Irish Property Market chat II - *read mod note post #1 before posting*

Timing belt

https://www.boards.ie/discussion/comment/118312586#Comment_118312586

Yes it would be inflationary but would be highly unlikely that the cash would be spent in the wider economy on goods and services as most people invest in the financial markets so that they will have money later on in life to spend... The chances of all of these people spending all this in one go (or in a short period of time) without those individuals experiencing something like unemployment is very remote. It is for this reason that central banks will try and get cash into the hands of the poorer in society when issuing stimulus checks because they are more likely to spend it on goods and services.

If the stock market crashes then history has told us that investors flee to safety in government bonds, cash or gold.

• If it is in government bonds then this will push up the price of the bonds and lower the yield.
• If it is in cash or Gold then this is not inflationary.

History also tells us that when the stock market crashes people tend to increase there savings and reduce there spending because they are unsure of what the future holds..... This does not lead to inflation and in most cases leads to deflation.

Timing belt

https://www.boards.ie/discussion/comment/118312579#Comment_118312579

The majority of QE is government debt (which was used to keep people in employment until such time as the economy reopened) and of the corporate bonds a large chunk of this will be industries that would have suffered during the pandemic and were deemed important to the European economy. (Think National airlines that would have gone bankrupt without the aid)

Europe has not increased its purchase of real estate assets to any significant extend unlike the US that purchased a ton of Mortgage backed securities as part of its QE during the pandemic.

Without this QE we would have seen one of the worst recession in history with mass unemployment.

hometruths

https://www.boards.ie/discussion/comment/118312652#Comment_118312652

Yes it would be inflationary but would be highly unlikely that the cash would be spent in the wider economy on goods and services as most people invest in the financial markets so that they will have money later on in life to spend...

we definitely agree on something. On the subject of spending later on in life, take a look at global demographics, specifically when bulk of baby boomers are estimated to hit retirement and start drawing down the wealth they have built up in the markets, largely since the late 90s coincidentally.

covid effects also likely to accelerate the retirements of youngest baby boomers, and oldest gen x, so that the cumulative lmpact is likely to be even greater.

The chances of all of these people spending all this in one go (or in a short period of time) without those individuals experiencing something like unemployment is very remote.

Granted, they’re unlikely all to spend everything next week, but if enough of them start spending in a similar time frame the weight of numbers is enough to reverse a few of the trends their generation started.

and as for experiencing life with no job... well that’s kind of the point!

Timing belt

https://www.boards.ie/discussion/comment/118312734#Comment_118312734

Yes but their spending is the same as before or in a lot of cases less..... As they no longer have a salary coming in.... This does not generate inflation. If anything this would be deflationary as the no of people working has decreased and seeing as you believe that the deflationary impact of technology is likely to level off this would mean a fall in productivity.

hometruths

https://www.boards.ie/discussion/comment/118312756#Comment_118312756

Maybe this time will be different. Given the performance of their retirement portfolios Im not so sure their spending will be the same or less.

Timing belt

https://www.boards.ie/discussion/comment/118312780#Comment_118312780

Well if they all pull out of the stock market at the same time like you suggested earlier there performance may take a hit.

They average person retiring would need at least 1 million if they were to have the same cash flow as when they were working and a lot more if you take into account inflation. (1m divide by 20 years = 50k a year)

The one economy that has experienced the situation that you describe is Japan and they have seen no inflation in the past 20 years. But as you say it may be different this time....

Amadan Dubh

https://www.boards.ie/discussion/comment/118312722#Comment_118312722

You cannot tell me that Nestlé, Heineken, Coca Cola, Unilever, Shell, Merck, SAP, Adidas, ESB, Kerry Group issuing bonds for the ECB to buy is pandemic related. It is a whole bunch of mega corporations struggling to justify their ridiculous valuations and our central bank is effectively artificially propping up all assets and preventing a correction, pandemic or no pandemic. As I said, you can't unwind this in an orderly way and your last line is what happens when the central banks let the free market get back to work.

Villa05

https://www.boards.ie/discussion/comment/118312652#Comment_118312652

Would the increasing age demographic of wealthy nations change that dynamic

Edit:Sorry was raised by schmittel before I read the remainder of thread.

What if we have a situation where retirees pension funds are subsequently invested in housing to generate income.

We have people with no housing unable to afford and people with housing buying more.

Does that create the mother of all bubbles?

Rents go through the roof in a completely unsustainable manner and one way or the other they must crash. Are we there already? This is why I've been saying we are in a bubble for some time

Is it a giant ponzi scheme propped up by cental banks and poor government policy

Timing belt

https://www.boards.ie/discussion/comment/118312957#Comment_118312957

You make it sound like these companies just generated bonds so the ECB could buy them. The majority of the bonds were bought on the secondary market to provide liquidity and stop a massive recession.

Would you prefer 10 years of recession and austerity and mass job losses? Because that is what the alternative was if central banks didn’t step in.

Yes house prices would have been cheaper but for the majority of people it won’t make a difference because their financial circumstances would have drastically changed for the worst.

finally they are not going to unwind QE overnight…it will take years and years to run the book down as bonds mature. This is so that it can be unwound in an orderly fashion.

To think they will come in one day and dump all the bonds they purchased as part of QE onto the market and crash the markets is just stupid…in 10 years time the will still be unwinding the book.

enricoh

just reading a columnist in the Indo yesterday that shows how much of a one trick pony Ireland really is. Now that our corporation tax rate is no longer our big selling point we really have to regain competitiveness pronto. The first place the government should focus on is the fact that Dublin is the sixth most expensive for rentals in the world. The numbers below fairly show our reliance on MNCs-

Multinationals such as Google accounted for almost half of all income tax, USC and PRSI paid by companies in 2019, as well as more than 40 per cent of VAT

Timing belt

https://www.boards.ie/discussion/comment/118313194#Comment_118313194

There isn’t enough rental supply on the market so if more people purchased property to rent the supply would increase….if it increases enough rents would fall.

if rental supply goes up but new housing does not keep pace then house prices go up as less supply for people buying.

personally I won’t say we are in a bubble with regards rent and house prices as fundamentals exist to support prices…..however I would say prices are elevated because of the supply shortage and if enough property was built we would see rents fall and more reasonable priced houses.

Amadan Dubh

https://www.boards.ie/discussion/comment/118313232#Comment_118313232

Sunk cost fallacy but the sooner medicine is taken and we "build back better" the more sustainable and equitable society will be.

Mad_maxx

https://www.boards.ie/discussion/comment/118308689#Comment_118308689

Apple was undervalued for years after Tim Cook took over ,PE of 10 as recent as 2016

Timing belt

https://www.boards.ie/discussion/comment/118313361#Comment_118313361

How is it a sunk cost fallacy? They avoided one of the biggest recession In history. Once the economy is strong enough they will start to taper purchases. (I.e. buy less bonds) once they have finished tapering they will let bonds mature. This will take years.

how is it more sustainable and equitable to crash the economy just to lower house prices…. It doesn’t Sounds very sustainable and equitable to create mass unemployment, have higher taxes, pension funds wiped out.

Amadan Dubh

https://www.boards.ie/discussion/comment/118313416#Comment_118313416

What you don't grasp is that assets are dislocated from the economy at this point and are the reason that the economy will never get to a level where central bank support can be unwound. You need to ask yourself why you there is no clear guidance on how the State unravels its Nanny State measures for asset valuations; because there is no way for valuations to be justified without State support.

Pension funds needing a certain level of return is just accepted by you as being a reason to continue with State support but you don't seem to question why it is that pension funds need such high returns. And, further, why should we care about pension funds taking large exposure to equities and properties? That is only recommended for new pension subscribers as these are extremely risky investments. There is no price discovery in assets anymore and to accept the current situation as sustainable is to accept that the State needs to prop up all assets. That's frankly ridiculous but like you I think the regulators are wedded to this ridiculous idea that the State should just create free money and prop up assets indefinitely.

JimmyVik

https://www.boards.ie/discussion/comment/118312815#Comment_118312815

I know someone who recently retired in their early 50s. They had €900k between them in pension funds.

They sold the house in Ireland and bought a house in Portugal by the beach in a nice tourist area that we've all been to many times over the years, and also bought an apartment in Dublin for whenever they come back to Ireland for a holiday. And are left with €150k in the bank plush cash savings they already had built up.

So far they havent been back yet :)

They havent drawn down the pensions yet, but reckon they will be living on €30k+ a year if they were to draw down today (plus lump sums) and if they ever have cashflow problems then they have the apartment to sell. They would have rented it while they were away, but the legislation ever changing situation put the kibosh on that.

They are coming home for Christmas, so i'll get the lowdown from them on it then.

Timing belt

https://www.boards.ie/discussion/comment/118314203#Comment_118314203

i get you are angry that house prices have gone up and yes QE has contributed to that by lowering yields on bonds which has encouraged investors into other asset classes to get a return. But as I said before this was the lesser of two evils and was a good thing as it saved millions of companies, jobs and hardship on people. So yes I do see it as acceptable compared to the alternative when you look at the big picture.

what you don’t see is what would have happened if the central banks did nothing as you think you would still have your deposit for a house, still have a job, still pay the same tax, still have the same quality of life….as all you see is house prices going up in price.

Timing belt

https://www.boards.ie/discussion/comment/118314335#Comment_118314335

But that couple won’t be spending more on goods and services than when they were working.

Bass Reeves

https://www.boards.ie/discussion/comment/118312514#Comment_118312514

In your senario about an individual that has 75k in shares and sells them you have to factor in the individual as well. A saver is unlikely to spend savings unless it a rainy day. If he did sell he will either pay down lending ( however savers tend not to be over borrowed), retain in a savings account or invest in something that will generate a return, '' I wonder what that would likely to be''.

JimmyVik

https://www.boards.ie/discussion/comment/118314426#Comment_118314426

I imagine they will be spending a big fat zero in Ireland for the most part.

Amadan Dubh

https://www.boards.ie/discussion/comment/118314376#Comment_118314376

My 100k salary is 41k after the tax man and landlord have had their cut. I don't feel wealthy as a renter unless we decide to make a splurge with our savings. Buying a home is no longer on the cards in Ireland but renting is something we don't have a problem with and won't be forced into buying just because renting is made to be so toxic in Ireland. With projections for most of the adult population to be renting in a few years, it doesn't make sense to have the State inflating and propping up rents via its central bank. By not uncoupling the housing market post-08 from the real economy, we have not learned our lesson and again are letting too much wealth be tied up in what is essentially a dead end in property. To continue with this path is to just make the ultimate D Day more unpalatable.

Villa05

https://www.boards.ie/discussion/comment/118314376#Comment_118314376

Can you explain that further please. I don't understand why QE continues when clearly it's part of the problem in driving up assets to valuations that make little sense. Can a targeted approach be used as opposed to helicopter money.

How come QE still exists when asset values are well beyond their valuations prior to the last crash.

If a CB is propping up assets that may be worth 50c in the euro. Do other assets rise pro rata

Just trying to fully understand what's happening. Iceland said no to this bull, and I don't hear of chaos there. A small sample but relevant none the less

Marius34

https://www.boards.ie/discussion/comment/118315230#Comment_118315230

"By not uncoupling the housing market post-08 from the real economy, we have not learned our lesson and again are letting too much wealth be tied up in what is essentially a dead end in property."

What does it even mean. Lack of price regulation? or how else you expect to solve it.

Timing belt

https://www.boards.ie/discussion/comment/118315277#Comment_118315277

The purpose of QE is to encourage more lending (which is money creation) so that companies will expand and create jobs etc.... it is no different to interest rate cuts that we have seen for the past 40 years but as a rates are below or close to zero the central banks undertake QE.

The QE itself is just a swap of one cash item (Gov Bonds) for another cash item (Bank Reserves). Overall the amount of Cash/cash equivalents in the system remains the same and there is no extra cash generated. QE is not money printing as the cash never leaves the financial sector and as a result you do not see inflation in the wider economy. The only time it ever acts like printing money is when it gets to the wider economy and generates inflation, is when fiscal spending is accompanied by the QE.

By buying the government bonds or bonds issued by large corporates that would be deemed to be as safe as a gov bond. The central bank takes these bonds out of circulation which makes the remaining pool of bonds smaller which pushes the price of the bond higher and the yield lower. This gets you to exactly the same place as an interest rate cut (i.e. Bond prices go higher and yield lower when interest rates are cut).

The only difference is that the Bank Reserves have swelled massively and as the Base rate is negative and the return on gov debt negative it costs the banks to hold onto these reserves. This in turn leads them to increase lending and to try and discourage customers from keeping funds on deposit in an effort to reduce there excess liquidity which is costing them. The increase in lending is finding it's way to funds rather than the consumer on the street and anyone with a large deposit are all pushed to the wealth management arm of the bank who in turn encourage to invest the deposit rather than leave it in the bank account. (This is why banks started to buy back parts of the businesses they sold 10/15 years ago) The combination of this leads to a inflow of funds into the asset markets which pushes prices higher.

As prices go higher more people join as they see their friends making money while they are making no money by leaving the funds on deposit in the bank so they join in and you gradually get a snowball effect with more and more retail investors pumping money into assets whether it is the stock market, bitcon or some investment fund sold by a bank or insurance company.

Then Greed takes over and investors look for a bigger better return and discount the risk of their investments because they are comparing it to yield on government bonds which is at an all time low and as a result doesn't provide a good indication of risk. This is the search for yield where investors accept more risk for a higher return. The longer the economy is in a low interest rate environment the more risk that is accepted because yields are being pushed lower by higher asset prices. A good example is in the stock market where investors accept 50 times P/E instead of 30 times P/E.

Central banks are concerned about this risk taking and it has lead to speeches such as the financial system is deviating away from the real economy. All though they are concerned about the risk taking they are more concerned about generating growth in the economy and creating employment. If they start to tapper (i.e. purchase less bonds when the bonds come to maturity and are rolled over with new purchases) this will have the same effect as an interest rate rise and will slow down the economy. To much taper or doing it to early will put the economy into recession which will mean job losses and lower tax take for governments..... Doing it to late may result in a inflation spiral.... Europe has yet to see the wage inflation or secondary inflation and this accompanied by the fact that most economies in the EU are still not as strong as the pre covid economy is why they are holding off tapering their QE programs.

The reason that the QE programs continue to present day is that when a bond matures and is rolled over with a new bond issued. The central bank needs to buy the new bonds issued to maintain the yield. If they buy more they are undertaking more QE which will drive yields lower if the Buy less they are tapering their QE which will drive yields higher.... If they buy the same amount as matured they maintain the status quo.

hometruths

https://www.boards.ie/discussion/comment/118314540#Comment_118314540

I'm talking about somebody who is retiring - i.e have reached the very point that they have been saving for. The modus operandi would be to stop saving and start spending.

Bass Reeves

https://www.boards.ie/discussion/comment/118315804#Comment_118315804

That is happening all the time it is not adding any extra money to the economy. The retiring person has no longer a wage, the pension or share.money they are spending bis less than there previous income. If anything they may spend a higher proportion abroad. On the other end of the scale retired people either enter nursing homes and retired people die. There is no extra benefit to the economy.

This is similar to people on about housing becoming available due to death and probate. There is no extra housing created as such as this is happening all the time.

hometruths

https://www.boards.ie/discussion/comment/118315865#Comment_118315865

I wasn't talking about it in terms of freeing up housing. My point was that I believe an increased numbers of people retiring within a shorter time scale will be inflationary.

Bass Reeves

https://www.boards.ie/discussion/comment/118315930#Comment_118315930

It would be more deflationary than inflationary

hometruths

https://www.boards.ie/discussion/comment/118316702#Comment_118316702

So everybody keeps saying. Time will tell.

Amadan Dubh

https://www.boards.ie/discussion/comment/118315618#Comment_118315618

Adults are taking on borrowing obligations in the hundreds of thousands to buy a home, the largest purchase of their life, but all that cash put into property doesn't circulate around the economy as much as would be optimal to ensure a greater likelihood of the cash being spread around more equitably. The idea that our housing market correcting would indicate wider economic problems shouldn't be prevalent anymore, but a conscious effort was made post-08 for the State to socialise assets including housing and markets which means that the cause of risks in the system leading to 08 have not been fundamentally changed.

The kicker for me as to why there is an almighty correction possible is the huge gap in rents versus mortgage repayment costs. This is essentially a free lunch which of course there is no such thing as, but people thinking that the gap between a mortgage and renting can be sustainable is just false; either rents will fall significantly, mortgage repayments will rise significantly or a combination of both will occur. I see commentators make the claim that it is quite normal to rent goods for more than they cost (eg a car or TV) and I am a bit gobsmacked that that is used to compare to the situation with property, an asset that doesn't depreciate like a car or electronic device does, so effectively the currnrt situation involves a house being bought once and is paid for twice. Ludicrous and tipsy turvy land.

Marius34

https://www.boards.ie/discussion/comment/118318071#Comment_118318071

I'm not sure what you trying to say, and how this relates to previous comment. But you should do some research, for change in credit/savings/wealth. The situation is very different in this regards from credit boom. And you not happy that people take mortgage for they long term home, which is not speculation. You might prefer rent versus mortgage, but it doesn't suit everyone.

Browney7

https://www.boards.ie/discussion/comment/118318071#Comment_118318071

Well when the state is paying 460m on HAP to "support" roughly 60k private tenancies in 2020 (460m cost to exchequer net of differential rent courtesy of the HAP shared service centre) there is indeed significant interference in the private rental market. It's unclear to me if the enhanced Homeless HAP (HHAP) is included in this total either but minutes of a DCC meeting show approx 8k tenancies are on this scheme. Add to this the "enhanced" leasing schemes you'd have to wonder what the housing and rental market would be like without these state floors.

On a separate note,approx 128m was paid to 2297 "institutional landlords" in 2019 as per figures published in a report issued in May by the UCD Geary institute. This was 40% of the 2019 HAP budget. This increased from 45m in 2017. The report doesn't define what an "institutional landlord" is but I expect several hundred would be people buying a property via their pensions. Institutional money doesn't seem to be looking the Irish taxpayer gift horse in the mouth!

Amadan Dubh

https://www.boards.ie/discussion/comment/118318564#Comment_118318564

Well, it seems to be that all homes have had their value soar due to the rental yield available, so rents continuing to rocket pushes up home prices as well. A significant correction is possible in the rental market given the dislocation from salaries and this will feed into a correction in property values. It concerns me as someone pretty happy to rent when what I am forced to pay props up the entire home purchasing market; as a renter you are being treated like a cash cow and home values are soaring because of the effort you put in to paying the rent (we already know that the LTV and LTI limits are stopping home buyers from inflating the market so it is renters who are doing it).

When you compare the rent being paid on properties to what that represents compared to the overall value of the property it is in so many cases an incredible yield. I think I read yesterday that rental yields are now double what they were in the Celtic Tiger years (would need to double check). The State is directly stoking the flames of demand in the rental market with its supply-starving policies and its direct and indirect competing in the private market with individuals. The State is so invested in the housing market, it is scary; and it is not just renters who are suffering, but those who have to shell out more and more cash to buy their home, each year they wait.

As the pandemic restrictions start to calm into 2022 (hopefully), I think we will see asset prices calming to at least some extent but I will not be surprised to see commentators claim the sky is falling in or panicking in total ignorance to the fact that on a 5 or 10 year horizon, home prices and rents would still have made incredible gains. I would pose the question now; if you indicated that by the end of 2022 when restrictions ease with supply picking up, migration not restoring to pre-pandemic levels and interest rates rising slightly, we might see 15% off the average home price and rent, simply undoing the pandemic froth; would that be a cause for concern? For many people they would think this is somehow a reason to panic or be concerned; why? Because when things only go one way, it creates an expectation that they will only ever go one way and people forget that prices go up as well as down. I wouldn't be surprised to see something like a 15% drop in house prices and rents being portrayed as a crash of sorts, which is ridiculous.

Amadan Dubh

https://www.boards.ie/discussion/comment/118318610#Comment_118318610

The State also funds the housing charities to an extent so that is another indirect subsidy to the demand side of the rental market. They are a whale in the private rental market demand side and have created an almighty bubble there. For me, I cannot see the State unwinding its private rental market supports without causing a significant drop in rents.

Timing belt

https://www.boards.ie/discussion/comment/118318071#Comment_118318071

The idea that our housing market correcting would indicate wider economic problems shouldn't be prevalent anymore

A housing market correction is normally a secondary side effect of wider economic problems that result in dampening demand due to cuts in disposable income, job losses and emigration.

You are saying that a housing correction should be the primary effect and that there should be no secondary impacts. This is possible but highly unlikely in the Irish housing market at present because it would need a large supply of property to hit the market.

I agree with you that difference between rent and mortgage repayments is a big indicator of the state of the Irish housing market as it shows that there is a severe shortage of rental properties which will encourage investors into the property market while at the same time shows that there is significant demand to buy.

I also agree that rents will need to fall or mortgage payments rise.

The only way rents will fall is when there is more supply of rental properties.

An interest rate rise would increase mortgage repayments for anyone on a variable rate it wouldn’t impact people on a fixed mortgage. The most likely driver of increasing mortgage repayments would be a price rise.

Marius34

https://www.boards.ie/discussion/comment/118319669#Comment_118319669

"I would pose the question now; if you indicated that by the end of 2022 when restrictions ease with supply picking up, migration not restoring to pre-pandemic levels and interest rates rising slightly, we might see 15% off the average home price and rent, simply undoing the pandemic froth; would that be a cause for concern? For many people they would think this is somehow a reason to panic or be concerned; why?"

The price will dictate economic fundamentals of supply/demand. Demands will highly depend on population growth, Income growth, Unemployment, credit availability, etc. If migration do not restore close to pre-pandemic level, which is big IF. Rental prices may start to go down, home prices in short term may reduce or may not, depending on Income growth/Unemployment.

I don't think people will panic of some price fall. And I would not be surprised on property price fall of 15% in medium term, but as I mentioned year ago, I don't believe we will ever see prices (nominal) returning back to 2020 levels.

The Student

https://www.boards.ie/discussion/comment/118319712#Comment_118319712

The State does not want to be a landlord which is exactly what it is with social housing. The State has forced their responsibilities on to the private sector. With the ever changing legislation rental supply is drying up because landlords are leaving the market.

The private landlord takes all the risk and the State recoups the benefits. Unless we as a society change our approach we are going to be having the same conversation next year and the year after that.

No matter who is in power (I am not political in anyway) unless we make some difficult decisions the situation is only going to get worse.

The answer is the State builds more properties directly and leaves those in the private sector for those in the private sector to buy or rent etc. But the State and society as a whole need to be willing to take difficult decisions. This includes evictions etc. This however is political suicide for any politician.

Bass Reeves

https://www.boards.ie/discussion/comment/118319669#Comment_118319669

Celtic Tiger rental yields were not economical. Yields were down to 2% or less. Investors were depending on property value inflation to cover there investment. A total ( All risk) yield of 5%plus is needed in.property investment. I. This article below they say 8%

https://corporatefinanceinstitute.com/resources/knowledge/finance/all-risks-yield-ary/

They are probably right, if investing at present byou property need an 8% return to justify the risk

Timing belt

https://www.boards.ie/discussion/comment/118319669#Comment_118319669

I would not be concerned if property prices dropped by 15% but yes it would make headlines as it is a technical correction to the market (i.e. greater that 10%)

Personally I think don't think we will see any reduction in house prices without a recession (and job losses) for the next 3/4 years because:

• If we are in an inflationary/growth period property prices will rise because wages will rise
• Rates will only rise if we are in an inflationary/Growth phase and will only be be a modest increase (0.25%-0.50%) which still makes the yield on property attractive.' (see below for comparison of property yields to other countries)
• It takes a long time for supply to come online with all the planning objections etc.
• In an inflationary period there will be more uncertainty as to costs of building which will mean that developers will look to widen their margins to provide cover for unforeseen prices increases.

If the inflationary period is short lived then it means that economy is still struggling and we won't see rate increase. If this was to happen and say the stock market had a major correction then we would see rates go lower as investors would flee to the safety of bonds and push the yield lower which would make property even more attractive.

Villa05

https://www.boards.ie/discussion/comment/118315786#Comment_118315786

Appreciate the detailed response

Would it be fair to say that the financial institutions that were mainly the cause of the last bubble/crash are the largest beneficiaries of this so called clean up operation and is it just coincidence that the US central bank has been controlled by former senior employees of these institutions.

Your explanation screams bubble, would it be fair to say that in this environment this state and others should be using this time to get there house in order.

In particular housing, would it not be smarter to build (or not sell) your own stock rather than lease from investment funds incorporating leases that expose the state to rental inflation and depreciation of said assets.

It certainly appears to be an incredibly dumb policy.

What happened to capitalism? This appears to be socialism for the benefit of extreme wealth.

You say central banks are buying up the best bonds, would this mean that pension funds are buying the higher risk bonds. If you had a pension how do you protect your capital from this. Is - 1% the only option with inflation eating away the rest the only option to guarantee your returns/losses

Guess one can see why Irish property may be appealing in such circumstance. The proverbial gun to the head

Timing belt

https://www.boards.ie/discussion/comment/118320654#Comment_118320654

Would it be fair to say that the financial institutions that were mainly the cause of the last bubble/crash are the largest beneficiaries of this so called clean up operation and is it just coincidence that the US central bank has been controlled by former senior employees of these institutions.

Central banks will always be run by people who have gained their experience working in the financial markets. You could bring some professor who has no experience to run it but then you are relying on someone with little or no practical experience and only theory on how things should work.

In particular housing, would it not be smarter to build (or not sell) your own stock rather than lease from investment funds incorporating leases that expose the state to rental inflation and depreciation of said assets.

Of course it would but society as a whole is against building large scale social housing like in the past because of the issues it created. Unless the state step in and build private and social housing together like a private developer would do or just build large scale social housing then it will fall to private developers to build and the state to buy from them. Long-term leases are pure waste of money and the only thing they achieve is keeping the debt off the books.

You say central banks are buying up the best bonds, would this mean that pension funds are buying the higher risk bonds.

They will naturally need to take more risks to ensure that they have sufficient cashflow to be able to payout pensions payments.... This is why property is so popular because you have a guaranteed cashflow from the rent. The one area that I have a major concern about is what will pension funds do if rates rise sharply. If the yield rises then the value of the asset will fall so will this leave massive holes in pension pots. It will come down to how the interest rate risk is managed within these organisations.

With regards your question on whether there is a big bubble in asset prices the answer would be yes and no... You would need to look at each asset classes carefully.....

• I don't believe that there is a bubble in Irish house prices because despite the central bank rules people are still able to purchase property they may be paying top dollar at present but that is more down to lack of supply. At the start of the year I predicted that prices would rise 10-15% by the end of this year as savings found there way into the housing market and investors chased yield. Next year I would see prices rising for at least the first 6 months and then levelling off for the second half of the year as the economy slows down. The prices rise in the first half of the year will be on new builds as those deals are already been agreed but the house is yet to be completed and handed over. (This is why the big increase in the last QTR was in second hand properties and not new builds) If inflation continues to rise (which I personally don't think it will after Q1/2 2022) then I would expect prices to climb higher and higher.
• Rent is never going to go down in Ireland until there is greater supply of rental properties than needed because institutional landlords know that people have no alternative but pay. It will take 3/4 years for the supply that is in the pipeline to hit the market so noting is going to change here.
• Tech stocks have a bubble because the valuations are based on future profit as yields went lower these profits looked higher because of the time value of money. This meant that investors pilled into these assets and pushed prices higher which then attracted more retail investors which pushed prices higher again. Because of these price rise these stocks then represent so much of the indexes that ETF's had to buy them pushing prices higher again. There are about 6 Tech stocks that have the ability to crash the stock market on their own.

The measure that I am keeping my eye on at the moment is the yield curve because there is a serious risk that if central banks raise rates to fast or by to much that it will invert as it does before every major recession which has resulted in large scale job losses. If we have a recession then the combination of a drop in disposable income brought about by higher taxes and job looses will result in a fall in house prices. If this happens at the same time as tech stocks correct then Ireland may be more exposed than other countries.

Amadan Dubh

https://www.boards.ie/discussion/comment/118315786#Comment_118315786

Are you still sure that QE should be used today? Massive companies are paying large dividends while selling bonds to the ECB. There aren't any restrictions on dividends or buybacks attached to ecb bond purchases. As such, it is questionable why they are needed.

What it looks like to me is that the State isn't propping up jobs as much as it is propping up asset values.

https://www.irishtimes.com/business/group-behind-mercedes-in-ireland-paid-1-8m-dividend-after-getting-covid-subsidy-1.4755098

Timing belt

https://www.boards.ie/discussion/comment/118321561#Comment_118321561

I don't think you fully understand as the companies are not selling the bonds to the ECB..... They have already issued these bonds to the market and don't care who owns them. The Company is not getting any money by the ECB buying the bond.

The ECB are buying the bonds to reduce the supply of bonds so that yield goes lower. All other bonds and interest rates then reprice downwards because the top quality bonds have a lower yield.

The link you attached is an article relating to fiscal spending (Covid subsidies) and has nothing to do with QE or central banks.

Amadan Dubh

The State is getting newly created money from the ECB to put into covid subsidies which end up in the dividend coffers of the already wealthy. This has nothing to do with saving jobs, it's about propping up assets. With all the metrics I posted last week, it is incorrect to say that Ireland's economy has suffered during covid and has in fact boomed. So again I don't see why the State is so involved in fuelling the flames of asset prices other than to say it is an intentional policy undertaken.

Sorry, just to add that this is by no means an exception to the norm. I saw the head of BNP Paribas real estate writing about PRS investors now targeting State income! This is the same John McCartney who was recently employed by the State Housing Agency of Ireland who drove housing policy and is now advising institutional investors how to get some of that cream out of the Irish housing market - you couldn't make this up; the housing policy is being driven by the few for the few and to try to claim that the State is somehow acting in the interests of the common good is just wrong.

https://www.linkedin.com/posts/activity-6875726265777733632-O7ya

Timing belt

https://www.boards.ie/discussion/comment/118321759#Comment_118321759

The state is not getting any 'newly created money' from the ECB.

The ECB has lowered rates with QE and as a result the state can borrow at the lower rate.

What the state chooses to do with the funds is up to the government as they decide how they spend the cash they borrowed.

If you think Irelands economy has not suffered during covid and that the domestic economy boomed then you are very mistaken as the domestic economy was hit hard.

Timing belt

https://www.boards.ie/discussion/comment/118321759#Comment_118321759

Sorry, just to add that this is by no means an exception to the norm. I saw the head of BNP Paribas real estate writing about PRS investors now targeting State income! This is the same John McCartney who was recently employed by the State Housing Agency of Ireland who drove housing policy and is now advising institutional investors how to get some of that cream out of the Irish housing market

Is his new job not to sell property to institutional investors? If the state persists with it stupid policy of long term leases then its fair game....

Amadan Dubh

https://www.boards.ie/discussion/comment/118321883#Comment_118321883

Don't hate the player hate the game is something I agree with. But those tasked with policy are truly not best resourced or willed.

You can be sure that John is leveraging his contacts in his new role to shape policy in favour of the few big players and it definitely has an effect or else BNP wouldn't be hiring him.

mcsean2163

https://www.boards.ie/discussion/comment/118312579#Comment_118312579

Sorry, the balance sheet of the ECB is €307 trillion? Do you have a link?

Timing belt

https://www.boards.ie/discussion/comment/118323173#Comment_118323173

Balance Sheet of the ECB as at last Friday

https://www.ecb.europa.eu/press/pr/wfs/2021/html/ecb.fst211214.en.html

Breakdown of QE programs as at last Friday

https://www.ecb.europa.eu/press/pr/wfs/2021/html/ecb.fs211214.en.html

mcsean2163

https://www.boards.ie/discussion/comment/118323230#Comment_118323230

14 December 2021

In the week ending 10 December 2021 the net position of the Eurosystem in foreign currency (asset items 2 and 3 minus liability items 7, 8 and 9) increased by EUR 0.3 billion to EUR 321.3 billion.

Maybe he meant billion? A trillion is a thousand billion. Or have I completely misread?