Irish Property Market chat II - *read mod note post #1 before posting*

If you have high inflation people will use property as a hedge against inflation instead of leaving money in the bank which is an increase in demand.

Wage inflation is another story and if we do see it it will push up house prices because people will be able to borrow more.

rent should be protected by inflation because of the new rules 2% or inflation if lower.

The cost of building will rise which will mean a reduction in supply as certain projects become less profitable.

All of these factors = higher prices for property

No I don't expect it to run at 5% for a few years.

Don't know what you are trying to say all that I am pointing out is that high inflation for a sustained period will result in higher property prices. It has noting to do with different generations, wealth preservation, politics.... it's simple economics

Let me get this right.... you are saying that high inflation for a few years would not be a bad thing..... I highlight that high inflation for a sustain period would increase house prices and you start talking about Wealth preservation and Slavery...... I then try and explain that it is simple economics that houses prices will rise if we experience high inflation for a few years and you start talking about apple share price. What is the point you are trying to make?

Is it that the as a country we have problems with affordable housing.... Everyone knows that but its not as simple as get SF in and they will be able to fix it over night.

And just for clarification I don't expect that we will see high inflation for a few years because either the drivers of inflation fall away or if it does persist then the central banks will tap the brakes on the economy.

The main driver of inflation in the EU is oil and Gas at the moment and Oil has dropped 30% in the past few weeks. We have not seen wide spread inflation like the US is currently experiencing..... Who know's we may see this in time as the public's expectation of inflation drives prices and wages higher. I agree that if inflation is around for longer and becomes wide spread and not just in energy the central banks will have no option but to taper QE and then eventually raise rates. We are in a low interest rate environment and this will continue even if the EU increased the base rates because the ECB rate will still be negative as two or three 10bps rise over a year would be enough to slow down the economy and kill inflation.

The velocity of money is falling not increasing because QE increases the money supply and as a result it takes longer for money to circulate in the economy. For this reason it has become less of an important indicator in recent years.

I agree that supply chain issues will contribute to inflation. For me the real risk is China because inflation there will feed into world wide inflation.

The above graph shows the USA velocity of money and because of the liquidity trap it is unlikely to increase significantly because a lot of the money supply is locked into the banking system and financial markets so is not in circulation in the wider economy.

I'm just surprised that on one hand you are saying things could get messy very quickly and on the other hand you are saying that economy will be so strong that we will see the trend of a declining velocity of money will reverse.

For velocity of money to increase and reverse its trend it would be because of a strong economy resulting in the GDP growing or because of a reduction in money supply when people pay off debt. As a reduction in money supply would not be inflationary I can only assume you expect GDP to grow strongly Quarter by Quarter to reverse the trend.

The only way that the velocity of money can increase without the GDP growing is for the money supply to shrink (which would be caused by people paying off debt) and this would not be inflationary.

The velocity of money is calculated as the GDP divided by the money supply. So you need the GDP to increase or the money supply to shrink to see an increase in velocity of money.

I get what you are saying.... The economy is going to be stronger than it has for the past 10 years for at least a few quarters to reverse the trend. If we will have such a strong economy for a year or two then it would be reasonable to expect house prices to increase and for the economy to be able to withstand a increase in rates without crashing the economy as companies would be making more money. Maybe that is why the markets are valued so high because the world economy is going to enter a period of strong growth. Personally I don't see this scenario playing out as I think the EU economies are more shaky than they were before covid hit but that's just my opinion.... Time will tell

The money I was talking about is the money in M2 supply so it excludes the money that has flown into the stock market.... What I meant by the money supply being locked into the banking system is the liquidity trap that exists due to the low rate environment. The specific element that relates to the financial markets is the cash that has been posted as collateral with the banks.

If the money flowed out of the markets without much trouble then the it would either end up in cash/banks which would lower the velocity of money further or would go into bonds which would lower rates further. (That is unless everyone decided to buy bitcoin or gold)

So which is it we will see the velocity of money reverse its trend or the money will flow out of the markets and lower the velocity of money further?

So you are saying the money supply will increase by trillions and yet the velocity of money will increase and reverse trends.. for the velocity of money to increase by enough to change the velocity of money trend with the money supply increasing by trillions we would need hyper inflation. which means that houses prices are undervalued as they will be worth 1000's times more in a year.

Once they sell the 75k and move it back into their bank account the M2 money supply increases by 75k... if they then use that money to buy good or services the money is still in circulation..... So the money supply has increased by 75k which lowers the velocity of money unless the GDP grows by a greater amount (either via inflation or real growth)