Current public sentiment towards the housing market?

[Duplex]

Does indeed sound like following the herd, but may actually be not so stupid if you think the interest rates are more likely to come down again



Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result. This is bad for Germany (the world's largest exporter) and will affect growth there, and throughout the eurozone. The ECB may be forced to drop rates again to prevent the Euro rising too much against the dollar.

I sometimes think the most likely scenario to force interest rates, and thus Irish house prices down, up is a continuing boom in the US and a simultaneous recovery in Germany. But neither of these things seem to be really happening. Since the Fed and the ECB dropped the rates so aggressivly post 9/11 everyone seems to be working off a new mean interest rate of about 4 % rather than 8 % in the past (maybe it really "is different" ).

The US economy is in trouble, to the tune of $12 trillion dollars (the deficits) . The yield curve is inverted, imports exceed export by 50+%, the housing bubble is bursting, the savings rate is 'negative', oil prices are rising as is inflation. Incomes growth is static (to falling).

Cutting interest rates will not fix structural problems in any economy as the rate cutting episode post the Dot-com bust has proven.

 

[Bedsit]

Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result. This is bad for Germany (the world's largest exporter) and will affect growth there, and throughout the eurozone. The ECB may be forced to drop rates again to prevent the Euro rising too much against the dollar.

Could it also be the case that a falling dollar would require the Fed to push up rates even higher to stop countries like China dumping US bonds? If so then would it be correct to assume that the ECB would have to follow suit with higer interest rates also so that the Euro did not devalue too much against the dollar?

 

[CelloPoint]

[more money in] Northern Rock rather than Brick and Mortar

Hilarious!

 

[phoenix_n]

Many people are predicting that the US economy could run into trouble and the dollar may decline in value wrt the euro as a result.

Does anyone know what the 'smart money' is doing. There are financial institutions out there who employ people solely to analyse such things.

 

[room305]

Could it also be the case that a falling dollar would require the Fed to push up rates even higher to stop countries like China dumping US bonds? If so then would it be correct to assume that the ECB would have to follow suit with higer interest rates also so that the Euro did not devalue too much against the dollar?

It's certainly possible. Countries like Turkey and Iceland were pretty much forced to do this during the worldwide May sell-off of stocks and bonds, as global attitudes to risk were reassessed.

 

[phoenix_n]

Hilarious!

Thanks. I try my best.

 

[Bedsit]

Credit card debt increases by 18%

I mentioned this in a recent post and an article in today's Irish Times seems to confirm this. The URL (requires subscription) is:

[broken link removed]

What will also be interesting is to keep an eye on is the number of credit cards in Ireland. This figure could also rise if people were to switch to one of those low introductory, interest free offers to delay paying their debts. The latest figures I can find on the number of credit cards is from the Irish Bankers Federation for 2004 ()

This figure is 2.3 million. Does anyone know of more recent figures?

 

[Duplex]

Credit card debt increases by 18%

I mentioned this in a recent post and an article in today's Irish Times seems to confirm this. The URL (requires subscription) is:

[broken link removed]

What will also be interesting is to keep an eye on is the number of credit cards in Ireland. This figure could also rise if people were to switch to one of those low introductory, interest free offers to delay paying their debts. The latest figures I can find on the number of credit cards is from the Irish Bankers Federation for 2004 ()

This figure is 2.3 million. Does anyone know of more recent figures?

Table C14, in Latest Monthly Stats from the Central Bank.

[broken link removed]

 

[phoenix_n]

This was inevitable really. Having thousands and thousands of euros in equity in ones house lends people to think of themselves as richer than they really are. People have to know that its only in the realisation of such funds that makes them rich.

"If you cant afford to pay cash. You cant afford it."

 

[room305]

The house as a cash machine phenomenon has been driving the U.S. economy for a while now. However, with falling or stagnant prices and rising rates equity withdrawals for consumer spending will of course fall dramatically.

However, I'm not convinced that such behaviour - releasing home equity to fund lifestyle purchases - is really that common here.

 

[Guest107]

releasing home equity to fund lifestyle purchases - is really that common here.

Remortgages are common but it MAY be that they use that equity release to buy investor properties instead , some do equity release to fund their demanding lifestyle

 

[CelloPoint]

Someone on over on boards.ie was saying that we are entering new unchartered territory when it comes to real estate economics and that perhaps, because of globalisation and rising populations worldwide, you can now expect to pay x10 your annual salary on a humble place to live in. This is by virtue of the fact that it is so competitive out there and social concerns are gone out the window in favour of profit.

I'm not sure whether to fob this off as 'new economic parardigm' PR-speak rubbish or to consider that this may actually play a part? The rich have always controlled a disproportionate amount of land, and with a highly pronounced rich-poor divide being a by-product of globalisation, perhaps things can only get worse for the new 'working poor' (afaik, anyone earning under E35k) rather than better

 

[walk2dewater]

Someone on over on boards.ie was saying that we are entering new unchartered territory when it comes to real estate economics and that perhaps, because of globalisation and rising populations worldwide, you can now expect to pay x10 your annual salary on a humble place to live in. This is by virtue of the fact that it is so competitive out there and social concerns are gone out the window in favour of profit.

Quick BUY NOW!

 

[Howitzer]

Someone on over on boards.ie was saying that we are entering new unchartered territory when it comes to real estate economics and that perhaps, because of globalisation and rising populations worldwide, you can now expect to pay x10 your annual salary on a humble place to live in. This is by virtue of the fact that it is so competitive out there and social concerns are gone out the window in favour of profit.

This isn't isn't even a coherant sentance, never mind a valid arguement. I wonder what a Polish plumber in Warsaw would make of that while he can't get a job in a country with a falling population with low birth rates and high emigration, which yet has incredibly high growth in property prices.

SPEC-U-LA-TION.

 

[phoenix_n]

This isn't isn't even a coherant sentance, never mind a valid arguement. I wonder what a Polish plumber in Warsaw would make of that while he can't get a job in a country with a falling population with low birth rates and high emigration, which yet has incredibly high growth in property prices.

SPEC-U-LA-TION.

Dont mention Poland to me. I occasionally work on assignment in poland. I have eaten out every day with beers and still only managed to spend 100euros for the whole week.

 

[Contrarian]

No doubt about it ,we're now entering the 'blow off' phase of this mania. A 'buy at any price' attitude is prevailing amongst the foolish who after paying crazy random figures that are seemingly being plucked out of the air, will be given a painful lesson in the flip side of excessive leverage. Average price €400,000, give me a break, you'd want at least a view of lower Manhattan for that kind of money.

 

[autumnleaf]

Someone on over on boards.ie was saying that we are entering new unchartered territory when it comes to real estate economics and that perhaps, because of globalisation and rising populations worldwide, you can now expect to pay x10 your annual salary on a humble place to live in. This is by virtue of the fact that it is so competitive out there and social concerns are gone out the window in favour of profit.

I wonder how much of the international property speculation is driven by cheap air fares, and how eager people would be to buy a place in Bratislava if they had to cough up a large chunk of money every time they wanted to visit. Air fares are currently artificially low because air fuel is not taxed, and also because airlines buy fuel in bulk which means that temporary increases in price affect them less than car drivers or other fuel users. However, a proposed E.U.-wide tax on air fuel would increase prices significantly, and if there are no dips in oil price for airlines to take advantage of, that cost will also be passed on to the passengers.


As for “rising populations”, well birth rates have been dropping in most developed countries and many developing countries too. Remaining countries with rising populations (eg Afghanistan, Rwanda) are not places from which we can expect many property speculators in the near future. Ireland has unusual demographics in which we currently have a large chunk of people in their mid-to-late 20s and early 30s, but we are an outlier in this respect and the age group trailing behind them (ie the prospective FTBs for the 2010s) are much fewer.

 

[phoenix_n]

No doubt about it ,we're now entering the 'blow off' phase of this mania. A 'buy at any price' attitude is prevailing amongst the foolish who after paying crazy random figures that are seemingly being plucked out of the air, will be given a painful lesson in the flip side of excessive leverage. Average price €400,000, give me a break, you'd want at least a view of lower Manhattan for that kind of money.

when i pass by that prospect hill development in finglas i am reminded of what a debt ridden place that place is going to be. That is a prime example of folks buying to get on the market and paying inflated prices where the location did not warrant it.

 

[Persius]

Don't forget immigration when considering rising populations. The population of the world continues to rise rapidly and there will always be an inflow of migrants from poorer countries to richer ones (legally or illegally). This will have an affect on the housing market, even if these people only enter the equation as renters. Then also consider the fact that most households now use two incomes to pay off a morgage rather than one.

So maybe it is true that the price of a house in relation to the average wage in a performing economy is now much higher than it was in the past, and it will remain at this higher level in the medium term. I hope not as I believe it will have serious social implications down the line (whatever about economic ones). But no-one knows.

 

[CelloPoint]

when i pass by that prospect hill development in finglas i am reminded of what a debt ridden place that place is going to be. That is a prime example of folks buying to get on the market and paying inflated prices where the location did not warrant it.

Other places that spring to mind include:

Northern Cross, Malahide Road (Darndale)
The Belfry, Citywest (Tallaght)
Priory Hall, Donaghmede

I know someone who's handed over 430k for a 2-bed flat in Summerhill (of the generic glass-house type) about 2 months ago. He's a stamp duty bill of another 30k. There's no way he'd get 460k for it were he to sell it tomorrow. The place isn't even built yet. The developer has sold them all and he's effectively got the money the bank, property crash or not.

Speaking of generic glass-house-type flats, what will these places look like after 20 years of Irish wind/rain (not forgetting shoddy management companies)? Will they actually have a resale value? Did we not learn from the communists that such forms of housing (out-of-town, large-scale complexes with no facilities) are recipes for social disaster?