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

RichardAnd · 01-03-2022 10:56pm

https://www.boards.ie/discussion/comment/118715842#Comment_118715842

I second this. I've passed up opportunities because I thought that things would calm down. It seems like this mess is going to keep going for another few years. Maybe there will be a correction sooner than later, but outside of a black-swan event, I can't see it...

Amadan Dubh · 01-03-2022 11:37pm

https://www.boards.ie/discussion/comment/118713402#Comment_118713402

But if you compromise now on a house you might be in negative equity in five years for a house you were never that fond of versus sitting on an extra five year's of savings which can be used to borrow significantly less and/or go for a far better house.

The current situation has supply at an all time low and is the defining issue for multiple generations in society. It is so bad that in order to get worse our whole prosperous, Western way of life would start to shut down. It cannot get much worse than it is already. I would give it at least a year but ideally two years after all COVID restrictions are over (so from now) and let some normality return to life, then see.

Amadan Dubh · 02-03-2022 12:23am

The ESRB published its Residential Real Estate vulnerabilities report in mid-February just past in relation to the EEA. Ireland is covered specifically on p18 and p19. I don't know if I'm just misreading it but I found it didn't really say a whole lot. The extract below was the best quote I could pull out that was vaguely interesting.

The more interesting takeaway from the report is in the context of the EU economy/Eurozone as a whole as the ESRB feels financial stability risks posed by RRE are still medium to high for 11 EEA countries (including France and Germany).

But ultimately reading this report or not makes no difference to any of our lives. It seems a bit like translating road signs into Gaeilge; nice to have but no one actually follows the Irish in reality.

https://www.esrb.europa.eu/news/pr/date/2022/html/esrb.pr220211~9393d5e991.en.html

Ireland

Along with the strong increase in building activity, real growth in house prices has slowed down over the last two years. However, persistent undersupply of housing could potentially reverse the trend and ignite strong price growth dynamics. After a strong, prolonged rebound in house prices in the aftermath of the global financial crisis, real house price growth slowed to rates below 2% year-on-year in 2019 and remained muted throughout 2020, before moving up to around 3% in the first quarter of 2021. It then accelerated sharply in September 2021 according to the Central Bank of Ireland. Owing to severe mobility restrictions, which were imposed because of the pandemic, the year-on-year rate of growth in building permits registered a significant contraction in the second quarter of 2020 (-29.2%). This was immediately after the record increase of 97.3% in the first quarter of 2020, which was reached after a persistent surge.

According to Central Bank of Ireland estimates, housing supply in the country still lags behind demand, which is increasing strongly. The lack of housing supply, if persistent, might eventually contribute to increasing house price growth. From a forward-looking perspective, the significant presence of institutional investors in the real estate market in Ireland and the uncertainty related to the commercial property segment may mean that investors will gravitate towards residential property to an increasing extent, with an uncertain impact on house price growth.

Timing belt · 02-03-2022 1:19am

https://www.boards.ie/discussion/comment/118717267#Comment_118717267

I assume you missed all the pages where they say irish house prices are undervalued per their models

RichardAnd · 02-03-2022 9:48am

https://www.boards.ie/discussion/comment/118717007#Comment_118717007

"It cannot get much worse than it is already."

Irish State: "Hold our Guinness"

02-03-2022 10:44am

https://www.boards.ie/discussion/comment/118715842#Comment_118715842

Body clocks?

Bass Reeves · 02-03-2022 10:46am

https://www.boards.ie/discussion/comment/118717007#Comment_118717007

Five years is s long time. I be very slow advising a person to buy or not buy a house. Inflation is with us for 2-3 years I expect at least. Will wages rise. If we go into a recession will a buyer's option to buy change. Are they renting at present.

If houses go up by 20%, in three years what do they need to drop by for to make a difference to you.

Even if prices stabilise for the next 3-5 year how much of a drop do you need to make it worth while not buying.

A person that is 35-40 now will be 40-45 in five years time maximum mortgage will be 20-25 years

A person that is 30 f they have children at present these will be college age in about 15 years time. If they have no children it's easier to get a larger mortgage according to some.

If you are living in Dublin, Cork or Galway, and ate renting as a couple your mortgage repayments will be cheaper than rent in 80-90% of cases. In most of the rest of the country it will be similar to mortgage repayments.

I am not advocating buying but I am pointing out issues with your assumptions.

Amadan Dubh · 02-03-2022 11:37am

https://www.boards.ie/discussion/comment/118718260#Comment_118718260

Well to put it in further context, the only reason we have had the extra 15-20% froth the last two years and even further reduced supply was because of covid restrictions which are now gone so at the very least now that covid is gone, it surely stands to reason that the covid "effects" will drop fairly quickly as the economy gets moving again, supply starts to come on stream and people who saw their house prices shoot up or were afraid of Brexit and covid now start to look to sell their house; i.e. supply should significantly increase in the next 12-24 months essentially.

In terms of 5 years, that was just to make a point about 5 years, but my main stance is that 12-24 months after the last covid restrictions are gone would be a good time to wait, if not for lower prices but for much greater supply.

Amadan Dubh · 02-03-2022 11:46am

https://www.boards.ie/discussion/comment/118717485#Comment_118717485

The term "undervalued" is a very subjective term.

They are discussing the undervalued nature of Irish property in the context of the LTV and LTI limits which, for buyers impacted by them, it has put a lid on those buyers overextending themselves and facing big problems if there was a market crash. There are definitely arguments to be made that the LTV limits should be 100% and the LTI limits could be 4 or 5 times salaries; that these instruments were designed for a different time.

Villa05 · 02-03-2022 1:30pm

https://www.boards.ie/discussion/comment/118715164#Comment_118715164

The world has changed, we may be waiting for some time for our politicians to get some inspiration from others but we seriously need to adapt to these changes. We can't continue to push workers further and further away from employment centres and we need to use what assets we have more efficiently. It's time to unblock the barriers to building homes, renewable energy and for God sake get those data centres out unless they are contributing more new energy than they are consuming.

As for house prices, let's see what's left after inflation nibbles away at people's incomes. Price is determined by what people can afford. Prices went up while other outgoings went down or stayed stable.

People buy at peak income, stats show that that income tails off as they get older

Timing belt · 02-03-2022 3:27pm

https://www.boards.ie/discussion/comment/118718581#Comment_118718581

They are talking about undervalued based on models and are not talking about LTV or LTI. You are cherry picking the report to support your narrative.

MacronvFrugals · 02-03-2022 5:45pm

Fed going with .25% rate rise for March

https://www.reuters.com/business/feds-powell-says-still-appropriate-raise-interest-rates-by-25-bps-march-2022-03-02/

Amadan Dubh · 02-03-2022 7:18pm

https://www.boards.ie/discussion/comment/118721098#Comment_118721098

On the same day Eurozone inflation reported to have soared to a new high last month of 5.8%. And we all know this is before the Russian Ukranian crisis will push it even higher. The markets trying to goad the ECB by revising down their estimates on rate rises this year. ECB of course just happy to do nothing.

https://www.rte.ie/news/business/2022/0302/1283894-euro-zone-inflation/

snow_bunny · 02-03-2022 7:23pm

https://www.boards.ie/discussion/comment/118721703#Comment_118721703

I have no real understanding of how the current issues with Russian stocks and possible hyper inflation may effect European inflation rates or ECB rate rises?

Would anyone knowledgeable be willing to give their opinion on this?

AlmightyCushion · 02-03-2022 7:26pm

https://www.boards.ie/discussion/comment/118721722#Comment_118721722

Oil and gas prices will increase. Ukraine provides a lot of fertilizer and grains to EU so the invasion will cause supply of both to drop and the price to increase. That's all I know off the top of my head.

Timing belt · 02-03-2022 7:52pm

https://www.boards.ie/discussion/comment/118721722#Comment_118721722

Energy prices will increase. Once Energy prices hits a certain level the EU and world economies will stop growing as more and more money will be spend on Energy and less on other goods and services. A slowdown in the economy reduces the need for central banks to increase rates. (This is why the Fed is only expected to raise rates 3/4 times instead of 6/7)

The longer Energy prices are high the more it will feed into a secondary round of inflation that will be felt in 9-12 months time. A good example of this is fertiliser. The price of this is linked heavily to Energy prices because of the energy required to make it. If the fertiliser prices increase then the farmer will need to raise his prices in 9-12 months time otherwise he will generate a loss. The alternative for the farmer is use less fertiliser but that would result in less output which would mean a shorter supply which would also push prices up.

snow_bunny · 02-03-2022 8:02pm

Thank you both. So are we talking about a recession then?

Timing belt · 02-03-2022 8:09pm

https://www.boards.ie/discussion/comment/118721943#Comment_118721943

It's very hard to tell because no-one knows how long the war will last and how long the sanctions will be in place.

You could see an increase in output in oil and gas from the middle east or for US fracking to produce more oil and result in lower prices.

The European economy is more exposed as there is the risk that Russia could just turn the taps off.

Ireland tends to follow the US economy more than the EU economy and that is still strong so I wouldn't see a recession in Ireland in the short term but possibly in the mid/long term if the war continues.

combat14 · 02-03-2022 10:30pm

european wholesale gas prices are up 60% since monday alone

oil prices up from 95 to 114 dollars a barrell

we had an issue with inflation before this war .. this is going to put pressure and drive up the price of everything.. already - fuel, wheat, food, fertilizer are all going up

sections of ireland (not everyone) are somewhat temporarily cushioned from this impact so far with covid pandemic savings... but eventually the reality that new prices may not be temporary will register and serious cutbacks across the board to spending will be made .. this will hit hotels, restaurants, hospitality etc the very sections hit by covid .. the government wont be able to bail everyone out again and businesses will collapse...

already before this week workers were struggling with 100 euro a tank for fuel .. its only going to get far far worse ...

people may have to decide between food, fuel to get to work and paying their mortgage ..

the celtic tiger nose house bleed prices here are unsustainable.. supply is an issue.. but maybe not so much if effective demand collapses ..

combat14 · 02-03-2022 10:35pm

https://www.boards.ie/discussion/comment/118718581#Comment_118718581

there may be some sort of case for LTI of 4 when people have 40 years of work ahead ... probably not so much when renters in this country are lucky to buy a house for a 20 year mortgage in their mid-40s at this rate ...

Sierra Oscar · 02-03-2022 10:42pm

Inflation without interest rate rises is arguably good for mortgage holders, their loan is being whittled away. Especially for those who are well advanced in replaying their mortgage. It's also eating away at the cash deposits being held by perspective buyers, while their rent is also likely to increase in line with inflation.

Although I can't see how the ECB can keep interest rates depressed for much longer.

Villa05 · 02-03-2022 10:42pm

Rationing on the way perhaps?

Those sky high rents look a little unsustainable now

50%+ of electricity generated from gas

We are going to go from isolation in covid to max numbers in houses to cut heating bills. 2 or 3 households house pooling to save on bills

Stagflation on steroids

amacca · 02-03-2022 10:54pm

I think stagflation most likely too

Inflation will be with us for a while

Demand curbed as people have less in their pockets, savings get eaten into and it becomes more about getting through day to day

Unemployment levels I'm not so sure....

Amadan Dubh · 03-03-2022 12:09am

Commercial property; the canary in the coalmine that died a couple of years ago. Until Tik Tok came along (the same Tik Tok that the US wanted to ban less than two years ago and I'm sure the Irish government would've supported them at the time). If Tik Tok takes up all this office space, that is fairly significant and a big boost to the newly developed offices.

There is one thing that makes me wonder how successful Tik Tok will be, looking at their plans for growing head count. Where will these people live when we have less than 1000 rentals available in all of Dublin?

https://www.irishtimes.com/business/commercial-property/tiktok-agrees-heads-of-terms-for-two-dublin-docklands-offices-1.4815394

The combined 257,000sq ft of office accommodation available at the Shipping Office and the Tropical Fruit Warehouse will give TikTok the capacity to add some 2,500 workers to the 2,000 people it expects to accommodate in its new headquarters at the Sorting Office.

Amadan Dubh · 03-03-2022 12:18am

https://www.boards.ie/discussion/comment/118722816#Comment_118722816

I think the ability to borrow 4/5/6 times salary could be put in context when it comes to renters who have been paying rent for a certain number of years at a level which would be the equivalent of paying a mortgage of 4/5/6 times salary or else existing mortgage holders who have evidence of savings combined with mortgage repayments at a level which amounts to 4/5/6 times their salary.

But where will the social housing come from for these people in 25 years when they end up being life long renters? It will end up being the vast majority of the population being lifelong renters into retirement in the next 25 years onwards (the equivalent time period of 1997-2022). I give the current approach of younger generations propping up the wealth of older generations maybe up to 10 years maximum before the penny starts to drop that there aren't enough younger people able to buy up all the homes that are for sale at the high prices (ie today's prices) which will create a strong downward force on prices (in the absence of more leverage thrown into the market).

The seeds of decline are of course being sown today with policies designed to usher those in their 20s and 30s into lifelong renting while only a few lucky ones get lifted out of the herd to buy homes. As a country, it looks like we are having our cake of home ownership for some with prices steadily increasing perpetually while at the same time also eating it by expecting renters to continue to pay perpetually increasing rents to prop up these house prices for the home owning class. Can we have our cake and eat it?

Amadan Dubh · 03-03-2022 12:23am

https://www.boards.ie/discussion/comment/118722782#Comment_118722782

It will be fine as the ECB will just keep printing money to pay for the increased costs that businesses and countries have to pay. That has been the policy to date to deal with soaring inflation and there is no reason to think the ECB will change its course and engage in QT right when it sees higher inflation requiring more money to be printed to help cover the higher costs.