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Calls for the Government to kick- start the property market

By JEROME REILLY

Sunday May 08 2011

THE Government should kick- start the property market with new initiatives, according to a Sunday Independent/Quantum Research poll.

More than 76 per cent of respondents believe the Fine Gael/Labour coalition should take decisive action to get movement back into the property market.

In the poll 53 per cent don’t agree with Standard & Poor’s (S&P) that Ireland‘s property market has reached the bottom; though 47 per cent do agree with the assessment by the international credit rating agency.

S&P said it believed property prices “have completed their correction”. It added the caveat that this does not mean the market will pick up again soon. The agency said in the report that house prices in Ireland at the end of 2010 were down 33 per cent from their peak — the largest price contraction in western Europe since the beginning of the crisis.

Ronan O’Driscoll, director of residential property at estate agency Savills, said that in broad terms he agrees with the S&P view that Ireland has pretty much corrected the excess of the housing bubble “depending on the location and type of property in question”.

Savills says there is evidence that prices have “reached the floor” for three and four-bedroom houses in main cities. However, Mr O’Driscoll said it is likely there will be some further drop in prices for trophy homes, apartments and rural housing.

S&P said it will take a couple of years before there are any “tangible signs” of market activity resuming in Ireland.

“We anticipate the British and French housing markets will likely fall back in the coming quarters, while the Spanish and Irish markets confront continued sluggishness,” said the agency.

POLL FINDINGS PAGE 25

According to the Sunday Independent telephone poll conducted with a sample of 500 people drawn from all over the country, 76 per cent want the Government to come up with some initiatives that would get movement back into the property market.

“Yes. They should try something, especially for first-time buyers. There is no confidence out there,” said one respondent.

Among the suggested measures put forward by respondents in favour of Government action were tax breaks and debt forgiveness for those who bought at the top of the boom.

Last November, 10 leading economists, including Constantin Gurdgiev, Brian Lucey and Stephen Kinsella, argued the time is now right for some form of debt forgiveness. They argued in an open letter to The Irish Times that the banks “must allow private home borrowers to revert to pre-crisis debt burdens”.

Among the 24 per cent who disagreed, many thought the market will correct itself and that state interference was one of the main reasons we got into so much trouble in the first place.

Rachel Doyle, mortgage manager of the Professional Insurance Brokers Association, said last week the biggest impediment to the property market bottoming out or stabilising is the lack of a functioning banking system.

“Unless the issue is sorted out in the foreseeable future, the housing market and indeed the entire economy will be at further risk,” she said.

Opinion is divided on whether the market has bottomed out. Among the 47 per cent who believe the market has reached the bottom many had the perception that there have been recent signs of stabilisation within the economy; for example no major announcements of job losses and figures which suggest modest growth.

Meanwhile, Royal Bank of Scotland, 83 per cent owned by British taxpayers, posted a pre-tax loss of £116m (€133m) for the first quarter of this year — much of it caused by its Irish loan book.

– JEROME REILLY

source:http://www.independent.ie/national-news/government-needs-to-give-irelands-ailing-property-market-a-shot-in-the-arm-2640873.html

Comment:

Asking the Government to meddle again in the property game is just pathetic. Buying and selling property to ourselves is no way to secure a future or to build an economy, all you are doing is trying to reinflate the burst property bubble. The vested interests are working hard to convince us that we now need to start this game all over again. Remember Brian Lelihan “We are turning the corner”  “Our plan in working” Now we know he didn’t have a plan and he was just carrying out orders from the ECB.W e as a people must learn that saddling ourselves with enormous mortgages for a place to live in is just madness .Spending most of our working lives paying off these mortgage at the cost of not been able to go out into the world and wake up to the opportunities that present themselves out there.  Most Germans rent and the government should adopt a more tenant friendly regime, allowing for this transmission .This is what the people need not stoking up a second property bubble so their pals in the property game can again rip off our children this time round .    

[Ronan Lyons] What the Friday Firesale tells us about Ireland’s property market

Real Estate = Big Money

This is the latest instalment from Ronan Lyons

Friday saw the return of something Ireland hadn’t seen in a long time: a property frenzy! Not only were buyers at the Allsop’s “fire sale” auction spilling on to the street, there were so many people who showed up with cheque books that they set up a live relay in Doheny & Nesbitts for those who turned up to gawk.

Given that there were probably three hundred transactions a day at the height of the boom, the fact that less than a hundred makes such headlines could be surprising. However, what people are starved of in the property market right now is information. Sellers and owner-occupiers don’t know what their homes are worth, while would-be buyers only have asking prices to go on.

Therefore, the fact that the details of 65 residential property transactions around the country were public is indeed newsworthy. Not only that, it can also help us shed light where the property market is at the moment. Clearly, we shouldn’t try to be too precise based on just 65 transactions, and it’s worth remembering that the bulk of the deals were probably done without a mortgage.

Nonetheless, Friday’s auction can help us at least get a handle on three important questions. Firstly, it can help us discover how far prices have fallen from the peak. Secondly, we can calculate how the prices achieved at Friday’s auction compare to the current level of asking prices. And lastly, and perhaps most importantly, it shows us what market agents think is a fair “yield” – or relationship between rents and house prices – for residential property in Ireland.

How far have prices fallen from the peak?

As part of my research in Oxford, I have developed a model of property prices in Ireland during the period 2006-2010. While it has been developed for other purposes, it can actually be used to calculate what a particular property was worth in a given quarter and how that changed over time. Using the information available on each of the lots at the auction, such as location, number of bedrooms and property type, it is possible to calculate the approximate asking price of each property at the top of the market in mid-2007 and at the start of 2011.

While the properties that went under the hammer are not a representative sample from around the country – there are no properties from Munster, for example – the typical asking price at the peak of the market was close to the national average: €375,000. The typical selling price at Friday’s auction was €140,000, which is a fall of 65% from the peak.

This varied obviously by property and there are outliers. One property in Renmore in Galway sold for a price that was barely 25% below the typical asking price for similar properties in 2007 and about 18% above current asking prices. One would hope that there are individual circumstances about the property (or perhaps the buyer) that justify such a high price. At the other end, a three-bed semi-d in Mullingar sold for just €30,000, almost 90% below the peak of €230,000 for such properties. Perhaps it’s in a particularly bad neighbourhood.

full article here: http://www.ronanlyons.com/2011/04/17/what-the-friday-firesale-tells-us-about-irelands-property-market/

Comment:

Nice post Ronan however!

Talking to friends in Germany a few weeks ago I was told I could pick up a 4 bed roomed home for 98,000 euro or I could rent it out for 800 per month. As I have stated many times before I believe we will still see at least another 25% drop from current prices. The way the economy is going and the likely default on our debts I expect that the Banks are going to try to force sales of more and more properties in fire sales. In the Business post today Noonan has apparently ordered NAMA to sell off their large supply of unsold homes .What do you think this will do for prices and the higher interest rates, job losses and ever higher taxes and not to forget emigration, whatever spin the same old cheerleaders of the property market come up with I say stay away for now!

Remember the formula

12 X rent (check to see if rents are falling first))X10 = current market value and then there is a cash value 10 to 12% less that that figure  and not one red cent more!

The True Cause Of The 2008 Market Crash……….

The True Cause Of The 2008 Market Crash Looks Like Its About To Rear Its Ugly Head Again, With A Vengeance

By Reggie Middleton

Summary: I said it! Bill Gross said it (and put his money where his mouth was by selling off all US treasuries)! Common sense says it… Central Bank manipulated interest rates are too low. They will rise. What happens when they rise during a supply glut of real estate, foreclosure issues and a slow economy??? Put it this way… What made the markets crash in 2008: unemployment, slow economy, snow… Or real estate prices getting in touch with reality?

As I sit back and contemplate the content and delivery style that would be best suited for my upcoming keynote speech at the ING Real Estate Valuation Conference in Amsterdam (this is my first presentation to a large group where English is not the primary language), I am bombarded with news bits and bytes that confirm what I’ve been modeling, warning, fearing and preparing for – for nearly 2 years. That is almost 23 months to the date. What is it, you ask? It is the market’s return to the adherence of fundamentals and global macro forces versus following the whims of the concerted efforts of central banks around the world to openly manipulate real asset, equity and bond markets on a global basis.

Really, sit back and think about it. Put some thought into figuring out how difficult it is to successfully manipulate real estate (commercial and residential), stock and bond markets in just one major country. Then give the same thought to how difficult it would be to do the same in nearly all of the developed nations who participated in this crisis. The mere attempt to do so has loaded them up with debt at a time of marginal if not negative GDP and economic upside, a disgruntled populace ripe to ripple from the causes of social unrest rising from the rife economic conditions that the aftermath of incessant bubble blowing has wrought, and last but not least – fundamentally overvalued investment markets.

Was it really worth it? Is it going to last? I believe, and am rather confident in this belief, that we will be FORCED to finish what was started in 2008 – and that is the (re)commencement of the down leg of a major asset cycle. We had several concurrent booms (real estate – both residential and commercial, credit, fixed income, and equity) and an incomplete bust that failed to totally let the air out of the bubble. To make matters substantially worse, governments (on a global basis, mind you) wasted the resources of their countries and taxpayers in an attempt to fight the markets and the normal economic cycle by both re-inflating said bubbles (all of them to some extent) while simultaneously indemnifying and pumping full of undeserved capital, the massive agents of leverage which initially were the conduits of the bubble blowing pressure. As a result of being the conduits, they were also the foci of the deleveraging forces that culminated in the bust. These agents, at least a very large portion of them, have proven themselves to be financially incompetent and undeserving to remain as an ongoing concern from an economic perspective. Their political and lobbying clout said otherwise, and they have siphoned capital and staying power from the public sector through regulatory capture and now the poison that was the over-leveraged, “new guard” FIRE sector has now infiltrated entire countries and sovereign nations.

Those who may not follow me may think this is naught but fancy prose on a down day in the markets. Well, I have been preaching this publicly since 2007 and before the markets broke. I have named, on an individual basis and months ahead of the event, those agents that should have fallen – and for the most part did fall if not for massive government intervention, ex. Bear Stearns, Lehman, GGP, Countrywide, WaMu, etc. – see Did Reggie Middleton, a Blogger at BoomBustBlog, Best Wall Streets Best of the Best?, and I am saying now that the last two years of faux, government/central bank “purchased” recovery is simply unsustainable while the majority of the underlying issues that caused 2008 to happen are still present, and most of them are worse now than they were back then.

The market collapse commenced in 2007, and gained momentum in 2008, maximizing its velocity and strength in the 1st quarter of 2009. This collapse was not the result of the indicators that we hear bandied about so often in the mainstream media. It was not borne from stagnating GDP, slow retail sales, lots of snow nor high unemployment. As a matter of fact, all of these factors were literally on fire in 2006 through 2007. The market collapsed because the overinflated real asset market had finally reached its peak. Since this overinflated market was financed primarily with debt, upon its deflation accelerated destruction of equity and capital commenced. Once you lose 10% of market value on a cash investment, you lose 10% of your equity as well. If you are levered 2x, that 10% market drop equated to a 20% wealth loss. 5% downpayment housing deals, equate to deeply negative equity values at a 10% market correction. So, if one were to sit back and realize that 125% LTV (or a negative 25% down) housing deals didn’t just exist, they were relatively plentiful by historical standards, and derivative structures allowed certain corporate players (ex. the monoline insurers) to employ 90x+ leverage, there is no wonder what happened when the housing market dropped 36% and the CRE market dropped 42%. Believe me, dear readers. They are not finished falling.

Then .GOV got into the bubble blowing business, and all of a sudden all is well…

Commercial real estate is literally close to its bubble highs. Hard to believe, but just glance at the chart.

With the US, much of Europe and major portions of Asia stuck in a liquidity trap borne from a developed reliance on unsustainably low and highly manipulated interest rates, the direction of yields really have no way to go but up. If I am correct in that plunging real assets brought upon the recession and associated market collapses, and manipulated interest rates worldwide have no where to go but up while said real asset prices have been artificially elevated at levels that defy the fundamentals, then what happens if when said rates break  the chains of their erstwhile wanna be masters and resume their march to the north?

Gross Dumping Treasuries Leads Managers Calling Three-Decade Rally’s End

“It’s not a question of dissing the United States or questioning the credit of the United States, but simply a maturity reflection,” Gross said. Treasurys are “mispriced relative to the inflationary environment and the growth we see ahead and there are better alternatives in order to capture yield.”

Gross primarily based his evaluation on the reduction in yields caused by the Federal Reserve’s buying of close to $2 trillion in Treasurys, with more slated before the second leg of the program—often called QE 2—comes to an end.

 

“When a trillion and a half dollars worth of annualized purchasing power disappears I simply question as to who will buy them and at what yield,” he said. “We’re suggesting at these yields it might be problematic.”

Anybody who has the least bit of doubt regarding this assertion needs to read this article immediately: As excerpted…

As you can see above, CRE drops in value whenever yields spike more than the + delta in NOI. Looking below, you can see that US CRE actually runs to the inverse of the 30 year Treasury.

That visual relationship is corroborated by running the statistical correlations…

The relationship is obvious and evident! In addition, we have been in a Goldilocks fantasy land for both interest rates and CRE for about 30 years. CRE culminated in the 2007 bubble pop, but was reblown by .gov policies and machinations. The same with rates. Ever hear of NEGATIVE interest rates where YOU have to PAY someone to LEND THEM MONEY!!!

So, BoomBustBloggers, where do YOU think rates are going to go from here? Up of Down???

Put simply, residential mortgages become less affordable leading to housing becoming less affordable. Cap rates skyrocket, save a commensurate increase in NOI, which I really don’t see happening in an era of rampant unemployment and stagnant economic growth.

What many may not realize is that the housing market and the CRE are inextricably linked. The 10 city Case Shiller index and the CoStar US Cap Rate Index have a startly -94% correlation. That’s as close to perfectly symmetrical as one can expect to get (lower cap rates mean higher prices, and vice versa, while higher Case Shiller numbers mean higher prices). If CRE and residential real estate are really that tightly correlated, then realize what we are in for in terms of residential real estate, besides higher interest rates.

In preparation for the ING conference, I have codified and modeled all of the various elements that I discuss on BoomBustBlog, namely the import and export of financial, economic and sovereign risk contagion. We adjust the pathways of apparent pure financial contagion and correlation with a plethora of real world factors.

Then we plugged them into our proprietary cross-exposure model, and then used global cap rate analysis to transform said risks into a spread over the risk free rate of each respective county, and finally plugged said figures into individual discounted NOI style models. I went into the process in a little more depth here: The Coming Interest Rate Volatility, Sovereign Contagion, Geo-political Unrest & Double-Dip Recessions: Here’s The Answer To Valuing Global Real Estate Through This Mess.

We back tested the results with regression analysis, and the accuracy of the results shocked even me – and I’m a pretty confident fellow…

It would appear that we are on to something here… That is, unless… You know, “This time is different!” I will go into this topic depth (and in English) in Amsterdam on April 8th. Anybody interested in attending should contact Jacob at the following link: www.seminar.ingref.com.

source:http://boombustblog.com/

Comment.

Cut-price auction offers Temple Bar flat for €80,000

ORNA MULCAHY and FRANCES O’ROURKE

PROPERTY OWNERS and auctioneers alike may well choke on their porridge this morning when they see that house prices have dropped even further overnight.

The news comes with the publication of the catalogue of Ireland’s first sale of distressed property to be held by British auctioneer Allsops, which specialises in selling properties held by banks, receivers and homeowners needing to sell quickly.

The cheapest property being put on the block is a two-bedroom tenanted apartment in Portlaoise with a top reserve of €35,000. A similar apartment in the same development, Bridle Walk, is listed for sale elsewhere at €170,000.

In Rathfarnham, a two-bedroom penthouse has a maximum reserve of €145,000 in the Allsops auction. A two-bedroom ground-floor unit in the same scheme is listed on myhome.ie for €275,000.

More than 80 properties in Dublin, Cork, Limerick and Galway will be offered at the auction in the Shelbourne Hotel on April 15th, which is being organised by Dublin estate agent Stephen McCarthy of Space, in alliance with Allsop, one of the largest auction houses in Britain.

Details will be available from both companies’ websites tomorrow morning.

Each property carries a maximum reserve price. However, according to McCarthy, the actual reserve prices may well be less on the day, depending on demand. However, the reserve set nearer or on the day will not exceed the published maximum reserves.

Details of properties seen by The Irish Times show these maximum reserves are well below current asking prices for similar homes.

A detached four-bedroom house on a large site in Churchtown, close to Milltown Golf Course, has a maximum reserve of €400,000 – less than three-bedroom homes are making nearby.

A large mews house on a laneway in Ballsbridge has a maximum reserve of €600,000. While there is no similar home for sale nearby, refurbished homes of a similar size in the neighbourhood have been trading around the €1 million mark.

In Temple Bar, a studio apartment on Essex Street has a maximum reserve of €80,000, a price likely to strike fear into the heart of investors with property in the area where slightly larger units trade for upwards of €140,000.

The prices are likely to shock estate agents trying to shift property in a dormant market. However, Mr McCarthy said the auction would benefit the property trade by establishing a floor from which people could build.

source:http://www.irishtimes.com/newspaper/frontpage/2011/0304/1224291283180.html?via=mr

Property Up-Date October 2010

Here is an excellent realistic analyses article from Ronan Lyons on the current property market, well worth a few minutes of your time .I would have one point that I would like to take up and that is I believe we are already past the 500,000 mark in the unemployed figures and I also believe we already have 70,000 people in severe mortgage arrears according to people I know in the real-estate business.

Some Dublin apartments in city centre are already selling for between 72, 000:00 and 125, 000.:00 euro .

I sold an apartment for 255,000:00 last september (2009) and I can now purchase this apartment back again for 125,000:00 that is a price reduction of more than 50% so if we are to expect a levelling off mid 2011 to 2012 then we have a way to go yet.

Personally I expect to see apartments in Dublin go to 45,000 to 65,000 depending on area

This will bring us back to other european city prices!

   

The latest Daft Report is out today, showing a further 3.7% fall in asking prices between June and September. In his commentary, Patrick Koucheravy comes up with the best estimate I’ve seen yet on the typical fall in land values around the country: 75% as a credible minimum average fall for land values.

What else does the report reveal? Two things in particular are worth highlighting: the rate of property price falls, and the rate at which properties are selling. After that, I’ll do some tea-leaf reading on when prices may level off, followed by an update of the number of households in negative equity around the country.

Are price falls easing?

The year-on-year rate of change in the index is, at -16%, the slowest rate of price falls since late 2008. This may sound like clutching at straws, but one thing we do know is that when prices do level off, that will have been preceded by a period of ever-shrinking property price falls. Going from about 20% year-on-year to about 15% year-on-year may be the first step in that process.

Perhaps more importantly, there looks to a change in dynamic in what’s driving the fall in the national average property price. For most of the recession, house prices in Dublin have fallen by more than elsewhere, in percentage terms each quarter. But for two of the last three quarters, that trend has reversed, with falls in Dublin below those in the “Rest-of-country” region (i.e. outside the five main cities). We may not be anywhere near there yet, but at least it looks like we’ve stopped diving further into the sea and may slowly be making our way back up to fresh air.

More on this below…

Are properties selling?

The total stock of properties on the market is doggedly stuck at 60,000, and now has been for over two years. This might suggest no – or at least very few – properties are selling. In fact, it seems that some properties are selling, and without difficulty. Again, Dublin is different from the rest of the country. In general, about 40% of properties posted for sale in April had sold by October 1. But in Dublin, the proportion is much higher, with only one in three of the properties posted for sale in the capital still for sale now.

Where might property prices level off?

There are plenty of ways one might try to calculate where prices level off – for example looking at the amount of oversupply, or my favourite yields. However, sometimes – as people who work in financial markets may tell you – statistics rather than economics can reveal what may happen. Consider the euro change in average property prices each quarter since early 2006. This is shown in the graph below, for the country on average (red), for Dublin (dark brown) and for outside the major cities (light brown).

Falls in house prices, by region, and extrapolated forward

What it reveals is that the quarter-on-quarter change in house prices worsened (i.e. got more negative) all the way until late 2008. Since then, particularly in Dublin, the falls each quarter have got smaller. The dashed lines take the average “improvement” in falls since late 2008 in each of the three lines and work them forward. For example, the falls in Dublin are getting smaller by on average €3,400 each quarter. If the easing off in house price falls seen in Dublin continues, house prices in the capital could stabilise as early as mid-2011. Outside the main cities, though, the equivalent “improvement” is just €400 a quarter. If this were to continue, prices might not level off until late 2014, something that may tally with yield or oversupply arguments.

No matter which way one looks at the housing market, though, it seems that a divide is emerging between Dublin at one end and the rural parts of the country at the other.

How many are in negative equity?

In the summer of 2009, I did some work, looking at county-level house prices and Live Register figures, as well as figures from the Irish Banking Federation on loan-to-value, to try and estimate the incidence of negative equity and unemployment around the country. With a year of new information, both from the property market and from the labour market, it’s time to revisit the numbers.

The figures are, as may be expected, frightening. About 200,000 mortgages are in negative equity, based off the best public information we have about who borrowed what and when. Small amounts of negative equity are, in the main, not an issue, if people keep their jobs and thus can keep up their payments. However, what is very worrying is that negative equity seems to hit some groups particular hard. It does not taper off up at the top. In fact, 100,000 mortgage-holders are in negative equity of greater than €50,000 – what anyone would term severe negative equity.

In many respects, this is a Greater Dublin area problem. Of the 100,000 in severe negative equity, two in five are in Dublin while a further 17,000 are in its four commuter counties. These are also the most likely to have bought smaller “ladder” properties at the height of the boom. In contrast, very few people in Limerick, Longford or Mayo are in severe negative equity, as house prices were lower there to begin with.

In a scenario where prices fall 55% from the peak, as some think possible, current figures suggest that 330,000 households – or more than half of mortgage-holders – would be in negative equity. What is particular worrying is that the new additions would not be as significant as the doubling of the numbers in severe negative equity of more than €50,000. Without knowing more about the relationship between mortgages and unemployment, it also suggests that if the Live Register reaches 500,000 next year, something in the region of 70,000 households – 4% of all homes – could be in both negative equity and unemployment/underemployment.

Source https://machholz.wordpress.com/wp-admin/post-new.php

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