Property prices: 2 big questions

Richards1983

Hi all --

1. Given that Irish banks are conservative -- not necessarily a bad thing -- relative to e.g. UK banks, where does the liquidity come from to purchase property in Ireland at quickly-rising prices? The prices are still rising and people are still buying so clearly there's a decent amount of liquidity relative to price.

2. Similarly, where are all the cash buyers getting all this cash from?

I appreciate these might appear like obvious questions, but I don't see them explained anywhere. I think understanding them would go along way towards understanding the market. Just a note: we all know the supply/demand situation is a driver of price, but the liquidity is still there to drive it more.

Thanks,
Con

Allinall

Cash buyers are those that sold back in the tiger days.

The cash they have is yours and mine that was used to bail out the banks.

Lumen

Money is created whenever someone takes out a loan.

myshirt

There is a lot of wealth tied up in the baby boomer / early gen'x'er class. Late gen'x'ers and millennials pay for this, but the distribution of the wealth is ringfenced amongst the families of the baby boomers.

Fiscal borrowing is usually taxation delayed. Ireland is no different, bar who pays for it. Millennials lose. Baby boomers win. And that's where the wealth comes from. As an added sweetner, not only do you get to pay the loans affording the baby boomers to be in that position, you also get to pay 50% of your takehome in rent to the same people.

davo10

Lumen wrote: »

Money is created whenever someone takes out a loan.

Debt is created whenever someone takes out a loan, not money. Cash buyers are those who do not need a loan to buy a property, they have the capital to pay in full.

Lumen

davo10 wrote: »

Debt is created whenever someone takes out a loan, not money..

No. See endogenous theory of money. Loans create deposits.

CruelCoin

Lumen wrote: »

No. See endogenous theory of money. Loans create deposits.

A loan is repaid with interest, it is the interest that represents the creation of money.

Starts with the central bank issuing bonds to commercial banks. Those bonds enable the banks to lend in turn and the interest repaid is the actual money creation that the CB uses to control inflation.

Case in point - Quantitive easing.

Lumen

CruelCoin wrote: »

A loan is repaid with interest, it is the interest that represents the creation of money.

Starts with the central bank issuing bonds to commercial banks. Those bonds enable the banks to lend in turn and the interest repaid is the actual money creation that the CB uses to control inflation.

Case in point - Quantitive easing.

No, that's simply wrong. Interest is paid with existing money. QE is an asset swap.

Money creation is explained here:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

dubrov

CruelCoin wrote: »

A loan is repaid with interest, it is the interest that represents the creation of money.

Starts with the central bank issuing bonds to commercial banks. Those bonds enable the banks to lend in turn and the interest repaid is the actual money creation that the CB uses to control inflation.

Case in point - Quantitive easing.

I think you've got most of that wrong, particularly the interest bit. The money supply increases as soon as the loan is issued.


Predicting the property market is pretty much impossible. Economists spend years studying and trying to predict it but their projections tend to be no better than the average joe on the street.

riclad

Quantative easy is the creation of billions of euros of new money,
it keeps interest rates low ,allows private companys easy acess to credit.
It pushs up the price of assets like property and shares .
Look at dublin , in the last 10 years ,theres been a limited amount of
house building.
High demand ,low supply = rising house prices .
Also the central bank changed the rules on how much first time buyers
can borrow.
Prices will rise until theres a major increase in the supply or the economy goes into recession .
I see the government talking about building maybe 5000 social housing units per year ,
that,ll have little effect on house prices .
booms seem to last about 10 years then theres a slowdown or a recession .
Theres bound to be a drop in the value of shares ,but no one can predict exactly when it will accur.

Lumen

QE is not the cause of Dublin's housing problems.

In theory, reductions in interest rates and returns on existing assets like publicly traded shares make marginal investments like house building more viable.

In practice, that transmission mechanism has been hobbled by an incompetent and uncompetitive banking sector, crippled construction industry, increased costs of construction due to higher construction standards, stonewalling of new entrants to the banking market, non-existent repossessions mechanism, central bank lending restrictions, inability of the government and some households to take on more debt, and the usual lack of joined-up policy making and planning quagmires.

At the heart of it all is idiotic pro-cyclical economic policy coming from ze Germans. If the govt had been ready and able to borrow cheaply to build accommodation in high-demand areas (mostly Dublin) after Draghi hacked the Eurozone crisis, we wouldn't be in this position. Govt debt would be even higher, but we'd have a sustainable recovery. As it is we have a massive supply/demand squeeze which is sowing the seeds for the next crash.

Richards1983

Very interesting debate.

Re the seeds of the next crash: Do you think that the supply/demand dynamic has already caused Irish property (on average) to be overvalued? Or are we still in a space of what one might call "good value" with overvalued property being in the future?

Zenify

Richards1983 wrote: »

Very interesting debate.

Re the seeds of the next crash: Do you think that the supply/demand dynamic has already caused Irish property (on average) to be overvalued? Or are we still in a space of what one might call "good value" with overvalued property being in the future?

You see good value when the customer has the "power" in the relationship. Who is chasing Who, buyer or seller...? when the estate agents struggle to find buyers, we will start to see good value. that could be next year or it could be 15 years. Nobody knows, although people here like to think they do. If things continue the way they are it will be a long time. However the world could be at war tomorrow (little extreme but get my point).

Potatoeman

myshirt wrote: »

There is a lot of wealth tied up in the baby boomer / early gen'x'er class. Late gen'x'ers and millennials pay for this, but the distribution of the wealth is ringfenced amongst the families of the baby boomers.

Fiscal borrowing is usually taxation delayed. Ireland is no different, bar who pays for it. Millennials lose. Baby boomers win. And that's where the wealth comes from. As an added sweetner, not only do you get to pay the loans affording the baby boomers to be in that position, you also get to pay 50% of your takehome in rent to the same people.

Only if they have multiple properties to sell or are willing to sell and downsize. Which is a small percent of people in that generation. If you are not looking to sell you are only paper rich. This can be bad for their generation too as young family move further away.

CruelCoin

dubrov wrote: »

I think you've got most of that wrong, particularly the interest bit. The money supply increases as soon as the loan is issued.

The money supply decreases by an equal amount once the loan is repaid, so long-term the loan itself does not actually increase supply.

The economic activity and interest off the back of that loan are what remains as an actual increase after the loan has been created/destroyed.

A loan made and repaid with 0% interest has a net money supply impact of exactly zero.

CruelCoin

Zenify wrote: »

You see good value when the customer has the "power" in the relationship. Who is chasing Who, buyer or seller...? when the estate agents struggle to find buyers, we will start to see good value. that could be next year or it could be 15 years. Nobody knows, although people here like to think they do. If things continue the way they are it will be a long time. However the world could be at war tomorrow (little extreme but get my point).

It's very clear where the market is going to go in the next 3-5 years (up. Stratospherically up).
It takes time for builders to spool up again.

We were needing something like 30k homes per year with far less than that being built, and now with brexit that housing demand is pushing up to the 50k region.

What happens 5-15 years down the road, aye, nobody knows.

Zenify

CruelCoin wrote: »

It's very clear where the market is going to go in the next 3-5 years (up. Stratospherically up).
It takes time for builders to spool up again.

We were needing something like 30k homes per year with far less than that being built, and now with brexit that housing demand is pushing up to the 50k region.

What happens 5-15 years down the road, aye, nobody knows.

How do you know there won't be a world recession and loads of people lose there jobs and banks stop lending? It could be started from a number of things... How are you so sure?

if it's such a sure thing it would be a 100% guaranteed investment in property? wouldn't it?

Wanderer78

CruelCoin wrote:

The economic activity and interest off the back of that loan are what remains as an actual increase after the loan has been created/destroyed.

CruelCoin wrote:

A loan made and repaid with 0% interest has a net money supply impact of exactly zero.

Again, you're making it seems like the standard model of money creation is very simple and neat, this isn't the case in reality, as has been explained to you in this thread and others. Debt and money are interchangeable, they are one of the same thing. Steve keen probably is one of the best to explain the issues that this is creating, in particular the ever rising amounts of private debt globally, whereby we now have a level of private debt that is completely unsustainable, with each generation accumulating more and more debt, but not receiving the take home pay to truly service these debts, or to put it another way, younger generations are spending more of their take home pay on paying off their debts. This has the potential to create stagnant economies, which I believe is starting to happen.

It's also important to note, from the creation of this form of money, the expansion of highly complex and probably dangerous industries such as derivatives trading etc.

the_sonandmoon

Allinall wrote:

The cash they have is yours and mine that was used to bail out the banks.

I was a cash buyer 3 years ago. The cash came from a savvy house purchase in london in 2009 (when there was a tiny glitch, valuers freaked, and house prices dropped substantially) and subsequent sale in summer 2012, mid-olympics, when London felt like the centre of the world, and house prices reflected that.

I have a friend who was a cash buyer by using the proceeds of a compensation claim, having been badly injured when he was knocked off his bicycle.

Neither of our circumstances have anything to do with bank bail outs

CruelCoin

Zenify wrote: »

How do you know there won't be a world recession and loads of people lose there jobs and banks stop lending? It could be started from a number of things... How are you so sure?

if it's such a sure thing it would be a 100% guaranteed investment in property? wouldn't it?

The last time people jumped on property as a sure thing it was a bubble where there was greater supply than demand and prices were still going up.

This time it's simply down to supply issues. Not the same thing.

Unless there is a war, or unless developers magically create 100k homes overnight, that supply issue is not going to be solved any time soon, and yes, its going up for the next 3-5 years.

__..__

See David McWilliams is back on the bandwagon on the again. Should be interesting viewing.

keane2097

myshirt wrote: »

Fiscal borrowing is usually taxation delayed.

What does this mean, if you don't mind?

Wanderer78

__..__ wrote:

See David McWilliams is back on the bandwagon on the again. Should be interesting viewing.

I'm sure there will be some interesting debates at Kilkenomics next week about this