The Irish Economy - Worrying Signs?

lomb

Pa ElGrande wrote:

Careful what you wish for when the downturn hits.

● The banks will tighten up their lending criteria significantly making it almost impossible to get a home loan.
● You will be lucky to keep your job, if you do, then may have to accept a pay cut. Employers will seize on this to increase productivity (Would you prefer to work on Saturday, for free!, or not work the following Monday)
● In a recession the focus turns from people with money to invest to one of survival. (its easier to move where any jobs are if you are not tied to property)
● Interest rates and fuel prices will rise.
● A significant number of properties will come on the market at once, with those on the extremities of the commuter belt loosing most value. Some will cut their losses initially, Most will stick on the way down.
● Suicide will rise substantially (including some that will take their families with them)
● Land prices will fall (Japan actually has a land shortage, but it still declined)
● We are tied to the American/UK economic cycle, the multinationals will be very quick to lay off people (e.g. Intel, HP, Dell)
● Retail outlets will close all over as demand for luxury goods falls off a cliff.

Ok, I know I am painting a very depressing picture

It's not that bad, remember our ancestors (1840's famine) had it much worse.
Anyone who has been prudent with the management of their income/expenditure will probably get through, those that have over-extended themselves or put their life savings in a single asset (housing) will pay a very heavy price.

U paint a very pessimistic picture, one that i doubt will come about. u are right though, prices for property will go thru a sustained period of non growth relative to inflation in all likelyhood. il leave this discussion on this final point, people are richer than u think, no one tells u what they have.

Blackjack

Pa ElGrande wrote:

However, we should also bear in mind the only reason the majority of people are complaining about property is that they want to get on the property ladder themselves, but the cost of entry to this ponzi scheme is beyond them. Once they get on the "ladder" they are quite happy for their property to appreciate in value so they can sell it to the next fool.

Can I put this in my sig?. I'd nearly put it in my epitaph!.;)

Pa ElGrande

lomb wrote:

U paint a very pessimistic picture, one that i doubt will come about. u are right though, prices for property will go thru a sustained period of non growth relative to inflation in all likelyhood. il leave this discussion on this final point, people are richer than u think, no one tells u what they have.

It depends on your perspective whether the glass is either half empty or half full.
House prices will fall as supply exceeds demand over a sustained period until the average house reaches more normal levels (3x wages). How much prices fall will depend on your location.
Certainly some people are richer (over 40's). There are a lot of people in my age group (30's) who are not, and have told me how they regularly dip into credit cards towards the end of the month to keep their heads above water.
There are at least 50,000 such individuals who have been identified by the banks as struggling (and we are still in the boom)
This boom has become a massive wealth transfer from the young to the old generation.

Who is wealthier the C list celebrity who has a €2 million house and lifestyle and owes it all to the bank or the council worker who rents and has €50,000 in savings and no debts?

Pa ElGrande

Blackjack wrote:

Can I put this in my sig?. I'd nearly put it in my epitaph!.;)

lol. be my guest.

lomb

Pa ElGrande wrote:

Who is wealthier the C list celebrity who has a €2 million house and lifestyle and owes it all to the bank or the council worker who rents and has €50,000 in savings and no debts?

ud be surprised what the mortgage is on a 2 million euro house. many people buying them are in their 40s or 50s and so the bank wont advance the money over terms of more than 20 years. acording to my calculations thats 11 grand a month. now to pay 11 to the bank u need to make 22 to pay the tax on it. so u need to make in excess of 300 grand to meet the payments. i would call that wealthy versus a council worker with 50 grand wouldnt u?

Blackjack

lomb wrote:

ud be surprised what the mortgage is on a 2 million euro house. many people buying them are in their 40s or 50s and so the bank wont advance the money over terms of more than 20 years. acording to my calculations thats 11 grand a month. now to pay 11 to the bank u need to make 22 to pay the tax on it. so u need to make in excess of 300 grand to meet the payments. i would call that wealthy versus a council worker with 50 grand wouldnt u?

Do you remember the story about your one Twink and her Mortgage?.

Sponge Bob

Pa ElGrande wrote:

House prices will fall as supply exceeds demand over a sustained period until the average house reaches more normal levels (3x wages).

Hmm, the long term average is 4 x and we are around 6x 7x now. The long term would have generally been a period of higher interest rates than we have now so I would say that we will settle into a new long term average of 5x to take the lower interest environment into account.

Still a 7x to 5x adjustment implies that house prices will fall 28% or so which I feel is realistic given the size of the bubble.

Lack of liquidity in the banks could cause an overshoot where the prices spike below that .

How much prices fall will depend on your location.

Correct, and I fully endorse your commuter zone extremity argument.

Termonfeckin will fall (relatively) more than Terenure !

This boom has become a massive wealth transfer from the young to the old generation.

It has now, yes. OTOH The younger ones are more prepared to borrow and spend beyond their long term means for which one cannot really blame the elders who grew up with no plastic and feck all credit unions even...the over 50s nowadays. The lethal combination of irresponsible borrowers ...the youngers....and irresponsible lender.....the banks who now offer 100% loans .....is what caused much of the boom. Parts were caused by higher disposable incomes and demographics.

When the boom started , c 1995, a semi in Lucan or Galway could be got for around €65k, that semi will certainly not fall below €100k and most likely below €150k no matter what. Nevertheles that semi is now €250k to €300k and in my opinion is unlikely to cost over €200k quite soon.

Who is wealthier the C list celebrity who has a €2 million house and lifestyle and owes it all to the bank or the council worker who rents and has €50,000 in savings and no debts?

In terms of realistic cashflow, the latter. Thats unless the latter believes that they are a Celeb Manqué and have adjusted their lifestyle accordingly

Ken Shabby

Ken Shabby wrote:

100% the fault of Fianna Fail of course.

Anyone remember the economy after the last elected Labour/FG Government? Remember when the national debt per head was worse than Chad and 30,000 a year fled a country where employment was impossible?

I don't think the sky is caving in just yet. There are plenty of people out there investing vast amounts in the country, including land. While it's very easy for us to throw out opinions on a website, as long as people who stake their fortunes ion getting things right are willing to take decisions like buying a 5 acre site in Dublin for €180 million, then I'm not going to lose sleep just yet.

lomb

Deleted User wrote:

Anyone remember the economy after the last elected Labour/FG Government? Remember when the national debt per head was worse than Chad and 30,000 a year fled a country where employment was impossible?

I don't think the sky is caving in just yet. There are plenty of people out there investing vast amounts in the country, including land. While it's very easy for us to throw out opinions on a website, as long as people who stake their fortunes ion getting things right are willing to take decisions like buying a 5 acre site in Dublin for €180 million, then I'm not going to lose sleep just yet.

Uve hit the nail on the head there. people on boards dont realise how wealthy some/many people are. these people who are buying up tracts of development land for record prices are very shrewd businessmen, and id take their opinion over someone from the central bank, or the government or the newspapers or boards anyday.

they know that either prices are going to keep rising or allowable densitys are going to keep increasing and probably both as one puts pressure on the planners for the other.

DublinWriter

lomb wrote:

these people who are buying up tracts of development land for record prices are very shrewd businessmen, and id take their opinion over someone from the central bank, or the government or the newspapers or boards anyday.

I'm sorry Lomb, but it's a bit like that scene from 'Fiddler on the Roof', "When you have money, they think you know..."

The recent sale of the Jury's site in Ballsbridge was basically a 'grown-up' p*ssing contest. Do the maths on that one and you'll realise that what ever apartments are thrown up on the site will have to sell at €3m for the developer to at least break even.

Regarding the economy, the only thinker I'd trust would be Sir Isaac Newton - 'what goes up must come down'.

I remember senior economists opining on the media during the 2000 dot-com boon, saying that "maybe we are reaching a new re-evaluation of equities".

We're heading into a major oil crises with all nations playing ostrich. When the UK and the other EU countries start allowing the accession countries work in their respective territories circa 2009, we'll witness a mass evacuation.

That, combined with the concept of 'peek-oil' about to hit around the same time, means that we won't be in for the smoothest of rides.

lomb

DublinWriter wrote:

When the UK and the other EU countries start allowing the accession countries work in their respective territories circa 2009, we'll witness a mass evacuation.

afaik the uk is an accession country. the others like france etc are non english speaking so i cant see the evacuation u speak of.

reading the paper, even fairly ordinary houses in good areas are selling for in excess of 1.5 million euro which really is shocking when u think about it.

i went to get a loan of 500000 recently for a business property and i was asked all kinds of ridiculous questions. to afford the afformentioned houses u need a monsterous income, but i guess people must have it or else have alot of equity.

the only conclusion i can come to is alot of people are loaded. fair deuce to them but the rest of us are only looking up, and we can see only their feet:D

Cork

Irish economic success is built on people buying stuff they don't want with money that they don't have.

Government don't mind as they are getting VAT & stamp duty.

But with people borrowing to the hilt - they will be to blame for their own stupidity.

It is no wonder Eddie Hobb's "Show me the money" is popular.

Many are in a debt quick sand. I have no doubt reality will strike.

The current boom is created not by productivity but easy availibillity of credit.

Interest rates are going up.

Brian Cowen even issued a warning last week.

lomb

walford was sold a year ago nearly for around 50 million euro. http://www.ireland.com/newspaper/property/2005/0526/3078811573CARRYOVERRPCARRYOVER.html
they reakoned development potential was the key to the value. in doing a search no planning applciation has been submitted and the house appears not to be lived in from passing a few times.

so 2.5 million euro of interest and 4.5 million of stamp duty later nothing has happened here. there are alot of very very wealthy people in ireland. i dont think boardsies realise how obsenely wealthy the people at that end are.

this filters down to the average mere mortal, there are many many accidental millionaires out there. the question is is it an anomaly or was it always going to happen?

lomb

Cork wrote:

The current boom is created not by productivity but easy availibillity of credit.
.

of course thats true any economist will tell u u will get a boom when u loosen up the money supply and increase it.
but...banks need to be paid. what would really worry me and then u know prices will have overshot the mark is if the banks do 30 year mortgages with interest roll up periods so nothing is paid for a few years. thats when u know the collapse is a couple of years away:D

Cork

Reality will bite with interest rate increases.

People who recently bought houses will be fare worst.

People who bought houses miles away from where they work - will be hit y increased fuel costs.

Many commuters almost live in their cars anyway. They have TV, Breakfast, ipod, phone etc in their car.

I pity these.

DublinWriter

lomb wrote:

afaik the uk is an accession country. the others like france etc are non english speaking so i cant see the evacuation u speak of.

The UK, like most other EU states except Ireland, put a block on Poles and Czhecos coming into GB to work until 2009.

Given the favourable exchange rate between Sterling and the Euro, and the relative cheapness of the cost of living outside London, I can see a lot of current Poles and Czhecos heading over to the UK in about four years.

lomb wrote:

the only conclusion i can come to is alot of people are loaded. fair deuce to them but the rest of us are only looking up, and we can see only their feet:D

Dude, you're a dentist! The bank manager must have prostrated himself at your feet while minor clerks scattered rose-petals in your path!

Only kidding, couldn't resist the dig!

ronbyrne2005

DublinWriter wrote:

The UK, like most other EU states except Ireland, put a block on Poles and Czhecos coming into GB to work until 2009.

Given the favourable exchange rate between Sterling and the Euro, and the relative cheapness of the cost of living outside London, I can see a lot of current Poles and Czhecos heading over to the UK in about four years.



Dude, you're a dentist! The bank manager must have prostrated himself at your feet while minor clerks scattered rose-petals in your path!

Only kidding, couldn't resist the dig!

actually uk allows unlimited access from poland etc along with us and sweden.

DublinWriter

In think the recent Forfas report is a lot more telling when you think about the global consequences of 'peak oil' being reached circa 2010.

Remember the oil crises in the early 70's? I don't as I was only 3 at the time, but interest rates shot up, inflation got so bad that the Labour government in the UK introduced a three day working week.

I think we're in for that, but the key difference then was that in 1974, only 20% of people actually owned their own home in the UK, and I'm sure the same went for Ireland.

The large rise in interest rates at the time didn't affect a lot of people because only 20% had mortgages.

Now the inverse is true in the UK thanks to Thatcher's council house buy-back scheme of the early 80's, and around 80% of people in the UK have mortgages.

You could see a mini-version of what we're all in store for when in 1991 George Soros woke up with a sore-head and dumped billions of sterling on the International money markets causing then chancellor Norman Lamont to increase interest rates four times in one day to prevent sterling from caving in.

Many people in the UK just left the keys to their properties with the banks and walked away and it took until the late 90's for the UK economy to pick up again.

Lamont at the time famously called this a 'blip'.

The world running out of oil will be more than a 'blip' and will not be a temporary condition. It will be a permenant condition that personally I think will bring all national economies to a halt and put us back in some kind of feudal existance in 30 years time.

Oil affects everything. Take a look at your pension plan that probably won't mature until 2030. Most of your money is probably tied up in equities. Do you think any of those companies that your pension plan is invested in could survice in a world without oil? Do you think that there will even be a stock-market by then?

Personally I think we're in the end days of what I like to call the Industro-technological age. Most of our personal 'wealth' is tied up in financial instruments that will crumble like pillars of salt when the oil runs out.

As I said, I think 2010 will be the key year as the Forfas report has indicated.

Many people think that the world will suddenly run out of oil, but I think that we're all in for a long, slow grinding down of the economic system post 2010 and oil will become more expensive year on year.

Pa ElGrande

I was talking to my dad over the weekend and we were discussing the outlook for the future. He works in construction and has also formed the opinion that the current growth in property prices is not sustainable, but he's not complaining as he says "make hay while the sun shines".
He related something to me from the 1980's, he had returned from England in the late 1970's and setup his own construction business, which went ok until the 1980's crash, as a result on Christmas eve, 1982 and the following 1983, he only had a fiver in his pocket and AIB bank breathing unmercifully down his neck, try as he might he could not collect any money from any clients. Needless to say his business failed. That was a real low point in his life, with a young family to support, marriage going through a rocky patch, debts with high interest rates and high inflation. He would not wish that on any family today.

However, while the population, labour-force and employment increases achieved during the 1970's were significant they depended, to a considerable extent, on an unsustainable stimulus of the economy through high public sector borrowing and spending. About 50% of the increase in employment over the 1970's took place within the public sector.

The Evolution of Economic Policies in the Republic of Ireland -The Underlying Reasons for the High Economic Growth Rates of the 1990s
http://www.forfas.ie/news.asp?page_id=218

Are we staring at the 1980's again, except this time its unstainable private sector borrowing and massive growth in the construction sector? Interesting what part did the policies of the Fianna Fail goverment of the seventies play in exacurbating the crisis? Are their policies any different today?
There are many stories from the 1980's like my Dad's of what happens when the money suddenly dries up.

The biggest flaw in NCB’s report is its failure to address the debt binge we have been engaged in and where this is likely to lead us by 2020. Credit to the private sector is growing at the rate of 30% a year. Three more years of credit growth at this level would take us to a point where we owe €570 billion by the end of 2008, €750 billion by the end of 2009 and so forth.

Take the numbers out to 2020 and you end up with ludicrous aggregates. You cannot continue for a generation to pump up credit growth at a rate that is six times the level of hoped for gross domestic product growth. Something has got to give, and it will do so long before NCB’s vision has expired.

Irish Outlook: Damien Kiberd: Crystal ball gazers miss the warning signs
http://www.timesonline.co.uk/newspaper/0,,2769-2135902,00.html

Rossa White of Davy Stockbrokers said the “SSIA effect” was the biggest single cause of last month’s jump in inflation and there were plenty of indications that 2006 was shaping up to be the biggest spending splurge in six years.

Exporters operate in the highest price economy in the eurozone — a direct consequence of government policy, he said

SSIA spree may cause economic overload
http://www.timesonline.co.uk/newspaper/0,,2769-2136022,00.html

lomb

DublinWriter wrote:

Dude, you're a dentist! The bank manager must have prostrated himself at your feet while minor clerks scattered rose-petals in your path!

Only kidding, couldn't resist the dig!

I think not! luckily the old man is co signing the loan so that adds a bit of credibility to the equation. they think all dentists are rouges:D

i think all the optimists are partially right and the pessimists are. im a firm believer in true productivity. and i know ireland apart from its low corporation tax is falling behind every day on competitivity.

if it isnt peak oil it will probably be globalisation thats the eventual wake up call.

i reakon theres probably 3-5 years left in this boom with prices rising another 50-60% for starter semis homes in dublin, 40% for apartments, and 40% for trade up houses around dublin. after that it probably will either collapse or whats more likely stop for many years and inflation will slowly erode property prices before another cycle.

everyone who knows property knows its cyclical and we are in the rising part of the cycle, how far it has to go no one knows. but its going to be a bumpy ride:D

Pa ElGrande

lomb wrote:

I think not! luckily the old man is co signing the loan so that adds a bit of credibility to the equation. they think all dentists are rouges:D

i think all the optimists are partially right and the pessimists are. im a firm believer in true productivity. and i know ireland apart from its low corporation tax is falling behind every day on competitivity.

if it isnt peak oil it will probably be globalisation thats the eventual wake up call.

i reakon theres probably 3-5 years left in this boom with prices rising another 50-60% for starter semis homes in dublin, 40% for apartments, and 40% for trade up houses around dublin. after that it probably will either collapse or whats more likely stop for many years and inflation will slowly erode property prices before another cycle.

everyone who knows property knows its cyclical and we are in the rising part of the cycle, how far it has to go no one knows. but its going to be a bumpy ride:D

Personally I'm calling this year, 2006 as the top of the housing market.

The problem with a mania (like the present house price bubble) is that it defies rational analysis, that's why there is such a raft of conflicting information out there, even AIB's chief economist, John Beggs is stumped.

Houses: What happens next?
http://www.sbpost.ie/post/pages/p/story.aspx-qqqt=NEWS%20FEATURES-qqqs=news-qqqid=13473-qqqx=1.asp

Comment: Frank Fitzgibbon: Bertie knows everything
http://www.timesonline.co.uk/article/0,,2091-2136210,00.html

lomb

Pa ElGrande wrote:

Personally I'm calling this year, 2006 as the top of the housing market.

correct no one knows whats going to happen.
well see about 06 being the peak, il bring this thread back up next year and i think odds are that the boom will be booming next year also. interest rates arent rising enough to deflate it. and even if they rise the banks are coming out with more innovative products to reduce monthly payments like 40 year mortgages or interest only or worse interest roll up. then u could see another 5-10 years of booming before an almighty crash to earth. the problem is its in everyones favour for property to rise. in the buyers favour as he thinks it will be worth more next year so it doesnt matter what it costs, the sellers as he thinks hes got a very very strong price the likes which have never been seen before, the estate agents who trump it up, the politicians and their votes, the government with stamp, vat and employment taxes on construction workers, the media as they get ad revenue from developers, the banks whos profits are spiralling, the planners as they keep granting permission for more and no ones objecting as everyone thinks MORE MORE MORE, the land developers who are doubling their money on borrowed money thats heavily leveraged, the pensioner whos interested in equity release, the construction workers working away on crazy incomes , the building merchants, and concrete companies minting it, absolutely everyone.

i personally couldnt care if it continues or it doesnt and wheter it slows or crashes 50%, it doesnt particularly effect my decisons as the property i want at the moment is for a lifelong interest and not short term, and my income is not derived from construction or any part of it(thank god), but i find it very addictive to look at the various scenarios and how it will play out:D

to sum it up though i still think GOOD property is a GREAT LONG TERM investment with the proviso U CAN AFFORD THE PAYMENTS stress tested.

Sponge Bob

lomb wrote:

correct no one knows whats going to happen.
well see about 06 being the peak, il bring this thread back up next year and i think odds are that the boom will be booming next year also. interest rates arent rising enough to deflate it. and even if they rise the banks are coming out with more innovative products to reduce monthly payments like 40 year mortgages or interest only or worse interest roll up. then u could see another 5-10 years of booming before an almighty crash to earth.

nahh , 2007 will be the peak I'd say, 50% of all SSIAs come in in April 2007 , we will not have to wait beyond 2008 for the slump/crash/unwind whetever.

lomb

even if its 2007 or 2008 then prices will have risen another 35 or more percent by that time, so even if theres a correction of 15 % u will be quids in. also residential interest rates can be fixed today for 10 years for 4.7% now that isnt bad when u consider boi were quoting me an opening of 4.7% for a commercial mortgage(they price these differently as a percent over euribor).

personally this boom has plenty more to go, and the moral of the story is buy buy buy:D

silverharp

Well done for the people that mentioned "peak oil", I think we are headed for a perfect storm where if the demise of the US economy doesnt get you , peak oil will, any financial instruments after 2010 are going to lose alot of money, gov bonds,pension assets, high multiple shares. people who are paying more then €2m for a house in D4 are going to be sick as parrots IMHO, talk about priced to perfection

lomb

silverharp wrote:

people who are paying more then €2m for a house in D4 are going to be sick as parrots IMHO, talk about priced to perfection

Its more than 3.5 million for a 'decent' house with parking in d4 tbh.. its 2.5 mill in d6
peak oil may or may not get anyone,even if fuel bills treble i think there is still room in the economy to accomate oil at this price WITH THE PROVISO that the government dont tax the aditional increase in fuel duty.

Pa ElGrande

silverharp wrote:

Well done for the people that mentioned "peak oil", I think we are headed for a perfect storm where if the demise of the US economy doesnt get you , peak oil will, any financial instruments after 2010 are going to lose alot of money, gov bonds,pension assets, high multiple shares. people who are paying more then €2m for a house in D4 are going to be sick as parrots IMHO, talk about priced to perfection

I don't know if you have noticed it but since the beginning of the year costs for transport, heating and food have all risen substantially.

Peal oil argument aside the problem with oil rises is that it feeds into inflation.

• Transport is dependent on oil.
• Heating is dependent on oil & gas.
• Food production is dependent on oil. (Fertilizers, pesticides, transport, packaging)
• Clothing is dependent on oil. (synthetic fibres, cotton needs lots of pesticide.)
• Manufacturing is dependent on oil (plastics, raw materials, transport)

The net effect of this is that this increases costs that are fed through to the the end user (you & me). Companies that cannot pass on the rise go out of business or cut back on employment.
The worker is also caught in a vice where wage increases are not keeping pace with inflation, due to competition from outsourcing in cheaper wage locations and availabilty of cheaper labour in this country.

Perfect storm brewing indeed.

It seems the first question couples ask the mortgage lenders today is "How much can we get?" rather than "How much can we afford?" [Richard Curran in today's Irish Independent, business section].

Interest rates rise = more income spent servicing debt.
Oil prices rise = cost of living increases.
Interest repayment + oil rising faster than wages = less spending and/or further increases in debt, fueling more unemployment and decrease in an individuals net worth.

B.T.W. - Oil exploration is a growth area right now with companies like Shell & BP crying out for people with skills. Most of the people establised in this field are over 50.

ronbyrne2005

peak oil seems like a scare story to me, theres plenty of alternative energies etc,world economy could cope with 150dollar oil in the short to medium term and this price level would be good in that it would encourage the development of economically viable alterative energy sources.

Pa ElGrande

ronbyrne2005 wrote:

peak oil seems like a scare story to me, theres plenty of alternative energies etc,world economy could cope with 150dollar oil in the short to medium term and this price level would be good in that it would encourage the development of economically viable alterative energy sources.

High oil prices are not good right now if you are in Eritrea or Bangladesh, how many more countries would be pushed over the edge by $150 per barrel of oil?
Since when is mass starvation a good development?

Eritrea blames power cuts on supplier’s shortage of oil
http://www.sudantribune.com/article.php3?id_article=14816

BPC rationing diesel as stock plummets
http://nation.ittefaq.com/artman/publish/article_26893.shtml


One barrel of oil = 42 gallons(US) = 159 litres.

@ $70 barrel

$70.00 = $57.30 EUR (today's conversion rate $1 = €0.818526)

oil = €0.36/ltr

Today a 2 ltr bottle of ballygowan in Supervalu = €1.40

water = €0.70/ltr

lomb

id tend to agree, 150-200 dollar oil could be great news for the west and put the new east out of business by crippling chinese factories and their competitivity with western enterprises.
im not saying this is good news for individuals but it could be great news for the irish economy. money is a strange thing never underestimate the twists and turns the river of business will take..