Looking to move... WTF is going on with prices?

In my view the time to move upmarket is when the market is low. The time to move downmarket is when the market is strong (like now). The market is cyclical and the best thing to do at any time is to prepare for the next shift in the market.

It is clearly not a time to move upmarket.

if you wait three years, houses prices may remain stagnant, you’ll be no better off but will have paid 3 time more in rent than you would in mortgage repayments

I am not talking about moving from a rental to buying. I am talking about moving upmarket as in selling one property and buying a more expensive property.

There is a certain feeling that prices can only go up and up, which creates either euphoria or hopelessness depending on the perspective of the stakeholder in the market. It's quite similar in relation to the stock markets where there is a herd view that the only way is up; there may be some hiccups or stumbles but the only way is up.

I have a personal feeling that now we have a collective sense in Ireland across all housing market participants that prices are only going to continue going one way is in itself a sign of the irrationality which has taken hold in the market. The reasons prices are going up no longer seem to be based on solid reasons and haven't for some time; and the reasons for the situation to continue, with prices only continuing to increase, are again not really based on solid reasons (from what I can see), but more to do with a general feeling in the market.

People buying are seeing others buy in the last few years and kicking themselves they didn't buy as prices have only gone up significantly; sellers who held off selling have seen their paper value of their homes increase and are thinking they could make a bit more by waiting a bit longer. The reasons to buy or to not sell are self-perpetuating, i.e. that prices keep going up. I feel logic and data have uncoupled from the collective behavior in the housing market (i.e. the accumulated individual decisions viewed as a whole) and have been taken over by a herd irrationality, desperation and exuberance. We are at the stage of the cycle where a correction is typically not far off, where "no one can see it coming" and where it is a study of psychology to understand what is going on more than it is to do with typical property market discussion around policies, economics, finance etc.

people are like lemmings, who jump off a cliff every 7 years

there will be a crash, of that there can be no doubt

i have wirnessed 2 already and this one is going to be the same

this is history, and people who dont learn from history

are doomed to make the same mistakers again.

We had plans drawn up for an extension including a master bedroom/en-suite, new sitting room and extended kitchen. Tendered earlier this year and prices in around 350k. Unbelievable. This is more than we paid for the house

Central Banks weren't so willing to print money in the past.

There will either be a crash or the value of money will drop and 500k will seem like chump change in a few years

The last correction was based on a credit bubble.

I remember going to the bank to get an 80% mortgage. I was offered a 110% mortgage @ 0.6% above ECB tracker. (Sure get yourself a car as well, credit is cheap). I took the tracker, but not the 110%. Many people accepted the 110% offer and over borrowed. This inflated house prices artificially, which then corrected when the cheap credit disappeared.

There is no cheap credit now.

What we have now, is a shortage. Labour. Materials. Housing stock. For many reasons. In Cork city alone, multiple huge apartment block developments, thousands of units planned for next year have been cancelled since the govt changed the rental caps again. They're not viable to build anymore, risk is too high.

So you have this cumulative effect.

For developers

• Govt is actively dis-encouraging new homes from being built by making them unviable on paper.
• Labour costs are high. Inbound immigration is slowed, labour pool is small. Labourers were a group who were missed in the PUP, because many of them were cash workers. Many left the country last year.
• Supply chain is disrupted. Brexit, Covid, Weather disruption / climate / storms, multiple large marine losses recently. Backlog on materials. Material costs have increased 20-40% in the last 2 years.

For buyers

• Credit is not easy to get, strict limits in place
• Population is growing, backlog of buyers in the pool. More people competing for the same property
• Lack of supply

"There is no cheap credit now". I somewhat disagree with that statement and feel it is the same as saying "this time it's different", when it really isn't.

To use two examples as we are closely related in economic performance; In 2009, Irish national debt stood at around €65 billion and U.S national debt stood at $11.9 trillion. Today, Irish national debt stands at around €207 billion and U.S. national debt stands at $28.4 trillion. A mere 13 years later, these debt figures have increased significantly. These debt figures are played down by portraying them in a debt:GDP ratio but on the raw numbers, they are astounding. A lot of this cash sloshing around the financial system has found its way into property. But what has happened, where has the money gone and is this sustainable?

Simple explanations as to how this has happened and where has the money come from;

What has happened?

Wage growth from 2000 - 2021 in Ireland shows that average annual salaries went from €37,000 to €49,000 in this time period. That does not seem like it would do much to explain the inflation of property prices, given we accept that the Celtic Tiger years involved cheap credit to individuals to pump into the property market. So something else must have been involved post-2008 to pump into property given that individuals cannot borrow anywhere near as much as during the Celtic Tiger years...money printing!

Money printers at the central banks went into overdrive as a crash approached and happened around 2008. The plan was to print money to throw at the bad debts accumulating in the system, to avoid a crash. This has lead to staggering increases in the levels of cash sloshing around the financial system and being the direct result of money printing, not any solid "growth".

2007 - 2009;

• Federal Reserve effective rate 5.25% to 0.6% and its total assets were around $1 trillion in 2007.
• European Central Bank interest rates went from 5.25% to 1.75% and its total assets were around $2 trillion.
• Irish household debt - $327.5 billion.

2021;

• Federal Reserve effective rate 0.07% and its total assets are around $8.1 trillion.
• European Central Bank interest rates from -0.60 to +0.25% and its total assets are around $9.5 trillion.
• Irish household debt - $168 billion (2020).

Where has the money gone?

Assets! Rather than allowing a correction following the cheap debt fuelled boom in the 90s and 00s, the QE and low interest rates of the central banks re-inflated the bubble.

S&P 500 pricing;

• July 2007 - 1,552
• December 2008 - 1,173
• July 2021 - 4,395

Irish property price index;

• Q4 2008 - 152
• Q2 2013 - 70.1
• Q4 2020 - 128

Irish rents;

• Q3 2007 - €1400
• Q2 2013 - €825
• Q2 2021 - €1,477

Is it sustainable for hyper debt accumulation and low/negative interest rates?

That's the question but it appears that in order to keep property prices (and rents) inflated at current levels we need to see continued, persistent low/negative interest rates and massive money printing by the central banks. It doesn't look particularly sustainable to keep printing money but it also does not look like any of our politicians or central bankers particularly care as the money printing/low interest rate environment appears to be preventing a crash, which was its goal, though I'm not sure how real economy "growth" independent of this policy can sustain the asset prices we are seeing, in the same way the build up to 2008 also had an uncertain feeling that maybe this isn't actually sustainable after all.

One thing that could happen though people tend not to accept it is that central banks with their massive assets held on their balance sheet do not need to be repaid. In the same way that they created the money out of nothing, they can simply make some changes to their balance sheet and let the debt either perpetually sit there or just disappear. If they can create the 00s from nothing, they can also take them away.

All the ifs and buts, when it comes to property keep it to the most fundamental simple rule supply/demand.

Supply

Already we have had low building numbers for the last 2 years, meaning we are playing catch up.

Not enough building laborers to support the amount of building needed.

Our left leaning government do not allow banks to take "family home" repossessions in any great number. Meaning these properties cannot go on the market

Our government and REITS are actively competing in the same market as the rest of us meaning they have more money to buy pushing prices upwards. This is also supported by the government rental scheme where you can give a property to the government for 20/25 years and they pay you and look after your property. Meaning new builds are being snapped up before the general public know whats going on.

Demand

Year on year for the last 7/8 years we have had more people coming into the country than leaving - more demand

Year on year we have had more births than deaths since the start of recording deaths and births in this country - more demand

Changes made to the current 8 years it takes for a non documented refugee to legal status which will now only take 4 months - Expect a tidal wave of people coming here once covid is managed - more demand

We have about 4/5 years of pent up demand even before Covid, people stopped themselves from buying as the buzz word was Brexit, people thought property was going to tank after this. Then 2019 step forward Covid and people thought the same, there are a huge cohort who have been waiting and saving (all time high savings in Irish bank accounts 21Billion) ready to go - more demand.

I reckon if the financial rules where not in play the 80/20 and 3.5 times a salary we could of had an additional 20% on top of current prices .

There is nothing to suggest to me that prices will be dropping in the next 5 years. Thats just my theory of which I hope I have given some rationale to, I was one of the few who went against the grain back at the start of 2019 stating prices were not going to drop due to the supply and demand pressures.. But anyone buying and selling I would look at your macro circumstances. As in "how safe is my job", "can I live here if I lose my job", "can I afford if if interest rates go up by 3/4%", then schools, work and other factors pertinent to your own circumstances would either encourage or deter you from buying or selling. Anyone stating they know where prices are going are either deluded or have a vested interest.

Indeed. What's going on at the moment with prices suits few people - those with multiple properties, inherited properties, or those looking to trade down are the only people I see this current market benefitting.

I'm not much of an economist myself, so really appreciate the variety of analyses above - all good food for thought.

Trying to buy our first family home for awhile now, and seeing the supply dwindle and dwindle as the prices have risen. We don't really have 5-6 years to wait on that front, and we thought we would at least wait until the pandemic situation had stabilised - thinking that some stability would help people make their decision to put their property on the market. However there is still no sign of a pick up in supply.

So rather than purchase last summer, we're trying to purchase now, and the increase in expectations that I'm seeing on the side of sellers is staggering. One house we tried to buy had their sale fall through in April, we offered the previously sale agreed price to them on the same day (as soon as the EA called us to tell us the previous buyers had pulled out) and the seller wouldn't accept the price - even though they had been sitting on that price sale agreed for the previous 4 months. They knew the market was getting hotter and hotter by the week and wanted to cash in.

In 2018 & 2019 we would have had no problem buying our home in the area we'd set out sights on with our budget. Houses that were going for a certain amount in late 2019 now going for another 60-100k+ in some cases. Total madness.

We found a proper fixer-upper recently that we fell in love with, entered into a bidding war where it ended up going 100k over the ask which was a real shock. Needed a huge amount of work, and would not have gone for that price in pre pandemic times (I spend a lot of time looking at the PPR).

It's like the wild west out there at the moment. And even to fix up a house that needs fixing up now costs an extra arm and a leg.

Moving further out wouldn't work for us as we have to be close to our workplaces, otherwise we would. It's bleak! My commiserations to others in the same boat. We are just going to keep looking.

First one in London late eighties

second in Ireland 2008

and this one that is brewing is showing all the same irrational exurbance

Canary Wharf in London was built by a company called Olympia and York,

who were the Reichman brothers, biggest commercial property owners in New York City

they got caught in the London crash , when asked how they got caught,

they answered quite simply, we never saw it coming , and that is always the way with crashes

if we could see them coming there would be no crashes

it will happen, it always does, rinse and repeat.

Just on this, if you're planning to move to a larger house within your own area, yes the house you're looking to biu is at an inflated price, but conversely so is the price you'll get for your own existing house. If by 2024 things have dropped a bit, then so will what your current asset is worth no? All relative?

Some crazy reports of this and also the opposite in many areas.

I'm currently selling a 3 bed house it's not remote but just outside a small village which is 10 mins from a decent town and major golf resort in the west, EA has had over 10 viewings to date but no offers, asking price is normal for the area and not inflated, I can't get my head around how this market is going now so thinking of pulling it off the market and renting again, lots of people want to rent and none want to buy.