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

What about pension funds and reits? If people default due to rising interest rates and government bonds still need to pay their investors, the government will be seen as a riskier bet and their borrowing costs will go up.

Our economy has improved immensely over the last 10 yrs, we have full employment, and again, high paying jobs, mostly in the private sector (I suspect many public servants would disagree with your assertion that their wage increases have pushed up the price of property, so I’ll leave that one to a PS). The value of houses today are just as likely to be their “true” market value as the lower value would be in a depressed economy, so what you think “true value” is, is subjective.

Im struggling to reconcile your viewpoints on evicting owners from their repossessed homes, and your opinion that it should be easier for people to own their homes. Surely there is a cost to the state in housing those people evicted, and the banks can just sell the houses to the highest bidders, which may not be the people you think should be able to afford them.

That was just the government trying to save itself from it`s own incompetence and mismanagement. Please don`t take this the wrong way but thinking for yourself is a very good idea.

Given the way our economy has recovered in the last 10 yrs, they did a decent job of saving itself, wouldn’t you think?

Perhaps you would have been happier if the economy tanked even further and the recession continued for another 10 years.

We are 15 years post crash and prices still haven't caught up to where they were at the peak, and we've had a rake of inflation in the interim.

In real terms prices are still way behind the peak in 07/08.

What is your 'true valuation' for property then in terms of salary multiples, cost of construction etc. that the government is stopping us from reaching.

And why are prices similar or higher in many other European cities London, Paris, Stockholm, Milan etc. where the Irish government didn't intervene post financial crash?

You would have to assume that if they could afford to pay rent, they could afford to pay a mortgage. Again, there is no mechanism that ensures that a bank selling a repossessed house will sell it to someone who could otherwise not afford it.

What lesson would the defaulter get?

Canada and Australia didn't have a major property price crash, which is why the central bank copied their lending limit model.

Both countries with hugely expensive houses in the major cities.

The market interference there was to cap the prices.

They could afford to compete on the rental market. Perhaps some people who are currently homeless could outbid some them but it would simple be a case of who gets what. Those who over borrowed and defaulted are less deserving, not more deserving than the young or the homeless.

That is for the market to decide. The ECB raising interst rates has put a little downward pressure on house prices and our government is trying to counter that by

a) applying the mica levy of cement for new builds

b) easing borrowing limits

c) incentivising lending by allowing the bankers their high pay/bonuses again

It will be interesting to see how it plays out. The ECB is being very reluctant in raising rates because that has the potential of destroying economies and the EU itself. It all depends on what inflation does from here. The ECB and a lot of economist are saying it will come down in late 2023. If it doesn`t, they are in trouble. I see interest rates staying high and will probably go higher.

By that rationale, isn’t young people competing with everyone else to buy a limited commodity fair?

I agree with you, the market will find its true price, where I don’t agree with you is that the price has to low, the true price could be high when the market “discovers” it, there is no set point.

The government intervening by bailing out the banks was/is the least worst option they could have taken, the alternative may well have been more catastrophic. You are also ignoring the fact that our economy has done extremely well over the last 10 years to recover, for that the Governments deserve much credit. You could argue that it recovered so well that by having full employment and so many high paying jobs that the recovery outpaced the services and infrastructure necessary to accomadate the people and their buying power. Now housing needs to catch up, but will only do so when enough houses are built, which of course won’t happen unless the profit is there for the developers.

Really, young people are only competing with most people but not everyone else because defaulters are protected so they don`t have to compete. If defaulters were evicted, then young people would be competing with everyone else, including the evicted defaulters and as I say, that would be fair.

The true market price could be higher in nominal terms. For example, if hyperinflation happened, house prices would probably go higher. But, everything is relative. Given the amount of malinvestment resulting from years of low interest rates and money printing, I reckon prices will alter to reflect market reality, whatever that reality is. We know people will go without food to keep their home but only to a point. If they are hungry enough, they will sell their most prized possessions for a loaf of bread. This may be an extreme example but I do believe the governments and central banks are running out of credibility which is what they will need to continue manipulate markets. Without that credibility, there is nothing to stop market forces discovering true value very quickly.

Yes our economy has had the appearance of doing very well over the past decade but interest rates are still far below inflation rates. These relatively low interest rates are not inducive to saving, they are inducive to spending/investing and in some cases mal-investment. Consequently, inflation will persist, erroding purchasing power and more and more people will fall into the poor category as they struggle to buy food. If the ECB continue to raise interest rates, however tentatively, more and more borrowers will fall into distress, banks will see profits fall, insurers will issue more margin calls and if pension funds get bailed out as happened in the UK recently, currencies will lose value.

This could all have been avoided if those who made mistakes in the lead up to 2008 had been let suffer their own losses. Unfortunately, thanks to the governments and central banks, it is now about to become everyone`s problem.

Yes that is the ECB calling people stupid. The idea of raising interest rates is to encourage savings and take the heat out of consumer prices. But, in November, the ECB interest rate was 2% and inflation was 10.1%. That is not going to encourage saving as savers are losing money in real terms. Even if they eventually raised interest rates to say 4.5% (without crashing the entire EU economy) it wouldn`t be enough if inflation was still above 4.5%. Why would inflation fall consistently when interest rates are lower than inflation? It wouldn`t and it won`t. To get inflation to a downward trend, interest rates have to go higher than the rate of inflation and stay higher for a considderable period of time. But the ECB know they will crash the EU economy if they do that. So, they are walking a tightrope, trying to keeping inflation from rising too much while at the same time trying not to crash the economy.

They should never have done QE and keep interest rates so low for so long. The damage is done. God help us.

I don`t doubt the rates are manageable, if they weren`t, defaults would be higher and we know what that would mean for the banks. But, manageable interest rates for borrowers do not inspire savings and dampen consumer prices, in others words, the interest rates will not be enough to bring inflation down. Even if the ECB keep raising interest rates by insufficient increments, inflation will continue to rise (as will monthly payments by mortgage holders). The only way to force down inflation is for interest rates to rise above inflation for a protracted period of time and the ECB can`t do that because it will crash the EU economy. So, they are walking this shakey tightrope between perpetually intollerable inflation on one hand or an economic implosion on the other. What could possibly go wrong.