Current public sentiment towards the housing market?

[room305]

I'll say it again, ECB rates are going much higher, much quicker than any public commentator in Ireland has thus far said/wrote.

Isn't this Trichet's conundrum though? Rates should be much, much higher here and in Spain. As it stands real interest rates are still negative. However, for Germans such high interest rates would be punitive, punishing their recovering economy.

I think the author was spot on about the German fear of inflation. Listening to many media commentators here, you'd almost imagine it was a good thing.

 

[walk2dewater]

for Germans such high interest rates would be punitive, punishing their recovering economy.

No. Germans collectively and individually have very very low debt levels and are prudent spenders. Why would higher rates hurt them? It is a myth that Germany has a weak economy; go visit Germany and tell me what you see. Yes higher rates would strenghten the euro and hurt their massive exporting/engineering industrial complex. But higher rates would lower any imported inflation, such as fossil fuels.

There will be no breaking ranks from the DMark/Franc "Euro". Perhaps some indirect forgiving of debts [e.g. ECB fornally declares Italian bonds same investment grade as Germany], but Italy, Spain, Ireland etc. have more to lose than gain by exiting the euro. All euro denominated debts will be repaid, one way or the other.

Germans have an almost irrational fear of inflation, as alluded to in that article. For that reason alone, I reckon ECB rates will drift ever higher over the next 2 years, to minimum 8%.

Us Irish better be very happy indeed with our recent purchases on German credit.

 

[ivuernis]

Germans have an almost irrational fear of inflation, as alluded to in that article. For that reason alone, I reckon ECB rates will drift ever higher over the next 2 years, to minimum 8%.

Even with my bearish outlook I can't see rates going that high over the next couple of years, that would tank almost every property market across Europe. 8% would warrant a 0.25% rise almost every month for the next 2 years to reach that level. I can certainly see 4-5% but 8%?

 

[bearishbull]

No. Germans collectively and individually have very very low debt levels and are prudent spenders. Why would higher rates hurt them? It is a myth that Germany has a weak economy; go visit Germany and tell me what you see. Yes higher rates would strenghten the euro and hurt their massive exporting/engineering industrial complex. But higher rates would lower any imported inflation, such as fossil fuels.

There will be no breaking ranks from the DMark/Franc "Euro". Perhaps some indirect forgiving of debts [e.g. ECB fornally declares Italian bonds same investment grade as Germany], but Italy, Spain, Ireland etc. have more to lose than gain by exiting the euro. All euro denominated debts will be repaid, one way or the other.

Germans have an almost irrational fear of inflation, as alluded to in that article. For that reason alone, I reckon ECB rates will drift ever higher over the next 2 years, to minimum 8%.

Us Irish better be very happy indeed with our recent purchases on German credit.

Germans collectively remember the hyper inflation of the 1920's that in part led to hitlers rise.Higher rates could hit businesses ,many of germanys export would have significant debt due to the capital structure manufacturing companies tend to have. Yes higher rates=higher euro but lower oil/commodities but the net effect may be higher priced goods and reduced demand for german exports. we'll see in a year or two anyway!

 

[bearishbull]

8% rates in short term would lead to a break up of euro zone,italy can barely keep its head above water with negative/low real rates

 

[room305]

8% seems very high to me also. While I do see the pace of increases quickening it is hard to imagine more than six increases next year. I also think Trichet will stick with 0.25% increases.

I think a base rate of 5% by year end next year is realistic.

To get back on topic - I really do not think many FTBs are prepared for such increases. Many are already feeling the pain and we will probably have three more rises this year!

 

[southsideboy]

There is no way that interest rates will hit 8%. I think the ECB would be very reluctant to ever raise rates that high and although the German economy will probably recover to a certain degree I don't think that the economic situation in Europe could warrant 8% over the next 2 years. I think perhaps 4% would be more realistic and that will hit many homeowners. Also I think terrorism has a major role to play in Europe. One 9/11 style attack could hault economic growth and also interest rates. Having said that I don't think interest rates are the only factor which could influence a downturn in the Irish property market. But I think in the short term high interest rates would be one of the main factors which could lead to a crash as opposed to a soft landing. I don't really see where walk2dewater is getting a figure of 8% from? Are you expecting some sort of economic miracle in 2 years?

 

[beattie]

8% rates in short term would lead to a break up of euro zone,italy can barely keep its head above water with negative/low real rates

It will come down basically to who calls the shots at the ECB, if Italy can't get its own house in order will they be cut any slack by the more prudent memebers. I doubt that ECB rates will be held down just for them. I can see 6% in 08 if inflation isn't curtailed

 

[walk2dewater]

I can't see rates going that high over the next couple of years, that would tank almost every property market across Europe. 8% would warrant a 0.25% rise almost every month for the next 2 years to reach that level. I can certainly see 4-5% but 8%?

ECB rates predictions, these are minimums:
Dec 06 -- 4%
Dec 07 -- 7%
Dec 08 -- 8%

Give or take BoE will be same. Fed will be about 2-4% higher. BoJ will be 2-4% lower.

Gold will be min €1000/oz. US dollar will be 1.5-1.75 to the euro.

Hey, all In My Humble Opinion....

 

[beattie]

Also I think terrorism has a major role to play in Europe. One 9/11 style attack could hault economic growth and also interest rates.

What????? Are you saying that the property industry here would almost welcome an attack if it provided more liquidity at a time when it will be much tighter than it currently is

 

[Calina]

Also I think terrorism has a major role to play in Europe. One 9/11 style attack could hault economic growth and also interest rates.

Really? So we have had two major terrorist attacks in Europe so far, namely in the UK and Spain and they have caused...oh yeah...a bit of anger and resentment towards their local governments but not much noticeable to the wider European economy as a whole.

The problem with 9/11 is that the first one has a nice impact caused by it being completely out of the blue. If there is another one in Europe...and it's no means certain, its impact will be very different, particularly since we didn't centralise a whole pile of financial business in a single landmark building complex. I don't think terrorism *has* a major role to play in Europe. I think it *may* have an impact if someone succeeds but it's by no means certain and I wouldn't be relying on it to keep down interest rates.

 

[Calina]

..... I don't think that the economic situation in Europe could warrant 8% over the next 2 years. I think perhaps 4% would be more realistic and that will hit many homeowners.

and while I'm at it...the economic situation in Ireland right now merits it and property is rising in cost in a couple of other European countries. While I'd be reluctant enough to go as high as 8% I would equally not bank on them staying down as far as 4% in the short to mid term. I suspect they'll go higher for a while before coming back down to the more reasonable 4%.

 

[Marie]

Interesting point Marie. In the breathlessness accompanying oft quoted statistic from the TSB/ESRI house price index, that the average house has increased 270% in the past ten years, it often overlooked that in the same period the ISEQ index rose 230%.

Given the amount of leverage required to get invested in property and the other incidental costs involved, I often wonder if a basket of Irish bluechips would have proved a better buy over that ten year period.

This is why I sold off the (inherited) family home in Dublin 2 years ago against a barrage of advice from family, friends and neighbours. The myth/mantra was 'You can't go wrong; keep it as an investment - you can let it out at sky-high rent.......there's a housing shortage due to incoming migrants". However personal research and doing the arithmetic for after-tax-after-costs income revealed that far from 'paying for itself' the 50% mortgage would need subsidising.........plus the prospect of all the work of landlording and worry about the market which this course would have entailed.

With the proceeds I paid off the outstanding mortgatge on my PPR, maximised my pension contributions and invested the rest in SSIAs and a 7-day notice deposit account paying 4.8% and can consider early retirment at age 60 in 2 years time as my workplace has engaged in massive restructuring and service-cutting (which didn't bother me unduly as I have this secure savings buffer). For the first time in my life I have not had the constraint of a tight budget so afford foreign travel, a few desirable antiques of quality and treats for nieces and nephews.

The disbelief of some posters here that interest rates could climb to 8% is interesting. My interest was 8.0% on the mortgage on this, the first home I'd ever owned (1995). Interest-rates were deemed 'low' as they had been something like 11.5% at the height of the 'boom' here in the UK about 5 years previously!!!

 

[Marie]

.........my companion has just corrected that last comment with the information that interest rates went above 14 % in 1989-90 in the UK.

 

[walk2dewater]

a 7-day notice deposit account paying 4.8%

Where, if may I enquire, are you getting this Marie?

 

[southsideboy]

and while I'm at it...the economic situation in Ireland right now merits it and property is rising in cost in a couple of other European countries. While I'd be reluctant enough to go as high as 8% I would equally not bank on them staying down as far as 4% in the short to mid term. I suspect they'll go higher for a while before coming back down to the more reasonable 4%.

So what if the economic situation in Ireland merits high interest rates? Debt levels would never have been so high if we had control over our own interest rates. The fact is we don't. Germany and other big countries in the Eurozone dictate interest rates. The ECB are only concerned about the overall economy, not insignificant economies like Ireland. Just because we should have higher interest rates, doesn't mean we will get them.

 

[southsideboy]

Really? So we have had two major terrorist attacks in Europe so far, namely in the UK and Spain and they have caused...oh yeah...a bit of anger and resentment towards their local governments but not much noticeable to the wider European economy as a whole.

The problem with 9/11 is that the first one has a nice impact caused by it being completely out of the blue. If there is another one in Europe...and it's no means certain, its impact will be very different, particularly since we didn't centralise a whole pile of financial business in a single landmark building complex. I don't think terrorism *has* a major role to play in Europe. I think it *may* have an impact if someone succeeds but it's by no means certain and I wouldn't be relying on it to keep down interest rates.

Who is relying on terrorism to keep interest rates low?? Of course it is only a possibilty. I was merely pointing out that it could play a big role in the recovery of European economies. You must be very naive to think that a major 9/11 style attack in Europe would not affect fragile recovering economies. London and Madrid were minor attacks compared to 9/11. A large terrorist attack could have a severe impact on consumer confidence.

 

[walk2dewater]

Who is relying on terrorism to keep interest rates low?? Of course it is only a possibilty. I was merely pointing out that it could play a big role in the recovery of European economies. You must be very naive to think that a major 9/11 style attack in Europe would not affect fragile recovering economies. London and Madrid were minor attacks compared to 9/11. A large terrorist attack could have a severe impact on consumer confidence.

The affects of the real-negative rates in the West since 9/11 are a far greater threat to Western civilization than any terrorist. Preventing inflation is not an optional thing, it is paramount.

 

[beattie]

Who is relying on terrorism to keep interest rates low?? Of course it is only a possibilty. I was merely pointing out that it could play a big role in the recovery of European economies. You must be very naive to think that a major 9/11 style attack in Europe would not affect fragile recovering economies. London and Madrid were minor attacks compared to 9/11. A large terrorist attack could have a severe impact on consumer confidence.

London for years has lived with terrorist attacks and it didn't exactly dent consumer confidence over there. I think you are overstating the case. Also many people now believe that Greenspan went too far after 911 and caused the huge housing bubble which is in the nascent stages of unwinding over there which will dwarf the effect of the dotcom boom.

Are we more indebted (per person) than the US now? If so we could get it even worse than they are going to get

 

[joe sod]

There will be no breaking ranks from the DMark/Franc "Euro". Perhaps some indirect forgiving of debts [e.g. ECB fornally declares Italian bonds same investment grade as Germany], but Italy, Spain, Ireland etc. have more to lose than gain by exiting the euro. All euro denominated debts will be repaid, one way or the other.

Germans have an almost irrational fear of inflation, as alluded to in that article. For that reason alone, I reckon ECB rates will drift ever higher over the next 2 years, to minimum 8%.

Us Irish better be very happy indeed with our recent purchases on German credit.

Do you see the euro falling apart then. How can it continue to hold economies like Germany and France who would prefer higher interest rates with Italy, Spain and Ireland who need very low interest rates. If it did fall apart how would national currencies come back into existence. In 2001 Argentina defaulted on its national debt. This was also talked about in Ireland in the mid eighties. What would happen if there was large scale debt default by individuals in ireland. I think this is very likely.