Friday, July 11, 2008

Silver And Gold

I must admit I'm loving all this:

'Pressure is piling on the banks due to the combined effects of the
economic slowdown, a severe deterioration in the property market and the credit
crunch in the global financial system; so much so that Bank of Ireland was
unable this week to provide a profit forecast for the current fiscal period,
except to say that profits continue to weaken.

'Although anecdotal evidence points to dire conditions in the domestic
property market, a warning from housebuilder Abbey of much tougher times ahead
came as it reported a sharp drop in profits in the year to April. "In recent
weeks, trading conditions have deteriorated noticeably," the company said. "The
rate and depth of the current slowdown in activity is outside our experience. It
seems clear that the source of the difficulty is the dramatic contraction of the
mortgage market. Unless conditions markedly improve, which seems unlikely in the
short term, a wrenching adjustment lies ahead."

'In Britain, where the Irish financials have big operations, Halifax Bank
of Scotland (HBOS) reported yesterday that an 8.7 per cent reduction in house
prices in the year to June represented a bigger fall than at any time during the
1990s crash. "It is fair to say we are now in the worst housing slide for over
50 years," said Michael Saunders, an economist with Citigroup.'

Keeping quiet these days aren't you Parlon? 'Now's a good time to buy' is it, you bollox...

I wanted to buy a house in Drogheda in 2000 but I simply couldn't lay my hands on enough money for a deposit and I was scared I wouldn't find the lodger I'd need to fund a mortgage. An out of town house then was the equivalent of about €115,000. I tried again in suburban Cork in late 2001, when houses were about €150,000, and again they were beyond me. Remember this was back when banks actually operated to rules and would only lend 3-times a single person's salary for a max of 25 years.

Finally I was approved for a mortgage in 2005, without even applying for one(!). I was informed I could be given €210,000 towards a €230,000 property or €230,000 towards a €250,000 property, if I took in a lodger. Great, except for that price, by the end of 2005, I would either have had to buy a shoebox you'd barely stand up straight in or a three-bed semi in a sprawling estate in the sticks, miles from the city, where even the local Spar was a 15 minute walk away never mind 'luxuries' like bars and restaurants.

Anyway I said no. I said no to all those shoe shine boys who blathered on about rent money being 'dead money'. I said no to all those shoe shine boys who insisted house prices would just go up for ever and ever (defying the bloody laws of physics never mind economics). I said no to all those shoe shine boys who told me I'd regret it in the long run if I didn't 'get on the ladder'.

I tried to point out to the lemmings that having the house you live in going up in value is no bloody use unless you're going to downsize or move to shagging Leitrim or emigrate or just die to take advantage. I tried to point out to the lemmings that they had borrowed at maximum affordability for effectively the rest of their working lives when interest rates could only go up. I tried to point out to the lemmings that getting onto the next rung of 'the ladder' (i.e. trading up) was entirely dependant on there being a never ending supply of fucking eejits coming up behind them willing to take their kennel in the sticks off them at even higher prices. Well guess what, the well of fucking eejits has dried up.

Now sale prices are back at late 2005 prices again (asking prices aren't dropping as fast, because there are still a lot of deluded people out there who need to wake up and smell the coffee, but the gap between the asking and sale price is now -6% where it was +8% two years ago) and I'm now armed with a bigger salary and a lot of savings that would have been lost in mortgage repayments. Furthermore I've had an infinitely better social life renting near the city centre than I would have had to boot.

But I'm still going to hold on longer. There's more downside to come and inflation at the 5% mark will exaggerate the falls even further. If you assume that the average rate of inflation between the beginning of 2005 and the end of 2009 will be 3.5% (it could be higher) then €350,000 at the end of next year would be the equivalent of €293,000 back then. It always astounds me that people forget how inflation ultimately destroys the profit on assets like houses, seeing as they are incapable of creating any wealth.

Anyway, back to today, the amount of vacant property around Cork is staggering. All those 'investors' buying into the dream of a quick buck just cos the other bloke on the golf course did it too. Only they're finding that as well as there being no buyers there aren't even enough renters to fill the vacancies and the rents don't come close to covering the mortgages. I called the peak of the market at the end of 2006 when, short of being let pass mortgages onto your sprogs, there was nowhere left to go.

I hope there's savage (metaphorical) bloodletting. I hope the developers, the estate agents and the 'investors' get slaughtered. And I'm looking forward to being there to pick up the pieces. Fuck them. No one had any sympathy for the likes of me when those gits priced me out of the market. They deserve everything that's coming to them. And so do I.
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