House Market Weakening?

[Neffa]

The Irish long run average would also have been when mortgage interest rates were not atypically 10-15% . The current rate is about 3.75% .

What the euro has not changed is the long term ratio betwen average house prices and average rents but I cannot find those figures...probably a state secret.

The multiple is actually for the UK & US, including periods of IR's in double figures. I don't know what the Irish long run average is/was. I think the point is that if you are looking at a 25 year commitment then you should think about what these fundamental ratios have done over time.

There is an OECD paper on your second point which shows Ireland off the chart in comparison to other countries. I think the link must be on AAM somewhere. I'll see if I can find it.

 

[conor_mc]

Just another little anecdote from the Indo about the Eircom Auperannuation Fund "rebalancing its portfolio" by flogging off the Pavillions in Swords....



Interesting how they talk about rental yields of 3-4%. Am I right in thinking that yields on commercial property has historically been higher than residential yields i.e. in the region of 5-7%?

 

[Guest107]

The multiple is actually for the UK & US, including periods of IR's in double figures. I don't know what the Irish long run average is/was. I think the point is that if you are looking at a 25 year commitment then you should think about what these fundamental ratios have done over time.

I seem to remember a long term 4x ratio in the UK but will concede a 6x here going forward to reflect our semi permanent low interest rates. 10x is obviously off the wall .

There is an OECD paper on your second point which shows Ireland off the chart in comparison to other countries. I think the link must be on AAM somewhere. I'll see if I can find it.

Look forward to that. Rent is a fundamental and fast changing 'real measure of worth' for the property and I think that there is also a long term ratio between annual average rents and annual average home values somewhere. That is even less flattering than the values/income rations above I'll wager . [broken link removed] avers to it but it is strikingly absent from discussion as a statistic in Ireland .......maybe we dont rent or maybe its an inconvenient statistic

Note that page 3 of same pdf shows some fascinating top of boom spikes and what happens afterwards to the key ratios (income-house prices) (house price-rent) and (mortgage payment - incomes)

Its interesting that the house prices to rent ratio is NEVER discussed in Ireland ....really.

 

[bearishbull]

Investment banks begining to call property slump

Morgan Stanley predicts global property slump amid rising interest rates

SINGAPORE (XFN-ASIA) - Rising global inflation and interest rates will
likely trigger a global property slump following the boom in recent years,
Morgan Stanley said.
The recent property boom was triggered by a prolonged period of low interest
rates globally, but this trend is reversing, with rates on the uptrend, it said.
"As inflation picks up simultaneously around the world, interest rates are
rising everywhere, and the property boom is turning into a bust," Morgan Stanley
economist Andy Xie said in a note.
"As the global economy is likely to experience rising inflation and cooling
demand, all assets are likely to depreciate," he said.
"Bonds began to decline first. Property, equity and commodities are
following.
"A soft landing for global property is possible but not assured. When
property in China and the US -- the growth engines of the global economy -- turn
down together, the global economy could experience a recession," Xie said.
Xie said property booms rarely have a soft landing, but that there is
confidence in the market that central banks will help achieve a soft landing.
"The seemingly soft landing in Australia and the US in the past two years
has lulled investors into believing that other markets will follow the same
pattern," Xie said.
"The difference is: these markets began to soften in a strong global
economy. The global economy has peaked out and could provide little support for
growth engines like China and the US when their property markets turn down," he
said.​

 

[Remix]

Trichet said the other day that at their last hiking meeting a major consideration in the decision to raise rates was because house prices are rising way beyond comfort levels.

I've just sent a note off to the ECB (info@ecb.int) referring to the latest reports on accelerating house prices in Ireland and asked if Mr. Trichet is being kept aware of the alarming situation here.

For what it's worth !

 

[bearishbull]

Trichet said the other day that at their last hiking meeting a major consideration in the decision to raise rates was because house prices are rising way beyond comfort levels.

I've just sent a note off to the ECB (info@ecb.int) referring to the latest reports on accelerating house prices in Ireland and asked if Mr. Trichet is being kept aware of the alarming situation here.

For what it's worth !

LOL

 

[walk2dewater]

Am I right in thinking that the TSB/ESRI report for a particular month actually represents market activity (sale agreed prices) from a few months previous? If the figures are compiled from TSB data, it could relate to the mortgage drawdown date rather than deal strike prices for that month. So the reported growth for May represent deals done in Feb or March that are closing in May when the mortgage is drawn down.

Is the TSB index measuring actual prices paid, or asking prices, or mortgage amount paid out?

 

[RugbyBoy]

Concerns in the UK!

[broken link removed]

 

[Chamar]

Trichet said the other day that at their last hiking meeting a major consideration in the decision to raise rates was because house prices are rising way beyond comfort levels.

I've just sent a note off to the ECB (info@ecb.int) referring to the latest reports on accelerating house prices in Ireland and asked if Mr. Trichet is being kept aware of the alarming situation here.

For what it's worth !

That's too funny! I'm not sneering, but like Trichet and friends even consider Ireland for a SECOND when they set interest rates. And who can blame them when Ireland barely accounts for 1% of the EU economy.

 

[gearoidmm]

Is the TSB index measuring actual prices paid, or asking prices, or mortgage amount paid out?

[broken link removed]

This paper from 1999 describes in excruciating detail the methodology used

 

[whizzbang]

Concerns in the UK!

One step down from "Anarchy in the UK!" ?

 

[Remix]

That's too funny! I'm not sneering, but like Trichet and friends even consider Ireland for a SECOND when they set interest rates. And who can blame them when Ireland barely accounts for 1% of the EU economy.

Oh agreed on that! and will that ever become more obvious if interest rates accelerate upwards for the sake of greater europe.

But note that he has expressed concern about house prices and money supply and today's numbers for M3 money supply in the eurozone are still too high.

So perhaps Ireland, Dublin in particular, although small and insignificant, can be viewed as a leading indicator, a warning if you like, of what could be in store for more significant parts of the zone if interest rates stay too low for too long.

 

[Guest107]

Oh agreed on that! and will that ever become more obvious if interest rates accelerate upwards for the sake of greater europe.

And they will. The last time M3 growth was around the 10% mark in Germany the Bundesbank as it then was ran a rate of around 4.5% for a long time .

See Here About 1994. Many of the macro indicators are the same as today .

[broken link removed]

4.5% base implies a typical mortgage rate of around 5.5-5.7% meaning that the 6% outer envelope for the mortgage rates is not that daft an assumption .

In 1993 (which is not comparable to today as Germany was BOOMING then ) the base rate was up around 8% implying an eye watering Mortgage rate of about 9%


[broken link removed]

 

[room305]

Worth remembering also that the prospect or even the event of a crash here won't register much with the ECB. In the UK, they lowered the rate by 25bps to ward off a possible crash. However, that won't be forecoming here no matter how much pain people are feeling.

EBS are selling George's Dock ... the list of top property assets being sold is staggering. Coupled with information from Merrill Lynch that their wealthy clients are getting out of property this should serve as a real warning.

http://www.unison.ie/irish_independent/stories.php3?ca=302&si=1641854&issue_id=14265

 

[Guest107]

Worth remembering also that the prospect or even the event of a crash here won't register much with the ECB.

They will relish it. We did not control our banks and stop the foolish lending and bubble economy is their attitude. Spain is in the same boat.

Look to Germany c.1994 for parallels I would say.

 

[Calina]

So perhaps Ireland, Dublin in particular, although small and insignificant, can be viewed as a leading indicator, a warning if you like, of what could be in store for more significant parts of the zone if interest rates stay too low for too long.

Ireland, Dublin as canary in the mine, you mean?

 

[walk2dewater]

Ireland, Dublin as canary in the mine, you mean?

I see the point, i.e. ECB announces to rest of Eurozone and new EU states, "look at Ireland, see what can happen unless you carefully manage how ECB rates affect your particular economy"..."there are benefits AND responsibilities to being in the Eurozone" ... "you must use domestic mechanisms to prevent local asset bubbles" etc etc

in future, ECB could even propose penalties for countries that 'threaten the stability of the euro' through reckless domestic policies.

But all this is possible only if the perceived blame is on Irish govt. and not big bad Trichet and his henchmen in Frankfurt.

On other hand, the very credibility of a one-size fits all interest rate and the € itself would be threatened if the perception is that it was the ECB/EU that messed up to Ireland Inc.

Interesting times ahead methinks.

 

[Guest107]

in future, ECB could even propose penalties for countries that 'threaten the stability of the euro' through reckless domestic policies.

nahhhhhhh , look at the growth and stability farce where Italy and France run whatever deficit they want and damn the treaties.

But all this is possible only if the perceived blame is on Irish govt. and not big bad Trichet and his henchmen in Frankfurt.

Irish central nbank and IFSRA regulate lending policies.

On other hand, the very credibility of a one-size fits all interest rate and the € itself would be threatened if the perception is that it was the ECB/EU that messed up to Ireland Inc.

They did warn us but the mania is truly homegrown. If you ever mention a "Property Ladder" to a German they simply buy you some drugs and recommend a strong dosage to stop you gibbering at them

 

[thewatcher]

I see the point, i.e. ECB announces to rest of Eurozone and new EU states, "look at Ireland, see what can happen unless you carefully manage how ECB rates affect your particular economy"..."there are benefits AND responsibilities to being in the Eurozone" ... "you must use domestic mechanisms to prevent local asset bubbles" etc etc

in future, ECB could even propose penalties for countries that 'threaten the stability of the euro' through reckless domestic policies.

But all this is possible only if the perceived blame is on Irish govt. and not big bad Trichet and his henchmen in Frankfurt.

On other hand, the very credibility of a one-size fits all interest rate and the € itself would be threatened if the perception is that it was the ECB/EU that messed up to Ireland Inc.

Interesting times ahead methinks.

How the Irish media spin it compared to the european media may be at either end of the spectrum,but as long as the ECB get the message to the countries that count,i don't think they'll really care what the irish media have to say about them.

 

[Duplex]

The Irish blaming the ECB for the upcoming frightfulness is a bit rich. The issue of divergent economies in the Euro area was supposed to be addressed by national fiscal policy, e.g. using tax to dampen any speculative asset bubbles. The fact that the government has not acknowledged that a bubble exists in the property market, suggests that they will not take any action. The Koreans, Chinese and Spanish have recently announced drastic policies to dampen speculative demand in their respective markets, the Irish government it seems are happy to allow a market solution to the mania. So our government is either staggeringly apathetic, or stunningly incompetent. I favour the latter; to be fair to them.