The housing bubble has burst

whizzbang

LFCFan wrote:

From May this year there is going to be a lot of potential buyers who finally have a deposit (SSIA) and we're probably waiting till now to finally buy. I reckon we could see another spike in price increases over the next 12 - 18 months before it settles back down again and gradually eases off.

why do you think it will gradually ease off rather than drop? Has any property boom ever ended in a easing off rather than a drop? i can't find one but if anyone knows of one please let me know!

LFCFan

whizzbang wrote:

why do you think it will gradually ease off rather than drop? Has any property boom ever ended in a easing off rather than a drop? i can't find one but if anyone knows of one please let me know!

I reckon the SSIA money will increase house price inflation but once this money has gone, it will go back to what we have now and then eventually there has to be a collapse of sorts.

Pa ElGrande

You can get an idea what will happen on itulip.com.
The smart equity in the market is leaving, being replaced by bank money, and highly geared money at that.

Its hard to tell what will happen at this stage but with interest rates and commodity prices rising globally,
I am leaning toward a period of stagflation (at the moment)

Cost pressures are increasing with job losses jumping 36% in the first quarter of 2006.
http://www.entemp.ie/employment/redundancy/statistics.htm

misetusa

While all the talk of a bubble is increasing on these boards and elsewhere prices are unlikely to stop rising for the next 18 months at least then the fun will really start. Reasons are:

1. We still have the 'must get on the ladder' desperation which will continue to keep demand high.
2. With SSIAs coming on stream in the next year the proceeds will be used by many FTBs to buy and many first time 'property investors' buying their pension or holiday home. I think house prices will spike between April & August 2007.
3. Once the SSIAs mature, people will have an extra 254 euro a month to handle increases in interest rates (for the first couple of .25% increases anyway)

What will be the tipping point?
That it is becoming cheaper to rent vs buy and potential ftbs recognise this?

Investors wary of a bubble and rising interest rates decide to cash in & move to higher yielding & less risky assets? (And yes I know higher yielding assets are by definition meant to be higher risk....bubble anyone??)

As rates rise and disposable income is reduced. Less consumption in shops, bars, restaurants leading to first a trickle of job losses, low wage service jobs initially then spreading further up the food chain.

That a lot of the SSIA money has already been spent (e.g Opel's 50/50 offer) Will the ssia proceeds be spent on paying off debts or on a 50" plasma screen 'cos the neighbour just got a 48" plasma? Will we just push ourselves further into debt that when any shock (e.g one income provider being made redundant) will prove catastrophic?

Victor McDade

Everybody's an expert. The truth is, nobody KNOWS for sure what's going to happen tomorrow, never mind 2 years from now

whizzbang

savemejebas wrote:

Everybody's an expert. The truth is, nobody KNOWS for sure what's going to happen tomorrow, never mind 2 years from now

very true, a lot of people here (me included) sometime forget this!

Tazz T

The best scenario is a quick, sudden crash in prices (a correction) followed by stable growth, but our model mirrors the Japanese crash, which could lead to a depression in house prices for the next 15 years. Those who have bought in the suburbs hoping to trade up could be stuck there for the rest of their lives while FTBs in ten years time will be able to afford city center property again.

Again, anything could happen depending on what happens the economy, interest rates etc, but all the charts point to the fact that we are now at the peak of the 'bubble', interest rates are going up, the rent/mortgage tipping point has been reached, big institutional money is flowing out of property and into equities. SSIAs aren't going affect that much. Sure, if the surveys are to be believed, 50% of SSIA money is going on cosmetic surgery. A lot more SSIA money will go on home improvements and overseas investments where it will make more of an impact.

Aside from the fact that there's a real psychological/sociological drive to owning yoiur own place in ireland and this has been aided by historically low interest rates that we have had no control over (otherwise they would be much higher), our model is no different from the rest of the world.

If house prices are still rising by the end of this year, then we will have broken the mould.

ionapaul

I think prices will definitely be rising at the end of the year, this year we'll see 30% at least. Unfortunately, if I had to put money on it, I would guess we will more likely see a Japanese-type situation than the quick sharp shock correction many people hope - a slow decline for more than a decade.

HashSlinging

I was watching CNBC the other day and a “realty investor” stated that the time to invest in homes in the US is over, says commercial property is the way to go, but investing in homes is a bigger risk now than ever before, with most areas experiencing a cooling off period and some areas having no sales at all for some weeks. Anyone think that we might have the same scenario in the next couple of months.

ronbyrne2005

HashSlinging wrote:

I was watching CNBC the other day and a “realty investor” stated that the time to invest in homes in the US is over, says commercial property is the way to go, but investing in homes is a bigger risk now than ever before, with most areas experiencing a cooling off period and some areas having no sales at all for some weeks. Anyone think that we might have the same scenario in the next couple of months.

months? no, years? yes

Pa ElGrande

The domestic economy is in a virtuous cycle at the moment that is creating its own demand.
It won't take much to break it. At some point banks and securities buyers will stop providing debt on the same easy terms as before. A tightening of credit availability, will slow the housing market, and turn it down. Once it becomes apparent that credit is tighter and house prices are falling, the current virtuous cycle, pushing house prices higher and higher, will reverse and go into a vicious cycle. Houses prices will fall, and put loans in jeopardy. The lenders will react by lending less, and on less attractive terms. This will dry up demand for housing.

2006 is a good year to secure your personal finances, watch carefully what happens in the US and UK, we are tied to their economic cycle and with the pending baby boomer retirement in those countries, there are interesting times ahead.
Cyclical economic booms only last 10 to 15 years and ours started in the early 90's. . . . . . .

miju

hmmmmmmm

http://www.boards.ie/vbulletin/showthread.php?p=51170847#post51170847

HashSlinging

hmmmmmmmmmm x 2

Pa ElGrande

Interesting that - I do know one person who bought apartments in Limerick. He initially rented them out to pay the mortgage but found it was taking him too much time and money to maintain them. He found it cheaper to pay the mortgage on both than rent it out and reckons he will be able to sell in a few years and make his profit on capital appreciation and the sad part is he's not the only one.

Anyway the good news is that there is no bubble. :rolleyes:

Bank boss: No property bubble
http://www.sbpost.ie/post/pages/p/story.aspx-qqqid=13124-qqqx=1.asp

Cormac McCarthy, group chief executive of Ulster Bank Group, said there was no price bubble building up and that normal market forces would see a stabilisation in the property market in due course.

No indication of property downturn, says Ahern
http://www.ireland.com/newspaper/front/2006/0408/3447877711HM1NEWBERT.html

"Really we should have an examination into why so many people got it so wrong. My view is there's not a great problem. Really, the bad advice of last year given by so many has maybe made some people make mistakes, that they should have bought last year."

Balance the boom
http://www.timesonline.co.uk/article/0,,2091-2114546,00.html

Bertie Ahern, the taoiseach, knows that the economy will be his trump card in the next election, and that he will be able to say with confidence that “you’ve never had it so good”. He also knows that voters will hesitate before embracing change if the money in their pockets is jangling like never before. . . . . . . . . . . . . . . . . . . . .
. .The CSO figures revealed that domestic demand is sucking in imports like never before, while export growth has slumped. More worryingly, much of the economy’s growth is skewed towards the construction sector and the associated borrowings and asset inflation that go with it.

I really am shocked by the Taoiseach's comments, this demands a considered response.

miju

i heard the friends first cheif economist talking about berties comments on newstalk and his exact response was "if bertie said any different his comments alone could spark a downturn in prices and he wouldn't want that looming over him come the elections"

D'Peoples Voice

lomb wrote:

THERE was even more bad news for first time buyers yesterday.

I'd be more worrried if I were an investor! At least a first time buyer can still leave in their house for another 20-30 years.

lomb wrote:

Despite the Central Bank warning that Ireland's house price growth is 'worrying', Bank of Ireland announced in the same afternoon that housing demand is stronger than expected.

both of them say the same thing, except in different ways. Demand is out of sync with the fundamentals.

lomb wrote:

In its quarterly analysis of the Irish property market, the bank predicted price growth of 9pc for 2006. However, it believes it will slow to 3pc in 2007.

This can be easily explained by the expectations of further rises caused by the SSIA and the end of the Section 23 relief forcing more investors to buy now before the relief runs out.

lomb wrote:

"This is understandable given the strength of the Irish economy and the continued surge in employment, with the creation of an estimated 80,000 jobs over the year.

Many of these jobs were to foreign immgrants, and according to AIB there are a lot of money being transferred back to their home countries. So the creation of 80,000 jobs is never really felt by the economy.

lomb wrote:

A total of 81,000 homes were constructed, with 26,000 in the last quarter alone. "We expect supply to remain at high levels, with a further increase in completions to 85,000 in 2006."

Half the amount built in the whole of the UK! I wonder what the number houses per head of population will be in 2008!!!

lomb wrote:

The new mortgage sector of the bank is also experiencing strong growth, with another 110,000 new mortgages expected to be drawn before the end of the year.

A sign of how stretched people are already, if ever there was an indication of demand slowing in the future. When people start diving for 100% mortgages, you know it's not sustainable!

lomb wrote:

The expected 12pc growth in the numbers borrowing comes despite rising interest rates.

Interest rates are known to take months to feed themselves through the system.

lomb wrote:

Although affordability has decreased slightly in recent months thanks to hikes from the European Central Bank (ECB), he said there is still "relatively comfortable affordability".

Has he taken account of the rising childcare costs, the fact that people have been known to have sought deposits from their parents etc. This is pure smoothing of the data. What he's doing is saying that on average, there si no problem, because people 10-15 years into their mortgage have little left on their mortgage, so averaging them with people taking out a mortgage now, gives you a good average.

lomb wrote:

THREE lenders are now offering 40-year mortgages as longer and longer terms for home loans become the norm in the Irish market, it has emerged.

Spokesman for the Irish Mortgage Corporation Frank Conway said 52pc of its customers in the first three months of this year had taken out 35-year mortgages.

This compares with 33pc of customers taking out 35-year mortgages over the whole of last year.

If there were affordability in the market, then 20 year mortgages should be the norm. What's happeneing is that banks are getting people to think of the present only and forget the fact that renting for fourty years would hardly cost that much.

Pa ElGrande

``We had an overvaluation of about 15 percent in 2005, according to the OECD,'' Alan Barrett, senior economist at the Dublin-based institute, said in a report published today. ``If you combine that with accelerating prices and interest rate increases, it's impossible not to come to the conclusion that the probability of there being a bubble has increased.''

Ireland's Housing Market Probably in a Bubble, Institute Says
http://www.bloomberg.com/apps/news?pid=10000085&sid=a0xF9Dyx1aaI&refer=europe

only 15%, It would be interesting to know what model they are using to determine this.

lomb

Pa ElGrande wrote:

only 15%, It would be interesting to know what model they are using to determine this.

any 'under' or 'overvaluation' can not be determined by anyone.
market value is what properties are currently changing hands for. this is what people are willing to pay. it is true that they may be willing to pay more than otherwise as they expect them to rise, or their job prospects to improve or rates to fall or remain static. no one can estimate that factor, it probably not more than 10% anyway.
that i think is one of the hardest things young people accept, as to what is market value and what something is worth.
i am shocked certain houses go for the money they do in the 2+ mill bracket, but that is what people are willing to pay,and as long as they are willing to pay that thats what its 'worth'

whizzbang

lomb wrote:

any 'under' or 'overvaluation' can not be determined by anyone.
market value is what properties are currently changing hands for. this is what people are willing to pay. it is true that they may be willing to pay more than otherwise as they expect them to rise, or their job prospects to improve or rates to fall or remain static. no one can estimate that factor, it probably not more than 10% anyway.
that i think is one of the hardest things young people accept, as to what is market value and what something is worth.
i am shocked certain houses go for the money they do in the 2+ mill bracket, but that is what people are willing to pay,and as long as they are willing to pay that thats what its 'worth'

The notion of "Worth" is very subjective, a can of coke may be worth €1 to you if its from the vending machine in work but it might be worth €3 from a vending machine in a bus station in France when you have 4 hours to wait for a bus on a hot sunny day with no alternative.

What people should be talking about is "value" as this has a bit for analysis to it. You might buy the coke for €3 but you sure as hell wouldn't call it good value. When worth and value are misaligned then you are in for a correction. For example if I'm asked to pay €3 for a coke, but I know that the price will go down I'll wait untill I can get it for what I think is good value.

gonk

whizzbang wrote:

What people should be talking about is "value" as this has a bit for analysis to it.

I think Warren Buffett put it best:

"Price is what you pay, value is what you get."

lomb

u are always going to pay too much for what other people want if u want it 'more'
hence thats what determines market value. everyones dream in the city is probably living in these large period houses in D6 or D4 and when they hit the auction block u can see it. whether theres value in them, that depends on the guy who bids the most, obviously he sees 'value' in them.
i see some value in them personally and if i had the dollars id be down in the auction room toughing it out:)

Pa ElGrande

Archaeologists point to gigantic unfinished statues which remained in the quarries and were over 270 tons. There is no way the islanders would have ever been able to lift these, but it shows the megalomania that was knocking around in downtown Easter circa 1400 AD. The problem with the statues was that they demanded almost all the resources of the island while their purpose was simply to flatter the vanity of the local chieftain

If economists were describing it today in our modern parlance we might say that the local economy was growing at full tilt with full employment but an increasing amount of output was being focussed on the construction sector.

Valuable lessons we can learn from lost civilisations
http://www.davidmcwilliams.ie/Articles/view.asp?CategoryID=-1&CategoryName=&ArticleID=355

One of these days there will be property ads on Newstalk, advertising investment opportunities in Easter Island.

dochasach

lomb wrote:

u are always going to pay too much for what other people want if u want it 'more'

cost = what is required to build another.

price = what the seller thinks it is worth

mob-value = what a buyer thinks it is worth based on what he/she thinks other buyers will pay for it in the future.

earnings-value = what the property is worth based on how much rent it will save/earn the owner over the ownership period, minus interest, maintainance and taxes.

These values are almost never equal. During certain times cost can exceed price, price can exceed costs, expected future value can exceed or fall below earnings.

hence thats what determines market value. everyones dream in the city is probably living in these large period houses in D6 or D4 and when they hit the auction block u can see it.

Not everyone. Anyone who thinks D6 or D4 is "as good as it gets" must not get out much. Its a big world.

whether theres value in them, that depends on the guy who bids the most, obviously he sees 'value' in them.
i see some value in them personally and if i had the dollars id be down in the auction room toughing it out:)

He may see value but that doesn't mean the value exists. Dollars?

whizzbang

Pa ElGrande wrote:

One of these days there will be property ads on Newstalk, advertising investment opportunities in Easter Island.

How about Antartica? 6 months of Sun! Thats an easy sale!

Pa ElGrande

Household debt levels will have reached 150% of disposable income by the end of this year, based on Goodbody’s estimates.

Affordability of houses ‘stretched’
http://www.irishexaminer.com/irishexaminer/pages/story.aspx-qqqg=business-qqqm=business-qqqa=business-qqqid=3313-qqqx=1.asp

The report says that if the current rate of price inflation continues, affordability will begin to deteriorate sharply by the end of the year, given the expected profile of interest rates. Therefore, Goodbody expects to see affordability constraints to have a dampening impact on mortgage credit and house price growth over the next 12-18 months.

Goodbody Stockbrokers' report says house prices relative to income are highest in West of Ireland
http://www.finfacts.com/irelandbusinessnews/publish/article_10005822.shtml

* Irish house prices are rising relatively modestly when compared to developments in other countries.
* In recent years house prices have risen by more in Spain, France and the UK than in Ireland.
* Since 2002 borrowing for house purchase has risen three times as quickly in Ireland as in the rest of the Eurozone. However, house prices here have risen by just under 10 percent on average against an average increase of around 7.2 percent in the Eurozone.
* These considerations suggest Irish house prices could have risen far faster in recent years. A surge in housebuilding prevented this.
* If housebuilding had remained at its 2001 level of 52,000, Irish house prices could be as much as 20 percent higher than they are today. This would mean the average house could be €60,000 more expensive.
* Demand for housing seems to be strengthening. The IIB/ESRI Consumer Sentiment Survey shows house purchasing intentions are now stronger than any other time in the 10 year history of the series.
* Strong sentiment towards property reflects a range of influences:
o Irish people still live in comparably large households
o SSIAs mean the spending power of Irish households will rise by about 36 percent by the end of 2007.
o Ireland’s population is rising faster than anticipated.
o Applications for PPS numbers in early 2006 are almost one third higher than the corresponding months of 2005. Are we seeing a second wave of migration?
* Higher borrowing costs will act as an important counterweight to these positive influences.
o The ECB is set to raise interest rates next month – most likely by a quarter percent. A further ½ percent increase is expected later in 2006.
o On balance Irish house prices are likely to rise by around 10 percent on average in 2006/2007.


Should Irish House Prices be rising faster? - - Austin Hughes Chief Economist IIB Bank
http://www.finfacts.com/irelandbusinessnews/publish/article_10005814.shtml

Who to trust, the Stockbroker or the Banker. . . . .

Pa ElGrande

whizzbang wrote:

How about Antartica? 6 months of Sun! Thats an easy sale!

Germany is the new Bulgaria

“In Germany’s capital city, Irish buy-to-let investors can access a stable letting market which currently offers historically low valuations and attractive yields when compared with Irish property,” said the Denis Madden, a director at the German Property Centre. “Factors such as the revival in German economic fortunes, and direct flights from Dublin to Berlin with Aer Lingus and now Ryanair, are contributing to investor interest”, added Madden. The property is being sold “off-plan” with a ten percent deposit payable on exchange of contracts. The balance is payable on completion of redevelopment work in mid-2007. An English language speaking property management and letting company has been organized by the developers.

German Property Centre announces €10m landmark Berlin property project for Irish investors
http://www.finfacts.com/irelandbusinessnews/publish/article_10006001.shtml

Sprechen sie Deutsch, So you Irish, we see you koming and are vaiting...

lomb

there is too much liquidity in the world economy at the moment, interest rates are simply too low, if they had left them at 7-8 % and banks had strictly enforced liquidity ratios there would be no problems today like there are (global asset bubble) but industry would be reeling and could have thrown the west into a spiral of recession.
even though there is loads of money inflation is low ,caused by chinas sweat shop building cheap goods for the west. therefore interest rates stay low. the reduction of prices of manufactured goods puts severe pressure on industry in the west thus they NEED low rates. the worlds top central bankers are just looking at this horror situation and can do NOTHING.
people are investing in everything from apartments in romania that will be vacant and have no use to rubbish shares in companys all on margin.
taking into account the above i wouldnt hesitate to theoretically invest or buy prime assets be they be prime special or sought after property , or AAA shares in companys like banks and prime industry like CRH etc.
putting money into anything else like romanian time shares, or canadian ski lodges on top of a barren mountain is suicide but buying a house in dublin is not. prime assets remain a good buy at current prices imho.its the money people are paying for rubbish thats truly shocking.

Sponge Bob

The Biggest Bubble of them all is in the Wesht (especially within 10 miles of galway and 5 miles of Westport)



in 1994 the average gaff in Dublin cost 3 times the average Salary in Dublin. Now look at it :eek:

PDelux

What is the average salary in Ireland and in Dublin?
I thought it was only 30,000EUR in Ireland.

whizzbang

PDelux wrote:

What is the average salary in Ireland and in Dublin?
I thought it was only 30,000EUR in Ireland.

GDP $34,100, or €26,785 per capita in 2005 according to CIA world fact book.

http://www.cia.gov/cia/publications/factbook/geos/ei.html

GDP is roughly equivalent to average salary isn't it?

Sponge Bob

The graph shows prices relative to income by regions , income is salary and other bits on top averaged out.

PDelux

I was just thinking a 350k house would be 10-12 times average salary.

whizzbang

PDelux wrote:

I was just thinking a 350k house would be 10-12 times average salary.

yep, pretty much, crazy eh?

Sponge Bob

PDelux wrote:

I was just thinking a 350k house would be 10-12 times average salary.

I believe the long term average in Ireland is 4 times but that includes when married women were not allowed to work.

Nowadays with 2 incomes the prices should be 8x ....say.

Sizzler

FFS. When people say the bubble has burst does the average punter on the street really give a fack in consideration that the majority of people buy a property to LIVE in it ! Who gives a ring if you make 20k on it or lose 20k on it? I havent heard of anybody saying their gaff has lost value since they have bought it...EVER...so what exactly is bursting??

daveirl

This post has been deleted.

Pa ElGrande

Sizzler wrote:

FFS. When people say the bubble has burst does the average punter on the street really give a fack in consideration that the majority of people buy a property to LIVE in it ! Who gives a ring if you make 20k on it or lose 20k on it? I havent heard of anybody saying their gaff has lost value since they have bought it...EVER...so what exactly is bursting??

Property at the moment is at the peak of an epic global bubble but, as some may not be aware, global interest rates are on the rise. We are about to depart from low rates to the historic norms of around 7%. If you are thinking of buying anytime soon, it would be wise to wait and see what happens over the next 6 months regarding Japan and the carry trade.

The problem is our domestic economy revolves around a massive credit bubble and almost exclusively in Ireland that money flows into property, it dominates employment and tax revenue. Property does not create wealth, it transfers it from one generation to another.
We are building more housing units than ever before and prices are still rising.
We have our largest inward migration ever and rents are static or falling.
Mortgage lenders are having to find ever more creative ways to keep the engine going (100% mortgages, sub-prime lenders)
The rate of inflation is increasing, and as part of a global economy, our wages can't rise very much if at all.
Household debt levels will have reached 150% of disposable income by the end of the year.
Some businesses are finding it more lucrative to shut up shop and sell their property to build "luxury" apartments.
Combine the above with interest rate rises and some people are going to be stretched beyond their means.

Yes, we all need some place to live in, but we don't need to tie up our earnings paying off a debt at the expense of supporting our families and building viable businesses. Ok all the talk since the 90's has been about how houses have increased in value, but this is not always been the case.



Estate agents, economists and others with a vested interest in the property market all talk about an eventual soft landing in prices, but when asked to explain exactly what this is, they can't. I don't know what the characteristics of a soft landing are either.

Sizzler

And how long has the property bubble been ready to "burst"?? At the end of the day if people are stupid enough to pay €250K for a 1 bed apt in Navan then the bubble will be going for a while yet.

No need for the socio economic arguments cos its all theoretical.

My parents paid 10% on their mortgage 20 years ago and they are still here to tell the tail

daveirl

This post has been deleted.

Pa ElGrande

Sizzler wrote:

And how long has the property bubble been ready to "burst"?? At the end of the day if people are stupid enough to pay €250K for a 1 bed apt in Navan then the bubble will be going for a while yet.

No need for the socio economic arguments cos its all theoretical.

My parents paid 10% on their mortgage 20 years ago and they are still here to tell the tail

Bubbles defy rational analysis which is why no one can time when they will burst.
We do know that economic cycles exist and we do know the factors supporting the current housing market are changing.

In 1986, I was in 2nd year secondary school, the entire leaving cert class that year got on the boat to England or the USA when they finished. The standard joke at the time was "would the last person to leave Ireland, please turn off the lights". In 1986, unemployment was out of control and there was normally only one bread winner in a family and family sizes were larger.

It takes two people to take on a mortgage for a three bed house today, family sizes are also smaller, some women look with envy today at their mothers generation who were able to have the luxury of staying home and look after their children and not face a long commute to work every day.

Inflation (including wages) was also higher in the 1980's which helped erode the value of the debt. I'm sure it was no picnic for either of our parents at the time.

Compare the monthly repayments @ 7% on €250,000 with 10% on €76,000.

This time round you don't have the benefit of wage inflation (unless you work for the public sector) or the emmigration safety valve.

Pa ElGrande

DUBLIN, May 30 (Reuters) - Ireland's booming property market shows no sign of cooling despite higher interest rates that have yet to impact on an economy where rising inflation is a source of concern, the country's central bank chief said on Tuesday.

"We would expect that higher interest rates will act as a restraining factor before too long, even if they haven't cooled the property market yet," Central Bank of Ireland Governor John Hurley told Reuters in an interview.

"As yet, I think interest rates have had little effect on the overall economy."

News earlier in that day that house prices in Ireland accelerated at their fastest rate for six years in the first four months of the year were a source of concern, he added.

"The reacceleration in recent months increases the risk of a correction especially if there is an outside shock," Hurley said while stressing that the most likely outcome remained that there would be a soft landing.

"It is our view that prices will moderate given developments on the supply side ... It is still that the most likely outcome is of the market coming into balance."

Hurley said he was concerned by the increase in broader inflation, with consumer price index (CPI) growth currently running at an annual rate of close to four percent.

"The pick up in inflation is of concern to us ... and clearly there are competitiveness concerns but much of the increase has been caused by volatility in energy markets."

Having earlier forecast that the harmonised index of consumer prices (HICP) would rise 2.25 percent this year, Hurley said stronger price rises meant an upward revision was likely.

"Clearly that will have to be looked at now in the context of recent developments and we would expect that to go up somewhat."

Asked about the risk of a give-away budget in the run-up to a general election next year, Hurley said public finances had been well managed by successive governments but called for a prudent approach from Finance Minister Brian Cowen in December.

"With the economy performing well I think it's prudent for the government finances to be in surplus."
Economists polled by Reuters earlier this month expect the government to record a budget deficit of 2.5 billion euros ($3.22 billion) next year.

Higher rates yet to impact on Ireland-Hurley
By Paul Hoskins and Jodie Ginsberg
http://today.reuters.com/business/newsArticle.aspx?type=realEstateRestaurantsHotels&storyID=nL30240198

There's that "soft landing" again, time to write a letter to Mr. Hurley, maybe now I can get an explanation.

Pa ElGrande

With so many workers in construction, experts worry that prosperity is on a weak foundation.
By John Murray Brown, Financial Times
May 15, 2006

DUBLIN, Ireland — Anna Pas admits it was "pretty crazy" to decide to come to Ireland just a day after she graduated from Poznan University. That was almost a year ago. Today, after a stint serving lunches at a Dublin business center, she is editor of Polski Express.

The glossy Polish-language magazine caters to the thousands of Poles who, like Pas, came in the hope of a better life, after Ireland — along with Britain and Sweden — opened its labor markets two years ago to workers from the 10 new member states of the European Union.

The influx of Poles and others has been a key factor in the continued strong growth of Ireland's economy, which is forecast to expand by 4.5% this year, compared with 5% in 2005.

But against a backdrop of unprecedented economic prosperity, which has turned a country that once exported its labor into one of the most attractive places to work in Europe, analysts worry that most of the jobs being created are in low-productivity areas such as construction.

As speculation mounts of further interest rate hikes by the European Central Bank, one leading investment bank said recently that Ireland, the miracle economy of the last decade, could be "the next domino to fall." Low interest rates have fueled Ireland's property boom.

David Owen, chief economic research analyst at Dresdner Kleinwort Wasserstein, says he is not forecasting a full-scale recession but warns that investors are so used to Ireland's outperforming the rest of the 12-nation euro zone that they may be misreading the signals.

Many in Dublin's financial community remain optimistic about the outlook.

NCB, a leading stockbroker, argues that "Ireland's uniquely positive demographic profile, which has fueled much of the country's recent prosperity, will remain a force driving strong growth for the next 15 years."

But recent data have made other economists less upbeat. Aggregate productivity rate gains have fallen from almost 3% in the 1995-2000 period to 1.75% over the last five years. The Central Bank of Ireland estimates that the implied productivity rate last year, given that employment increased by 4.5%, grew a modest 0.5%.

"Growth is being achieved by strong employment gains in sectors that are experiencing little if any productivity growth," said David Croughan, chief economist at the Irish Business and Employers Confederation.

Economic growth achieved almost entirely by employment growth, he warned, "may ultimately result in loss of competitiveness as infrastructure bottlenecks result in lost output and inflation."

Perhaps the biggest concern is over-reliance on construction. Almost 13% of the workforce is in construction, compared with 8% in 1997.

Ireland's dependence on construction growth makes it more like Greece, Spain or a developing economy than a high-productivity, technology-driven economy like Finland's.

The construction sector is clearly exposed to a sharp rise in mortgage rates. The central bank has said that if housing completions fell back to 2001 levels, it could reduce growth in gross domestic product by as much as 0.75 percentage point.

In spite of an increase in euro zone interest rates, the housing market remains robust, rising 3.5% in the first quarter — its strongest performance in six years — according to the Irish Permanent TSB bank.

"Interest rate increases should, if anything, be lowering house prices and not increasing them," said Alan Barrett, senior research officer at the Economic and Social Research Institute, a Dublin think tank. "It is impossible not to conclude that the probability of a bubble has increased."

Rising Doubts on Irish Economy
http://www.latimes.com/business/la-ft-ireland15may15,1,3848244.story?coll=la-headlines-business&ctrack=1&cset=true

Since Dublin's financial community remain's optimistic about the outlook then there is no problem.

elivsvonchiaing

The bubble really will only burst not when interest rates rise to X.y%. Its when risk analysts in lending instutions decide that it's time to reposses properties where people are unable to pay the mortgage and start to sell them at their own costs - or even at a loss.

This may never occur - and no idea how much a dip in prices this could make.

Only this sort of activity can stop people moving out and hanging on to the "theoretical " value of their property.

whizzbang

Pa ElGrande wrote:

There's that "soft landing" again, time to write a letter to Mr. Hurley, maybe now I can get an explanation.

The explanation is that we are magically different from the rest of the world's property markets, St Patrick drove the property crashes from Ireland don't you know?

ionapaul

whizzbang wrote:

The explanation is that we are magically different from the rest of the world's property markets, St Patrick drove the property crashes from Ireland don't you know?

Very good Interested thread over at askaboutmoney.com on people who have sold their homes to rent, in the expectation that there will be a housing price crash.

whizzbang

ionapaul wrote:

Very good Interested thread over at askaboutmoney.com on people who have sold their homes to rent, in the expectation that there will be a housing price crash.

yep! I'm on that one too

its amazing I do any work

pork99

Pa ElGrande wrote:

Since Dublin's financial community remain's optimistic about the outlook then there is no problem.

Do turkeys vote for Christmas?

Afuera

elivsvonchiaing wrote:

The bubble really will only burst not when interest rates rise to X.y%. Its when risk analysts in lending instutions decide that it's time to reposses properties where people are unable to pay the mortgage and start to sell them at their own costs - or even at a loss.

This may never occur - and no idea how much a dip in prices this could make.

Only this sort of activity can stop people moving out and hanging on to the "theoretical " value of their property.

It won't take anything as extreme as repossessions for it to burst. If the banks have to tighten their criterias for giving mortgages (due to higher interest rates or restrictions by the central bank for example), then many first time buyers will be unable to get on the ladder. This could create a slump in the market in which it will get harder for developers to sell the 80,000+ properties that are being built every year.

Investors banking on capital appreciation will see that houses are not shifting very fast and may be encouraged to sell (especially if the rent is not covering the mortgage). Employment will be badly hit if construction has to slow and a downward spiral could happen.

The average property price in Dublin is fast approaching EUR 400,000 whereas the average wage is somewhere around EUR 32,000. If banks start to offer mortgages that are 12 or 13 times a persons salary then they are in extremely risky territory. They can be as inventive as they like with the types of mortgages they offer but it has it's limit which has been pretty much already reached.

PDelux

There must be some people on this board who have recently got a mortgage. I wonder what kind of stress tests in terms of interest rises were taken into account? Any figures?

daveirl

This post has been deleted.