Similarities Q2 2007 and 2015

Folks,

I am trying to gauge the similarities between the beginning of the last crash (Q2/Q3 2007) and what I perceive is beginning to happen again now (albeit in a reduced capacity). I can appreciate that things outside the urban areas are still in dire straits, however it would appear to me property in Dublin (where I am interested in) has reached a plateau and this is my focus in this post

This image from a RL report shows the point where “Asking prices” began to fall in Q3 2007.

**Similarities **
House “asking” prices have begun to fall over the past number of months.
Expensive houses 1 Million+ are not selling.
Property prices are in some instances not achieving “asking price” and are being sold for less
Seller denial. “My house is worth x, Ill hold out for this price” When they are never going achieve it.
Election happened in May 2007 (FF+Greens). Election due to take place in 2015/2016.
Tone of Media articles are similar - “levelling off”

What’s different now
CB Rules
Not as much cash floating around
Less Stock/Selection
Repossessions beginning to happen, this should in particular change the mind-set.
PPR to compare prices.
Building of new homes in large numbers beginning to happen (nothing compared to boom years).
Less people in the country working in construction including our friends from abroad.
Employment rising, not sure how real this is once JobBridge is removed.

My opinion is that we will reach an equilibrium where there will be less cash, floating around due to CB rules, there will be more houses for sale due to new building and repossessions, the market will find its level, which I think will be lower that it is now. How much of a %, well that is the $64,000 question!

Can ye think of any other similarities/differences. Are past events a precursor to what will happen in the future?

Where do people think the market is going in the next 12 months, when the similarities/differences between 2007/2015 are weighed up, or will it make feck all difference, this is Ireland after all?

At the centre of the last crash was an economic collapse. Without that, we are not going to see a market disruption on the same scale.

I predict continuing health supply and stable/stagnating prices, but stagnation is the same drum I’ve been banging since 2012 and I’ve been dead wrong so far. I have to be right eventually. :smiley:

There are scenarios where things go get crazier. For instance, if the UK exits the EU and the business goes to Dublin we could have big finance money hitting the Dublin market. Or the UK could exit and the Irish economy could be hit hard. Don’t know how likely either of those are though.

Or interest rates could change. Or the credit restrictions could be lifted.

More money draws out more supply. This is the pattern we’ve had in the last year or so.

I’m bidding on Dublin properties well over 500k at the moment and friends/family in England cannot believe how good value they are.

A friend in SE England (well outside London) is just selling her house for £1m (€1.35m). Both her and her husband have very ordinary jobs.

I am not predicting a tsunami of British (or other foreign) money, but such a thing is possible. See Vancouver, for instance.

According to the Daft report, asking prices have been rising, and the March YoY sales prices per the CSO are up as well. I hope that there will be price drops and I think there will have to be some drops when the CB rules kick in properly, but I don’t believe we are seeing signs just yet. The price drops are from “batshit crazy” to merely “stupidly expensive”

Probably the most likely outcome.

They’ll try to raise US rates shortly.
Don’t know how successful that will be, as there’s so much debt out there.
Even a small increase will affect confidence, as market expectations are adjusted.

If the EU inflation rate begins to pick up (as indicated by the recent M3 figures), then the ECB could well raise rates sooner than expected.

The ‘recovery’ from the previous crash has been fueled by unparalleled amounts of debt.
Yield compression has caused high-risk debt to produce mediocre or minimal returns, as investors seek ***any ***interest.
This should be ringing every alarm bell all over the place.

tradingeconomics.com/bonds

I’d also pop into the mix the effect cheap oil is going to have on the US fracking industry.
This went from practically zero to 1m jobs in just a few years.
Watch for the layoffs as uneconomic wells are shut and the knock-on consequences of the US unemployment rate.

Everything is debt financed.
Debt.
Debt.
Debt.
It’s all fine until someone misses a repayment.

https://i59.tinypic.com/n4e2l2.jpg

Stock figures for Dublin for 2014/15 look a lot like this graph of 2007.
YoY increases have climbed from 33% last December to around 60% now.
The graph above seems to show about an 80% increase in the year to Q4 2007 which seems likely to happen later in the summer.

The economic crash didn’t happen until 2008-2009 and prices were already dropping by then.

Ah, but the government of Ireland, elected to serve its citizens, would fight tooth and nail to protect the right to affordable accommodation of the Irish people. Right?

You forgot the most important difference of all…

NAMA!

Yes this is key. The “soft landing unless there’s a major global shock” argument does not hold water IMHO. It’s not correct that the global economic crisis caused the Irish recession for example – the popping of the property bubble caused it, and that was always going to happen at some stage. For example, in a buoyant property market, the banks would not have needed a guarantee and Anglo could have been wound up in an orderly fashion even in the face of liquidity issues, because their loan book would have been valuable. Sure, the global crisis made it harder for our banks to borrow, but it was the bubble popping that caused our local crisis, not the other way round.

Well OK, you could argue that falling prices caused the crash rather than vice-versa, but in the broader sense the crash and the prices were all part of the same stupid shitball.

The low volume of new lending over the last couple of years mean it’s unlikely that recent lending/leverage itself becomes a big problem. The bigger issues are still with legacy debt from the last crash which is still very interest-rate sensitive.

I do agree that the likelihood of future price drops causing problems with houses bought in the last few years are very low but we still haven’t come to terms with the debt overhang from the original bubble and the “wait for prices to come back up” strategy could unravel very quickly.

I don’t think the USA is really raises interest rates for a couple of years yet, we are looking to see unemployment hit about 4-5% before we raise rates, and with workforce participation at decades old low point we can surely attract workers back into the market.

Oil is cheap and thus good for consumers, or a costs more and good for sector employment, it is a win win as far as I can see.

The USA policy of asset inflation( bonds stock real estate) to offset debt appears to be working and I don’t see them walking away from that for a while yet.

Total household debt is down 22% since the crash.

22%?

Wow :slight_smile: have the banks really given €44b in write-offs to households?

Not sure of the amounts but I think “households” is a fungible term. Directors of small companies may borrow to put in money etc.

People sound very complacent on here
During the 2008 crash China was powering ahead and there was still plenty of global growth left in the tank
Now that is coming to an end. The world is getting much closer to limits to growth.
Because of this governments may find it difficult to borrow in the event of another credit crunch
I’m praying we are ok for another while, but I wouldnt be taking debt now - there are big risks ahead. I’d be highly surprised that we dont see a bigger event than 2008 in the not too distant future

+1

Is this thread for real? Since January prices have essentially been static. Other than anecdote, which can be countered by an alternative anecdote, there is no sign of an incipient crash. The Irish economy, particularly in Dublin, is clearly growing; there are numerous supply-side problems; and overwhelming political determination to keep prices high. At some point, prices will fall, maybe even moderately, but it’s a long, long way away. Wishful thinking to suggest otherwise.

Approx number of household completions in Dublin + GDA
2005 - 45,000
2006 - 49,000
2007 - 43,000
Total - 137,000

2012 to 2014 the corresponding numbers are somewhere between 1,500 and 2,000 p.a. (which according to the UCD Urban Institute is less than the number lost through obsolescence each year)

r.e. amounts:
centralbank.ie/polstats/stat … redit.aspx
Table A.18
Outstanding credit advanced to households is showing as €90.95bn, down from a peak of €149.7bn in March 2008
Household deposits is up from €79bn to €86bn over the same period (peaked at €95bn in June 2009)