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House prices have much further to fall: Morgan Kelly

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  • Closed Accounts Posts: 4,048 ✭✭✭SimpleSam06


    Ootermus wrote: »
    when i have talked about falling interest rates - EBS did it last week, IIB did it this week.
    They only dropped fixed interest rates, can't see them taking much of a hit on that. It does point out how desperate they are getting, though.


  • Registered Users Posts: 660 ✭✭✭punchestown


    Ootermus wrote: »
    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.

    Having heard what the professionals (vested interests) have had to say for the last five years I know where I go for my advice!


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    SkepticOne wrote: »
    I think the second group is more likely regardless of what anyone wants. We don't have control over interest rates unlike Japan or Switzerland.

    They will fall in the new year.


  • Registered Users Posts: 660 ✭✭✭punchestown


    So will snow, but I have no hard facts to back that up. Have you?


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    So will snow, but I have no hard facts to back that up. Have you?

    The ECB stated that they would be focussing on increasing productivity and employment once inflation fears quell, which they said should happen in the new year. I read this on the BBC, but I cant access it at work, so I cant pull up the link.

    EDIT: Here we go

    http://www.rte.ie/business/2008/0814/eurozone.html

    http://www.rte.ie/business/2008/0815/euro.html

    Hmm, perhaps they didnt state it, but the market surely reacted that way for a reason.


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  • Closed Accounts Posts: 169 ✭✭Joseph Kuhr


    So will snow, but I have no hard facts to back that up. Have you?

    Like all the hard facts of 80% only mortgages and prices dropping 50%? mmmm.


  • Registered Users Posts: 660 ✭✭✭punchestown


    Like all the hard facts of 80% only mortgages and prices dropping 50%? mmmm.


    Reminds me of the response I received when advising a person to rid their portfolio of banking stocks early last year. Long term investment, solid yield, dividend etc, stocks outperform all other markets over time were some of the reasons given to me that I was wrong. I didnt come back to him saying I told you so and dont intend doing so on this thread. Time will tell who was right and who was wrong but I am quite happy with all the information I have and what it says to me. I bought pre boom so I could be considered a vested interest happy to tow the party line but I wouldnt sleep easy.


  • Registered Users Posts: 38 Ootermus


    Having heard what the professionals (vested interests) have had to say for the last five years I know where I go for my advice!

    well, where then?


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    The ECB stated that they would be focussing on increasing productivity and employment once inflation fears quell, which they said should happen in the new year. I read this on the BBC, but I cant access it at work, so I cant pull up the link.

    EDIT: Here we go

    http://www.rte.ie/business/2008/0814/eurozone.html

    http://www.rte.ie/business/2008/0815/euro.html

    Hmm, perhaps they didnt state it, but the market surely reacted that way for a reason.

    What about the Euribor rate then?

    Thats been consistently higher(around .75%) above the ECB rate and that needs to drop in order for the banks to loosen up lending again.


  • Closed Accounts Posts: 169 ✭✭Joseph Kuhr


    Reminds me of the response I received when advising a person to rid their portfolio of banking stocks early last year. Long term investment, solid yield, dividend etc, stocks outperform all other markets over time were some of the reasons given to me that I was wrong. I didnt come back to him saying I told you so and dont intend doing so on this thread. Time will tell who was right and who was wrong but I am quite happy with all the information I have and what it says to me. I bought pre boom so I could be considered a vested interest happy to tow the party line but I wouldnt sleep easy.

    And I'm sure your advice was based on sound information. So tell us why interest rates won't drop next year. Or is that an inside secret?


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  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Like all the hard facts of 80% only mortgages and prices dropping 50%? mmmm.

    80% of the price sought for lending. Prices are NOT realistic yet for even FTB's to enter en masse like before as they simply cannot afford the asking prices.


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    gurramok wrote: »
    What about the Euribor rate then?

    Thats been consistently higher(around .75%) above the ECB rate and that needs to drop in order for the banks to loosen up lending again.

    I dunno, that is something the ECB must try to encourage to fall. Quite how to quell the fears of bankers is another matter.


  • Registered Users Posts: 38 Ootermus


    They only dropped fixed interest rates, can't see them taking much of a hit on that. It does point out how desperate they are getting, though.

    Do u know how fixed rate interest rates are decided? That was a rhetorical question actually, because its clear u dont. There's no desperation or 'taking a hit' involved, its simple market pricing - NIB's LTV fixed rates are directly related to the market pricing, its in the documentation.

    Fixed interest rates offered by banks dont actually mean the banks earn less margin (they may or may not, it depends). In the same way that variable/tracker/short term rates are calculated/set on where the ECB or Euribor rate is (ie variable mortgages are determined where short term interest rates are), fixed term mortgage rates are based off where banks will lend to each other in the longer term. These longer term rates are essentially calculated by where the banks/markets think short term interest rates will be over the period of time in question.

    So, for an unbelievable simple example, if the markets thought that the euribor would be at 4.5% for the next 2 yrs, and then 4% for the 2 yrs immediately after that, then the 4 yr rate would probably be around 4.25% (although probably slightly higher to take account of the fact that u should be entitled to a higher return to copensate for not having access to ur money for the 4 yrs).

    2 months ago, most banks thought inflation was out of control and raised their fixed term lending rates as a result, in expectation of higher ECB rates in the years ahead. However, oil lower, growth stagnating/falling etc means the outlook has reversed course completely - most banks now see the ECB cutting next year and keeping rates below where they are now for most of the next 2 or 3 years. As a result, longer term lending rates have now fallen (by around 60-70bps) in the last month, so banks can borrow longer term at cheaper levels, and these reductions are now being passed on to customers. In summary, fixed mortgage rates are falling because banks ultimately expect the ECB to cut rates and bring short term/variable rates lower.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Ootermus wrote: »
    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.

    One thing your forgetting about all these 'expert' opinions is that these same experts were totally wrong on the recent ECB rise from 4% to 4.25%.

    They were caught on the hop and their views change like the weather. Only the ECB themselves know what to do and if inflation(its still stubbornly high in Germany and will be according to the Germans through second rounds affects for the next 6 months at least) falls, will it help rates come down
    And oh yeh, oil did drop by $35 but its stating to creep up again due to a 'tropical storm' of Florida so its too damn volatile to base one's predictions on where it will end up in 6 months time
    Point being, everyone will need a crystal ball to predict what will happen.


  • Registered Users Posts: 38 Ootermus


    gurramok wrote: »
    What about the Euribor rate then?

    Thats been consistently higher(around .75%) above the ECB rate and that needs to drop in order for the banks to loosen up lending again.

    The Euribor rate differential over ECB is a major problem for banks, because its' essentially cut into their profit margins and has eventually been passed onto customers through higher tracker margins that have been seen recently. Its a bit like an artificial rate hike of 0.5% that the ECB didn't do, but the banks basically charged upon themselves. It's really a fear charge, as banks don't trust each other anymore. It'll eventually come down a bit, but not until next year, although the 'good' banks are generally getting it a decent bit cheaper than Euribor.


  • Closed Accounts Posts: 169 ✭✭Joseph Kuhr


    gurramok wrote: »
    80% of the price sought for lending. Prices are NOT realistic yet for even FTB's to enter en masse like before as they simply cannot afford the asking prices.

    Thats your hard facts? The hard facts are banks are giving 92%-95% mortgages and for those who meet strict criteria you can still get a 100% mortgage. And 50% drop in prices? Delusional. To suggest that even in the height of the boom people could only buy homes with 100% mortgages is completely untrue. And that now that people can no longer get 100% mortgages that means people can no longer afford homes....well you could call it the silly season I suppose.


  • Registered Users Posts: 3,590 ✭✭✭Blackjack


    Ootermus wrote: »
    What people need to remember is that rental yields play a very important part in attracting in the long term professional investors who aren't just interested in capital appreciation.

    Capital Depreciation will however keep them away.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Ootermus wrote: »
    The Euribor rate differential over ECB is a major problem for banks, because its' essentially cut into their profit margins and has eventually been passed onto customers through higher tracker margins that have been seen recently. Its a bit like an artificial rate hike of 0.5% that the ECB didn't do, but the banks basically charged upon themselves. It's really a fear charge, as banks don't trust each other anymore. It'll eventually come down a bit, but not until next year, although the 'good' banks are generally getting it a decent bit cheaper than Euribor.

    Which leads to the point where the vast majority of mortgage lending in this country is non-fixed.(80%+ i believe)
    So if fixed rates continue to fall to entice buyers of property, banks will have to do a hard sell of most of their mortgage business as fixed rates.

    And as i can see(correct me if i'm wrong), variable rate lending is where banks make most of their dosh on mortgages so its a catch 22 situation for them.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Thats your hard facts? The hard facts are banks are giving 92%-95% mortgages and for those who meet strict criteria you can still get a 100% mortgage. And 50% drop in prices? Delusional. To suggest that even in the height of the boom people could only buy homes with 100% mortgages is completely untrue. And that now that people can no longer get 100% mortgages that means people can no longer afford homes....well you could call it the silly season I suppose.

    Yes, you have to be in a bullet proof job to get that 100% and earn a packet. Public sector and private sector high earners come to mind(this has been documented in the media by the banks)

    50% drop is not delusional, why is it?

    Yes, alot of FTB's had to get 100% mortgages as the prices went too high. Now they have to stump up deposits which they are finding it hard to find.

    If they didn't find it hard to get 92% mortgages, why are they staying away? An answer about doom and gloom is no good :D


  • Registered Users Posts: 38 Ootermus


    gurramok wrote: »
    One thing your forgetting about all these 'expert' opinions is that these same experts were totally wrong on the recent ECB rise from 4% to 4.25%.

    They were caught on the hop and their views change like the weather. Only the ECB themselves know what to do and if inflation(its still stubbornly high in Germany and will be according to the Germans through second rounds affects for the next 6 months at least) falls, will it help rates come down
    And oh yeh, oil did drop by $35 but its stating to creep up again due to a 'tropical storm' of Florida so its too damn volatile to base one's predictions on where it will end up in 6 months time
    Point being, everyone will need a crystal ball to predict what will happen.

    You're 100% correct, and i stated that myself earlier, that the market expectation of interest rate cuts may not actually happen. However, at least im basing my forecast/assumption of rate cuts on the combined knowledge of the financial markets, with all their apparent expertise and research etc etc, and using the existing market pricing and some solid economics (asset price falls = deflation). Most of the other people on this forum looking for hikes are (a) admittedly not experts and (b) going with a 'gut feeling' that inflation is going to stay high despite a fairly evident economic slowdown in the world. Given that one of those people has already complained about many property speculators being nothing more than wannabe Gordon Gekko's and "ham-handed weekend economists", it seems a bit hypocritical to suddenly assume themselves to be smarter than professional economists!! I'm not saying u have to agree with everything that economists say or forecast, but if ur going to disagree with them, then at least have something better than a gut feeling to back it up.


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  • Registered Users Posts: 38 Ootermus


    gurramok wrote: »
    Which leads to the point where the vast majority of mortgage lending in this country is non-fixed.(80%+ i believe)
    So if fixed rates continue to fall to entice buyers of property, banks will have to do a hard sell of most of their mortgage business as fixed rates.

    And as i can see(correct me if i'm wrong), variable rate lending is where banks make most of their dosh on mortgages so its a catch 22 situation for them.

    Its probably somewhat true that the margin on fixed rate lending is slightly lower than that on variable, but the flip side is that if they sign u up to a 5 yr fixed mortgage, u cant switch to a competitor until it runs its course. So for banks there's a massive incentive (and always has been) to switch u to fixed, especially given the new entrants to the Irish market are making banking (finally) a bit more competitive. However banks can also sometimes make bigger margins on fixed rate offerings, because we all know where the ECB rate is, but most people here probably don't know where the 5-yr interbank rate is? ie consumer ignorance is higher.

    But at the moment fixed rates with EBS and IIB are either the same or actually below the variable rates, so from a sales point of view it actually should be easier to sell people on fixed rates at the moment.


  • Registered Users Posts: 38 Ootermus


    Blackjack wrote: »
    Capital Depreciation will however keep them away.

    Absolutely. But professional investors are by their very nature greedy (i dont mean that in a bad way, just in that they are always looking for bargains or superior investment returns relative to the other available options), so at some stage they'll do the math and decide that something is 'cheap' from a long term perspective, when u include capital value + the rental return.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Ootermus wrote: »
    Its probably somewhat true that the margin on fixed rate lending is slightly lower than that on variable, but the flip side is that if they sign u up to a 5 yr fixed mortgage, u cant switch to a competitor until it runs its course. So for banks there's a massive incentive (and always has been) to switch u to fixed, especially given the new entrants to the Irish market are making banking (finally) a bit more competitive. However banks can also sometimes make bigger margins on fixed rate offerings, because we all know where the ECB rate is, but most people here probably don't know where the 5-yr interbank rate is? ie consumer ignorance is higher.

    But at the moment fixed rates with EBS and IIB are either the same or actually below the variable rates, so from a sales point of view it actually should be easier to sell people on fixed rates at the moment.

    Would it change banking behaviour to get that maximum profit chasing a variable rate buyer rather than a fixed rate buyer?

    Fixed rates of 5.79% is still high for alot to enter in comparison to those trackers of ECB+1% which many new entrants got.
    Interesting times ahead on where rates will be this time next year for example :)


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Ootermus wrote: »
    Absolutely. But professional investors are by their very nature greedy (i dont mean that in a bad way, just in that they are always looking for bargains or superior investment returns relative to the other available options), so at some stage they'll do the math and decide that something is 'cheap' from a long term perspective, when u include capital value + the rental return.

    Will these investors still enter when rental supply is rising?

    Looking at daftwatch, rental supply in Dublin alone where demand is supposed to be the greatest is double of what it was this time last year.
    This pressure on lowering rents is not helping. Would a long term investor be looking at 10yr+ returns factoring in lower future rents making it attractive to invest?
    I think the profs who wish to buy now are been screwed by the amateur BTL's and indeed speculators who messed up the market.


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    Anyway, my 'gut feeling' is that consumption patterns should be beginning to change over the next few months after the exogenous prices shocks we experienced in food and energy. This, coupled with recession, should see an easing in inflationary pressures, which should hopefully give the ECB some room to release a bit more liquidity. Once the financial system doesn't suffer anymore shocks then could potentially see some recovery by mid-late 2009. But as someone said, this is all crystal ball stuff.


  • Closed Accounts Posts: 4,442 ✭✭✭Firetrap


    Thats your hard facts? The hard facts are banks are giving 92%-95% mortgages and for those who meet strict criteria you can still get a 100% mortgage. And 50% drop in prices? Delusional. To suggest that even in the height of the boom people could only buy homes with 100% mortgages is completely untrue. And that now that people can no longer get 100% mortgages that means people can no longer afford homes....well you could call it the silly season I suppose.

    Why are you so bothered by house prices falling may I ask? Are you an estate agent? A builder? Someone who has property on their hands that they want to sell?


  • Registered Users Posts: 38 Ootermus


    gurramok wrote: »
    Would it change banking behaviour to get that maximum profit chasing a variable rate buyer rather than a fixed rate buyer?

    Fixed rates of 5.79% is still high for alot to enter in comparison to those trackers of ECB+1% which many new entrants got.
    Interesting times ahead on where rates will be this time next year for example :)

    Banks are relatively conservative in their nature (the last few years lending policies have obviously stretched that theory!), so they'd always go for the 5-yr fixed customer over the variable rate guy, unless the difference in margins was massive. Bank, believe it or not, dont actually make all that much money (relatively speaking) off mortgages when u factor in capital costings etc. The real money is off selling u investments, insurance, credit cards, personal/car/home improvement loans, getting u to buy shares through them, foreign exchange, cheque books etc etc. Ditto ur current account, its generally a loss leader these days. They know if they can get ur mortgage and get u to use their current account as ur main account, then they're going to be able to sell u lots of other stuff as well.

    But yeh, rates now are much higher than a couple of years ago, both because of ECB rate increases as well as margin increases caused by the credit crunch. Hopefully both of these reced somewhat next year, but i think the days of a 2% ECB rate plus a .75% margin are, unfortunately, long gone.


  • Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Anyway, my 'gut feeling' is that consumption patterns should be beginning to change over the next few months after the exogenous prices shocks we experienced in food and energy. This, coupled with recession, should see an easing in inflationary pressures, which should hopefully give the ECB some room to release a bit more liquidity. Once the financial system doesn't suffer anymore shocks then could potentially see some recovery by mid-late 2009. But as someone said, this is all crystal ball stuff.

    You mentioned the dreaded R word, that won't help people buy houses :D


  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    gurramok wrote: »
    You mentioned the dreaded R word, that won't help people buy houses :D



    R-R-Reality?

    Its about time people found out!!!


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  • Closed Accounts Posts: 6,609 ✭✭✭Flamed Diving


    Ootermus wrote: »
    But yeh, rates now are much higher than a couple of years ago, both because of ECB rate increases as well as margin increases caused by the credit crunch. Hopefully both of these reced somewhat next year, but i think the days of a 2% ECB rate plus a .75% margin are, unfortunately, long gone.



    Good, its more fun for economists.

    :D


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