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Irish Property Market 2020 Part 2

Graham

Continued from here:

https://www.boards.ie/vbulletin/showthread.php?t=2058041687

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PropQueries

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.

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.

pearcider

schmittel wrote: »

Indeed. As most will know I am pretty bearish on property price prospects and think most of the arguments to the contrary on here are nonsense.

But the one I have sympathy with is demand rising for property as a hedge against inflation.

If I could get a 20+ year fixed rate mortgage here like you can in US even I might be tempted to buy property!

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.

hometruths

JJJackal wrote: »

Higher inflation decreases the relative value of your debt ...

Indeed. As most will know I am pretty bearish on property price prospects and think most of the arguments to the contrary on here are nonsense.

But the one I have sympathy with is demand rising for property as a hedge against inflation.

If I could get a 20+ year fixed rate mortgage here like you can in US even I might be tempted to buy property!

Browney7

cubatahavana wrote: »

Serious question. Why are Irish rates one of the highest in EU?

Mixture of banks having unprofitable (or not profitable enough) back books linked to trackers, and high levels of non performing loans. Mixed in with they're able to get away with it

cubatahavana

PropQueries wrote: »

That's very true. Unfortunately for recent mortgage holders it also could increase their monthly repayments to a level that becomes unbearable. It may be ok if both partners continue in employment, but if one becomes unemployed, sick etc. it may become impossible.

Higher interest rates then also have an impact on house prices as an increase of only c. 3% may knock upwards of €50k - €100k off the value of a €300,000 house, even if all other things remain the same.

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

Given that ECB rates are already below zero and there isn't much room to lower them further and if interest rates are one of the main drivers of house price increases, would this mean that there is little possibility of significant house price increases related to interest rate reductions over the next 30 years?

Serious question. Why are Irish rates one of the highest in EU?

brisan

PropQueries wrote: »

That's very true. Unfortunately for recent mortgage holders it also could increase their monthly repayments to a level that becomes unbearable. It may be ok if both partners continue in employment, but if one becomes unemployed, sick etc. it may become impossible.

Higher interest rates then also have an impact on house prices as an increase of only c. 3% may knock upwards of €50k - €100k off the value of a €300,000 house, even if all other things remain the same.

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

Given that ECB rates are already below zero and there isn't much room to lower them further and if interest rates are one of the main drivers of house price increases, would this mean that there is little possibility of significant house price increases related to interest rate reductions over the next 30 years?

As I have said numerous times , especially with new builds and to a lesser extent second hand homes the price is not what it’s worth ( cost to build plus profit ) but what the market will bear
See the recent increases in new build prices in the week after the HTB grant was increased.
Those increases were on already built houses.
Builders will charge what they can get and if credit becomes more expensive new builds will drop in price

PropQueries

JJJackal wrote: »

Higher inflation decreases the relative value of your debt ...

That's very true. Unfortunately for recent mortgage holders it also could increase their monthly repayments to a level that becomes unbearable. It may be ok if both partners continue in employment, but if one becomes unemployed, sick etc. it may become impossible.

Higher interest rates then also have an impact on house prices as an increase of only c. 3% may knock upwards of €50k - €100k off the value of a €300,000 house, even if all other things remain the same.

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

Given that ECB rates are already below zero and there isn't much room to lower them further and if interest rates are one of the main drivers of house price increases, would this mean that there is little possibility of significant house price increases related to interest rate reductions over the next 30 years?

wassie

Relax everyone, Donald just announced a vaccine will be on its way before the end of the year.

Time to push the button on that house purchase before the inevitable price rises :pac:

MacronvFrugals

High(ish) inflation would help clear all this Covid debt quicker, unlikely to happen though with the absence of labour unions which is why inflation is stagnant.

JJJackal

PropQueries wrote: »

True. At the moment. Anyone who bought a home in the 1980s will know how quickly those interest rates can rise.

The primary reason for low inflation and interest rates over the past 20 years wasn't the geniuses at our central banks but China which lowered the price of most manufactured goods.

Given that the west will now need to try keep these jobs at home, I can't see the west allowing Chinese companies to continue to undercut our industries. That will most likely lead to higher tariffs on Chinese goods which leads to higher inflation and that leads to higher interest rates.

The ECB may even allow inflation to go as high as 5% in the short-term, but they will most likely eventually panic and start increasing interests rates sooner rather than later.

Higher inflation decreases the relative value of your debt ...

[Deleted User]

Marius34 wrote: »

I believe until Phase 3 is not completed and approved, vaccine can not be named other than potential.........

Yes of course, phase 3 testing is not at all a penalty kick. I do hope that particular vaccine and the others being developed can in combination get us ahead of Covid19.

Marius34

Augeo wrote: »

Lovely, article mentions "potential vaccine" .......... I said the following "There won't be a vaccine for years (rolled out) if ever" ........... 2021 for a rolled out vaccine won't be happening. Come back to me before New Year's Day 2022

BTW, I hope I'm wrong

I believe until Phase 3 is not completed and approved, vaccine can not be named other than potential.
From what I see most of the research groups expect vaccines to be rolled out next year. But I think one of the main problem is how effective it is. If the first ones will be only let say 50% effective, it would reduce the spread, but life would not go back to normal.

Assetbacked

PropQueries wrote: »

True. At the moment. Anyone who bought a home in the 1980s will know how quickly those interest rates can rise.

The primary reason for low inflation and interest rates over the past 20 years wasn't the geniuses at our central banks but China which lowered the price of most manufactured goods.

Given that the west will now need to try keep these jobs at home, I can't see the west allowing Chinese companies to continue to undercut our industries. That will most likely lead to higher tariffs on Chinese goods which leads to higher inflation and that leads to higher interest rates.

The ECB may even allow inflation to go as high as 5% in the short-term, but they will most likely eventually panic and start increasing interests rates sooner rather than later.

On this, inflation metrics are unreliable and have been for many years. The CPI is the barometer for inflation but the likes of tech and retail have dragged inflation down while housing has skyrocketed the past 20 years. Fair enough it's still the official metric but it's outdated.

[Deleted User]

Cyrus wrote: »

I think you are right

Logic would suggest a vaccine will take a lot longer than people are hoping, again hope I am wrong but I’d be pessimistic.

Yes, it's unfortunate but being realistic it'll be years. Once (if) a vaccine is developed that can be given to the vast majority of the population cranking up supply will be the next issue (already being worked on of course). It'll need to be a team approach and it no doubt will be with major players collaborating and sharing facilities etc but there will be need to maintain supply of existing essential drugs/vaccines/treatments also so yup .......... a huge job. Years at best, realistically I'd not be able to guesstimate it but 3+ I fear at best........ that'd be late 2023 and I'd class that as being optimistic.

Treatments shall come sooner, there's huge work being done in that sphere also but most of them are for folk in the hospital situation, they'll be to help the person on the ventilator or maybe prevent folk getting to needing a ventilator but you are back to social distancing etc to try and keep the level of the damn thing down in the wider community etc.

The financial impact of this on the Irish economy I fear will be felt for decades ........ it's a time of great unease for most of us. Was good to see kids heading back to school this week, fair fooks to them, doiing their bit etc.

Assetbacked

JJJackal wrote: »

The interest on most of these loans is essentially 0%. So essentially it is free money

It's not free money. It still needs to be repaid. It just means there is no cost but the ability to repay needs to be there.

On the point about raising money, I meant in relation to this "boost markets, confidence, spending etc etc" markets are already boosted and in a huge bubble, a lot of retail people have put their money in out of boredom but they will correct from where they have gone to. A lot of confidence and spending doesn't come from savings but from credit and asset prices being high.

Banks have made significant bad debt provisions for what is to come, I do not see them handing out cash as easy until they can get their houses in order.

Bricks and mortar shops are utterly devastated to the point where I see no way back for most of them. People are so much more comfortable shopping online, sure there will be boosts as people like to socialise and get out of the house but retail is gone as we know it. This has knock on effects for jobs, livelihoods, rents (investment) and of course taxation which means less money for government spending.

Travel and tourism, key areas for the Irish economy, obliterated and no certainty as to whether they'll return to their levels of 2018 let alone 2019. Aircraft leasing contributes a lot to the exchequer which is of course gone too.

Education is going to undergo a dramatic change. Its funding is drying up and the requirement to physically attend a campus is going to be completely unnecessary which makes people question whether they should attend UCD when they could go online to Cambridge. Google is even offering a new sort of education programme which it says it will even use to hire people in the future. That means they will hire people who did their course and not require people with 4 year bachelors degrees and masters etc.

The vaccine talk is just a carrot and stick to keep the public patient with restrictions but it's more likely to not see any real world implementation for another year, I don't think it will be like a switch with the economy and everything just getting turned back on.

All of the above is why the full impact of covid on the economy won't fully manifest for a year or two years and then housing maybe three to four years later. The beginning of the impact may start to show in Q2 2021 reports on the sector but only the very beginning and of course other things besides covid could also be factored in like the thousands of new apartments for which planning permission has been granted coming on the rental market and Brexit.

This is all so macro though and difficult to put into an individual's consideration whether to buy their home. I'm always of the view that, for a home purchase, go with what is comfortable financially. Don't over extend but don't wait if you don't want to. Maybe you pay 2k rent but can get a mortgage for 1.5k per month so why not just go for it for that reason. Waiting for a crash is only recommended for cash rich investors.

Cyrus

Augeo wrote: »

Lovely, article mentions "potential vaccine" .......... I said the following "There won't be a vaccine for years (rolled out) if ever" ........... 2021 for a rolled out vaccine won't be happening. Come back to me before New Year's Day 2022

BTW, I hope I'm wrong

I think you are right

Logic would suggest a vaccine will take a lot longer than people are hoping, again hope I am wrong but I’d be pessimistic.

[Deleted User]

cubatahavana wrote: »

https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1438

The EU are actively looking to get the vaccine ASAP, I don't think it will be 2020 for sure, but 2021 is on the cards at the moment

Lovely, article mentions "potential vaccine" .......... I said the following "There won't be a vaccine for years (rolled out) if ever" ........... 2021 for a rolled out vaccine won't be happening. Come back to me before New Year's Day 2022

BTW, I hope I'm wrong

PropQueries

JJJackal wrote: »

The interest on most of these loans is essentially 0%. So essentially it is free money

True. At the moment. Anyone who bought a home in the 1980s will know how quickly those interest rates can rise.

The primary reason for low inflation and interest rates over the past 20 years wasn't the geniuses at our central banks but China which lowered the price of most manufactured goods.

Given that the west will now need to try keep these jobs at home, I can't see the west allowing Chinese companies to continue to undercut our industries. That will most likely lead to higher tariffs on Chinese goods which leads to higher inflation and that leads to higher interest rates.

The ECB may even allow inflation to go as high as 5% in the short-term, but they will most likely eventually panic and start increasing interests rates sooner rather than later.

cubatahavana

Augeo wrote: »

It's opinion of course. Completely logical thoughts though. The short term (12/18/24 months) defence against Covid 19 is what we are all currently doing.

https://ec.europa.eu/commission/presscorner/detail/en/ip_20_1438

The EU are actively looking to get the vaccine ASAP, I don't think it will be 2020 for sure, but 2021 is on the cards at the moment

JJJackal

PropQueries wrote: »

I'm not too sure the ECB will keep printing money. Not every eurozone member is in the same boat. Many eastern european eurozone members had relatively little debt prior to this crisis.

If the ECB keeps printing money and not ensuring it is repaid in the next few years, it's basically then just free money. I don't think the eastern european eurozone members will continue to allow this to happen.

Next year and for many years after, I believe there may be serious decisions to be made here in Ireland.

Unfortunately, the only items I can see they can tax to make any meaningful impact is my pension and my house.

The interest on most of these loans is essentially 0%. So essentially it is free money

[Deleted User]

cubatahavana wrote: »

And your source for this is...

It's opinion of course. Completely logical thoughts though. The short term (12/18/24 months) defence against Covid 19 is what we are all currently doing.

cubatahavana

Augeo wrote: »

There won't be a vaccine for years (rolled out) if ever.
Various treatments will no doubt become available but they'll likely be for folk in hospital situations so there will still be a need for social distancing, WFH and all of the other things that are currently hitting the economy.

It's good for everyone to hope for a vaccine, keeps things cushty to an extent

And your source for this is...

[Deleted User]

JJJackal wrote: »

........

However if there was a vaccine or treatment in January for example will it ever show. A vaccine will boost markets, confidence, spending etc etc

There won't be a vaccine for years (rolled out) if ever.
Various treatments will no doubt become available but they'll likely be for folk in hospital situations so there will still be a need for social distancing, WFH and all of the other things that are currently hitting the economy.

It's good for everyone to hope for a vaccine, keeps things cushty to an extent

MacronvFrugals

JJJackal wrote: »

Come from for what?

Irish people have never had more savings according to recent reports. The US is printing dollars like they are going out of fashion,

The EU will do this if needed. There will be more "money" in the world post COVID than pre

Look where those US dollars are going, all to pump up the Dow Jones sure look at Tesla.

PropQueries

JJJackal wrote: »

Come from for what?

Irish people have never had more savings according to recent reports. The US is printing dollars like they are going out of fashion,

The EU will do this if needed. There will be more "money" in the world post COVID than pre

I'm not too sure the ECB will keep printing money. Not every eurozone member is in the same boat. Many eastern european eurozone members had relatively little debt prior to this crisis.

If the ECB keeps printing money and not ensuring it is repaid in the next few years, it's basically then just free money. I don't think the eastern european eurozone members will continue to allow this to happen.

Next year and for many years after, I believe there may be serious decisions to be made here in Ireland.

Unfortunately, the only items I can see they can tax to make any meaningful impact is my pension and my house.

JJJackal

Assetbacked wrote: »

Where will the money come from though?

Come from for what?

Irish people have never had more savings according to recent reports. The US is printing dollars like they are going out of fashion,

The EU will do this if needed. There will be more "money" in the world post COVID than pre

MacronvFrugals

Maybe my standards are low but what makes that house not perfectly modern?

Yes the kitchen and front windows/doors arent new but they're hardly ancient.

beauf

brisan wrote: »

I never said it was not livable
I never said it was NOT ready to move in to
I have moved into a lot worse on 3 occasions
What I said was it would take at least 50k to make it modern
Weather that is done before the buyer moves in ,in 5 years time or at any stage in between or at all is totally up to the buyer

I think saying its modern conjures up something 50- 100 yrs old. Not cosmetic stuff.

beauf

fret_wimp2 wrote: »
Kitchen, flooring, wardrobes are all fine. not the prettiest but in good condition and wouldnt stop anyone moiving in.
Painting can be done when you move in.
Bathroom is fine, again, not the most stylish but nothing wrong with it.

Everybody wants to move into somewhere pristine, nobody wants to work on a place anymore.

Is ready to move in as is, and could be improved over a few months without gutting it.

I get the feeling people are expected a much higher standard. Are they used to only new builds or more expensive properties I wonder.

https://youtu.be/rUHunfH0XbI

brisan

fret_wimp2 wrote: »
Kitchen, flooring, wardrobes are all fine. not the prettiest but in good condition and wouldnt stop anyone moiving in.
Painting can be done when you move in.
Bathroom is fine, again, not the most stylish but nothing wrong with it.

Everybody wants to move into somewhere pristine, nobody wants to work on a place anymore.

Is ready to move in as is, and could be improved over a few months without gutting it.

I never said it was not livable
I never said it was NOT ready to move in to
I have moved into a lot worse on 3 occasions
What I said was it would take at least 50k to make it modern
Weather that is done before the buyer moves in ,in 5 years time or at any stage in between or at all is totally up to the buyer