Tuesday, February 06, 2007
Living in denial seems to be one of the most common pastimes these days.
In fact, it's probably the third most common pastime in Ireland today, behind slumping in front of the telly to watch CSI: Miami and slurping wine with friends while comparing the notional values of their overseas property portfolios.
I thought it might be useful to run through a few known facts that people are living in denial of in Ireland today, just as a reminder and in the vain hope that some people might snap out of their torpor and face up to some of the scary realities that await us all.
Today, we'll kick off with a biggie - the Irish property market.
Irish property prices are about to collapse, because it is the biggest bubble in the global property market bubble. Yes, people have been predicting this for years, and with good reason. It is inevitable. No, it hasn't happened so far, but that just means the crash will be more severe when it occurs, which is very, very soon.
That one bed apartment you bought within a mere hour's commuting distance of Dublin city centre (if you leave for work at 4am) will not continue to inexorably rise from the half million euros you bought it for.
The reason for this is because it is simply not worth anything like that amount in real terms.
Let's look at the fundamentals of this market. Historically, the average family house anywhere was thought to be worth approximately three times the average industrial wage. In Ireland, accommodation now is a factor of around 12 times the average industrial wage.
Also, the US property market has just tanked, and Ireland's exposure to America makes us particularly vulnerable to economic developments there.
Finally, didn't you notice that the only people talking up house prices are those with vested interests in selling them? Auctioneers (recently demonstrated on Prime Time to be utter cowboys), Estate Agents (who increasingly and quietly have been selling their own houses and renting), and newspapers (whose lucrative property sections which shrilly trumpet new developments are dependent on the advertising from those same developers).
Get out now if you can. Banks have already divested themselves both of their own property (HQs and bank branches) and of their property debt. The clever speculators left the Irish market at least a year ago.
This is a pass-the-parcel game where the last one holding the overpriced package will see it explode messily, devastating their finances and personal security.
Indications from data gleaned from popular sales and letting website Daft.ie show that more and more places are on the market longer, being repeatedly listed at ever lower prices and that a full crash is imminent.
There has never been a soft-landing in a bubble market. There wasn't one with Dutch tulips or South Sea stocks, there isn't one in the US housing market now or the London and Tokyo bubbles from previous decades, and there won't be one in Ireland now.
The market will crash, perhaps by as much as 30% in one year. If you are still in doubt, cast an eye over the excellent web analysis conducted at Daftwatch, and the informed discussions on The Property Pin.
Prices in London took the best part of a decade to recover from their crash in the late Eighties. Prices in Tokyo took even longer to recover. Prices in Ireland are more inflated now than either of those markets ever were.
If you've just taken out a large mortgage, you could be trapped in the property you've just bought for a decade or more, in order to avoid negative equity.
If you have a string of properties, each leveraged off the back of notional equity increases in previous properties, you are extremely exposed and could even find yourself close to bankrupcy like this fella.
The party's over and normal rules of engagement are about to resume, people. Which is good in the long term for all those unable to purchase their own dwelling, but very bad news for those seeking to make money by sitting on their backsides.