Housing bubble starting to pop?

Supercell

Its scary when established business close up shop because the land they are on is appreciating faster than the profits the business is generating.

Everywhere I look I just see madness in the Irish market, its a pyramid with a capital P , whats worse is the elections coming and the maturing SSIA'S ....cannot see anything but a basket case economy 1.5'ish years from now.

I love being Irish, but what happening now in the economy is sparking emmigration preparedness, i'm not going to pick up the peices for the smug bar-stewards that loose it all on their inflated mortgages. The polititions will be propping up the saps that bought into this insanty whilst the rest of the world laughed at bloody 200k jacks somewhere in the back of nowhere with a view of the fupping sea front.
Affordable housing three years from now...now that will be interesting.

Cantab.

Longfield wrote:

Its scary when established business close up shop because the land they are on is appreciating faster than the profits the business is generating.

Everywhere I look I just see madness in the Irish market, its a pyramid with a capital P , whats worse is the elections coming and the maturing SSIA'S ....cannot see anything but a basket case economy 1.5'ish years from now.

I love being Irish, but what happening now in the economy is sparking emmigration preparedness, i'm not going to pick up the peices for the smug bar stewards that loose it all on their inflated mortgages. The politions will be propping up the saps that bought into this insanty whilst the rest of the world laughed at bloody 200k jacks somewhere in the back of nowhere with a view of the fupping sea front.
Affordable housing three years from now...now that will be interesting.

Yup, agree whole-heartedly. I'm 25 and am a month's notice out of this country should I need to. I'm an electronics engineer and am worried about the short to medium term future of the Irish economy in terms of economic sustainability and an over-reliance on cheap borrowed money from Europe as well as foreign direct investment from the US. To be quite honest Irish engineers ain't a cut on the guys we have working in our company from eastern Europe and China - these guys have the craving, the work-ethic and a desire to suceed at all costs. We've recently employed a load of fairies from the Irish universities who don't even know how to use scientific calculator.

Incidently, this thread is nothin' compared to the thread on askaboutmoney.com which has had 60,000 hits over the last 4 weeks. Market sentiment is changing lads, time to bail out before the amateur investor reads all about it in the Sunday Independent et. al.

Link to AAM

Cork

its a pyramid with a capital P

Banks have thrown money at borrowers.

Houses are completely over priced.

The bubble will bust. Irish manufacturing industry is going.

This is being followed by the better jobs.

People got carried away with propery & even bought such property in the backs of the beyond.

The Celtic Tiger is gone.

The Irish simply borrowed and borrowed.

House Prices are in La La Land.

Pa ElGrande

One piece of data that is proving very elusive to find is data for repossessions in Ireland. Anecdotally they are happening, but mortgage lenders appear to be reaching settlements outside the courts. I think we will have to watch the employment numbers for firms like "Intrum Justitia".

Note: I have heard rumours how they go about the repossesions, but I have no data or direct correlation to back it up. If anyone has data or knows what type of arrangements the banks are making, maybe they might let us know.

SimpleSam06

Pa ElGrande wrote:

One piece of data that is proving very elusive to find is data for repossessions in Ireland. Anecdotally they are happening, but mortgage lenders appear to be reaching settlements outside the courts. I think we will have to watch the employment numbers for firms like "Intrum Justitia".

Note: I have heard rumours how they go about the repossesions, but I have no data or direct correlation to back it up. If anyone has data or knows what type of arrangements the banks are making, maybe they might let us know.

Well apparently they are down by 25% whatever they are...

/ Too lazy to log in to the indo

Pa ElGrande

SimpleSam06 wrote:

Well apparently they are down by 25% whatever they are...

/ Too lazy to log in to the indo

Thanks. found it

Instead of increasing, the bad debt provision actually fell over the first six months of the year, down from €47m to just €12m.
There have been a number of warnings from the Central Bank over the potential problems which could arise from the nation's ongoing love affair with credit.
Personal and mortgage debt are at record levels and the Central Bank has expressed concern about the ability of borrowers to meet repayments as interest rates climb higher.
But Sheehy has said that the bank is very comfortable with its mortgage business.
Commenting on the results of extensive stress-testing carried out on the mortgage book, he said the bank is not finding anything like the degree of concern one might expect, given the rapid growth that has taken place over the last number of years.
The level of delinquency, or bad loans, he said, is very low, adding that the bank is growing the mortgage business very aggressively, and believes that the fundamentals of the market are solid.

AIB sails blithely on and even reduces its bad debts
http://www.unison.ie/business/stories.php3?ca=80&si=1666378 [free registration required]

The sub-prime mortgage lending market in Ireland has been characterised by a large amount of corporate activity over the last two years.

The latest company reported to be about to enter the Irish subprime mortgage market is British building society Britannia. It is following in the footsteps of Investec, a South African Bank which recently announced plans to get involved in sub-prime lending here.

Others to have gone down the sub-prime lending route in recent years include the publicly quoted IFG Group, which has a joint venture with GE Money, Start Mortgages, a subsidiary of British sub-prime lender Kensington, and EBS Building Society, while others are rumoured to be contemplating setting up sub-prime divisions.

The growth in sub-prime lending is due in part to profit margins in the business being substantially higher.

The Financial Times reported last week that the margin on an ordinary (prime) mortgage in Britain has fallen to only about 0.2 per cent over the cost of capital whereas the margin on a subprime mortgage can be as high as 1.2 percentage points over the cost of capital.

Also, the emergence of subprime lending is driven by the fact that sub-prime loans can be securitised (turned into tradable shares). Investec, the South African bank now entering the Irish market, earlier this year launched a new mortgage lending operation in Britain that aims to make £1 billion worth of sub-prime loans which can then be securitised and sold on.

Securitised sub-prime loans are attractive to professional investors, such as hedge funds, because they generate a higher yield for investors than securitised prime loans. However, the Financial Services Authority (FSA) in Britain last week identified the sub-prime market as a priority area for supervision amid concerns that lenders might not have correctly priced the risk of a downturn.

The fear is that if the economy suffered a downturn, arrears could mount and house prices could fall leaving both sub-prime borrowers and investors in securitised sub-prime loans exposed. It is a message that Irish borrowers and investors should also heed.

Beware sub-prime lending growth
http://archives.tcm.ie/businesspost/2006/07/02/story15376.asp

We borrowed more money than ever this year. The banks are announcing record profits, and more subprime lenders have entered the market. Cheap credit is going away, energy prices are going to rise further, unemployment is on the up this year, are wages really rising fast enough to meet those costs?

Cork

Pa ElGrande wrote:

We borrowed more money than ever this year. The banks are announcing record profits, and more subprime lenders have entered the market. Cheap credit is going away, energy prices are going to rise further, unemployment is on the up this year, are wages really rising fast enough to meet those costs?

House price surveys to add to hype and expectation.

People on the lowest level of the housing pyramid will be stung.

Banks talk about a "soft landing". House prices are totally inflated.

People are going to be stuck for years paying back banks.

Banks will continue to make profits on the backs of the gullable.

Idleater

Cork wrote:

People on the lowest level of the housing pyramid will be stung.

I don't think so.

Starter homes are always required.

Unless you think that after the bubble everyone will start in the €5m K club houses and down grade all the way to a shack?

L.

whizzbang

nereid wrote:

I don't think so.

Starter homes are always required.

Unless you think that after the bubble everyone will start in the €5m K club houses and down grade all the way to a shack?

L.

A lot of starter homes are being bought by investors to rent out, then these investors dry up there will be loads more start homes available. This means the FTBs who paid 300k for their starter home might soon see the one next door do for 250k or less as the investors bail out.

dazberry

nereid wrote:

Starter homes are always required.

Personally I don't believe that the concept of a starter home actually exists anymore (its debatable whether it ever did - was it just a term coined by some estate agent that stuck). Picture Father Ted explaining to Dougal about small and far away. In Dublin anyway, small is hardly cheap (300k+ for a one bed apartment for instance) - and far away seems to be the only thing that constitutes a starter home these days.

I live in (don't own for the record) a 2 bed terraced 100 year old house inside the canal ring. Now when it was bought (in need of modernisation) it was roughly half the price of the northside 3 bed semi I grew up in. The price of these houses is now roughly 85% of an equivalant of that 3 bed semi.

Now during the 90s, you'd see ppl starting out - getting on the ladder around here and after a few years perhaps moving on as circumstance would allow. You don't see that here anymore. Basically these houses take months to sell, some have come off the market not appearing to have reached sale agreed. The latest (fixer upper) down the road from me had the price drop 30k over the 5 month period it took to sell. There is a couple of types of houses around here that don't sell quickly anymore, and I think from what would have been the typically starter home/fixer upper/get on the ladder here - are now fundimentally too expensive.

Beyond that, a lot of second hand apartments have gone for sale around here in recent months too. I've actually never seen so many for sale since the first of those developments was opened, and I do find it strange at this time of the year.

So just to really shore up my confidence in the whole thing, any new apartments here are all section 23. So where by you'd get a 2nd hand apartment for just under 300k, a new section 23 apartment will hit you for 450k FFS. It seems the final twist of the screw.

Now this is localised, I can't come out with a statement that there will be a huge property crash. Definitely if this sort of dynamic was starting to become the rule and not the exception - I would start getting very very worried, and I've seen enough weak investments, remortgaging 3 and 4 times that would suggest to me that some parts of the market are terribly brittle.

My main concern toward a crash is that crashes don't tend to be nice and localised. If there is a crash - I wouldn't be surprised if the shockwave didn't extend itself out into other sectors and hit confidence all around. Be careful what you wish for.

My 2 euro cent and probably best ignored

D.

Pa ElGrande

Despite industry sources having described the Irish property boom as "phenomenal", recent anecdotal evidence from the Irish Auctioneers and Valuers Association (IAVA) sparked controversy by suggesting some properties in popular areas of Dublin had to reduce their prices dramatically in a bid to clinch a sale.

Fintan McNamara, IAVA chief executive, said a number of its members had reported a significant drop in some property prices.

"An average three-bed semi in the inner suburbs of Dublin that was selling at Easter for 700,000 (£479,956 euro) is now selling for 20,000 euro (£13,714) less," said Mr McNamara.

And those trying to sell recently constructed homes are having the same problems with the owners of a three-bed terraced house in Addison Park, Glasnevin, who have been asked to reduce the priced by a massive 75,000 euro (£51,429) to generate interest, according to the Institute's spokesman.

But Geoff Tucker, economist with Irish estate agents Hooke and MacDonald, dismissed the claims attributing any temporary slow-down to the seasonal factors: "It is not unusual within the property market here - July is a quiet month with builders' holidays.

"Things will pick up again and the rest of 2006 will see new records," he said.

Property price margin closes between north and the Republic
http://www.belfasttelegraph.co.uk/news/story.jsp?story=700965

Looks like the ceiling for house prices in Dublin has been found, all that will happen is prices will bob around this level for a short period and then drop.

Idleater

dazberry wrote:

Personally I don't believe that the concept of a starter home actually exists anymore (its debatable whether it ever did - was it just a term coined by some estate agent that stuck.
...
...
My main concern toward a crash is that crashes don't tend to be nice and localised. If there is a crash - I wouldn't be surprised if the shockwave didn't extend itself out into other sectors and hit confidence all around. Be careful what you wish for.

To answer the first point, Starter homes do exist. They have to. They are the cheapest homes (whatever price that is).

The second point is a very very valid point to all those Crash wishers.
Remember that it is as difficult to buy a €100k house when you are earning €20k pa as it is to buy a €300k house on €35k.

Similarly, paying €500 pm on rent earning €20k pa is as difficult as paying €1100 and earhing €35k pa.

Remember that.

ionapaul

nereid wrote:

To answer the first point, Starter homes do exist. They have to. They are the cheapest homes (whatever price that is).

The second point is a very very valid point to all those Crash wishers.
Remember that it is as difficult to buy a €100k house when you are earning €20k pa as it is to buy a €300k house on €35k.

Similarly, paying €500 pm on rent earning €20k pa is as difficult as paying €1100 and earhing €35k pa.

Remember that.

Indeed. ALL sectors will probably be hit if and when there is a crash, and FTBs will have it as hard as ever. As they say over at AAM, better have your assets in cash and your exit plan ready, because the Irish economy will go into recession when the property market crashes, sometime over the next 3 years!

Ouch!

Pa ElGrande

Greed has long been the biggest enemy of successful investing. Blinded by the prospect of raking in more and more profits, investors can cling tightly to their assets for too long. After markets peak and prices slip, they can be left to rue their avarice when the chance to take profits has passed them by.
With interest rates on the up and signs that property prices may finally be slowing, is it time for buy-to-let investors to realise their gains and get out of the Irish residential property market before it is too late to do so?

“We have noticed that a lot of experienced investors have quietly been disposing of apartments in the centre of Dublin and reinvesting that money elsewhere into equities and property overseas,” said Simon Shirley, a director of BDO Simpson Xavier, an authorised adviser. “Wealthy investors are now rebalancing their portfolios as they feel they are too tied up in Irish property.”

Ian Thornton, a director of First Ireland, also an authorised adviser, agrees that experienced investors are increasingly moving on from Irish property.

“People who understand the market are certainly consolidating,” he says. “If they are looking at which assets to sell, the likely ones to go are those in Ireland. People are selling up and building war chests, as they see tough times ahead and like the idea of having cash in the bank to protect them with rates increasing but also to have the option to buy if there is a crash.”
<snip>
Dan McLaughlin, the group chief economist at Bank of Ireland, struck a note of caution last week, however. He revised his earlier forecast of 9% growth in house prices to 12% for this year but said he expects growth of just 3% in 2007, effectively meaning there would be zero real growth in prices.

If supply were to exceed demand in both the rental and sales markets, investors could find themselves struggling to offload their properties next year.

Supply shows no sign of slowing down. Bank of Ireland reports that completions of new properties are likely to hit 90,000, up 11% on last year and leaving 2006 as the thirteenth consecutive year in which completions rose.

“We would have a concern over the quantity of new apartments that are coming to the market in Dublin,” said Shirley. “There may be the possibility of oversupply in certain areas. Houses will continue to command a premium but someone who owns a large number of apartments should think of selling.”

Ireland: Don't bank on buy-to-let
http://www.timesonline.co.uk/newspaper/0,,2770-2300403,00.html

“I’m selling off one or two of the older houses that are just breaking even, where the rent is only just about meeting loan repayments,” he said. “I’m hanging on to the others and planning to reinvest in some off-plan developments and put the other half of the money in shares.”

Clancy has not owned shares in the past, but has become interested since attending meetings held by the Ices Group, which runs investment seminars. “I’ve learnt a lot about investing and become more financially literate. I now want to diversify.”
<snip>
“There are a lot of people out there who are only starting to invest. They are trying to release equity from their home and put it into houses where the return isn’t there. A three-bedroom semi-detached in Cork will cost you €360,000 and give you a yield of €12,000. That is only 3%, and if your mortgage is 4.25%, you’re losing money. That doesn’t make sense.

“If people are taking a hit on the mortgage of an investment property every month and hoping that capital appreciation could take them over the line, they could be in trouble, especially as interest rates are going up.

“I would worry about anybody who has an investment property with a loan-to-value ratio over 60% or 70%, who is subsidising their mortgage. On the other hand, people who bought a few years ago and now have a loan-to-value ratio of less than 60% will be fine.”

Clancy says he is keeping some properties that fall into this bracket. “Properties that are covering themselves give you cash flow, and I wouldn’t sell them for the sake of taking profit. I am looking 20 years down the track. We will have some bad years of low capital growth in house prices, but after that it will pick up again.”

Auctioneer is sold in the need to diversify into equities
http://www.timesonline.co.uk/newspaper/0,,2770-2300395,00.html

However, the long-running housing boom is set to slow dramatically in coming months, the bank chief predicts.

"I'd expect to see it moderate next year. It just can't continue on. I think rising interest rates will help that and there's also one hell of a lot of supply coming onto the market," he said.

"What I don't see is it collapsing. I see it moderating to more normal levels and it will happen sooner rather than later.

"Affordability levels will get tested and stretched and that will affect pricing and things will come into balance - I would suspect - going into next year."

Home-owners seek quick fix for rate rises
http://www.unison.ie/irish_independent/stories.php3?ca=184&si=1666616&issue_id=14467

Rising interest rates and relatively low rental returns could squeeze investors in the buy-to-let property market and possibly lead to a shift in investor focus to equity markets, leading industry figures say.

Rates look set to continue rising, according to John Beggs, chief economist with AIB. He said that he expected further rate increases from the European Central Bank (ECB) after this week’s decision to raise rates to three per cent. ‘‘I think at this stage the ECB will move the official rate to 4 per cent by the middle of next year,” he said.

Beggs said it was likely that the demand for property would be affected by rising interest rates and the consecutive growth in property prices.
<snip>
However, Rockett said that the increase would hit smaller investors and those operating in the buy-to-let market. ‘‘I think there is going to be a squeeze alright. The yields on residential properties are quite low,” he said.

Rockett added that people with surplus capital - who would have traditionally invested in the property markets - may begin to move their money elsewhere.

‘‘Irish people still have a huge appetite for property,” he said.

He predicted that Irish investors will continue their strong demand for property but he predicted further growth in the demand for overseas property as investors attempt to diversify their assets.

He described this as ‘‘an emigration of capital’’.

‘‘My own view is that equity markets are the market that will outperform in the next five years,’’ Rockett said.
<snip>
The total value of commercial investment transactions in Ireland this year to date was almost €1.2 billion in the six months since January, so it would seem that rising interest rates have not deterred investors so far.

Last year Irish investors invested over €9 billion in commercial property, some €2 billion of which was invested in the Irish market, according to the CB Richard Ellis report.

Investors could flee buy-to-let market
http://www.sbpost.ie/post/pages/p/story.aspx-qqqid=16191-qqqx=1.asp

The smart money is out, there is a hell of a supply of appartments coming onstream, we already know from the census enumerators that not all existing apartments are occupied. The ceilings for property prices in certain parts of Dublin have been reached. Any scope for capital appreciation is now limited.

Idleater

Pa ElGrande wrote:

The smart money is out, there is a hell of a supply of appartments coming onstream, we already know from the census enumerators that not all existing apartments are occupied. The ceilings for property prices in certain parts of Dublin have been reached. Any scope for capital appreciation is now limited.

What is the purpose of your regurgitated postings? Are you trying to convince everyone reading the thread that you are right? Are you trying to convince everyone reading the thread that they are wrong? Are you trying to convince yourself that you are right?

Have you ever considered that the people making the decisions to buy or not to buy are Adults, making rational decisions that they have worked out according to their own beliefs? Just because they may be wrong does not give you the right to force them to think otherwise.

Do you not realise that what you are wishing is in No ones interest? Have you anything constructive to add to the debate? Maybe offer some possible solutions or suggest alternative policies that the Government could look into rather than just predicting doomsday and sitting yourself down under your kitchen table.


Anyway...



Another thing that I thought of yesterday, regarding the pro's and con's of owning rather than renting - What about energy costs. With Gas/Oil/Electricity on the rise, rental premises are going to be the last ones to be modernised because of the costs involved. Why would I spend €10k on a property when someone else is going to pay the bills anyway?

Rents may not be rising like mortgage payments, but at least those with mortgages can invest in their own properties to make the more energy efficient and be able to save on their energy consumption.

L.

SimpleSam06

nereid wrote:

Remember that it is as difficult to buy a €100k house when you are earning €20k pa as it is to buy a €300k house on €35k.

What? Your numbers make no sense. First of all, 100k is 5x 20k, which I would call a resonable price, a little on the steep side. Also when they save up a deposit, they will own a large initial chunk of the home. Remember that. 300k is 8x or 9x 35k, which is a lifetime commitment, and utterly insane in a market with 275,000 homes sitting empty. And rental markets are going to collapse even faster. I honestly can see zero justification for either a plateau or a soft landing.

Oho and who is claiming wages will drop? Have they ever dropped in this country?

SkepticOne

I think there's a perception among a few that some people are trying to bring about a crash "talking down" the market on forums such as this.

While there is an element of truth to this, the "talking down" comes nowhere close to the rampant cheerleading by estate agents, banks and so forth over the years.

But we should not confuse "talking down" with a genuinely held view that the market is in an unsustainable bubble which will crash. If this view is true, then it makes sense to take appropriate action. Yes, everyone will suffer in such an event, but those who have not taken on unnecessary debt will suffer less.

CiaranC

Oho and who is claiming wages will drop? Have they ever dropped in this country?

You might ask the same question for house prices

SimpleSam06

Has anyone got any ideas of what will happen in the worst case scenario, ie bubble pops and the housing market loses half of its value in a matter of weeks? I mean for a start, the government loses 20% of its revenue income, the construction industry drops from 25% of the economy to 5%, and speculators get buried. What are the knock on effects? How far would the ripple spread? Which sectors would be hit first and/or hardest?

What would be the long term effects of an utter collapse?

CiaranC

We'll all be living in Stephens Green contemplating suicide. Quick, sell everything you own and post on AAM twenty times a day, thats the only thing that can save us now.

SimpleSam06

CiaranC wrote:

You might ask the same question for house prices

Well when wages get based on a bidding process, rampant speculation, and an artificial reduction in supply, come back and talk to me.

SimpleSam06

nereid wrote:

making rational decisions that they have worked out according to their own beliefs?

Oxymoron much?

SkepticOne

SimpleSam06 wrote:

What would be the long term effects of an utter collapse?

A collapse in the space of a few weeks or even a few monthsis highly unlikely, imo. More likely it will be 4 to 6 years. While the smart money will get out early we must not forgfet that there's plenty of, eh, less smart money who will stay in the market thinking property is a good long term bet.

Whether the crash is quick or a long drawn out affair, the long term effects are likely to be positive. It will expose the damage that has already been done to the economy during the current boom and allow people to focus on real sustainable growth. People will realise that you can't get rich by taking on debt.

ronbyrne2005

nereid wrote:

What is the purpose of your regurgitated postings? Are you trying to convince everyone reading the thread that you are right? Are you trying to convince everyone reading the thread that they are wrong? Are you trying to convince yourself that you are right?

Have you ever considered that the people making the decisions to buy or not to buy are Adults, making rational decisions that they have worked out according to their own beliefs? Just because they may be wrong does not give you the right to force them to think otherwise.

Do you not realise that what you are wishing is in No ones interest? Have you anything constructive to add to the debate? Maybe offer some possible solutions or suggest alternative policies that the Government could look into rather than just predicting doomsday and sitting yourself down under your kitchen table.


Anyway...



Another thing that I thought of yesterday, regarding the pro's and con's of owning rather than renting - What about energy costs. With Gas/Oil/Electricity on the rise, rental premises are going to be the last ones to be modernised because of the costs involved. Why would I spend €10k on a property when someone else is going to pay the bills anyway?

Rents may not be rising like mortgage payments, but at least those with mortgages can invest in their own properties to make the more energy efficient and be able to save on their energy consumption.

L.

Just bought a property?? ah dont worry im sure you'll be fine. Dont shoot the messenger ,PAs is doing a great job updating us on the sentiment in the media.

ronbyrne2005

CiaranC wrote:

You might ask the same question for house prices

House prices didnt rise in real terms between 1979 and 1995 and fell in real terms in some years between 79 and 95. Wages in real terms have fallen in many years im sure, and when less people are employed and more unemployed this is an effective drop in overall incomes in economy.

Pa ElGrande

nereid wrote:

What is the purpose of your regurgitated postings? Are you trying to convince everyone reading the thread that you are right? Are you trying to convince everyone reading the thread that they are wrong? Are you trying to convince yourself that you are right?

Have you ever considered that the people making the decisions to buy or not to buy are Adults, making rational decisions that they have worked out according to their own beliefs? Just because they may be wrong does not give you the right to force them to think otherwise.

Do you not realise that what you are wishing is in No ones interest? Have you anything constructive to add to the debate? Maybe offer some possible solutions or suggest alternative policies that the Government could look into rather than just predicting doomsday and sitting yourself down under your kitchen table.

In every market there is a buyer and seller. The market value of a house is where the expectation of the seller and the opinion of the buyer meet, the buyers opinion is normally based on how much the bank will loan. In order for property prices to keep rising the buyers must take on increasing amounts of debt. In order to take on more debt the buyers income must also rise to meet the servicing of that debt. In a growing economy based on our current monetary system that's the way it always will be.
And this is a problem, we need more and more money to keep this going, therefore more has to be printed by the central banks and loaned out, so monetary inflation will continue, and this has largely been the case globally for years (Japan excepted).
All this economic growth requires more energy and this is the achilles heel as unlike money, supplies are limited or cannot be bought to market quickly enough. Where demand exceeds supply, prices rise. Throw speculators and political instability in many oil producing regimes and the price goes up much further. There is also evidence emerging that yields from some of the major oilfields in Saudi Arabia and Kuwait are declining, this is the cheapest oil to extract and produce in the world.
What to do? money starts to become scarce and you get deflation of the money supply (less in circulation), central banks don't know how to handle deflation, they would prefer to have inflation, but, under control at say 2% per annum. If they print more money, they risk starting a spiral leading to hyper-inflation. As you probably know the Germans fear hyper-inflation, having destroyed their currency three times in the last century, therefore it is reasonable to expect that the ECB will continue to raise interest rates until inflation is bought under control. Nobody knows when that will stop or how high interest rates will go, but 6% ECB rates in a two year time period is not an unreasonable expectation.

The main effect of higher interest rates is that they choke demand, as demand decreases for products and services, unemployment increases and so incomes start to level off or drop. Higher prices for energy and food decrease income further. We are now firmly in an interest rate rise cycle for the foreseeable future. This will trigger a recession in some economies including Ireland's.

Feel free to correct my armchair economics, I am learning - so constructive critisism welcome.

To answer your question, why I keep regurgitating this stuff, I want to destroy the myth that there is going to be a "soft landing" for property prices in this country. Nobody yet has come up with a credible explanation of the economic circumstances necessary for their theory of a soft landing to be correct and if you probe them (Estate agents, bankers, Journalists) about it, they can't give you a credible explanation either. As far as I'm concerned the term "soft landing" is just an illusion to deflect from peoples concerns and extract as much money from them as possible. Nobody wants to be seen as a Jeremiah, so the economists all start using this term as well, as to not do so would question their credibility based on current public consensus and possibly their employment.

I want people, first time buyers especially, to properly evaluate the risks of buying a house at current markey values, over their lifetime and not be totally blind to risk. As you correctly pointed out, most people are adults and do this already, but there are a significant number who have no idea what they are getting into, and are thinking of it all goes pear-shaped, they can just hand the keys into the bank manager, or, that the government will bail them out. This will not be the case.

I am pointing out the inevitable, there will be a crash in the Irish property market based on current trends. I do not wish for economic ruin to happen to anyone and thats why I post on an outlet like boards.ie to draw peoples attention to the unsustainable nature of this current boom. I expect people will be uncomfortable with the unrelenting nature of the information I post as it calls into question their own beliefs about the property market, but I am open to changing my opinion if the data supports it.

whizzbang

Pa ElGrande wrote:

I am pointing out the inevitable, there will be a crash in the Irish property market based on current trends. I do not wish for economic ruin to happen to anyone and thats why I post on an outlet like boards.ie to draw peoples attention to the unsustainable nature of this current boom. I expect people will be uncomfortable with the unrelenting nature of the information I post as it calls into question their own beliefs about the property market, but I am open to changing my opinion if the data supports it.

Excellent post, it is important that people realise that a lot of us bears are talking down the market as it looks like a bust is inevitable given the current data. I for one would rather see the bust sooner rather than later to that less people are drawn into it. Thats why I talk about it on boards and AAM to get awareness out.

Bear in mind that there is no way a few people on an internet chatroom can destroy a healthy economny based on sound fundamentals. All we can do is hope to tip an unheavlthy economny earlier than it might otherwise. So if the Irish economny is healthy and safe what we say here will have no effect, if however it is on the brink of collapse anyway then all we are doing is hastening the inevitibe.

I'm curious as to why bulls don't like us talking about a bust if they think it is an impossibility? Surely they would just leave us to our insane ramblings? Unless of course they are in doubt about the economy themselves...

professore

ronbyrne2005 wrote:

House prices didnt rise in real terms between 1979 and 1995 and fell in real terms in some years between 79 and 95. Wages in real terms have fallen in many years im sure, and when less people are employed and more unemployed this is an effective drop in overall incomes in economy.

IT wages fell dramatically after the dotcom boom and are still well below the peak around 2000 / 01 for a lot of people.

SimpleSam06

Pa ElGrande wrote:

What to do? money starts to become scarce and you get deflation of the money supply (less in circulation), central banks don't know how to handle deflation, they would prefer to have inflation, but, under control at say 2% per annum. If they print more money, they risk starting a spiral leading to hyper-inflation. As you probably know the Germans fear hyper-inflation, having destroyed their currency three times in the last century, therefore it is reasonable to expect that the ECB will continue to raise interest rates until inflation is bought under control. Nobody knows when that will stop or how high interest rates will go, but 6% ECB rates in a two year time period is not an unreasonable expectation.

I think you might be putting too much emphasis on the influence of oil on the property market. If and when peak oil occurs, there are already many viable alternatives in terms of fuel. One extant example is in Brazil, where a lot of cars were converted to pure ethanol, or with a flex fuel option where a car could run on both (94% of cars in Brazil at one stage, and its very easy to convert your car over). This ethanol was produced from sugar cane. In addition to this, we have extremely promising research happening in the area of BioDiesel, with elephant grass which can be grown in Europe leading the way. There is really no reason to be concerned about fuel shortages.

The main influence from international areas on the Irish property market is in interest rates, which are controlled by the ECB. The number of factors that affect interest rates are many, and its mostly the americans who start panicking about oil, unreasonably so.

SimpleSam06

katrien_ie wrote:

IT wages fell dramatically after the dotcom boom and are still well below the peak around 2000 / 01 for a lot of people.

Have you got any links to back that up for Ireland?