short term interest rates are usually lower than long term interest rates.
when the opposite is true, the yield curve is said to be inverted.
http://en.wikipedia.org/wiki/Yield_curve
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when the opposite is true, the yield curve is said to be inverted.
http://en.wikipedia.org/wiki/Yield_curve
The Yield curve is in essence what trillions of dollars are saying will happen to the US economy over the next decade. This link explains Yield Curves.
http://fixedincome.fidelity.com/fi/FIHistoricalYield?refpr=obrfi12
Hibernicatio
Registered User
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Thanks for the insight. One more thing I did not know yesterday.
Interesting articles. From the fidelity one
So if interest rates start going lower, that is good news for property purchasers and means that people will be able to borrow more again. I suppose the question is how this is offset by the rising unemployment, that one would expect in a recession. Then we need to factor in the local supply and demand picture. And of course "sentiment" (the starting point of the thread).
It all looks very complicated, and I'm not sure how anyone can predict Irish house price developments in any direction with a high degree of certainty. I suppose a worst case scenario would be US recession and a resulting rise in unemployement in Ireland (which is highly dependant on the US), but a strong Eurozone economy (which is somewhat less dependant on the US) and Eurozone inflation, resulting in high interest rates in Ireland. But, to be honest it's hard to see the Eurozone economy remaining strong if companies can't export to the US.
I suppose if energy prices keep increasing, the ECB could say we have an inflation problem and increase interest rates, even if this results in a recession. But if this affected large Eurozone countries, I'm sure the politicians would move quickly to change the ECB's mandate or defintion of inflation (to exclude external energy costs).
All in all, I think the world economy has become dependant on low interest rates, and I can't see how this will change. Predictions of ECB rates rising to 6 or 7% or more just don't seem realistic to me. What does this mean for Irish house prices?
So if interest rates start going lower, that is good news for property purchasers and means that people will be able to borrow more again. I suppose the question is how this is offset by the rising unemployment, that one would expect in a recession. Then we need to factor in the local supply and demand picture. And of course "sentiment" (the starting point of the thread).
It all looks very complicated, and I'm not sure how anyone can predict Irish house price developments in any direction with a high degree of certainty. I suppose a worst case scenario would be US recession and a resulting rise in unemployement in Ireland (which is highly dependant on the US), but a strong Eurozone economy (which is somewhat less dependant on the US) and Eurozone inflation, resulting in high interest rates in Ireland. But, to be honest it's hard to see the Eurozone economy remaining strong if companies can't export to the US.
I suppose if energy prices keep increasing, the ECB could say we have an inflation problem and increase interest rates, even if this results in a recession. But if this affected large Eurozone countries, I'm sure the politicians would move quickly to change the ECB's mandate or defintion of inflation (to exclude external energy costs).
All in all, I think the world economy has become dependant on low interest rates, and I can't see how this will change. Predictions of ECB rates rising to 6 or 7% or more just don't seem realistic to me. What does this mean for Irish house prices?
Well, they've spent their savings, they've borrowed heavily, they're lifestyle is restricted and they're concerned about rising interest rates.
I'd imagine it's important to believe you've made a good investment if you are in that situation - you'd despair otherwise !
more on that here
Arthur Daley
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I'm new to this forum, but having reviewed this thread for quite a while, and having been a FTB last year, it seems the Bears are onto something about sentiment around property having taken a turn downwards.
The latest Central Bank stats on private sector lending show there's been a bit of slowdown in the rate of growth in mortgage lending since June. These numbers have increased at a crazy rate since 2001 so that now we owe €293m.
As far as a reduction of US interest rates goes it seems clear that there is quite a lag between the Eurozone and US cycles. There was on the way down so there will be on the way up. Thus I wouldn't be waiting for ECB rates to show a downward trend for at least a year to 18 months, despite the inverted curve in the US.
The latest Central Bank stats on private sector lending show there's been a bit of slowdown in the rate of growth in mortgage lending since June. These numbers have increased at a crazy rate since 2001 so that now we owe €293m.
As far as a reduction of US interest rates goes it seems clear that there is quite a lag between the Eurozone and US cycles. There was on the way down so there will be on the way up. Thus I wouldn't be waiting for ECB rates to show a downward trend for at least a year to 18 months, despite the inverted curve in the US.
That's a bit too simplistic. Rates will be lowered if there is evidence of a slowdown (and if inflation can be contained). I think the low rates and growing economies of the past 6 years or so has been an exceptional case which is unlikely to be repeated in the near future. In the event of an economic slowdown (or recession), borrowing will be restricted to private individuals with or without a rate cut.
There is also a relatively high risk at present of stagflation (high inflation, low growth) or even at worst case deflation (Japan, prices falling, debt burden increases massively each year, lack of investment).
B
Bedsit
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Another interesting point he made was when a journalist asked him how the ECB would react to some of the negative forecasts that had been published in the last couple of weeks. To this Mr Trichet pointed to the fact that even though at the end of last year some of the indicators were on the low side, the council increased rates as they were taking into account medium-term considerations. I think that this was a very important point and hint to ECB watchers.
bearishbull
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Any signs of the autumn selling season kicking off yet? Tomorrow is first of September and I have'nt seen any indications. A house up for auction nearby was on open view when i passed at lunchtime but it didnt look like anyone was inside looking and door was wide open, a similar nearby house was auctioned in april/may and every day it had open viewing it was jammed at lunch time.
A house went on sale down the road from me on the 14th Aug and sale agreed by the 24th. Strong demand or eager seller? Take your pick...
and what's that then?
bearishbull
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recession in next few years in america, and when america sneezes......
)Just cashed in on my house and am moving to France. House sold within two weeks for a lot more than I had expected. A number of couples and first time buyers put in bids around the stamp duty threshold of €317,500 but they were all blown out of it by a bidding war between several property investors. I know that I would hate to be a FTB in todays market trying to compete with the Investors and considering my place as an example, it would appear that property values may have a bit higher to go before they halt.
That's by no means a certainty , I can think of several other reasons why the yield curve might be inverted.
As a matter of interest Power would you mind telling teh general lcoation. When I spoke to a couple of agents recently about selling a property they told me tehre were no investors out there. As an investor myself I can't understand the logic of buying with current yields.
Roy
BB - isn't Friday a very unusual day for a viewing (normally Wednesday evening and Sat afternoon). Perhaps it was a private viewing or by appointment?
Roy
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As a matter of interest Power would you mind telling teh general lcoation. When I spoke to a couple of agents recently about selling a property they told me tehre were no investors out there. As an investor myself I can't understand the logic of buying with current yields.North County Dublin - 3 Bed Property
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