Irish Property Market 2020 Part 2

PropQueries

Marius34 wrote: »

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.

ECB policy will be dictated by what's best for the eastern european members over the next 5 to 10 years. Up to now, they were the new kids on the block and had little influence. That will most likely no longer continue to be the case.

I believe the premise from some commentators that ECB policy will continue to be dictated by what's in the best interests of the 5 or 6 members of the 27 EU countries who have a debt problem is a falsehood. Basically, I believe that Ireland should prepare for such a scenario and very quickly.

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

cubatahavana

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.

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

General Government Gross Debt (GG Debt) was €213.8 billion (60.7% of GDP) at the end of 2020 Q1, an increase of €9.7 billion from €204.1 billion (58.8% of GDP) at the end of 2019 Q4

Better than most on euro zone

Remove EU grants to Poland and let’s see how well they maintain that sub 50% debt

hometruths

PropQueries wrote: »

ECB policy will be dictated by what's best for the eastern european members over the next 5 to 10 years. Up to now, they were the new kids on the block and had little influence. That will most likely no longer continue to be the case.

I believe the premise from some commentators that ECB policy will continue to be dictated by what's in the best interests of the 5 or 6 members of the 27 EU countries who have a debt problem is a falsehood. Basically, I believe that Ireland should prepare for such a scenario and very quickly.

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

I suspect ECB policy will ultimately try to follow whatever path is most likely to keep the bloc and the euro intact.

Greece have already floated the idea of leaving the euro to reinstate domestic monetary policy, Italy not far behind. ECB will bear this in mind.

Equally if they implement policy solely to help the PIIGS, then Germany/Netherlands etc may start to think they are better off without the euro.

Difficult to see how ECB can keep both interests happy!

PropQueries

schmittel wrote: »

I suspect ECB policy will ultimately try to follow whatever path is most likely to keep the bloc and the euro intact.

Greece have already floated the idea of leaving the euro to reinstate domestic monetary policy, Italy not far behind. ECB will bear this in mind.

Equally if they implement policy solely to help the PIIGS, then Germany/Netherlands etc may start to think they are better off without the euro.

Difficult to see how ECB can keep both interests happy!

Good points. But I think the current narrative that Germany, Netherlands etc. might leave the euro may be getting it backwards.

All they need to do is no longer provide support for Italy, Greece, Ireland etc. and let them make ends meet (i.e. decades of austerity) or leave.

The euro wouldn't break up if they (i.e. Italy, Greece, Ireland etc.) did leave as the vast majority of the remaining members don't have a debt problem, are actually in good economic health and the markets will understand that and the euro will not collapse.

KOR101

Sierra Oscar wrote: »

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.

Yes, in Japan the bet that interest rates will rise is known as The Widow Makers trade. Don't hold your breadth.

PropQueries

KOR101 wrote: »

Yes, in Japan the bet that interest rates will rise is known as The Widow Makers trade. Don't hold your breadth.

I think that's because Japan and United States only have to take into consideration their own country. The EU has 27 members and only 5 or 6 have a real debt problem.

The ECB will have to increasingly take into consideration the other 20 plus EU members who don't have a debt problem over the next 5 to 10 years when deciding on interest rates etc.

KOR101

PropQueries wrote: »

I think that's because Japan and United States only have to take into consideration their own country. The EU has 27 members and only 5 or 6 have a real debt problem.

The ECB will have to increasingly take into consideration the other 20 plus EU members who don't have a debt problem over the next 5 to 10 years when deciding on interest rates etc.

If there was any sign of inflation anywhere, I would agree with you. Then you might have a conflict of interests. At the moment low interest rates benefit all governments.

JJJackal

PropQueries wrote: »

I think that's because Japan and United States only have to take into consideration their own country. The EU has 27 members and only 5 or 6 have a real debt problem.

The ECB will have to increasingly take into consideration the other 20 plus EU members who don't have a debt problem over the next 5 to 10 years when deciding on interest rates etc.

The US has to take all of its states into account - alot of which are the size and bigger than EU countries. The same national monetary policy does not suit all states in America I am sure?

JJJackal

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.

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

You have included Norway Switzerland and Iceland here - no one cares what they think
Iceland were almost bankrupt a few years ago if you recall...

10 or 11 countries had a worse debt to GDP ratio in Q1. Based on your figures above alot of big countries have significant debt problems eg France, Spain, Italy etc

Note its easier to carry a debt of 500,000 if your house is worth 1 million than to carry a debt of 500,000 if your house is worth 400,000

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
Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81

Our current short term debt is being carried at negative rates and our long term debt is at ECB tracker mortgage rates!

cubatahavana

JJJackal wrote: »

You have included Norway Switzerland and Iceland here - no one cares what they think
Iceland were almost bankrupt a few years ago if you recall...

10 or 11 countries had a worse debt to GDP ratio in Q1. Based on your figures above alot of big countries have significant debt problems eg France, Spain, Italy etc

Note its easier to carry a debt of 500,000 if your house is worth 1 million than to carry a debt of 500,000 if your house is worth 400,000

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
Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81

Our current short term debt is being carried at negative rates and our long term debt is at ECB tracker mortgage rates!

Exactly. I’m not an expert in economics but Ireland’s debt in Q1 was 60.7% only.

PropQueries

JJJackal wrote: »

You have included Norway Switzerland and Iceland here - no one cares what they think
Iceland were almost bankrupt a few years ago if you recall...

10 or 11 countries had a worse debt to GDP ratio in Q1. Based on your figures above alot of big countries have significant debt problems eg France, Spain, Italy etc

Note its easier to carry a debt of 500,000 if your house is worth 1 million than to carry a debt of 500,000 if your house is worth 400,000

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
Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81

Our current short term debt is being carried at negative rates and our long term debt is at ECB tracker mortgage rates!

Good points in relation to Norway, Switzerland and Iceland. Except, that Poland, Sweden and Denmark (not in the euro) would also be impacted. They would join together with other countries impacted and could cause serious problems if they believe the ECB is manipulating their currency for the benefit of eurozone industries and jobs.

In relation to "Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81"

That's true. The person buying today would not be impacted in such a scenario. My argument was that in 5 years time, if a similar couple with the same repayment capacity wanted to purchase that same house from the couple who purchased it today, they would only be approved for a €200,000 mortgage instead of a €300,000 mortgage.

House prices are dependent upon what a bank will lend the couple, so the value of that house falls from €300,000 to €200,000 in such a scenario.

JJJackal

cubatahavana wrote: »

Exactly. I’m not an expert in economics but Ireland’s debt in Q1 was 60.7% only.

Plus we have enacted a range of measures to ensure banks wont be as exposed in the past

One common thought here is that house prices will fall - banks are well insulated

Lets say I took a mortgage break in March and when its over still cant pay the mortgage - it will be 2021 at the earliest before my first not payment becomes an issue.

Likely take a couple of years to get me out

I have paid 10% plus deposit and also being paying it down for a few years - so the bank are exposed if house prices fall by >10% (assuming no rise since I bought- if rise in value a greater fall will be necessary) - losses only crystallize when you sell the asset at a loss.

Irish people have lots of savings and declining debt

The government is boring at <0% in short term and bit positive in long term.

As a result of the rapid contraction, I expect rapid expansion if/when COVID is sorted - a vaccine will drive confidence

Other positives:
1) Joe Biden
2) Will Brexit go ahead in January now?

JJJackal

PropQueries wrote: »

Good points in relation to Norway, Switzerland and Iceland. Except, that Poland, Sweden and Denmark (not in the euro) would also be impacted. They would join together with other countries impacted and could cause serious problems if they believe the ECB is manipulating their currency for the benefit of eurozone industries and jobs.

In relation to "Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81"

That's true. The person buying today would not be impacted in such a scenario. My argument was that in 5 years time, if a similar couple with the same repayment capacity wanted to purchase that same house from the couple who purchased it today, they would only be approved for a €200,000 mortgage instead of a €300,000 mortgage.

House prices are dependent upon what a bank will lend the couple, so the value of that house falls from €300,000 to €200,000 in such a scenario.

In relation to "Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81" - I assumed your point here is that Irelands borrowing costs could rise - but these are often locked in for many years at low rates

Poland, Sweden and Denmark could join together - Eurozone countries have some degree of freedom in managing the Euro - some countries choose to stay out of the Euro and consequently wont have the same say in what happens with the Euro. We dont control zloties for example or have a say on zloties.

Islander13

I think this is the first year in a few we might see some proper price inflation in dublin housing. 5/10% up over next 12 months I'd predict. So much cash on the sidelines and people will be prioritising home expenditure more than ever now thats where we're spending all our time

PropQueries

JJJackal wrote: »

In relation to "Also Monthly repayments on a typical 30-year mortgage of €300,000 at if your rate is fixed at 3% when the ECB rate rises to 6% = €1,264.81" - I assumed your point here is that Irelands borrowing costs could rise - but these are often locked in for many years at low rates

Poland, Sweden and Denmark could join together - Eurozone countries have some degree of freedom in managing the Euro - some countries choose to stay out of the Euro and consequently wont have the same say in what happens with the Euro. We dont control zloties for example or have a say on zloties.

If the ECB introduces policies that devalue the euro, that directly impacts the zloty etc. The eurozone is probably big enough to take care of themselves but the markets would most likely destroy the polish, danish and swedish currencies and economies if they tried to match ECB policy and allow inflation to rise above a certain level without increasing interest rates.

Poland, Sweden and Denmark have more friends in the EU than Italy, Greece, Spain, Portugal and Ireland. This is due to the majority of EU members now being northern and eastern european countries with relatively good economies and relatively little debt.

JJJackal

PropQueries wrote: »

If the ECB introduces policies that devalue the euro, that directly impacts the zloty etc. The eurozone is probably big enough to take care of themselves but the markets would most likely destroy the polish, danish and swedish currencies and economies if they tried to match ECB policy and allow inflation to rise above a certain level without increasing interest rates.

Poland, Sweden and Denmark have more friends in the EU than Italy, Greece, Spain, Portugal and Ireland. This is due to the majority of EU members now being northern and eastern european countries with relatively good economies and relatively little debt.

So your saying euro policies will be dictated by countries that done have the euro?

PropQueries

JJJackal wrote: »

So your saying euro policies will be dictated by countries that done have the euro?

Not dictated but they have a significant input.

JJJackal

PropQueries wrote: »

Not dictated but they have a significant input.

So essentially what your saying is Bulgaria, Croatia, Czech, Hungary, Poland, Romania and Sweden (and Denmark who have negotiated never to join the Euro) will significantly impact what 341 million other Europeans who use the Euro decide?

PropQueries

JJJackal wrote: »

So essentially what your saying is Bulgaria, Croatia, Czech, Hungary, Poland, Romania and Sweden (and Denmark who have negotiated never to join the Euro) will significantly impact what 341 million other Europeans who use the Euro decide?

If Poland's economy is severely impacted by ECB policies, they will contact Germany. Germany will have a big say in ECB policy, as least informally. Germany is increasingly looking east, not west.

JJJackal

PropQueries wrote: »

If Poland's economy is severely impacted by ECB policies, they will contact Germany. Germany will have a big say in ECB policy, as least informally. Germany is increasingly looking east, not west.

These countries you speak of are not represented at Eurozone meetings...

Germany will work in the euros interests not solely Polands

PropQueries

JJJackal wrote: »

These countries you speak of are not represented at Eurozone meetings...

Germany will work in the euros interests not solely Polands

True, but have a good look at the below. If you were Germany, which of these countries would you rather have a good trading relationship with going forward?

Here's the debt to GDP in Q1 2020 for countries not in the euro:

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%

JJJackal

PropQueries wrote: »

True, but have a good look at the below. If you were Germany, which of these countries would you rather have a good trading relationship with going forward?

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%

France, Spain, Italy, Portugal, Belgium, Poland, Austria,- in that order

PropQueries

JJJackal wrote: »

France, Spain, Italy, Portugal, Austria, Belgium, Poland - in that order

Maybe. Me personally, I would prioritise the countries with the best future growth prospects, little debt and a demographic that is not going into reverse in the next 10 to 15 years.

JJJackal

PropQueries wrote: »

Maybe. Me personally, I would prioritise the countries with the best future growth prospects, little debt and a demographic that is not going into reverse in the next 10 to 15 years.

You would promise a country at risk of losing its democracy? Well reported

I would promise stable long established trading partners that I know I can work with

JJJackal

Also Polish growth is not spectacular in good times

hometruths

PropQueries wrote: »

Maybe. Me personally, I would prioritise the countries with the best future growth prospects, little debt and a demographic that is not going into reverse in the next 10 to 15 years.

If you're bullish on Polish and Eastern European growth prospects what does that mean for Irish net migration and house prices.

i.e a lot of Eastern Europeans in Ireland came here because their home economies were weak. They may return if we see a Slavic Tiger.

Our population forecasts and thus housing demand models are based on substantial positive net migration as far as I know.

cubatahavana

Poland is the EU country with the most EU help.

https://www.google.ie/amp/s/www.bbc.com/news/amp/uk-politics-48256318

PropQueries

schmittel wrote: »

If you're bullish on Polish and Eastern European growth prospects what does that mean for Irish net migration and house prices.

i.e a lot of Eastern Europeans in Ireland came here because their home economies were weak. They may return if we see a Slavic Tiger.

Our population forecasts and thus housing demand models are based on substantial positive net migration as far as I know.

That's true. Even the building lobby admits we are currently building enough homes to meet natural population growth (I think they stated recently 18,500 to meet this demand) and we were building over 20,000 per-covid.

As you said, the rest of the housing demand projections were primarily dependent on immigration.

So, I guess it depends on what side of the debate you are on regarding future eastern european growth. I'm currently on their side given their low debt, no pension timebomb coming and low cost base. I think they can grow very very rapidly with the right policies. They're still relatively young countries and getting used to the western way of doing things so my bet would be on them over the next 10 to 15 years.

Yes, eastern european countries do have an old population too, but they haven't promised them any meaningful pensions, so it shouldn't impact their finances. They're young people are on the western side at the moment and if they decide to return, the growth rates may make the 1990's growth rates in Ireland look low.

JJJackal

PropQueries wrote: »

That's true. Even the building lobby admits we are currently building enough homes to meet natural population growth (I think they stated recently 18,500 to meet this demand) and we were building over 20,000 per-covid.

As you said, the rest of the housing demand projections were primarily dependent on immigration.

So, I guess it depends on what side of the debate you are on regarding future eastern european growth. I'm currently on their side given their low debt, no pension timebomb coming and low cost base. I think they can grow very very rapidly with the right policies. They're still relatively young countries and getting used to the western way of doing things so my bet would be on them over the next 10 to 15 years.

Yes, eastern european countries do have an old population too, but they haven't promised them any meaningful pensions, so it shouldn't impact their finances. They're young people are on the western side at the moment and if they decide to return, the growth rates may make the 1990's growth rates in Ireland look low.

Any evidence to support any of this?

I presume by eastern europe you mean latvia, estonia, lithuania, poland?

PropQueries

JJJackal wrote: »

Any evidence to support any of this?

I presume by eastern europe you mean latvia, estonia, lithuania, poland?

By eastern european countries, I mean all countries from Estonia to Poland and down to Bulgaria.

Regarding the 18,500 figure, it was in a report last week from the property industry body Irish Institutional Property (IIP), whose members include most of the biggest property firms and landlords in the State from Cairn Homes to Ires Reit.

According to the Irish Times: "The IIP analysis conducted by property economist Ronan Lyons bases its 47,000 figure on four key drivers of housing need: the natural increase in population (projected to be 18,500 a year); the continuing reduction in average household size (which creates the need for 12,500 units a year); net inward migration (put at 8,000 a year ); and a housing obsolescence rate (resulting in the loss of some 8,000 units a year).

The Irish Times article titled "Claim that 47,000 new homes needed a year isn’t credible" is here: https://www.irishtimes.com/business/economy/claim-that-47-000-new-homes-needed-a-year-isn-t-credible-1.4333525