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

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.

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''.

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.

"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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.