A Return To The Boom Years?

Pobby

For years I have done business in Ireland and what I have witnessed over the last decade is shocking.

http://www.myhome.ie/residential/brochure/no-12-eire-street-gorey-co-wexford/118073

I wouldn`t rush to buy that although it`s OK. Wexford I know. Population 18,000 + but next to nothing there. Just up the road from the Fishguard/ Rosslare ferry. To those that know it, imho, it`s a bit like a small Welsh town. However this is Gorey. Population about 6,000 and very little to get worked up over.

If you want a laugh ( not the best terms ) have a look at Dublin prices. Ah to be sure, you would think that ya man would have to be on 100 thousand euros a year to afford anything there.

However, this is the grim reality on what is happening in Ireland. I have no idea what will happen but this whole, crazy hpi has to resolve some how.

Kohoutek

Pobby wrote: »

I have no idea what will happen but this whole, crazy hpi has to resolve some how.

There's no pleasant way out unfortunately. All the banks obviously have huge exposure to residential mortgages, they stand to make massive losses (read: be insolvent) if the market crashes. Take at look at this amazingly prescient post from Motley Fool in 2007:

"Lowering loan underwriting standards and raising the amount you'll give out: It's worked out pretty horribly here. But hey, things must be different in the U.K., right?

After all, especially in London, prices just keep going up. They'll likely go up forever, so why not loan people with modest incomes, say, 125% of the price of a property? Why not loosen the standards on "buy-to-let" loans, even though net yield can be as lousy as 3.5%?

Sound reasonable to you? Not to me. And not to the folks at the Financial Times, who pose the question the banks don't want to: What happens if prices stop rising, or actually fall? Who will be left holding the bag? Possibly investors in Bank of Ireland (NYSE: IRE), Lloyds TSB (NYSE: LYG), and Bear Stearns (NYSE: BSC), unless those firms are clever enough to offload all that risk before the bottom falls out."

http://www.fool.com/investing/general/2007/05/01/quick-take-uk-nuttier-than-us.aspx

Bear Stearns went bankrupt one year after the post, shares in the Bank of Ireland lost 99% of their value and the bank was bailed out the Irish government. We know what happened to Lloyds.

HAMISH_MCTAVISH

Kohoutek wrote: »

There's no pleasant way out unfortunately. All the banks obviously have huge exposure to residential mortgages, they stand to make massive losses (read: be insolvent) if the market crashes. :
.

Which is as good a reason as any as to why the market won't crash again.

Banks cannot afford to have house prices crash, as they would become insolvent. Government cannot afford to have house prices crash the banks, as this would destroy the wider economy.

In order for house prices to crash, basically one or more of the following three things would have to happen.

-Banks have to repo masses of houses and flood the markets. Which would be against their self interest, so it's not going to happen.

-Base rates would have to rise to levels north of 6% or so. But given the fact that anything above 2% or 3% would crash the economy unless growth has already returned with a vengeance, it's not going to happen. And even then, banks would still have to repo instead of renegotiating loans, etc.... See point 1.

-Unemployment would have to not only rise by another couple of million, but government would also have to not pay their mortgages through benefits, and banks would have to reposses them. Which given the self interest of both government and banks, is not going to happen.

The most credible threat to house prices over the next 10 years, is no longer a crash producing significant or sustained nominal falls. (although some short term fluctuation seems likely)

But rather an economy growing at a faster rate than expected, generating stronger inflation and requiring base rates to rise to 4% or 5% to combat it. That would almost certainly slow price growth in nominal terms, whilst inflation erodes the value in real terms.

HammerSmashedFace

HAMISH_MCTAVISH wrote: »

Prices are already back to 2007 levels in many areas. In fact, they are now above 2007 levels in some areas.

What we must take into consideration when seeing statements like this is the massive devaluation of the pound since this time, having said that taking a look at Rightmove in the areas I used to look sees prices nowhere near peak either. Of course in some areas prices may return close to this level.......... but if you are selling you also have to take into consideration the conditions of this 'ramped recovery', which of course is low transactions backed up by the complete lack of funding compared to 2007.

To sum up the market as I see it at the moment, I would say.......

In the majority of areas around the UK if you price near peak, you may get lucky and sell, on the otherhand you may find your property languishing on the market for 2 years or more, by which time things will be much worse than they are today.

So even though the pound as lost much of it's value, we are nowhere near, in fact not even at 50% of the money needed to give the market the funding it requires to bring the transaction levels back to normal, and it looks like we never will.

Low transactions and higher prices or high transactions and lower prices, compared to 2007, you can't have both.

Really2

Kohoutek wrote: »

Take a look at Ireland, a country with a similar dependence on the financial sector for its economy and out of control public debt, for a sneak preview of the coming years in the UK.

Really I though Ireland had a lot of manufacturing bases for overseas firms with around 45% of its GDP being industrial?

What % of Ireland's GDP is financial sector based?

doire_2

When i said 'boom years' i meant the days of 100% or 125% mortgages. Banks throwing money at anyone that asked for it. Buyers fighting over any house that came on the market. People wanting to own a house at any cost.

Surely we cant go back to those days? Has society not learnt its lesson?

HAMISH_MCTAVISH

doire wrote: »

When i said 'boom years' i meant the days of 100% or 125% mortgages. Banks throwing money at anyone that asked for it. Buyers fighting over any house that came on the market. People wanting to own a house at any cost.

Surely we cant go back to those days? Has society not learnt its lesson?

That was only ever a small part of the market though.

All those things have gone, and are ubnlikely to return any time soon. (well, except the buyers fighting over houses, thats still very much the case in some areas and some property types).

But those things were not neccessary for prices to rise. As the last year has proven.

abaxas

HAMISH_MCTAVISH wrote: »

That was only ever a small part of the market though.

All those things have gone, and are ubnlikely to return any time soon. (well, except the buyers fighting over houses, thats still very much the case in some areas and some property types).

But those things were not neccessary for prices to rise. As the last year has proven.

What a loads a !!!!!!!

Sub prime mortgages were about 30% of the market in 2007. And that aint coming back soon.

Ie about a 1/3 of the market cannot (maybe ever) get refinanced or move.

Dan:_4

doire wrote: »

When i said 'boom years' i meant the days of 100% or 125% mortgages. Banks throwing money at anyone that asked for it. Buyers fighting over any house that came on the market. People wanting to own a house at any cost.

Surely we cant go back to those days? Has society not learnt its lesson?

I can guarantee that one day, when all this current mess is long forgotten, 100%+ mortgages will be available again.

As for people fighting over a house, this is already happening again, esp in the South East. A house in the road next to mine sold for more then the asking price only last month - your question will vary according to location.

The key for the future IMO is to have an exellent credit score and the ability to prove to lenders that you can manage credit.

HAMISH_MCTAVISH

abaxas wrote: »

Ie about a 1/3 of the market cannot (maybe ever) get refinanced and move.

And that same 1/3 of the market will not therefore be selling their house either.

It's a self cancelling effect.