House prices have much further to fall: Morgan Kelly

stooge wrote: »

Maybe I should have been clearer here. Yes, it's my opinion that rates are more likely to go up than down. What I mean is the ECB rate. I don't forsee a reduction in rates, more likley an increase to combat the eurozone high inflation.Then again, it's just my opinion and I'm prepared to put it out there in writing. If rates go down I'll hold my hands up.

It's a bit like your OPINION:



"likelihood of more wage rises across the board" -> Wage rises across the public sector I assume you mean?
"fairly tight rental market" -> do we not have the biggest supply of rentals EVER?
"rents are more likely to rise" -> why should they if we have a massive oversupply? Thats 'way out of kilter with current morket conditions'.

A simple example: look at the amount of apartments for rent in sandyford. Also look at how long these aprtments have been up for rent, how many have reduced their asking prices.

95% of economists, bond traders and professional investors are expecting the next move from the ECB to be lower. I'd put the argument of rents going higher/lower at 50/50 at best - people still have to live somewhere after all, so the only options are to rent or buy.

Wages are going up across the board, of that there's no question. Before the recent pay talks broke down IBEC had already agreed to something like 5% over the next 18mths, which was considered way too low for the unions. The IBOA want the banks to stump up 10% for staff over that period, and, unfortunately, the public sector unions will ask for and probably eventually get something similar (heaven forbid that someone in the private sector, without a pension and facing the possibility of redundancy, might get paid more...). In the IT sector there's still a shed load of jobs available, so wages are almost certain to go higher there. Low level manufacturing and construction/property industry will obviously be different, but by and large, the vast vast majority of workers will be getting paid more next year rather than less. So the dynamics in play are rising wages, a rising population and a rising number of people actually looking for rent (as they're not buying). I'm not saying rents are going through the roof or anything, but, increased rental supply aside, there's a solid base under rental rates right now.

Ootermus wrote: »

95% of economists, bond traders and professional investors are expecting the next move from the ECB to be lower. I'd put the argument of rents going higher/lower at 50/50 at best - people still have to live somewhere after all, so the only options are to rent or buy.

Wages are going up across the board, of that there's no question. Before the recent pay talks broke down IBEC had already agreed to something like 5% over the next 18mths, which was considered way too low for the unions. The IBOA want the banks to stump up 10% for staff over that period, and, unfortunately, the public sector unions will ask for and probably eventually get something similar (heaven forbid that someone in the private sector, without a pension and facing the possibility of redundancy, might get paid more...). In the IT sector there's still a shed load of jobs available, so wages are almost certain to go higher there. Low level manufacturing and construction/property industry will obviously be different, but by and large, the vast vast majority of workers will be getting paid more next year rather than less. So the dynamics in play are rising wages, a rising population and a rising number of people actually looking for rent (as they're not buying). I'm not saying rents are going through the roof or anything, but, increased rental supply aside, there's a solid base under rental rates right now.

I thought the expected next move from the ECB was neutrality - ie - no change, at best. That's not "down".

Increased rental supply is huge. Until it's soaked up, there is no solid base under rental rates. Influx of immigrants is down. The rental market is in a mess at the moment. Solid base is not how I'd call it.

Westwood wrote: »

but at the end of the day people need somewhere to live and if you can afford your mortgage and have job security then whats the problem? a house is your home a roof over your head. not the stock market.

I agree. However, if possible I'd rather wait 6-12 months and reduce the amount I need to borrow by €30-50 thousand.

Ootermus wrote: »

...This is why we're seeing the current major move up in rents in tandem with the serious fall off in prices, as the adjustment in yields comes more in a 'sharp shock' move rather than a gradual re-alignment. Already yields are more like 4% at the moment, and given the likelihood of more wages rises across the board over the coming months, combined with a fairly tight rental market as it is, rents are more likely to rise further if anything, and so rental yields will too. Rental yields in the 4.5% region will attract in the real long term investors and stabilise the market, and ultimately make renting more expensive than buying in the long term.

The first part of your post made sense but then you started talking about the current major move up in rents and 4% yields. When I'm checking house prices and rents I don't see any evidence of this. Realistically priced attractive rentals that I would consider renting normally have a return of around 2-3%. I do see alot of apartments for rent that could back up your point but I can't imagine anyone renting them and there's more and more of them all the time.

SimpleSam06 wrote: »

Ironically, the higher rental returns are only going to mean house prices have dropped. Rents themselves haven't changed much. Counting on retal returns versus capital appreciation is not something any sane investor looking for a decent return would do. Any investor I know wouldn't touch it before rental returns were in the 10% to 12% range.


Have you got a link to support this comment you are making repeatedly?


Why do you think that wages will affect rent? Rent isn't like property prices, it more solidly tracks supply and demand. Higher wages don't automatically mean higher rent, far from it.


Thats like saying, water aside, theres nothing to stop us walking to America. There is a huge overhang of properties on the market that will not be sold, and sooner or later most of those are going to be rental. The growth in population won't even make a dent on that.

Wages affect the 'ability to pay' element on the demand side of the equation, so rising wages have a direct impact on rent levels themselves. If the average industrial wage earner got a rise of 20k next year he'd probably either considering buying (as he'd be able to get a bigger mortgage) or he'd look to upgrade his current rented property to a more expensive one. Demand increases, so therefore the prices increase as well, basic economics. Obviously there's a supply side to all of this as well, but higher wages, everything else unchanged, leads to higher demand.

As for rents themselves and whether they're changed much, well it obviously depends on when u start the clock so to speak - if u start it in 2005 then rents are 20% up as of today. If you start in 2002 then they haven't changed all that much at all. But that could just tell that rents were crazily high in 2002, supply was completely lacking at all and not much else. And population growth of 30k per year will make a fairly decent dent in a market with a property overhang of something like 100k

As for supporting the comment i made about rates going lower, well look up the 12mth forward EONIA future/FRA (i have it on bloomberg, not sure how easy it is for the layman to find: if you have bloomberg, the code is EUSF12A <curncy> <go>) - it's a security that you trade which indicates where the o/n EONIA rate is going to be in 12mths time, and this is the closest secuirty you can get that tracks the ECB rate. To give you an idea of how much things have changed in the last 4 weeks, it was at 4.60% or so back in mid to late july, and today its at 3.77%. Likewise, you could look up the EURIBOR futures curve which today yields 4.963% but in september next year is expected to yield 4.20%, so a drop in 3mth EURIBOR of 0.75% is expected. Reuters do an economists poll on the last few days of every month - at the end of July it forecast an ECB rate of 3.97% in Q3 2009, but trust me, the end-Aug poll is going to be hugely lower after the recent ECB meeting, poor Eurozone data and the $35 drop in oil prices. They have another poll which is supposedly updated as of today, and its looking for an ECB rate of 3.82% in Q3 2009, and has 58 respondants - of those 58 only four (the economists at HSBC, Morgan Stanley, Nord LB and Fortis Bank) are looking for higher rates at this stage next year.

The EONIA/EURIBOR futures track actual real money, like millions/billions every day is traded on it, and the polls track what economists are forecasting - both point to a clear cut lowering of rates.

And you're so right, saying "water aside, there's nothing stopping us from walking to America" is exactly the same as what i said, thats superb intellect you've got going on there...probably as smart as saying that the investors you know are waiting for residential property yields of 10-12%. Given that they haven't been anywhere even remotely close to that in the last 15 years in this country, i can only assume the investors you know never have and never will invest in residential property in Ireland. As such, their judgment on the market isn't particularly insightful is it?

Ootermus wrote: »

And you're so right, saying "water aside, there's nothing stopping us from walking to America" is exactly the same as what i said, thats superb intellect you've got going on there...probably as smart as saying that the investors you know are waiting for residential property yields of 10-12%. Given that they haven't been anywhere even remotely close to that in the last 15 years in this country, i can only assume the investors you know never have and never will invest in residential property in Ireland. As such, their judgment on the market isn't particularly insightful is it?

The first apartments built in the IFSC came on the market for 60k in the early nineties (Custom House Harbour Development). They currently rent at 1200 per month. That'd be more than 10% per annum on apartments. In fact, on the basis of an apartment in the city centre yielding 14k per annum, apartments costing 140,000 would have yielded 10%. There'd be a fair few apartments in the city centre bought in the nineties at this price level.

SimpleSam06 wrote: »

So while admitting that rents are the same now as in 2002, and salaries in the public sector climbed 59% from 2001 to 2006, and 19% in the private sector (never mind 2007 and 2008), you refuse to accept that there is no correlation between wages and rental rates? Even the point you made about supply being tight in 2002 supports my point, in that rent is much more directly related to supply and demand. And there will be no shortage of supply for quite some time.


Maybe they missed the upcoming excitement with the Alt-As and Primes stateside, which is going to make the subprime mess look like a joke. Without a doubt that is going to reflect on the Eurozone as well.


Interestingly, there was feck all foreign investment in Irish property even during the boom, so I'd say a good deal smarter than you, yes. Note there is a diffference between investors (professional businessmen) and specuvestors (ham handed weekend economists that think they are Gordon Gekko because Jim down the bank gave them a loan they really shouldn't have got their hands on).

Edit: Oho, and yet another account registered in this month single handedly trying to start a Bull run on Irish property.

I see.

What on earth are u talking about with ur bizarrely circular and self destroying argument?

1. are these investors you know foreign or Irish? its unclear from ur comments because u only reference that there was feck all foreign investment in irish property at all, so either the investors u know are foreign, or they are irish people who have only ever invested abroad, or at least never invested in irish property. Which goes back to my basic point about why i would want to know what they think if they weren't ever active participants in this market? Your comment also completely neglects the fact that people who invested in the early part of this decade would still be well in the money? Are u suggesting that the Irish property market is permanently broken, has been for the last 20 years and will be for the next 20, because thats the implication if u expect rent yield of 12%. Are there any professional investors in the Irish property market, because, according to you, why would there be if they couldnt get their 10-12% yields???

2. Secondly, wouldn't the potential Alt-A meltdown in fact push interest rates DOWN, rather than up? Otherwise i'm not really sure what ur point is???

3. I simply said there is some correlation on the demand side of the equation, and that if the supply side (and everything else on the demand side) stayed unchanged, then higher wages = higher rents. However, you're now saying there is "no correlation between wages and rental rates"? This is absolute crap, or unadulterated bull**** as u like to say. Of course there is a correlation, though the exact correlation is open to debate and its definitely not a 1:1 ratio. Higher wages = more disposable income = higher property prices/mortgages. In an effort to keep rent yields in line to at least some extent, there will be be upward pressure on rents, otherwise the investor would be better off selling the property and taking his capital gain. You've simply said "look, wages went up and rents didn't, therefore there's no correlation". Thats about as smart as someone saying "immigration increased in 2007 just as property prices declined, therefore there's no correlation between house prices and immigration".

4. Look back over my posts, i've at no point attemted anything close to a bull run on the irish property market. My main hypothesis is that as rents and wages have increased, and as interest rates (long term already, variable next year) and property prices go down, affordability levels stabilise at sustainable levels, and bring balance to the markets, and that of far moreimportance are 'real' property prices rather than nominal ones, and the recovery in rental yields is an important part of this whole process. There was too much demand 200-2005, there was too much supply 2005-2008, and next year will likely see demand and supply much more in balance. Real prices will probably be lower than 2006 for the next 5 or 6 years, but nominal ones won't.

5. "Jim down the bank" and "ham-handed-wannabe Gordon Gekko's"? Yeh, there's no bitterness in this forum at all...

punchestown wrote: »

2008 9 Jul. 3.25 - 5.25
2007 13 Jun. 3.00 - 5.00
14 Mar. 2.75 - 4.75
2006 13 Dec. 2.50 - 4.50
11 Oct. 2.25 - 4.25
9 Aug. 2.00 - 4.00
15 Jun. 1.75 - 3.75
8 Mar. 1.50 - 3.50
2005 6 Dec. 1.25 - 3.25
2003 6 Jun. 1.00 - 3.00

Where do you see the fall ootermus? Your prediction based on the ramblings of Austin Hughes who is forever talking up the forecast of falling interest rates in the months and year ahead yet has continuosly been wrong.

Ok, seriosuly, people need to stop quoting me on things i haven't said and actually read what i've written.

1. I have never, so far as i've known, said in my mind, or on paper, "well that Austin Hughes chap reckons...".
2. what u have up their is the ECB depo and lending rates. Well done. I've specifically mentioned longer term interest rates on a couple of occasions when i have talked about falling interest rates - EBS did it last week, IIB did it this week. I've also said that the ECB rate will move down in the next 6-9 months, or at least that is what is being currently being implied by the entire market of professional investors, banks, hedge fund etc etc etc, so having amateur forum posters like ourselves on one hand and professionals on the other, i think i know where im going to go for advice. And given that this date is in fact in the future i dont see what today's ECB rate has to do with anything.