Anyone watch prime time last night about house prices?

Victor

Haha. We're all fncked.

http://home.eircom.net/content/irelandcom/topstories/2031574?view=Eircomnet

European bank prompts fears of interest rate rise
From:ireland.com
Wednesday, 26th November, 2003

Interest rates could rise sooner than expected after the European Central Bank (ECB) warned that EU finance ministers risked undermining the budget rules that underpin the euro.

In an unprecedented statement, the ECB's governing council condemned the ministers' decision yesterday not to discipline France and Germany for breaching the Stability and Growth Pact.

Following an emergency teleconference, the governing council hinted that failure to bring budget deficits in France and Germany under control could lead to a rise in interest rates.

"The public can rest assured that the governing council remains staunchly committed to maintaining price stability," the statement said.

Market analysts in Dublin expect ECB interest rates to start moving up next year, and they warn that the expectation that this will happen could push up longer-term bond interest rates moving into 2004 - increasing the cost of fixed-rate mortgages .

After an all-night meeting in Brussels, the finance ministers called on Paris and Berlin to bring their budget deficits below the pact's limit of 3 per cent of GDP. However, they rejected a demand by the European Commission to discipline the EU's two biggest economies under a procedure that could trigger fines if they fail to comply.

The Commission accused the ministers of disregarding rules enshrined in an EU treaty, and expressed deep regret at the decision.

The Minister for Finance, Mr McCreevy, defended the deal, which he said had taken account of political and economic reality.

"I think the Council of Ministers acted in the best interests of Europe. We're here to act in the best interests of the electorate of the various member-states.

"We are not in some Utopian world to try and enforce a set of rules irrespective of the outcome that would have on the population of various member-states."

He said the decision had no implications for next month's budget, pointing out that Ireland still enjoyed economic growth rates of twice the EU average.

Mr McCreevy said that, although the Government would like to see a more flexible interpretation of the pact, yesterday's decision was not an invitation to act irresponsibly.

"It's a totally different situation. What we've been trying to do in Ireland is to try to get the rules of the pact changed regarding what is counted in some of those areas. But we haven't been able to agree on changing the rules. Nor did we today." .

Only four countries - Austria, Finland, the Netherlands and Spain - opposed the decision to spare Paris and Berlin from the disciplinary procedure. The Dutch Finance Minister, Mr Gerritt Zalm, said that yesterday was a grave day for Europe. "The pact does not work. You can read it, but you can't apply it."

Mr Ruairí Quinn, who as minister for finance chaired the difficult negotiations which agreed the pact in 1996, said last night the deal must be renegotiated if it is not to be devalued. "Germany and France have a legitimate case, but they should seek to change the rules, not break them."

Mr Quinn said this was "the first serious confrontation between political leaders through ECOFIN and the European Central Bank". He was surprised Mr McCreevy had not sided with the smaller EU states against France and Germany.

"He will be in the hot seat [as chair of ECOFIN from January 1st] in a very short while", he said, and would have to attempt to renegotiate the deal himself.

Labour's finance spokeswoman, Ms Joan Burton, called on Mr McCreevy to commit himself to use Ireland's imminent EU presidency to establish a renewed pact governing the euro area.

She said Mr McCreevy had adopted a contradictory approach to the current pact. "On the one hand he has refused to countenance borrowing funds up to the level permitted by the existing pact to keep the national capital investment programme at the level he himself announced two years ago.

"On the other hand he exercised Ireland's vote during the night in Brussels to allow France and Germany shred the credibility of the pact."

She said if the present uncertainty was not resolved soon there would be a threat of damaging interest rate increases.

nahdoic

And was anyone else watching the nine o'clock news about fears of mortgage relief being cut as well?

casper-

Originally posted by Victor
"On the other hand he exercised Ireland's vote during the night in Brussels to allow France and Germany shred the credibility of the pact."

I realize this is getting off-topic, but why ... <i>why</i> are those two countries continually allowed to get away with (seemingly) whatever they want when it comes to economic policy? Granted, they're the two biggest economies (i think .. don't quote me on this) but won't continued >3% defecit budgets just keep hurting smaller countries (like Ireland) with interest rate hikes? You'd think the finance minister would be a bit more thoughtful of his own country ..

<disclaimer>I've only started following EU monetary policy decisions for about three or four months in anticipation of moving here .. if I've mistaken some basic facts please let me know nicely </disclaimer>

Victor

Originally posted by jedidjab79
I realize this is getting off-topic, but why ... <i>why</i> are those two countries continually allowed to get away with (seemingly) whatever they want when it comes to economic policy?

AFAIK this is the first time they are getting away with it, it's just been long expected and much talked about.

Originally posted by jedidjab79
Granted, they're the two biggest economies (i think .. don't quote me on this) but won't continued >3% defecit budgets

The hope is that is would be a one off, but with a centre-left "soft" government in Germany, who knows.

Originally posted by jedidjab79
but won't continued >3% defecit budgets just keep hurting smaller countries (like Ireland) with interest rate hikes?

The rate hikes would have come eventually, better to moderate the climb than burst the bubble.

Originally posted by jedidjab79
You'd think the finance minister would be a bit more thoughtful of his own country ..

The Irish government itself wants to break the limits and Charlie is currying favours from the French and Germans. No doubt Charlie is suiting himself aswell. And while the economy isn't as hot as it was, some sectors still need a reality check (especially property).

casper-

AFAIK this is the first time they are getting away with it, it's just been long expected and much talked about.

Ah ok .. that must be; maybe they came close for the previous year. It looks like they're going to keep going for a few more years though ... (Forecast Budget Deficits)

And while the economy isn't as hot as it was, some sectors still need a reality check (especially property).

Amen to that!

Victor

http://home.eircom.net/content/unison/national/2037776?view=Eircomnet

House prices in danger of falling, think-tank warns
From:The Irish Independent
Thursday, 27th November, 2003
Brendan Keenan

THERE is a risk of a major fall in house prices if interest rates rise sharply, the Organisation for Economic Cooperation and Development warns in its twice-yearly report on the global economy.

Although Ireland is vulnerable to a further rise in the euro against the dollar, or a new acceleration of wage claims, the housing market is the main domestic risk, the influential Paris-based think-tank said.

"A hike in long-term interest rates could lead to a sudden downturn in the housing market and undermine household confidence," it said.

"Some market segments, such as the buy-to-let market, have become particularly vulnerable, although there is so far little concern over the ability of banks to absorb the effects of a house price shock," the report added.

It calls for an end to tax incentives which boost the demand for housing "in an already overheated residential market". These are mainly tax write-offs for houses and flats in designated areas.

The Government has already announced that most of these are due to finish by the end of next year.

Mortgage interest relief is also available at 20pc to home-buyers but is worth only €200m a year and is unlikely to make much difference to the housing market.

Many Irish analysts insist that fears about house prices are overdone.

They believe the market will slow of its own accord as supply catches up with demand, interest rates pick up, and wage rises slow down.

"The doom and gloom story is way over the top. We're likely to see the market flatten out rather than a dramatic fall," said Alan McQuaid, economist at Bloxham Stockbrokers.

The OECD thinks interest rates will rise only slowly next year as inflation stays low.

But long-term rates, which are set in financial markets, could climb more steeply.

This affects new fixed-rate mortgages, but it would also make property less attractive to investors.

The report said that Irish economic growth is set to grow to around 3.5pc next year, and close to what the OECD thinks is the sustainable rate of 5pc in 2005.

"The Celtic Tiger era, with double-digit growth spurred by foreign investment, belongs to the past," it said.

"Competitiveness has deteriorated and competition from the EU accession countries and dynamic Asian economies has stiffened.

"Despite these factors, Ireland still has a strong position in fast-growing sectors such as information and communication technology and other high-technology industries," it added.

The OECD recommends that, to contain inflationary pressures, Irish competition policy should focus on the "sheltered sectors," notably construction and business services.

http://www.onbusiness.ie/2003/1127/houses.html

Second homes eat up housing output
November 27, 2003 (13:38)

A report by Davy Stockbrokers on the housing market has said one third of Irish housing output is going towards satisfying demand for second homes. It also says further rapid rises in house prices are unlikely.

The report - by economists Colm McCarthy, Annette Hughes and Ernestine Woelger - also argues that too much has been made of demographic factors in attempts to explain the record growth in housing activity in the past decade.

It says new households are likely to account for less than 50% of the 67,000 new houses the report forecasts will be built this year.

The report says affordability has improved despite the rapid rise in house prices relative to incomes, reflecting falling mortgage rates.

The economists say the risk of a fall in house prices has increased, and further rapid rises are unlikely.

They argue that either higher interest rates, or weaker labour market and consumer confidence, will hit demand for housing. The report also says the current level of house completions will not be maintained.

flangeman

I feckin agree.

Hmm, do you think that they are waiting to bring out a book from the brothers about what 'exactly' happened?

Victor

[Article] Surge in numbers buying second property - report

http://www.boards.ie/vbulletin/showthread.php?s=&threadid=127931

Fry

A question because reading this thread has made me worried

So I sell now rather than later? because maybe there no difference now paying for rent for a while until the house is completed because the house isnt going to go up anymore? any views on this?

Victor

Originally posted by Fry
So I sell now rather than later?

No one has a crystal ball, no one can tell you what to do, short of you going off and getting professional advice.

Originally posted by Fry
because maybe there no difference now paying for rent for a while until the house is completed because the house isnt going to go up anymore? any views on this?

Hang on, you own a property, but you are paying someone else rent, hardly tax efficient. Ideally what you should be doing at the moment is living in the house you own and renting out rooms under the rent-a-room scheme (~=€7,000 tax free).

Fry

thanx victor

Victor

http://home.eircom.net/content/irelandcom/breaking/2189053?view=Eircomnet

Houses overvalued by 10% - Central Bank
From:ireland.com
Thursday, 18th December, 2003

House prices in the State are overvalued by up to 10 per cent, according to the Central Bank.

In its winter bulletin, the bank expressed concern at the rate of house price increases in the face of slowing economic growth and easing inflation.

"While increases in prices have slowed somewhat recently, they are still relatively strong in the context of more subdued economic growth, employment increases and the improving outlook for inflation," the bank said.

The bank also noted that house prices have risen by over 300 per cent in the 10 years since 1993 while building costs increased by only 80 per cent over the same period.

The difference has gone into spiralling land costs and greater profit margins for builders, according to the bank.

House prices rose by 1.4 per cent across the State in October, contributing to a 11 per cent average rise across the State in the 10 months to October. Year-on-year the price rise is 13.9 per cent.

House price rises will be in single figures next year, according to the bank.

Victor

So it looks like supply and demand are more or less in balance, this being a large factor in deciding prices.

http://home.eircom.net/content/irelandcom/breaking/2298262?view=Eircomnet

Pace of house inflation moderates in 2003
From:ireland.com
Monday, 5th January, 2004

The pace of house price inflation eased significantly in 2003, according to a report from estate agents Sherry FitzGerald.

The report shows the average price of a second-hand property in Dublin rose by 1.8 per cent during the final quarter of the year bringing the total increase for the year to 12.4 per cent. This compares to a growth rate of 20.5 per cent for 2002.

The pace of inflation in the country as a whole was slightly stronger at 2.1 per cent or 14.6 per cent for year compared to a total growth rate of 20 per cent in 2002.

Sherry FitzGerald economist Ms Marian Finnegan said the pace of inflation has "moderated gradually as the year progressed reflecting the impact of strong construction activity and the gradual relaxation of the lagged demand from previous years.

"That said, the overall level of inflation recorded for the 12 months to December 2003 still remains above trend reflecting the impact of the very competitive interest rate environment and the underlying attractiveness of investing in the residential property market," Ms Finnegan said.

The report said first-time buyers remained the "key ingredient in overall demand", accounting for 33 per cent of all the second-hand properties traded in 2003.

Investors purchased an estimated 21 per cent of the second-hand properties traded and closed during the period.

Ms Finnegan said the strength of construction activity in recent years is allowing the market to gradually progress towards equilibrium.

"With construction output levels averaging 60,000 units, Ireland is meeting its annual requirement for new property," she said.

"However, the backlog of demand from the Celtic Tiger era will mean that it will be a number of years before overall equilibrium is achieved, a factor that will underwrite the stability of the market in the medium term.," she added