Property Market 2017

quadrifoglio verde

Arcade_Tryer wrote: »

The Central Bank rules will prevent a crash in the short to medium term. But people will eventually grow frustrated with stability, regulation will become lax once again, and we will see something similar to the recent housing crash within a decade or so. Hopefully anyway.

By which stage a purchaser will have spent 10 years paying off their mortgage decorated it to their tastes and felt free to bang a few nails in the wall

On the other hand, the renter would have paid 10 years rent enjoying good old magnolia and bluetac.
The renter decides yippee, prices were where they were 13 years ago, I'll buy now.
But the bank turns around and says we're not lending to you.

It's never a bad time to buy if you can
a) afford it b) it's suitable for the foreseeable future and c) like it.

Villa05

Graham wrote:

I think you're seeing the symptom there rather than the cause. I don't disagree people were going mad buying property the cause of which was largely an abundance of easy credit, often well in excess of peoples abilities to repay.

A bit chicken and egg. I know many that thought what was happening in the 00'es was crazy but as there rent rose they got suckered into buying close to the top of the market for all the reasons people are putting forward here now.

I don't see a collapse happening in the short term however the higher the rise the harder the fall.
There are significant threats to the Irish economy in the medium/long term. It would be advisable to exercise extreme caution when making a long term decision.

Property cycles last 7 to 8 years. I believe dublin is 6 years past the bottom of the market

Cuddlesworth

Villa05 wrote: »

Property cycles last 7 to 8 years. I believe dublin is 6 years past the bottom of the market

I really doubt you can pigeon hole the Irish market like that.

TiNcAn

I am trying to figure out what are the most likely effects of higher interest rates. Here are some possibilities that I would foresee:

- Larger mortgage repayments so people cannot afford the same size mortgage.
- More people would have to resort to renting if they cannot afford same size mortgage
- House prices would slow/stall/decrease due to smaller amount people can afford
- Developers and private landlords alike find it costlier to finance which reduces margins
- More people go into arrears due to higher mortgage repayments eventually leading to repossessions and further knock-on to interest rates charged by banks.

So overall I think higher interest rates would on the whole put more stress on the rental market and discourage supply potentially worsening the situation the buyers market and private landlords.

frefrefre

This thread is interesting. Nearly all predicting strong price growth in the short term but eventual drops seems possible/probable to many. At least there's an honesty regarding the bubble this time, the suppply issue will eventually be sorted to a degree and coupled with rate increases and Brexit uncertainty, a lot of FTB's coulsd be badly exposed to negative equity once again.
To the bulls on here, are you happy to see strong price growth in 3/4 bed houses in our urban areas for the next 3-5 years?
I personally think so much of peoples income going towards a mortgage is not a good thing and I'll admit to being genuinely shocked at the anecdotal evidence on here an elsewhere about bidding wars involving people going to way over asking most of the time it seems. Can that frenzy continue, it must be hard for young people, especially with the media commentary around price increases.

GGTrek

TiNcAn wrote: »

I am trying to figure out what are the most likely effects of higher interest rates. Here are some possibilities that I would foresee:

- Larger mortgage repayments so people cannot afford the same size mortgage.
- More people would have to resort to renting if they cannot afford same size mortgage
- House prices would slow/stall/decrease due to smaller amount people can afford
- Developers and private landlords alike find it costlier to finance which reduces margins
- More people go into arrears due to higher mortgage repayments eventually leading to repossessions and further knock-on to interest rates charged by banks.

So overall I think higher interest rates would on the whole put more stress on the rental market and discourage supply potentially worsening the situation the buyers market and private landlords.

This is the scenario that should be thought out: effects of the increase of interest rates on the Irish real estate market.
It really depends on how high the ECB rates will go. If it is the joke that it is now in the US (Fed fund 1% and 10Y 2.25%) then the effects will be minimal. If instead the rates go back to the 4-5% band as they were in 2007 then the impact will be massive! I would definitely have to reconsider my rental yields and probably perform a substantial asset reallocation to fixed income securities.
In my opinion your scenario analysis is right: a serious increase in rates will impact negatively Irish real estate prices, but at the same time will not push down rents since rent yields will have to compete with fixed income yields (much less work and safer cash flow).
Unlike some posters in this forum I believe that bar a major downturn in the Irish economy which will reduce demand, the supply side of the residential rental property market is very rigid in Ireland because the Irish govvie and local councils love it that way. REITs are the only organizations that have incentives in order to build to rent, developers or private investors have actually negative incentives when building for rent.

rsynnott

There's no reason to think, at this point, that ECB rates would go to 4-5 anytime soon. Eurozone inflation is only 1.3%, and falling again.

In the short term, Irish mortgage interest rates, which are still far above the Eurozone average, seem like they'll continue to slowly drop as competition kicks in.

theboringfox

Agree with last poster. If interest rates go to 4% to 5% then it means they are tying to take heat out of economy i.e. it's all going well.

Ireland does have a risk here because its the EU overall growth rate that would influence interest rates. So could have scenario if German inflation was high but Irish economy was not going well that ecb mar rise rates. That would hit Ireland badly. But thats always been a risk from being in Euro.

Henbabani

theboringfox wrote: »

Agree with last poster. If interest rates go to 4% to 5% then it means they are tying to take heat out of economy i.e. it's all going well.

Ireland does have a risk here because its the EU overall growth rate that would influence interest rates. So could have scenario if German inflation was high but Irish economy was not going well that ecb mar rise rates. That would hit Ireland badly. But thats always been a risk from being in Euro.

i can't agree more, don't forget the whole economy of the EU isn't stable,
the irish economy just shrank in 2.6% so it's not stable either.
http://www.independent.ie/business/irish/irish-economy-shrinks-in-the-first-three-months-of-2017-35930838.html
i don't think that no one in irish government will take that risk to have the fault of collapsing the irish economy.

Samuel T. Cogley

That article is so short it's worth having it for context.

The Irish economy shrank in the first three months of the year, according to official data published on Friday.

Year on year growth remains robust, and the surprise fall reflects the impact of distortions linked to multinationals shifting assets into Ireland in 2016, officials said.

Read more: Finally, we're burning the bondholders - as they pay to loan money

Official CSO data shows the economy declined by 2.6pc, measured by gross domestic product in the first three months of 2017, and shrank by 7.1pc using the alternative gross national product measure.

However, stripping out the effects of multinationals growth in the so called real economy remains positive.

Villa05

theboringfox wrote:

Agree with last poster. If interest rates go to 4% to 5% then it means they are tying to take heat out of economy i.e. it's all going well.

Was this very same scenario identified as a contributing factor to the last bubble in Ireland

Ireland needed heat taken out of the economy while some EU countries needed low interest rates

Wanderer78

Villa05 wrote:

Ireland needed heat taken out of the economy while some EU countries needed low interest rates

Are the current eu economic controllers fit for purpose? I've always liked Jim Richards thoughts on things such as interest rates, I.e. they think they're playing with a basic machine but in fact are playing with a complex nuclear reactor.

jamesthepeach

Villa05 wrote: »

Was this very same scenario identified as a contributing factor to the last bubble in Ireland

Ireland needed heat taken out of the economy while some EU countries needed low interest rates

The last crash was caused by a global crisis causing huge job losses. Job losses is the key above anything else with any crash. People can't pay the mortgages they have. People can't enter the market. Property crash.

Bob24

rsynnott wrote: »

There's no reason to think, at this point, that ECB rates would go to 4-5 anytime soon. Eurozone inflation is only 1.3%, and falling again.

Agree with that but with significant caveats:
- even an ECB rate of 2-3 would have a large impact (some think Irish banks would absorb a large part of the increase and make it transparent to borrowers as their rates are already around 3-3.5% - I personally don't believe so an think they would have no problem going from 3-3.5% today to 5-6% in that scenario, which would be a fairly big change for borrowers)
- there is the question of what "anytime soon" means. If we are saying within the next 2 years, yes agreed. If we are taking a 5 years outlook, then I would think you are a bit overconfident in thinking you (or anyone) can predict how the economy and central banks will evolve over such a long period with a reasonable level or confidence.

Samuel T. Cogley

Banks would have to take a middle ground I think. The vitriol from tenants is one thing but from mortgage-holders as well... Rates would have to affect rents, rents are currently constrained, there would be a reaction, there would have to be. This will be appeased by banks being forced to be more transparent with their rates and I think we'll start to see a crack down on trackers being abused by Landlords.

Bob24

Samuel T. Cogley wrote: »

Rates would have to affect rents,

I was quoting rates for FTBs. Rates for investors which could directly impact rents are quite higher already, and agreed banks might be more cautious with those (but having said that in my option what drives rent prices at the moments at least in cities is short supply more than anything else)

Samuel T. Cogley

Bob24 wrote: »

I was quoting rates for FTBs. Rates for investors which could directly impact rents are quite higher already, and agreed banks might be more cautious with those (but having said that in my option what drives rent prices at the moments at least in cities is short supply more than anything else)

They're a weird one due to tax relief, but I'm willing to bet money many people aren't on BTL rates for rental properties. If they were rents like we're seeing at the moment would have to be the norm. UB's BTL is something like 5%+ IIRC, that has to be passed on in any sensible business. I think we'll see some absorption on PPR mortgages as well for the reasons outlines, I just don;t think homeowners will take massive hikes when we're already one of the most expensive in Europe. There would have to be intervention.

The_Conductor

rsynnott wrote: »

There's no reason to think, at this point, that ECB rates would go to 4-5 anytime soon. Eurozone inflation is only 1.3%, and falling again.

In the short term, Irish mortgage interest rates, which are still far above the Eurozone average, seem like they'll continue to slowly drop as competition kicks in.

The fall in Eurozone interest rates- is almost wholly attributable to the fall in oil prices- the inflation rate with energy stripped out- which is published by the ECB- is currently at 2.3%- and has been cited as a pressure in the Eurozone.

The ECB has two mechanisms for fighting inflation- interest rates- and liquidity factors. The liquidity factor- i.e. the bond purchase programme- has been pared back- its still running- but it has been end-dated.

Also- even allowing for the oil price in the inflation figures- there are only 4 months in the last 12- where the inflation rate has fallen below 1.5%- and those months correlate with political happenings in various countries- moreso than any other factor (Marcon in France, Brexit issues etc etc)

The Irish property market- is not the only property market that is expanding at an unsustainable pace in Europe- the Belgian, Danish, Luxembourg and a few markets- may not be quite at the Irish expansion level- but they're not far off........

Interest rates are going to rise- when and by how much- your guess is as good as mine- however- pointing at the core 1.5% inflation rate- and suggesting it means nothing is on the horizon- is a very blinkered and nuanced view.

Villa05

jamesthepeach wrote:

The last crash was caused by a global crisis causing huge job losses. Job losses is the key above anything else with any crash. People can't pay the mortgages they have. People can't enter the market. Property crash.

The damage caused by a crash is exacerbated by the bubble that preceded it.

Bubble and crash can't be viewed in isolation, they are linked

jamesthepeach

Villa05 wrote: »

The damage caused by a crash is exacerbated by the bubble that preceded it.

Bubble and crash can't be viewed in isolation, they are linked

I disagree. No global crisis, no crash. There would be a crash eventually but nowhere near the scale of what we had.

But I'm not an economist so it doesn't really matter

Not that economists have a handle on this stuff either though.

Wanderer78

jamesthepeach wrote:

I disagree. No global crisis, no crash. There would be a crash eventually but nowhere near the scale of what we had.

Sadly I can't agree with that, there's a crash on the way alright, only thing is nobody knows the details of what, when, where and how. Plasters on hemorrhages is all we done, I.e. I suspect it could be worse than 2008, but nobody knows for sure

LirW

FYI the next credit crash is suspected to involve car loans and small personal loans, since there's a big bubble coming up in this sector. Mortgages are too well regulated at the moment.
What you're saying is basically that there's a crash on the way always all the time.

OwlsZat

Commonly held beliefs include stocks and equities are being significantly overvalued and there are huge issues with personal and corporate debt in Asia. Further to that, pension reserves are going to be under severe threat of running dry. However, the most commonly held belief above all others is that the next crash will be one of the worst of all time. link link link
The driver if there is no trigger event ie., stock market collapse or pension reserve default or Chinese debt crisis is likely to be unemployment reducing to max. Wages should increase creating another credit bubble before interest rates climb as inflation does and the whole lot goes wallop.
I'm predicting 2 years if the stock market doesn't collapse before it.

Wanderer78

LirW wrote:

FYI the next credit crash is suspected to involve car loans and small personal loans, since there's a big bubble coming up in this sector. Mortgages are too well regulated at the moment. What you're saying is basically that there's a crash on the way always all the time.

Bill black has been speaking of the issues within the car loan industry recently, so you're probably right there. Yup, as far as I can see, we're stuck in constant boom bust. Steve keen has been talking about credit bubbles in other countries just about to pop for some time now, it 'll be interesting to see how this affects us. We need better ways of running our economies. I actually think we're in a state of paralysis in many countries such as our own over the last few years since the crash

lcwill

Wanderer78 wrote: »

B Yup, as far as I can see, we're stuck in constant boom bust.

I think this is just the way of the world.

If you can take decisions with a very long time horizon you can mostly ignore the booming and busting, if you can't you need to be careful.

musicfan1ie

I've been following this thread for a while. Seems to me, there was a demand for houses that pushed prices up significantly for 3-4 beds in Dublin.

Much of this demand I would think was from the lost generation - lots of negative equity on their 1 bed, 2 bed from about 12 years ago. Unable to sell it, saved money, moved on in their careers, got married, had kids and now badly need a house. For sanity reasons, they needed to buy and could afford the mortgage payments. Many of the people had save 100/200k over the last decade or more.

You can still buy apartments at reasonable rates.2 beds in city centre from 200-250k. That's not unreasonable in a city like Dublin. They would have been 380k at the boom. 2 beds on Finglas road sell for under 200k - about 350k at time of boom. We're nowhere near the levels of before, even without the tighter credit control

Bob24

musicfan1ie wrote: »

You can still buy apartments at reasonable rates.2 beds in city centre from 200-250k. That's not unreasonable in a city like Dublin.

At that price level in the city centre, you'd be looking at a very small 2 bed in a poorly maintained building located in an undesirable (quite possibly unsafe) area. And you might still struggle to find anything.

LirW

You can still buy apartments at reasonable rates.2 beds in city centre from 200-250k. That's not unreasonable in a city like Dublin. They would have been 380k at the boom. 2 beds on Finglas road sell for under 200k - about 350k at time of boom. We're nowhere near the levels of before, even without the tighter credit control

Honestly, Finglas has seen one of the most shocking price rises on the North side since the recovery. East Finglas including Ballygall is absolutely exorbitant compared to 2011. West Finglas has now reached asking prices that could buy you almost a new build in Heathfield on Cappagh road. Don't even bother looking there with a budget of under 200k. With some luck it would buy you something behind the Tesco in Clearwater and this is a real sh1thole where you wouldn't bother putting a family in.

Cuddlesworth

LirW wrote: »

Honestly, Finglas has seen one of the most shocking price rises on the North side since the recovery. East Finglas including Ballygall is absolutely exorbitant compared to 2011. West Finglas has now reached asking prices that could buy you almost a new build in Heathfield on Cappagh road. Don't even bother looking there with a budget of under 200k. With some luck it would buy you something behind the Tesco in Clearwater and this is a real sh1thole where you wouldn't bother putting a family in.

I think at this point you are looking more at the cost of building a house rather then the exorbitant cost of land in other parts of the city.

Wanderer78

lcwill wrote:

I think this is just the way of the world.

We can't keep living like this as a species, it's unhealthy for us, there's something fundamentally wrong with our thinking regarding these matters, winners and losers are effectively chosen by date of birth