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

https://www.boards.ie/discussion/comment/118536853#Comment_118536853

When Landlord exit, most likely house is bought by someone. That someone under current circumstances is either :

1. A Tenant paying good rentals and hence can afford a house. He or she will vacate a house which will come back to market as rental properties OR
2. To other landlord who will rent it again. I'm sure he not gonna leave it vacant.

So this fallacy of LL existing will lead to less supply of rental homes, ain't sure how valid it is.

What am I missing here.

Timing belt

https://www.boards.ie/discussion/comment/118537494#Comment_118537494

The strength of the dollar has more to do with the real economy and overseas demand for US Treasuries as opposed to what is happening on the stock market.

A good example of this is where countries export goods into USA are paid in dollars.

If they fx the dollars back into their local currency then their local currency will strengthen to the dollar which will make it more expensive to export goods to the USA which will result in reduced demand and a slow down in the exporting countries economy.

To avoid this most exporting countries use the USD that they have been paid with to buy US bonds priced in USD. This is why the likes of China and oil rich countries own so many US Treasuries and why imported goods are generally so cheap in the states.

Timing belt

https://www.boards.ie/discussion/comment/118537607#Comment_118537607

rental properties normally have higher occupancy levels than a FTB buying a new house.

Put it this way if there are 2 couples renting a house.

The landlord decides to sell the property. one of these couples buys a house on the market...... net impact at housing supply at this stage is zero but once you take into account the other couple will need to find somewhere to rent you get a reduction in supply of rentals.

cnocbui

https://www.boards.ie/discussion/comment/118537607#Comment_118537607

"Around 20,000 landlords have left the rental market since 2016, according to Department of Housing officials.

There were 320,000 landlords in 2016 and recent figures show there are currently just over 298,000." https://www.independent.ie/news/20000-landlords-have-left-rental-market-since-2016-41281211.html

A decrease is a decrease. If all those properties were being bought by REITS and rented out by them, there would not be a net decrease, but that is unlikely.

PommieBast

https://www.boards.ie/discussion/comment/118536341#Comment_118536341

It would certainly push a lot of mortgages in the direction of default, but without a willingness to repossess them actually coming to market is another issue..

Bass Reeves

https://www.boards.ie/discussion/comment/118538074#Comment_118538074

https://www.boards.ie/discussion/comment/118536341#Comment_118536341

What a load of rubbish. The vast majority of buyers over the last 3-5 years ara fixing rates for a minimum of 3 years. Few of these will see a rise in interest rate in the medium term. People that bought 3+ years ago have seen there property rise by 25%+

On a 300k mortgage a 3% rise in rates is 450/month onto your mortgage. However anyone that has bought a house over the last 10 years is still way better off than someone that has remained renting. As well as that repossession of the family home in Ireland is impossible.

Investors that wanted to exit the market have gone to a certain extent. Even if tents fell 30-40% they would still cover most mortgages that are 5+years old.

Sorry lads no cheap houses unless a few nuclear bombs go off in Ukraine or Russia

Amadan Dubh

https://www.boards.ie/discussion/comment/118537534#Comment_118537534

Again, the demand for housing only exists at strong levels to a certain price point. However, based on the estimated cost of building it is pretty clear that the price point at which a lot of the BTRs are to be let is already above the affordable level for current demand. Unless we start to see wage rises or increased borrowing abilities then there will be no demand for new housing as people just won't be able to afford it. That is unless the State of FF and FG are happy to keep drawing on the magic money tree they seem to think exists for propping up the housing market.

If rates rose 3% tomorrow you would possibly have institutionals offloading properties they are holding vacant or else they would drop the asking rents for these places. And 3% rise in interest rates would still make property more attractive than bonds, particularly if demand as you say is so high. Small landlords have left en masse already so there is already a correlation between low interest rates and small landlords leaving the market. Mortgage holders might see a few hundred euro per month added to their monthly repayments and say "stuff this, now I'm cashing in" or else "I can't afford this anymore".

On inflation being less to do with supply and energy constraints and more to do with QE, this is a view also shared by Pangea Mortgage brokers, and is the reason why the ECB is going to destroy so many European citizens spending power by delaying taking action on inflation, being too wedded to traditional views and inflation trends of the past;

BreakingNews.ie: Inflation, not supply, is real issue in Irish housing market, says mortgage broker.

https://www.breakingnews.ie/ireland/inflation-not-supply-is-real-issue-in-irish-housing-market-says-mortgage-broker-1248383.html

We believe there’s a high probability that interest rates need to go up quite quickly, far more than what’s being predicted, so you could get 1.5-2 per cent within 12-18 months. That will change the dynamics of the housing market.

"In the Eurozone now, we have records, the highest inflation ever. That’s not the result of temporary lockdowns or the Suez Canal issues and stuff like that, the primary reason is the amount of money that’s been put into the economy. I think the big story of this year is that inflation is going to continue to increase and eventually rates could have to get jacked pretty high and that’s going to have real implications for people’s mortgages.

Amadan Dubh

https://www.boards.ie/discussion/comment/118538275#Comment_118538275

In reality it could be more like 4 or 5% for mortgage interest rates like what we had in 2005-2008 when the dust starts to settle and three years in a twenty five or thirty year mortgage is nothing.

The labour shortage will take a long time to sort out as it isn't just general low paid labour that's in demand but skilled labor that won't be easily imported. There's road to run with inflation even with some minor interest rate increases.

At the same time, when they eventually cave in, I think the ECB will jump on the Ukraine skirmish as a justification for interest rate increases rather than admit that it completely misjudged the inflation being experienced. The narrative will be that the prolonged inflation experienced post-covid was due to additional issues caused by the Ukranian conflict which resulted in higher energy prices blah blah blah just don't admit that the QE was excessive and misdirected.

Timing belt

https://www.boards.ie/discussion/comment/118538495#Comment_118538495

Why in gods name would the ECB blame the Ukraine for a justification for interest rate increases...... What is your thinking here as the prospect of a war would only encourage the ECB not to raise rates because of pending economic damage. What is happening in the Ukraine hasn't resulted in higher energy prices it has the potential to but gas prices are down from there highs of last year and trading at levels seen back in august last year.

The biggest driver of inflation and house price increases this year will be wage inflation and this will be the trigger that will make the ECB start monetary tightening.

Timing belt

https://www.boards.ie/discussion/comment/118538489#Comment_118538489

You are right that demand for housing only exists up to a certain price point. But you fail to take into account that the price point is rising year on year due to increases in wages.

e.g.

Wage growth in 2019 was 3.6%, 2020 was 5.5% and last year around 7%.

if a couple on a 100k could have borrowed 350k at the start of 2019 and wages increased with average wage growth it would mean that by the end of 2021 they would have been able to borrow 409k and would explain a increase in prices of 12.5% between the start of 2019 and the end of 2020

Explain the logic of institutional investors offloading property and exiting the market if rates rise. Any institutional investors that were playing the property market sold on property in 2020 and 2021 to pensions funds etc who were looking for regular cash flow, a good yield and a low risk asset. Likewise why would any landlord (institutional or small landlord) reduce rates during a time of inflation and a shortage of rental properties.

A 3% increase in rates would result in the market value existing bonds in circulation dropping massively and significant looses to investors that have not managed their interest rate risk. Banks and insurance companies should be relatively ok as they are risk adverse when it comes to rates and will 99% of the time mitigated the risk on a long Bond by as asset swap or an interest rate swap. The sector I would have concerns for is the funds sector as we have seen an increase in risk appetite as they have opted for long Bonds with a higher yield.

A 3% rise would take the heat out of institutional investors buying more property as the differential between property yields and a other low risk investments would narrow.

With regardless small landlords leaving the market and it's correlation with low interest rates all I can say is that there is a big difference between correlation and causation. Low rates actually encourages small landlords to not to exit because of the lack of alternative investments with a similar risk due to the low interest rate environment.

Why would a mortgage holder 'cash in' or say 'I can't afford this anymore' and sell his property because rates are rising? Where will the mortgage holder live because the rent will be more than his mortgage repayments even after the rate rise.

On inflation all I will say is that article is designed to scare people and get them in his door so he can get commission on selling them a long fixed rate mortgage.

Bass Reeves

https://www.boards.ie/discussion/comment/118538495#Comment_118538495

Sorry first if all it was 3% not it's 5%.lads are picking figures out of there a4se as the saying goes. A 5% rise in interest interest rates would see Irish interest rates above the 2010 crisis. It took three years from 2008 to get to that back then highest rate was less than 6% and the country was on its knees at that stage.

Now you are saying we will go to over 7% for house mortgages. These rates would have to rise right accross the EU not just Ireland. The interesting thing it s in the 2008-12 period EU central bank rate never went above 1% I think. It was the interbank rate that banks were lending to each other was killing us.

Villa05

https://www.boards.ie/discussion/comment/118538594#Comment_118538594

Do you think interest rates will stay at current lows for the next 3 to 5 years?

Genuinely interested in your views and reasoning. Group think can be very dangerous at both ends of the spectrum

J_1980

https://www.boards.ie/discussion/comment/118538558#Comment_118538558

The ECB won’t even be able to exit QE let alone raise rates.

the entire failed left wing debt fuelled big government is too embedded in tok many EU states. Unless germany/Netherland/ Finland threaten to re-issue their old currency as dual legal tender there is zero chance of this devaluation to stop.

AdamD

https://www.boards.ie/discussion/comment/118538558#Comment_118538558

His thinking is simple, every single thing he reads about must eventually lead to a housing market crash.

fliball123

https://www.boards.ie/discussion/comment/118537607#Comment_118537607

What your missing is in a lot of cases people are renting rooms within a property that is being rented out so if a house with 4 rooms gets taken from the rental market and sold to someone buying for themselves it means one person or a couple gains a house and 3 - 6 who were renting now need to find accommodation. Also if its being sold as an investment its a zero sum game. So it increases the need for more housing

Amadan Dubh

https://www.boards.ie/discussion/comment/118538926#Comment_118538926

I just think we are currently heading to quite a similar environment to 2005/06 and mortgage interest rates were at 4-5% - things are booming, money is cheap and costs are high; the only way is up and no one can see a crash coming!

fliball123

https://www.boards.ie/discussion/comment/118538489#Comment_118538489

A bit misleading as to why you think the main cause of small landlords running for the hills is due to low interest rates even if we had high interest rates they would still be running as the main reasons are the tax implications and the new laws stacked on the renters side. Only in Ireland could a renter stay in a rental accommodation with out paying rent for 3+ years and after this period they can leave it trashed without any financial impact on them. That is what is scaring the majority of them. Also rates are not going to go up as quickly as people think they will this will be managed I reckon it will go up by 1 -1.5% over the next 3 to 5 years. There is already a legacy of mortgage non payments since the 08 crash and the central bank will have to take that into consideration when pushing the rates up.

Amadan Dubh

https://www.boards.ie/discussion/comment/118539155#Comment_118539155

Come back to me when the State isn't so heavily invested in the property market and tell me how sustainable it is.

Wanderer78

https://www.boards.ie/discussion/comment/118539050#Comment_118539050

again, private debt is far more problematic and has caused far more frequent and serious economic crashes, i.e. 08, the only way to counteract this, is to become less reliant on it, and more reliant on public debt, but to make sure this money is used productively, and not to inflate asset prices, such as property.....

fliball123

https://www.boards.ie/discussion/comment/118539304#Comment_118539304

The state have been heavily invested in the property market for decades , what makes you think they are going to pull back now. We face a future in this country with an even more left leaning government - do you think they will give more to those who need to be housed or less? You may be a long long time waiting for the other poster to come back to you. As those conditions are not going to change

J_1980

https://www.boards.ie/discussion/comment/118539447#Comment_118539447

Like old Joe is doing….

public sector spending is nearly almost inefficient and highly inflationary unless you’re transitioning from a 3rd world economy to a 1st world one and investment (roads bridges etc like china did for most of the last 30y).

building houses for people who can’t afford the building costs themselves is already inefficient. Others will pay via taxes or inflation.

the mental gymnastics Krugman, Stieglitz and co are using to argue that Argentina’s economic strategy is the right one is simply astounding. Nobel prize for economics to me is like handing out a nobel prize in astrology….

iColdFusion

https://www.boards.ie/discussion/comment/118537534#Comment_118537534

Yeah the impact to developer finance costs is a big one for people saying a rate increase will solve the housing crisis, builders are already struggling with these costs and its the reason they prefer to sell a whole development to a SHB or REIT, a builder of a 50 house estate could easily have 15 million of debt until all of those are built and sold.

Wanderer78

https://www.boards.ie/discussion/comment/118539483#Comment_118539483

theres no question theres inefficiencies within the public sector and its spendings, along side many bullsh1t jobs, but its a complete myth that the private sector is far more efficient, modern political and economic ideologies which ultimately promotes, encourages and facilitates fire sector lead economies, which in turn generally leads to financialisation of economies, this becomes extremely evident in property markets, primarily effectively hyper inflating the price of these markets, i.e. our current situation!

other elements of these ideologies, is moving taxation away from wealth, including property and land, and moving it more towards labour and consumption, again, our current situation!

krugman, stiglitiz and co, are whats called neoclassical economists, neoclassical economics has a refusal to accept the fundamental role of things such as banks, debt and money, that fact that banks actually create the majority of our money supply in the form of credit, hence why no neoclassical economist or neoclassically based institutions realized the 08 crash was in the post, i.e. that we had created the largest credit bubble in human history, and that it was gonna go kaboom....

Bass Reeves

https://www.boards.ie/discussion/comment/118539201#Comment_118539201

No we are not. In the mid noughties anybody first time buyer, trader upper or an investor could put have a house, get a 110% mortgage@ 5-7 times income and get a 30-50k personal load to buy a new a new car with cursory checks.

From 2006 on builders went from selling as you build, to being financed to complete projects before having to sell a unit. And after it fell in its hole in 2008 they were financed d to continue for another 12-18 months.

There is no comparison to now. We are still in a housing deficit unless 100k leave the country without any inward migration. Personal investors have to put up 20-30% equity to buy, that is why they have stopped buying. First time buyers have to have a 10% deposit. Trader uppers have to have a 20% deposit+ associated fees and costs inplace.

Any correct in the next few years will be sub 10% in the less than 500k market

enricoh

https://www.boards.ie/discussion/comment/118539447#Comment_118539447

Households have got their act together since the tiger calved and reduced their debt. The government have totally lost the run on spending, the golden goose of corporation tax n MNC tax take is looking iffy after this year. We'll soon see how reliant we are on public debt if interest rates go up!

Amadan Dubh

https://www.boards.ie/discussion/comment/118539230#Comment_118539230

I didn't mean to say landlords running for the hills was "mainly caused" or even "caused" by low interest rates - I just said the mass exodus was correlated when the other poster reckoned we'd bleed small landlords with higher interest rates. The main reason we've lost small landlords is because they are getting ran out of the market by institutional-driven housing policy; tax, issues with eviction, RPZs (which harm those landlords in the market before they were introduced and landlords choosing quality tenants more than chasing every red cent from their rental), finally getting out of negative equity and cashing in pots-08 etc.

I just disagree on rates not going up that quickly as pre-covid CPI inflation a lot of us feel understated the cost of living increase whch means that the CPI measures what it wants to measure but it is not particularly representative for the individual situation. The net effect is that increases to interest rates were needed pre-covid. Now throw covid restriction induced hyper QE and it lit the inflation rocket leaving the regulators bamboozled, embarrassed and humbled already by revising their "transitory" and "temporary" narrative within a few short months!

Amadan Dubh

https://www.boards.ie/discussion/comment/118539462#Comment_118539462

Our country is run on debt, which means our public spending is heavily reliant on our ability to borrow. HAP and other rental market supports alone (via county councils, tax breaks for institutionals and housing charity contributions) cost billions per year. With housing costs only going one way, these costs are naturally going to go one way, if the State stays wedded to the idea that it is just chasing the market rather than realising that it itself is propping up the market. 1/3 of all rentals are estimated to be receiving some form of State support - when do we say that enough is enough? Or do we have a limit and would we accept one in every two rentals being State-funded?

A few decades can quite easily be undone and a shift in approach be adopted if that shift in approach involves the State itself moving out of the private market and developing its own housing - quite clearly the market will not deliver affordable housing as it would've done so already. Personally, beyond housing, I don't think our economy has fully recovered and learned from the problems leading up to the 08 crash - in particular around diversification in public revenue and with the lack of investment in things like infrastructure, education and housing. 6 years ago is all it was when we would have said the economy had began its strong growth, but 9 years ago we were very much still in the throes of a recession - if you strip away the government's ability to borrow as much as it has, what sort of economy do we have left? Too much of this cash is ending up in housing and preventing the State from raising more cash itself as once the cash goes into housing it pretty much leaves circulation in the economy, whereas more affordable housing costs allow the individual to save more money and spend it in the economy which means it circulates more and generates more productivity (this is the same rationale as to why companies should not be allowed grow so big like Google, Apple, Amazon etc. as they also suck productivity out of the economy and destroy livelihoods). Short story made long, the Celtic Tiger period lasted a solid 8-10 years at unsustainable levels so a couple of decades in this context is not a long period and it is not a given that we will be in a stronger position every ten years than we were ten years previously.

Amadan Dubh

Someone else posted the other day but why is the 2021 thread still going? I always enjoy reading back over the first pages of these threads, great to see how thinking changes or doesn't change; and how predictions ended up.

@Timing belt congratulations for your prediction at the start of 2021 (10-15% increases as savings convert into spending on property) - maybe I shouldn't fight you so much! https://www.boards.ie/discussion/comment/115785054/#Comment_115785054

Villa05

https://www.boards.ie/discussion/comment/118539050#Comment_118539050

Some of the most successful and wealthiest European countries are left leaning.

The difference is tolerance of corruption lobbyism etc. UK is right leaning and in decline for decades

Bass Reeves

I cannot understand how he fascination with MNC's all deciding to up and leave tomorrow because of the change in corporate tax rates. First of all it only effect those companies above 750 million in valuation. This protects the indigenous smaller companies.

Most if these companies have to have a location in Europe. Ireland has a common language with American companies. Unless US corporate tax rates drop substantially these companies will not be repatriating there profits any time soon larger MNC that employ large numbers such as Amazon are unaffected.

Irish corporate tax return could actually increase.