Current public sentiment towards the housing market?

[tyoung]

Nah mate its started. And the more buyers hold off the more pressure on vendor thus confirming buyers nervousness thus holding off longer putting greater pressure on vendors..........crash.

I think you're getting carried away here. A 1% in interest rates(IR) has made potential buyers wary and worried about how high they are going. Another 50 basis points is baked in the cake and recently some ECB members have hinted at maybe more after that.
But if you think even a 4% ECB rate is going to crash this market I think you're mistaken. Belief in property is just to deep to be shaken by a 2% rise in IR. Look at the UK and AUS. The markets there stalled when IR first rose. Then when it seemed that IR had plateaued the property markets picked up again. Now it looks like IR in both countries are rising again. This might be where the real pain begins.
In the US IR went from !% to 5.25% in 18 months and that plus the negative savings rate that buggered their property market.
So if the ECB gets to say 3.75% and then goes on hold , I think the market will pick up again. There is just too many believers out there. If IR start to rise again say in late 07 or 08 it could get interesting. I would guess you would need at least a 5% ECB rate to see many forced sellers.

Repeat after me : This all about interest rates!

 

[ncs]

hurray? what about the implications of a crash on our economy?

Conversely, what about the implications of continued insane house price inflation on our economy? Or even a "soft landing" in circumstances which put home ownership out of reach of the next generation? It's damned if it does, damned if it dithers and damned if it doesn't. As a pre-madness homeowner, I want to trade up and the differential is currently too wide for that to happen. Given that all outcomes are bad, a crash would suit me rather better.

 

[hmmm]

Repeat after me : This all about interest rates!

No, this is all about sentiment. If you read histories of previous real estate bubbles you'll notice that no one factor can be said to have caused their reversal, not even interest rates. What has caused their collapse is the accumulation of events that cause sentiment to change. And once the sentiment changes things fall apart fairly rapidly.

 

[BigM]

I would guess you would need at least a 5% ECB rate to see many forced sellers.[/SIZE]

But you are completely ignoring the affect of these rate increases on the affordability of houses. While someone who's trading up mightn't mind so much as they've already made a massive chunk of paper profit already, the people at the bottom are already stretched far too much.
The banks are lending 10x salaries - this was justified by the very low IR environment. Now that IR are on the rise - to 4% next year (and after that who knows, too many variables), the reverse must occur and therefore people are going to be forwarded less money.
So Joe and Mary have less to buy their 3-bed semi in Clonee, so the vendor has less to put towards his 4-bed semi on the Navan Rd, so that vendor has less to put towards his 5-bed detached in Glasnevin.....
We are already seeing the pinch as asking prices have stalled since the Spring.

 

[BigM]

and also - in the US there were still 'flippers' buying in after rates had increased from their incredible lows. They're the ones getting screwed now (ref the US Today quote earlier). Not that there are any of those nasty 'flipper' types here, oh no, we're different. It's the new paradigm...

 

[whizzbang]

No, this is all about sentiment. If you read histories of previous real estate bubbles you'll notice that no one factor can be said to have caused their reversal, not even interest rates. What has caused their collapse is the accumulation of events that cause sentiment to change. And once the sentiment changes things fall apart fairly rapidly.

agreed, a lof of FTBs are buying for fear of never being able to afford if they don't buy now. Once this fear is gone a lot of demand will be removed from the market.

The same goes for investors, with yields so low, who is going to invest in a non appreciating asset?

Interest rates only control the supply of money, other things control the supply of buyers.

If the bank offered me €100,000 to buy a €100,000 "1990 Ford Escort", I wouldn't buy it no matter what the interest rate.


*edit* that being said, higher interest rates will play a role, but won't be the deciding factor. Higher interest rates will cool the market, sentement will drag it down.

 

[bearishbull]

add in oversupply and reassesment of prices relative to incomes, rents etc by investors and FTB's alike. When even banks are saying price growth wil slow to 3% next year then the writting is on the wall.

 

[room305]

I would guess you would need at least a 5% ECB rate to see many forced sellers.

I'm inclined to agree. Sentiment among ordinary buyers is still very positive. That won't change until rates are above 5% ECB or prices are really starting to fall.

I just cannot see the average buyer throwing the keys back at the bank because it is cheaper to rent.

At the moment there is a lot of nervousness in the market. Investors are clearly dumping their stock and chasing dreams in foreign countries. It could fall from here but I wouldn't be surprised to see it go higher.

 

[bearishbull]

prices are set at the margin! it doesnt matter with majority of mortaged homeowners decide to sit tight and keep paying mortgage, once capital appreciation falls to rate of inflation or less then many investors will get out. also FTB's seeing prices not rising much (if any) are less likely to jump in due to fear of being priced out. Throw into the mix the massive supply of property coming to market every month and i cant see how property will be worth anymore in 5 years than it is now (in real terms).

 

[Sidewinder]

I would guess you would need at least a 5% ECB rate to see many forced sellers.

Have you not been paying attention? The ECB has spent the last 6 months telling everyone in clear, unambiguous language (well, clear and unambiguous by central banker standards) that they are moving to at least a neutral rate of interest, and may adopt a tight stance if inflation remains above the 2% target.

That means 5% by spring 2008.

I think the entire world has gone completely nuts, drunk on ridiculously cheap credit for the last decade. The party is already over: the Fed, ECB and even the BoJ have all called time and announced a tightening phase. Japanese deflation ended last year, and that means the end of the Yen carry trade, and that means....

Try and focus through the euphoria. The hangover is coming.

 

[room305]

Vested interests will work very hard to ensure these margins are set high. Watch what developers throw into the mix to get buyers interested. Sellers offering free cars with their houses. Anything to keep the nominal price high.

I'm not saying housing is a good investment or that people should buy, I just think even a 10% drop in the ERSI/PTSB index next year is unlikely. Not that I'm expecting a 10% increase either.

 

[baby_tooth]

Have you not been paying attention? The ECB has spent the last 6 months telling everyone in clear, unambiguous language (well, clear and unambiguous by central banker standards) that they are moving to at least a neutral rate of interest, and may adopt a tight stance if inflation remains above the 2% target.

That means 5% by spring 2008.

I think the entire world has gone completely nuts, drunk on ridiculously cheap credit for the last decade. The party is already over: the Fed, ECB and even the BoJ have all called time and announced a tightening phase. Japanese deflation ended last year, and that means the end of the Yen carry trade, and that means....

Try and focus through the euphoria. The hangover is coming.

TYOUNG...IS IT NOT a case of taking from one hand and putting into another, dropping some along the way..

high rates implies low yeilds...low yields imply low demand...
high demand means higher rates...

now throw in the fact that inflation+real intererst rates = nominal interest rates. yields are inversely related to rates.

rates rise, inflation rises, yield drops and value drops to bring it all back into balance...

economics 101.

 

[Duplex]

I think that this bust will have more to do with the state of the global economy than the cost of borrowing. Too much risk has accumulated in the funny money era, it doesn't matter that its packaged up as mortgage backed securities and resold several times to hedge funds, the risk remains. If a heavily indebted US enters a recession next year, (which seems more probable every day) a sharp global slowdown will follow that will hit these shores hard. Ask the Japanese for a lesson or two on debt binges and recessionary hangovers that last a decade or so.

It goes like this interest rates up recession, interest rates down.

 

[tyoung]

Duplex
While I aree that the global economy will have an effect I disagree with you on the nature of the effect. A US recession will lead to a rapid fall in Global interest rates which could lead to the fabled soft landing for the Irish property market. It looks like US rates have peaked. As I've posted before,from an Irish point of view, the worst thing would be that the fed might be forced to come back and raise interest rates next year in the face of stubborn inflation. Some thing like that is happening in GB and AUS right now. Let's see how it plays out.
Sidewinder
If I could predict interest rates accurately 12 months out I'd give up the day job. I see 3.75 to 4% early next year but after that the crystal ball gets very cloudy.
BTW Morgan Stanley's European Team see the natural IR for Euroland at about 3%
Babytooth
I'm sorry but i don't follow your post.
" High rates imply low yields" (on what?)

 

[Sidewinder]

BTW Morgan Stanley's European Team see the natural IR for Euroland at about 3%

That's pure voodoonomics. So yer saying the natural long-term real rate of interest in the Eurozone is going to be under 1%?

Oh yeah, I forgot, it's a new paradigm.

 

[tyoung]

Sidewinder
In August their European economist said that 3.5% would be very near the Natural rate. I agree with your comments but I don't set interest rates. Central Bankers do and they are appointed by politicans who are elected by the great unwashed who want easy money.
That's just the way it is!

 

[walk2dewater]

If I could predict interest rates accurately 12 months out I'd give up the day job. I see 3.75 to 4% early next year but after that the crystal ball gets very cloudy.

I've been doing a decent job last 2 yrs, and I have returns to prove it.

Spring 05 I distinctly remember Dan McLoughlin saying he thought rates were heading down. Can you imagine?

Global rates are going MUCH higher in coming years.

[See the interest rate thread for my arguments on this]

 

[Duplex]

Duplex
While I aree that the global economy will have an effect I disagree with you on the nature of the effect. A US recession will lead to a rapid fall in Global interest rates which could lead to the fabled soft landing for the Irish property market. It looks like US rates have peaked. As I've posted before,from an Irish point of view, the worst thing would be that the fed might be forced to come back and raise interest rates next year in the face of stubborn inflation. Some thing like that is happening in GB and AUS right now. Let's see how it plays out.
Sidewinder
If I could predict interest rates accurately 12 months out I'd give up the day job. I see 3.75 to 4% early next year but after that the crystal ball gets very cloudy.
BTW Morgan Stanley's European Team see the natural IR for Euroland at about 3%
Babytooth
I'm sorry but i don't follow your post.
" High rates imply low yields" (on what?)

The low interest rate era is a product of deflationary forces caused in part by the emergence of $1 an hour labour costs in Asia (in the main). Competing cheap labour will be the big story for the old economies over the next two decades, cheap labour that can produce complex products and provide sophisticated services to the same standards as the West but more profitably. The pricing power of labour in the West is weak and will remain so because we have to compete.

Similarly the pricing power of an acre of Irish urban or agricultural land is weak because of competition from cheaper, more productive, better located and serviced land elsewhere. We have masked these economic truisms with debt but that option is a stop gap and a stop gap you can only use once every couple of decades.


P.S. The Fed are pushing the story that inflation is back under control. True or not I don't know. But I know one thing for certain what ever happens in the US will happen here in spades. The money markets seem to think that the Fed will be back fighting a deflationary recession soon, and fighting with a weak dollar and the mother of all deficits, it will get messy.

http://www.bloomberg.com/markets/rates/index.html

 

[StoppedClock]

Sidewinder
In August their European economist said that 3.5% would be very near the Natural rate. I agree with your comments but I don't set interest rates. Central Bankers do and they are appointed by politicans who are elected by the great unwashed who want easy money.
That's just the way it is!

Correction: Central Bankers are appointed by German politicans and their great unwashed happen to like high interest rates because they are savers not borrowers.

 

[tyoung]

W2dew
If I remember correctly you predicted 8% by 08. That's way off the map. I find it hard to imagine (Breakup of the euro is the only possible scenario).
If it does happen this would be the worst possible scenario for the Irish economy. There won't be enough stretchers to go round.

Duplex
If I read you correctly you're predicting a deflationary recession/ Depression.
Deflations do happen but they're very rare particularly in an era of fiat money. There was a global deflation in the 30s and Japan had a deflation in the 90s.
There certainly has been a massive build up of debt and global inbalances partly as a result of previous attempts to "fight" deflation/recession. Central bankers would move heaven and earth to prevent deflation taking hold. In general deflation has been a bad prediction.
So if I had to pick between the two scenarios I go with W2deW 's inflationary scenario although I think it's unlikely.