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Morgan Kelly ESRI paper predicts 40-60% housing crash


kerrynorth

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The full paper is available on www.esri.ie but I will give just a short summary as with most academic economic papers it has a good amount of econmetrics which is very heavy going stuff, although he seems to have conciously kept it to a minimum and to have written the remainder of the paper with a view of making it readable to people other than economists.

The headline from the paper is that from his analysis of housing collapses across the OECD since 1970 is that housing booms give up upto 70% of there gains. On this basis he reckons that the Irish housing market could fall 40-60% over the next 8-9 years. However, what is not highlighted in the reporting of the paper is that he actually reckons the 40-60% fall is an fact a conservative estimate and that it could be even higher!!!

Note also that his figures are based on real (inflation adjusted) figures. So for comparative purposes if house values fell 5% nominally this year then combined with a 5% inflation rate then that would be the first 10% of the 40-60% fall that he is predicting. A lot of people I think will eronously assume that he means 40-60% of the nominal value rather than the real (inflation adjusted) value. This should really have been made clear in the reporting but never was.
 

feargach

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No, you haven't been paying attention: house prices only ever go upwards.

Must try harder
 

feargach

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The usual, I suppose. More sellers than buyers, that sort of thing.
 

jake76

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feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
Down with that sort of thing.
 

feargach

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Careful now
 

rockyracoon

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According to Bertie it is unpatriotic to talk down the economy. Therefore, as a reformed Republican, can someone point me in the right direction to turn you in? Is it the gaurds, the central bank or FF that I report this UN-Irish activity to?
 
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feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
And given that completions are due to decline, while the population is projected to grow..............
 

Thac0man

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My biggest dear is that rent is going to be the new cash cow of investment portfolios. That would make for a grim outlook, but one entirely in keeping with Bertie Aherns statements about our housing needs being catered for in the same way as many continental countries. He happened to omit the closed shop practices and greed that other countries do not suffer from to the same extent.

I don't expect the government to insure people who desperatly need a home will be given preferance over monied estate agents and institutions.
 

feargach

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Were it not for 300,000 empty houses, I'd be inclined to agree with you that a swift return to price rises was imminent.

My analysis is that, at current price levels, the market is almost completely tapped out. You need two people earning a full adult wage to pay for a house and such people are no longer plentiful in the FTB market.

We'll have to earn more to catch up with house prices and interest rates, or prices will continue to fall as they have in the last three months.

The populace can grow to 50 million, but unless it contains new people who are willing and able to borrow 400K to buy a poorly located, costly-to-heat gaff, house prices won't get back on the ladder to the sky.
 

Akrasia

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irishpeoplearewhingers said:
feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
And given that completions are due to decline, while the population is projected to grow..............
yup. it's a good thing there'll be loads of high earning newborn infants to bouy up the property market, and it's a good thing the lending institutions are irresponsible enough to give these new infants 400k 100% interest only mortgages so they can afford to buy them.

Don't worry about the housing bubble, We'll be fine. We have unique fundamentals that can only possibly be damaged if 'doommongers talk down the market'
(yes, it's fundamentally sound, just a little bit low on self confidence)
 

Cael

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of course if FF just rezoned 1% more of the land area of the 26 that would be the end of the housing problem. the 26 is just 4% urbanised now. There is no shortage of land that would justify the zoned land prices now.
 

Akrasia

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Cael said:
of course if FF just rezoned 1% more of the land area of the 26 that would be the end of the housing problem. the 26 is just 4% urbanised now. There is no shortage of land that would justify the zoned land prices now.
The problem with zoning in Ireland is that every single speck of green space (would say land but half of it is under water for much of the year) within miles of the average town border has already been zoned for development. (or at least open for residential planning applications)

There has been zero planning, zero infrastructure, zero long term vision over the last 10 years.

Ireland's urban sprawl has become so bad that we're being used as an example to eastern Europe of exactly how not to do things.

Ireland has more than enough houses, there are tens or hundreds of thousands of single people living in 3 or 4 bedroom houses all by themselves, and there are plenty of Elderly couples who have 'traded up' to 5 or 6 room pseudo mansions for ridiculous reasons of middle class mania (keeping up with the Jones') My own grandparents moved from a very nice 4 bed bungalow within a short walking distance of shops and amenities, to a 6 bedroom monster 2 story on the top of a hill a mile from anywhere (but still in a big estate) at a time when they're no longer capable of climbing stairs properly.

All of this is a result of the speculation during the property bubble. People became obsessed with 'building up equity' and 'climbing the ladder', silly ideas that weren't around 15 years ago when people bought a home to raise a family in and not as some kind of savings scheme/investment portfolio.
 

constitutionus

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irishpeoplearewhingers said:
feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
And given that completions are due to decline, while the population is projected to grow..............
just out of interest who's saying the populations projected to grow. the CSO has just shown child births per couples has dropped to an average of 1.5. thats not enought to replace the current population. sure immegration'll help but come the down turn they'll leave. the indigenous populations on the fall. thats why the gov are banging on about mandatory pensions :D
 

The Langerboy

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irishpeoplearewhingers said:
feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
And given that completions are due to decline, while the population is projected to grow..............
Let's put that one to bed;
The population of the Repulic of Ireland is growing at 100,000 persons per annum (2.5% CSO) a very high rate by European standards, we do need to recognise that we at the peak of this for the medium term at least. This represents need (ie long term sustainable demand) of 30-55,000 additional units PA (I would say 40,000 that is less than 1 per 2 increase in pop as there are more births than deaths) , problem is that the long term demand has never been above this level but the housing output has been far inexcess for at least 5 years and this had lead to a situation that we now have +300,000 empty housing 'units' if 1 in 10 couples over 30 in Ireland had a holiday home in Ireland (unlikly to be that high or even close) that would still leave at least ~200,000 empty units ie 4-5 years of ready built new homes. Housing output would have to drop to 20,000 PA for 10 years to clear the back log of oversupply. (Not bloody likely) if look at all the large scale aparment developments that are underway that simply must be finished, and builders can stop houses but then there is the security of half completed sites either way they will mostly be finished because you can't sell off plans anymore.

Reducing supply now is too little too late.
 
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Akrasia said:
irishpeoplearewhingers said:
feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
And given that completions are due to decline, while the population is projected to grow..............
yup. it's a good thing there'll be loads of high earning newborn infants to bouy up the property market, and it's a good thing the lending institutions are irresponsible enough to give these new infants 400k 100% interest only mortgages so they can afford to buy them.

Don't worry about the housing bubble, We'll be fine. We have unique fundamentals that can only possibly be damaged if 'doommongers talk down the market'
(yes, it's fundamentally sound, just a little bit low on self confidence)
I should point out that I want the market to drop- that would suit me just fine.
 

blindjustice

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irishpeoplearewhingers said:
feargach said:
The usual, I suppose. More sellers than buyers, that sort of thing.
And given that completions are due to decline, while the population is projected to grow..............





Basically our long term population growth depends on migrants. The migrants wont come unless there is work. When the projected 100,000 people lose their jobs (this is projected without a crash - with a crash this could be late 2008 to mid 2009) in the construction industry then jobs will be harder to find hitting the no of people coming into the country.

Then there is interest rates and the fact that each .25% increase actually DECREASES how much people can borrow - naturally dampening prices.

Then there is the whole issue with the 330,000 approx empty houses in the state.

Then there is the market psychology and negative feedback loop that once prices even just begin to fall it becomes irreversible until it hits fundamentals.

Then we have what fundamentals are based on.........


Then we have the problem that 39% of people buying property these last few years were investors based on capital appreciation. Remove the appreciation and you remove 39% of the demand.

Prices will revert until a house becomes profitable to buy and rent out again. Fundamentals. Then you will get the demand back but not the previous demand the 39% was inflated in volume because of the nature of it being a bubble.
 

blindjustice

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I might add that the mount of people entering the country is already projected to decline regardless of the property market as you can see from the graph.

All these agencies will revise their predictions more negatively as more of the reality of the situation comes into the public domain - just read the beginning to this AIB report
 
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