought a house for say 390. I’m not sure that there are many houses in walk in condition in nice areas priced at 390k that you could point to that are clearly the ideal forever house for the ‘richest decile’ of the population? Not to mention that as net income inexporably goes down and interest rates, the price of childcare, health insurance, property ownership, waste disposal and water services etc etc inexorably go up, servicing a 330k mortgage even on a very decent income would be no joke.

Once you have the limited pool of cash buyers out of the way, where are the salaries and the mortgage approvals for current house prices going to come from? I don’t see it.

And now that I have provided far too much personal financial information, back to work :angry:

I think you’re missing the point slgihtly, you’re completely ignoring the vendor. Irrespective of whether the buyer was a cash buyer or not or the volume of credit availability - in the vast majority of cases the vendor will need somewhere to live once they have sold. Therefore they will either replace whoever bought their property as a buyer or enter the demand side on the rental market.

To suggest that every purchase is good for other potential buyers as there is one less buyer in the market is nonsense. (I’m not sure if that’s what you are suggesting but some people on here seem to believe it’s true)

I agree but as I said, supply is also reduced. So if both supply and demand are reduced by the same amount then it doesn’t help people waiting to buy much.

This is comical. You make a big assumption that the beneficiaries will not get enough cash for a cash purchase and that this will remove them from the market. If they are potential buyers without any inheritance how does their position suddenly deteriorate if they don’t get a large inheritance? If they don’t get a cent then their position is unchanged, they are still in the market to buy so both supply and demand reduce by the same amount. This doesn’t help people waiting to buy. If on the other hand they do get some inheritance then, even if it is small, they have more money to bid with. Net result, supply and demand reduce by the same amount but people you could be bidding against now have more money.

Crazy and all as it sounds, some people may decide to pay off negative equity from savings, not all are trapped. So supply is reduced whilst demand is unchanged. That doesn’t help people waiting to buy.

How is a buyer out of the game? You seem so intent on believing what you’d like, you’re ignoring any other possibilities. If someone sells a property so that they can up/down grdade they will replace whomever bought their property on the demand side. Supply is reduced, demand isn’t (as in 3. the buyer out of the game is replaced by a new buyer). Again, not good for people wiating to buy.

Now there may be some circumstances where seeing a house sold may help others looking to buy but there aren’t many and as I said, suggesting that every sale is good for people waiting to buy is nonsense.

Some thoughts on this:

In Daft there are about 47000 properties on sale now, about 4300 are priced above 400k. That means, you are really in the top 10% income of the population. Is that still overpriced? Might be. Especially looking at the general quality of the building in Ireland compared to other European countries.

It doesn’t necessarily put you in the top 10% of income - only in the top 10% of people who would be interested in, and able to, buy a house. A significant percentage of the people in the country can’t afford to buy a house and many don’t want to buy a house. I would reckon that to buy a 400k house in a ‘normal’ market you would need a 360k mortgage so a joint income of about 120k (assuming kids) or a single income of about 140k. I would guess that there are probably 4300 in that bracket but most of them aren’t looking for a house at the moment - the bulk of them are probably in a very nice one already with no intention of moving.

@ Esselte

Hope that I am not getting @ you :laughing:

You appear to believe that there is a functioning market with limitless buyers and limited housing. The reverse is the case. There are a limited number of buyers and with every purchase there is one less. Your assumption that every vendor is going to become a buyer is flawed as you have pointed out yourself.

There is to a great extent a limitless housing supply in Ireland at present. Even if all the advertised houses on daft were sold tomorrow, there are tens of thousands of properties on developers books and in NAMA, if these were all sold, then the banks would go after those behind in their mortgage repayments and another fifty or sixty thousand properties (at least) would come on the market.

So if you apply the basic laws of supply and demand to the housing market in ireland at present, the price of housing still has a long way to fall.

Small print - Prices in Dublin may not fall as much.

With respect, I think you have this exactly the wrong way around. I think you are making the mistake of assuming that empty is the same thing as supply. There are hundreds of thousands of empties, but most are not even listed for sale. Of those that are listed, most are listed at unrealistic prices that guarantee they will not sell. Such properties are only “for sale” in name. The vendor has no real intention of selling them at a market clearing price.

Five years ago when the market was at its height, most of us thought that when the crash came that the banks would foreclose on builders and landlords and force them to sell their properties. The phrase “it’s the empties stoopid” was mentioned a lot. We also thought that there would be many cases of families being forced to sell their holiday houses, or in extreme and sad cases even their family homes.

Over the last five years we’ve discovered that we were naive about supply. The banks and NAMA have mostly refused to foreclose on landlords and developers, and almost none of their stock has made it onto the market. We’ve discovered that it is effectively impossible to foreclose on housing in Ireland, which is good news if you bought a property you now can’t afford, and less good news if you own the bank that made the loan. Neither the large number of empties nor the large number of developers, landlords and owner-occupiers in default has resulted in any real supply on the market.

I have seen it stated again and again that eventually the empties have to come onto the market. Maybe they do some time. But they haven’t come onto the market in the last five years. Given that NAMA and the banks have shown almost no interest in foreclosing on anyone in the last five years, I don’t see any particular reason why they should in the next five years.

BG.

We have 800,000 mortgages in the country. The only houses of those in negative equity that can be sold are the ones where the bank agrees to the best offer on the property and to write off the balance, and where the vendor has no other savings to put towards paying off the mortgage. Presumably the vendor is as unlikely to want to give up his wedge as the bank is to write down the asset

I’ve put in (what I think is) a reasonable offer on a property recently. The agent tells me the vendor cannot sell due to negative equity. I was thinking of putting the offer in writing so he can pass it on to the bank. Anyone else done something like this?

I have to confess that I’m no expert on banking. But I understand that the Irish banks already have a lot of difficulty raising finance on bond markets. As I understand it, pretty much all their capital comes from the Irish government, and their credit comes mostly from the ECB and depositors. As I understand it, the only reason they can borrow at all even in the short term is that they are guaranteed by the Irish government, and if they were left to their own devices nobody would lend them a penny. So the banks are not really subject to market discipline, and instead must keep their political masters happy. Someone who knows more about banking can correct me on this.

By any reasonable measure, mortgage rates are already well below the cost of funds for banks like AIB and BoI. In many cases variable rates are lower than what the banks pay to depositors. Even if the banks had no administrative costs and were guaranteed to get their money back, they would lose money on these mortgages. When you take administrative costs and defaults into account, banks will almost certainly make significant losses on the mortgages they are currently giving out.

The reason that banks are giving out loss-making mortgages is political. The banks are controlled by politicians, who want mortgage rates held artificially low for electoral reasons. The fact that mortgages are loss making probably has an effect on credit supply. A good banker will try to avoid giving out loss-making loans. But as long as the banks are controlled by politicians, the cost and supply of credit will probably be determined more by political concerns than by commercial ones. It can’t go on forever, but there is nothing to stop it continuing like this for the next four or five years.

BG.

When a property is sold, the vendor often chooses to purchase another property with the proceeds. At the other end of the age chain, there are FTBs saving & waiting to take the plunge.

2nd hand transactions have little effect on supply. purchase of new builds reduces supply. completions increase supply.

factors increasing demand:
falling number of completions
3bn in additional mortgage lending in last 4 quarters
falling prices
continuing unsatisfactory nature of being a tenant in Ireland - particularly for families.
demographics skewed towards youth
net emigration not proven
unattractiveness of all other asset classes: cash in bank, equities, bonds all scary
falling interest rates
lower cost of renovation

factors reducing demand:
new property tax and prospect of increases
memory of property crash
neg equity
falling disposable incomes
removal of property tax incentives
unemployment
fear of further price drops

The above factors are in flux. Demand will also change. It’s not as simple as ‘property bad’ or ‘property good’. Those who think Irish people have been so badly burnt by real estate that they will never go back should look at who Irish people choose to vote for given past performance. “I solemnly swear I will never drink again until the next time” How many times have we heard this? There will be a next time for Irish property.

You can catch the bus or rent. It’s not compulsory.