Irish Property Market 2020 Part 2

awec

PropQueries wrote: »

If inflation rises too much e.g. 5%, then interest rates rise. If interest rates rise by just 3%, that means someone who was previously approved for a €300k mortgage would then be only approved for a €200k mortgage.

Property prices fall in a high inflation/ high interest rate environment. Property is not a hedge against inflation. It’s actually the opposite.

Property price increases in the past were mostly in low inflation/ low interest rate environments. As interest rates are below zero in the EU, if inflation/ interest rates are the reason for property prices, they will most likely fall if either increase.

They were?

From 2005 to 2008 the ECB refinancing rate went from 2.25% to 4.25%.

PropQueries

awec wrote: »

They were?

From 2005 to 2008 the ECB refinancing rate went from 2.25% to 4.25%.

Your correct. Hence the 50% fall in property prices after. If you buy a property with a 2% yield and interest rates rise to 4%, investors will place their money on deposit at 4%. Double the return and no risk.

pearcider

PropQueries wrote: »

If inflation rises too much e.g. 5%, then interest rates rise. If interest rates rise by just 3%, that means someone who was previously approved for a €300k mortgage would then be only approved for a €200k mortgage.

Property prices fall in a high inflation/ high interest rate environment. Property is not a hedge against inflation. It’s actually the opposite.

Property price increases in the past were mostly in low inflation/ low interest rate environments. As interest rates are below zero in the EU, if inflation/ interest rates are the reason for property prices, they will most likely fall if either increase.

There’s no way interest rates will rise. Too much debt. They tried to raise rates in 2018 and nearly crashed the world economy. Real rates have been negative for nearly 14 years now. They won’t attempt it again. Property is a pretty good hedge against inflation. That’s just a fact.

PropQueries

pearcider wrote: »

There’s no way interest rates will rise. Too much debt. They tried to raise rates in 2018 and nearly crashed the world economy. Real rates have been negative for nearly 14 years now. They won’t attempt it again. Property is a pretty good hedge against inflation. That’s just a fact.

You're kind of right regarding the central banks putting themselves in a bind and in relation to the hope of them allowing inflation to rise to pay off the national debt.

However, from looking at the debt to GDP for each EU/eurozone member in Q1 2020, only 5 countries had a debt to GDP of over a 100%.

All the other 22 EU/eurozone members had a debt to GDP of under 100%. Of those, 13 had a debt to GDP of under 50%.

The ECB has to take into account all members of the eurozone. We're not the USA.

If the 22 fiscally responsible EU/eurozone members are going to take the risk of allowing a wage/price inflation spiral take hold to help out the 5 countries that were fiscally irresponsible is up for debate. Especially as we all know how that ends.

There's another major fly in the ointment though. Pensioners. They need higher interest rates to pay their pensions. They vote.

That's why I think interest rates will rise in the eurozone sooner rather than later.

To bring it back full swing to property, once interest rates start rising, property prices fall very quickly.

beauf

People have been taking about rising interest rates for 20 years. ....

JJJackal

PropQueries wrote: »

If inflation rises too much e.g. 5%, then interest rates rise. If interest rates rise by just 3%, that means someone who was previously approved for a €300k mortgage would then be only approved for a €200k mortgage.

Property prices fall in a high inflation/ high interest rate environment. Property is not a hedge against inflation. It’s actually the opposite.

Property price increases in the past were mostly in low inflation/ low interest rate environments. As interest rates are below zero in the EU, if inflation/ interest rates are the reason for property prices, they will most likely fall if either increase.

If inflation rises, incomes rise... If inflation was 5% and incomes eg pensions and unemployment benefit etc didnt rise people would not be able to afford basic necessities

If incomes rise therefore you can borrow more and also afford to pay a bigger debt

lawred2

Assetbacked wrote: »

Where will the money come from though?

Where does all money come from?

JJJackal

lawred2 wrote: »

Where does all money come from?

Fugayzi, fugazi. It's a whazy. It's a woozie. It's fairy dust. it doesn't exist. It's never landed. It is no matter. It's not on the elemental chart.

PropQueries

JJJackal wrote: »

If inflation rises, incomes rise... If inflation was 5% and incomes eg pensions and unemployment benefit etc didnt rise people would not be able to afford basic necessities

If incomes rise therefore you can borrow more and also afford to pay a bigger debt

I think people in Ireland believe that eveyone has our levels of debt. The only countries in the EU with a debt problem are Ireland, Italy and Greece. Spain, Portugal and France you can add in too but they're generally fine.

The debt problems in Ireland, Italy and Greece are due to us paying significantly higher public servant salaries and pensions than most other EU countries. It has very little to do with the bank bailout or unemployment payments. I have no problem with these relatively high wages/ pensions but it doesn't help our case if everything does go pear shaped and we need to negotiate a debt writedown etc. at some point in the future.

After this pandemic ends, the EU members (there's 27 of them) are going to tell Ireland, Italy and Greece to make ends meet and there's no more free cash coming. The EU is not going to risk an inflation spiral just to help us out.

If anything, rather than rising, I believe wages will fall significantly in Ireland over the next ten years. We're an exporting nation and if our costs increase too much, the exporting companies will close or relocate to eastern european countries where the cost base and wages are significantly lower.

Our debt is real and I believe we're going to have to pay it back in full and at significant pain to the Irish citizens.

landofthetree

PropQueries wrote: »

I think people in Ireland believe that eveyone has our levels of debt. The only countries in the EU with a debt problem are Ireland, Italy and Greece. Spain, Portugal and France you can add in too but they're generally fine.

The debt problems in Ireland, Italy and Greece are due to us paying significantly higher public servant salaries and pensions than most other EU countries. It has very little to do with the bank bailout or unemployment payments.

After this pandemic ends, the EU members (there's 27 of them) are going to tell Ireland, Italy and Greece to make ends meet and there's no more free cash coming. The EU is not going to risk an inflation spiral just to help us out.

If anything, rather than rising, I believe wages will fall significantly in Ireland over the next ten years. We're an exporting nation and if our costs increase too much, the exporting companies will close or relocate to eastern european countries where the cost base and wages are significantly lower.

Our debt is real and I believe we're going to have to pay it back in full and at significant pain to the Irish citizens.

Gov revenue and spending by year.

2019 86.69bn 86.7bn
2018 82.03bn 81.98bn
2017 76.53bn 77.36bn
2016 73.55bn 75.35bn
2015 70.9bn 75.92bn
2014 66.01bn 73.06bn


See what we needed to do was hold public spending at 75 billion and we would have more options now.

But the usual suspects ie the government, the opposition,the left wing media,public quangos etc would never go for it.

The likes of SF wanted to add another 22billion to public spending within 5 years.

coolshannagh28

JJJackal wrote: »

Fugayzi, fugazi. It's a whazy. It's a woozie. It's fairy dust. it doesn't exist. It's never landed. It is no matter. It's not on the elemental chart.

Its the Bernie Madoff template. That was some cameo .

PropQueries

13 Rushbrook Grove, Templeogue

09/04/2014 - PPR - €383,000
29/08/2020 - MyHome Asking Price - €425,000

MyHome link here: https://www.myhome.ie/residential/brochure/13-rushbrook-grove-templeogue-dublin-6w-d6w-p650/4450894

The June 2020 CSO Residential Property Price Index stated that “Dublin residential property prices have risen 91.4% from their February 2012 low”.

pearcider

PropQueries wrote: »

You're kind of right regarding the central banks putting themselves in a bind and in relation to the hope of them allowing inflation to rise to pay off the national debt.

However, from looking at the debt to GDP for each EU/eurozone member in Q1 2020, only 5 countries had a debt to GDP of over a 100%.

All the other 22 EU/eurozone members had a debt to GDP of under 100%. Of those, 13 had a debt to GDP of under 50%.

The ECB has to take into account all members of the eurozone. We're not the USA.

If the 22 fiscally responsible EU/eurozone members are going to take the risk of allowing a wage/price inflation spiral take hold to help out the 5 countries that were fiscally irresponsible is up for debate. Especially as we all know how that ends.

There's another major fly in the ointment though. Pensioners. They need higher interest rates to pay their pensions. They vote.

That's why I think interest rates will rise in the eurozone sooner rather than later.

To bring it back full swing to property, once interest rates start rising, property prices fall very quickly.

I’m not saying there is no room left for more debt on the ECB balance sheet. I’m saying it’s rearranging chairs on the Titanic at this stage. The dollar is the reserve currency and the euro is unable to replace it.

Leverage among corporations is at an all-time high and yet they continue piling-up debt while the economy contracts. This means that mass-defaults loom, and that over-indebted corporations will be unable to invest and grow. This makes any economic recovery impossible.

Corporations cannot survive on debt alone. They need income, which the ECB and Fed cannot print. Record levels of bankruptcies mean that unemployment will not improve significantly, they cannot print jobs either nor can they print bank profitability.

What this means is that losses from corporate and household defaults and bankruptcies will mount until a point is reached where trust between over-levered investors is lost, and the banking sector implodes.

There’s no way out of it. Except to continuously print money until we get runaway inflation. If you look at previous cases of inflation, property does quite well.

nhoj88

pearcider wrote: »

Very true. The inflation is coming soon and property is not a bad place to park your cash, if you are paying cash. No doubt the property market is being held aloft by the central banks driving capital from bonds and cash.

pearcider wrote: »

There’s no way interest rates will rise. Too much debt. They tried to raise rates in 2018 and nearly crashed the world economy. Real rates have been negative for nearly 14 years now. They won’t attempt it again. Property is a pretty good hedge against inflation. That’s just a fact.

Can you have inflation (cost of living) without interest rate rises (mortgage APR increases)?

Genuine question?

From above do you mean that rather then holding cash buy a debt free property to store your wealth and wait for inflation to come around for its value to increase(or being worth more then the cash it was bought for)?
Whereas if you take a 60% LTV mortgage the percentage increases of the loan will cancel out the benefits of the asset increasing(or being worth more then the cash it was bought for).

nhoj88

With October Irish budget, American election in November, Brexit 31st of December, and removal of evictions in early January are we in for a big shake up early next year?


Will we see an even bigger increase of private landlord exit the market and more ex rentals for sale?

If a tenant has not paid rent due to COVID from march they have been protected from eviction by the government up to January, with 9 months rent due they will have to vacate the premises with 14 days notice or pay the outstanding balance, I image tenants will leave and look for a new tenancy elsewhere instead of paying the bill leaving the landlords with alot of vacant premises and with more uncertainty ahead will more then likely throw in the towel and sell up....


What are your thoughts?

hometruths

nhoj88 wrote: »

With October Irish budget, American election in November, Brexit 31st of December, and removal of evictions in early January are we in for a big shake up early next year?


Will we see an even bigger increase of private landlord exit the market and more ex rentals for sale?

If a tenant has not paid rent due to COVID from march they have been protected from eviction by the government up to January, with 9 months rent due they will have to vacate the premises with 14 days notice or pay the outstanding balance, I image tenants will leave and look for a new tenancy elsewhere instead of paying the bill leaving the landlords with alot of vacant premises and with more uncertainty ahead will more then likely throw in the towel and sell up....


What are your thoughts?

I applaud your faith that tenants who have not paid rent since March will just leave.

I am a bit more cynical. I think many of them will stay put until they are forced out, which I guess will take a lot longer than 14 days.

pearcider

nhoj88 wrote: »

Can you have inflation (cost of living) without interest rate rises (mortgage APR increases)?

Genuine question?

From above do you mean that rather then holding cash buy a debt free property to store your wealth and wait for inflation to come around for its value to increase(or being worth more then the cash it was bought for)?
Whereas if you take a 60% LTV mortgage the percentage increases of the loan will cancel out the benefits of the asset increasing(or being worth more then the cash it was bought for).

Yes interest rates can stay zero even while inflation rises. This is exactly what the central banks want. The only way to stop inflation is to raise interest rates. This is what Chairman Volker did to stop the inflation of the 1970s.

It just depends on the central banks who ultimately control the money supply and interest rates. Chairman Powell said at Jackson Hole that the Fed will let inflation run above 2% to make up for the supposed deflation of the past decade. The Fed are targeting higher inflation as this will relieve the corporate and national debt burden. So the central banks are saying to the bond holders I’ll pay you your 100 trillion back but good luck buying a loaf of a bread with it.

Regarding your question if I had a load of cash I would be wary of keeping it in the bank when real rates (interest rate less the inflation rate) are negative and only going more negative. This fact is keeping both the property and the stock market aloft.

Marius34

PropQueries wrote: »

I think people in Ireland believe that eveyone has our levels of debt. The only countries in the EU with a debt problem are Ireland, Italy and Greece. Spain, Portugal and France you can add in too but they're generally fine.

It's fine you share your opinion, but it would be nice that you would say so yourself.
You would have a hard time to find where Spain and Portugal are better off with their debt than Ireland.

PropQueries

Marius34 wrote: »

It's fine you share your opinion, but it would be nice that you would say so yourself.
You would have a hard time to find where Spain and Portugal are better off with their debt than Ireland.

Not hard at all. Here’s the article from the Irish Times explaining that we have the third highest debt per capita, not in the EU, but in the world.

Irish Times article here: https://www.irishtimes.com/business/economy/ireland-s-200bn-debt-burden-how-did-we-get-here-1.3943085?mode=amp

Pelezico

PropQueries wrote: »

13 Rushbrook Grove, Templeogue

09/04/2014 - PPR - €383,000
29/08/2020 - MyHome Asking Price - €425,000

MyHome link here: https://www.myhome.ie/residential/brochure/13-rushbrook-grove-templeogue-dublin-6w-d6w-p650/4450894

The June 2020 CSO Residential Property Price Index stated that “Dublin residential property prices have risen 91.4% from their February 2012 low”.

Templeogue is not served by Dart or Luas and will probably lag the market.

Dundrum is a much better buy.

thomasdylan

Pelezico wrote: »

Templeogue is not served by Dart or Luas and will probably lag the market.

Dundrum is a much better buy.

Templeogue is served by the 15 bus route I think which is incredibly frequent and goes 24 hours a day.

Villa05

awec wrote:

From 2005 to 2008 the ECB refinancing rate went from 2.25% to 4.25%.

Was that the period where we were introduced to the 110% mortgage which probably offset the impact of higher rates.

Hubertj

Villa05 wrote: »

Was that the period where we were introduced to the 110% mortgage which probably offset the impact of higher rates.

I heard about 110% mortgages. So how did it work? You just asked and then blow it on furniture and TVs? Or was it only for renovating second hand homes?

oceanman

Hubertj wrote: »

I heard about 110% mortgages. So how did it work? You just asked and then blow it on furniture and TVs? Or was it only for renovating second hand homes?

mostly furniture and tv,s im afraid.

Villa05

Hubertj wrote:

I heard about 110% mortgages. So how did it work? You just asked and then blow it on furniture and TVs? Or was it only for renovating second hand homes?

Nah, you went in looking for a mortgage and you came out with a loan for house and car wrapped up in one.
Banks were just throwing the money at you

Bass Reeves

Hubertj wrote: »

I heard about 110% mortgages. So how did it work? You just asked and then blow it on furniture and TVs? Or was it only for renovating second hand homes?

Neighbours had there own site, they build a house put down tramac, and had two new cars parked in front of the house after it was build. He had a fairly decent job she was a shop assistant.

At the time not only would you get a mortgage you got letters out ever 6 months telling you that you were pre approved for a 10-20K loan from every bank you had an account with.

Marius34

PropQueries wrote: »

Not hard at all. Here’s the article from the Irish Times explaining that we have the third highest debt per capita, not in the EU, but in the world.

Irish Times article here: https://www.irishtimes.com/business/economy/ireland-s-200bn-debt-burden-how-did-we-get-here-1.3943085?mode=amp

It doesn't say anything that Spain, Portugal has less problems than Ireland to serve their debt.
And based on Irishtimes of debt per capita, Greece debt doesn't look so high, around Euro zone avarege, better than Belgium, France, Austria. And Portugal, Spain is better than Germany.

PropQueries

Marius34 wrote: »

It doesn't say anything that Spain, Portugal has less problems than Ireland to serve their debt.
And based on Irishtimes of debt per capita, Greece debt doesn't look so high, around Euro zone avarege, better than Belgium, France, Austria. And Portugal, Spain is better than Germany.

What it does show is that our debt problem is very real.

Some commentators in Ireland seem to believe that the ECB will allow inflation to take hold and never increase interest rates to inflate Irish debt away.

I don't believe that premise for two reasons:

1. The majority of EU members don't have a debt problem and would have nothing to gain from such actions (even post-covid).

2. America is already on the verge of calling the ECB a currency manipulator. But it's not just America that will have a problem with such actions. Poland, Sweden etc. have their own currency and will they really allow the Euro to weaken to such an extent that it allows eurozone member industries to undercut their own industries and jobs? The EU center of influence is already moving East e.g. Berlin is basically in Eastern Europe.

Here's the debt to GDP in Q1 2020 for countries not in the euro but impacted if the ECB adopts such a policy:

Poland: 47%
Denmark: 33%
Sweden: 36%
Romania: 37%
Hungary: 66%
Czech Republic: 32%
Bulgaria: 20%
Croatia: 74%
Norway: 41%
Switzerland: 32%
Iceland: 28%

Here's the debt to GDP in Q1 2020 for countries in the euro:

Finland: 64%
Netherlands: 49%
Germany: 61%
Lituania: 33%
Latvia: 37%
Estonia: 9%
Malta: 44%
Slovenia: 69%
Austria: 72%
France: 101%
Belgium: 104%
Italy: 137%
Portugal: 120%
Spain: 98%
Greece: 176%

As you can see, the majority of countries in Europe don't have a debt problem. Ireland is in a very small group of countries with a real debt problem and the likelihood of continued free money and low interest rates because of the misinformation that all european countries "are all in the same boat" is very unlikely (I think).

I believe interest rates will rise more quickly and sooner than many believe. Once interest rates start rising, property values fall very quickly.

Maybe I'm wrong.

Just to show the impact of interest rates on the value of a property, I put some numbers into a mortgage repayment calculator. As you can see, a couple that may be approved for a maximum €300,000 mortgage today would only be approved for a mortgage of €200,000 in 5 years times if mortgage interest rates did increase by 3% in the next 5 years.

Monthly repayments on a typical 30-year mortgage of €300,000 at 3% = €1,264.81

Monthly repayments on a typical 30-year mortgage of €200,000 at 6% = €1,199.10

Sierra Oscar

PropQueries wrote: »

What it does show is that our debt problem is very real.

Some commentators in Ireland seem to believe that the ECB will allow inflation to take hold and never increase interest rates to inflate Irish debt away.

I don't believe that premise for two reasons:

1. The majority of EU members don't have a debt problem and would have nothing to gain from such actions (even post-covid).

2. America is already on the verge of calling the ECB a currency manipulator. But it's not just America that will have a problem with such actions. Poland, Sweden etc. have their own currency and will they really allow the Euro to weaken to such an extent that it allows eurozone member industries to undercut their own industries and jobs? The EU center of influence is already moving East e.g. Berlin is basically in Eastern Europe.

Here's the debt to GDP in Q1 2020 for countries not in the euro but impacted if the ECB adopts such a policy:

Poland: 47%
Denmark: 33%
Sweden: 36%
Romania: 37%
Hungary: 66%
Czech Republic: 32%
Bulgaria: 20%
Croatia: 74%
Norway: 41%
Switzerland: 32%
Iceland: 28%

Here's the debt to GDP in Q1 2020 for countries in the euro:

Finland: 64%
Netherlands: 49%
Germany: 61%
Lituania: 33%
Latvia: 37%
Estonia: 9%
Malta: 44%
Slovenia: 69%
Austria: 72%
France: 101%
Belgium: 104%
Italy: 137%
Portugal: 120%
Spain: 98%
Greece: 176%

As you can see, the majority of countries in Europe don't have a debt problem. Ireland is in a very small group of countries with a real debt problem and the likelihood of continued free money and low interest rates because of the misinformation that all european countries "are all in the same boat" is very unlikely (I think).

I believe interest rates will rise more quickly and sooner than many believe. Once interest rates start rising, property values fall very quickly.

Maybe I'm wrong.

I've thought to myself that interest rates would rise for many, many years now and my thinking has been shaped by much of what you outline above. I've been wrong for nearly a decade now though and it makes me think that you can't really forecast what is going to happen based on what occurred in the past. We truly are in unchartered territory when it comes to monetary policy.

What we do know however is that both the Federal Reserve and ECB have signalled their intention to keep interest rates static for the next few years given the Covid-19 situation.

Jay Powell has put it on record that even if inflation starts to tick upwards they will not increase interest rates. That'll end up benefitting mortgage holders if it comes to pass considering their mortgage values will be whittled away while interest rates remain at rock bottom.

I wouldn't be hedging my bets on purchasing a property based on attempting to forecast interest rates in a hope that increases will bring about fantastic value in the market. The possibility of interest rate increases caused me plenty of anxiety when I was purchasing my home, but I'm rapidly approaching the half way mark in my mortgage and I've only seen interest rate reductions.

Fed Seen Holding Rates at Zero for Five Years in New Policy

Marius34

PropQueries wrote: »

What it does show is that our debt problem is very real.

Yes, debt is real, and it's a problem.
But none of those numbers tells that Ireland has worst debt problem in Europe.
Greece has much bigger debt problem than Ireland. Spain, Portugal not any better than Ireland.