Future price of Irish properties

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Rates have increased to 2.5%, does anyone think this will have any impact on starry eyed borrowers?
 
micheller said:
Rates have increased to 2.5%, does anyone think this will have any impact on starry eyed borrowers?
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It isn't much really and everybody knew it was coming as early as last year. Th eoverall increase this year will be 1% and probably the same will happen the year after. No surprise at all.
 
Loki said:
It isn't much really and everybody knew it was coming as early as last year. Th eoverall increase this year will be 1% and probably the same will happen the year after. No surprise at all.
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If this transpires to be true it will be interesting to see how many people who took out their loans at 2% will be able to cope with rates at 4%. The banks say they stress test for a 2% rise in interest rates.
 
beattie said:
If this transpires to be true it will be interesting to see how many people who took out their loans at 2% will be able to cope with rates at 4%. The banks say they stress test for a 2% rise in interest rates.
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You also have to remember that these are the ECB base rates. You can probably add 1-1.5% on top of those rates from competitive lenders.
 
I know that it's no surprise..I'm just wondering (hoping?) if any of this can slow the property juggernaut...
 
micheller said:
I know that it's no surprise..I'm just wondering (hoping?) if any of this can slow the property juggernaut...
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Don't think it's enough pain at the moment.
 
Actually what I find most interesting about today's developments at the ECB, is the fact that Trichet said they actually contemplated a 0.50% increase.
 
Rising rates in the Euro Area add a little more to the risk side of the equation.

Any risk analysis of the Irish property market might include the following

1. Sustainability of American deficit spending.

2. The impact of a slowing property market on American GDP

3. The Continuing conundrum of the ‘Inverted Yield Curve’ on Treasury Bills.

4. The sustainability of debt accumulation by Irish Consumers.

5. The degree of reliance on the construction sector for growth in Ireland.

6. The impact of falling competitiveness on Irish industry/ employment in relation to a growing trend towards manufacturing and services outsourcing.

7. The ‘Yield Squeeze’ impact on property investors in light of rising borrowing costs.

8. Systemic Shock Middle East regional conflict, Oil shock, Bird Flu are among the current issues exercising the minds of the chattering classes.

9. Credit Crunch, brought on by some of combination of increased risk premiums for mortgage backed securities, hedge fund implosion causing cross defaults, or a dollar shock.

10. Employment shock, as a result of the downsizing/closure of a large Irish based employer.

11. Sentiment swing away from a particular investment fashion.

12. Government intervention, taxation policies that might favour one type of investment over another.

13. Falling rents, demand destruction and the present exploitation of future demand by builders.

There is the possibility that the Trade/ Business Cycle has been confined to history by the emergence of a new class of bureaucrat employing macroeconomic finesse unseen before in history. If this is the case we have nothing to worry about.
 
soma said:
Actually what I find most interesting about today's developments at the ECB, is the fact that Trichet said they actually contemplated a 0.50% increase.
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That is very interesting, didn't expect that. That would have thrown the cat among the pigeons as an expected rate of 3% by year end would have probably had to be revised upwards
 
beattie said:
That is very interesting, didn't expect that. That would have thrown the cat among the pigeons as an expected rate of 3% by year end would have probably had to be revised upwards
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I get the impression this is by way of a light hint for next time...
 
Duplex said:
The Continuing conundrum of the ‘Inverted Yield Curve’ on Treasury Bills.
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Duplex,

What exactly is this, and what is the implication for interest rates or other variables?

Thanks.

Neffa
 
Calina said:
I get the impression this is by way of a light hint for next time...
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I got that feeling too. While the standard "not the start of a series of ex-ante rate hikes" was rolled out Trichet has stated on many occasions that he is proud of the ecbs status as 'most predictable' central bank. Surprises aren't good for the market he suggests so they are very careful to give big hints at what direction they are going.
 
An inverted yield curve means that long-term rates are lower than short-term rates and can imply an impending recession. An alternative view is that demand for long-dated bonds is keeping long-term rates low.
 
Marc Coleman, whom I would normally classify as a moderate property bull (genuinely believes in the fundamentals causing the price increases), has an interesting article in today's Irish Times.

It's not an outright bear-ish article but the 'tone' of the article is a little peculiar for him.

Not sure of the posting regulations here but a small snippet:

To summarise: last summer the OECD thought our property market was overvalued by 15 per cent.

The Central Bank of Ireland agreed but fretted that admitting as much would scare the market. The Central Bank governor then said that house price growth was moderating, but added that he would be concerned about any resumption in double-digit house price inflation.

But that - thanks to runaway growth in mortgage lending - is precisely what is actually happening.
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soma said:
To summarise: last summer the OECD thought our property market was overvalued by 15 per cent.

The Central Bank of Ireland agreed but fretted that admitting as much would scare the market. The Central Bank governor then said that house price growth was moderating, but added that he would be concerned about any resumption in double-digit house price inflation.

But that - thanks to runaway growth in mortgage lending - is precisely what is actually happening.
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I always wonder about certain types and styles of reporting. For example there the reporter is telling us what was behind the reasoning of what the banker govener said. That is beyond speculatiing what the bank was doing but telling you why with certainty. He then goes to tell us that there intent failed. Generally after reading something like this you get the general impression that the bank is a a lot more worried than if the facts were reported on and the specultive opinions was more defined as opinion.

I guess if the article was an opinion piece that is fine but it seems to be more and more in reports these days.
 
Marc Coleman, whom I would normally classify as a moderate property bull (genuinely believes in the fundamentals causing the price increases), has an interesting article in today's Irish Times
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.

It's not an outright bear-ish article but the 'tone' of the article is a little peculiar for him.
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I suppose any property bull worth his salt and looking to 'protect' the sustainability of present valuations would be keen to avoid a short sharp final manic stage in the cycle.
 
roryodonnell said:
Prices should have stablised about 18-24 months ago. But the demand out there from investors is pushing it up. The most recent purchases will have no increase in value for 5-7 years. It may increase marginally up until the summer, but after that it will remain flat. These "investors" will get nervious over the xmas period and may decide to sell then. So, the storm will come early next year, say March 16th 2007 when the ECB puts the base rates up to 3.5. (5 year fixed = 5.8 - 6.5, variable = 5.25 - 6. or just over 3000pm on a 500k mortgage @5.5 over 25 years).
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From the Indo today

[FONT=Verdana, Arial] PROPERTY investors and second-home buyers may have ultimately shot themselves in the foot if interest rates continue to climb, the OECD warned last night.
The small but growing number of buy-to-let investors could be in for a nasty surprise if interest rates rise while rents remain static or fall, the economic think tank predicted in its latest report which was released yesterday.
"With property investors taking such an active part in the market, the question is to what extent have they have driven up house prices.
"Attracted by the substantial capital gains and small carrying costs, many investors have entered the buy-to-let market, possibly displacing first-time buyers and contributing significantly to housing demand and house prices," the OECD said in its report released yesterday.
"The main concern - and another indication of overshooting prices - is the growing divergence between property prices and the income derived from rent.
Indeed, rents actually fell from 2002 to early 2005. The position of those in the buy-to-let segment of the market will continue to be sustainable only if interest rates stay low.
"However, if mortgage rates were to rise, many of these investment positions would be loss making," it said.
Moreover, it warned that Ireland's overvalued housing market could also have serious implications for the financial stability of the country.
A slowdown, for example, in the expected growth rate of disposable incomes could result in a substantial drop in house prices, the report warned.
"This would be particularly difficult for households that are highly leveraged in the buy-to-let and secondary home markets," it noted.
"The current levels of rents is not adequate to cover debt service costs for new or very recent investors so their financial position will be squeezed if prices do not rise as fast as they had hoped. Even if house prices level off, there is a potential macroeconomic and financial stability issue that could arise from decline in residential construction," it warned.
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