An Early Xmas Pressie For Irish Property Bears?

[walktothewater]

Imagine the shock of an ECB rate hike before Xmas, and another one in January, and so on...

http://www.forbes.com/markets/feeds/afx/20...afx2297210.html

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'Taken at face value, this (survey) suggests the German recovery is becoming less tentative and based on more solid ground,' said Lorenzo Codogno, co-head of European economics at Bank of America.

'All in all, the recent recorded improvement in several leading indicators is encouraging and, in our view, increases the risk of early ECB tightening in December,' he added

[OnlyMe]

As far as ECB rates go - do you think that Germany will allow their future and their manufacturing sector to be stuffed by a rapid increase in consumer debt funded inflation and a property boom? I don't think the French are too keen on it either judging by their banking and credit laws.

Personally, I very, very much doubt it. Those countries that have indulged in such "growth" will be hung out to dry.

[Flash]

Imagine the shock of an ECB rate hike before Xmas, and another one in January, and so on...

http://www.forbes.com/markets/feeds/afx/20...afx2297210.html

**************

'All in all, the recent recorded improvement in several leading indicators is encouraging and, in our view, increases the risk of early ECB tightening in December,' he added

That would shock the pants off people.

A Goodbody report out today is another warning on debt levels.

"The report, by economist Dermot O'Leary, says the accumulation of household debt over the past few years puts Irish households in a more vulnerable position in the event of an employment or interest rate shock."

http://www.rte.ie/business/2005/1026/debt.html

[dogbox]

do you think that Germany will allow their future and their manufacturing sector to be stuffed by a rapid increase in consumer debt funded inflation and a property boom?

I hope so

Human nature causes property booms. My little German adventure smells better by the day!

Some of you advise me property investment is unethical, but as far as I'm concerned its more ethical and meaningful than investing in companies that produce 'stuff' that in reality none of us need. I include in 'stuff' I - pods, latest all singing mobiles, constant computer up - grades, new cars, fashionable clothes , wide screen TVs - all nonsense and not really required. My life was no worse 15 years ago before all this junk was foisted upon me.

[walktothewater]

by my calculations going from a rate of 3.5% to 6% on €200,000 mortgage adds about €300/mth. It’s not unreasonable that the high end of the next ECB tightening cycle will be 4.5%. Where will the overstretched get the extra cash from? And make no mistake, the Irish ARE as overstretched financially as the Brits. Will people wake up from their 3hr daily commutes to and from their Legoland suburbias and wonder, ‘what the f*ck am I killing myself for’?

[E Powell]

The debt management companies I have large shareholdings

in have offices in Dublin and Cork. I feel like the good times

are here.

Up with IRs in the EU

Up with IRs in the UK

Bring on the correction.

Remember you house is free if you have an interest only mortgage.

You don't have to pay the principle sum back until you term expires.

[AssetIndigestion]

by my calculations going from a rate of 3.5% to 6% on €200,000 mortgage adds about €300/mth. It’s not unreasonable that the high end of the next ECB tightening cycle will be 4.5%. Where will the overstretched get the extra cash from? And make no mistake, the Irish ARE as overstretched financially as the Brits. Will people wake up from their 3hr daily commutes to and from their Legoland suburbias and wonder, ‘what the f*ck am I killing myself for’?

The other thing here is affordability.

The banks here have being saying affordability is the issue and not average house price / income ratio.

This is very convenient for them with this ratio hitting a ridiculous 10 - 11 in Dublin and interest rates at a mere 2%.

If the ECB embarks on a tightening spree then affordability comes back to bite the market in the a***.

For example.

Someone who can afford to pay 1600 per month on a mortgage can borrow 360,000 at 3.5%

If rates go to say 6% then that same 1600 per month will get only 270,000.

So a double whammy: existing homeowners see payments increase and inflated house prices must fall by the banks

own rule of affordability.

Edited October 27, 2005 by AssetIndigestion

[Flash]

Someone who can afford to pay 1600 per month on a mortgage can borrow 360,000 at 3.5%

If rates go to say 6% then that same 1600 per month will get only 270,000.

So a double whammy: existing homeowners see payments increase and inflated house prices must fall by the banks own rule of affordability.

Absolutely. But taking that further, once house prices start to fall what will happen?

There will be no more panicking to get on the ladder for fear of "missing the boat". Appetite for credit will dry up. The highly indebted will stop spending and start saving - damaging the economy (look at the UK).

Banks will slam the door shut on 100%+ mortgages too - reducing liquidity further.

Highly leveraged developers are still building homes like no tomorrow. Some will be forced to offload their stock at a loss and many new developments will probably not even get started. Expect wide spread lay-offs in the construction sector.

Many landlords are sitting on property with a negative yield now after mortgage expenses - What will they do if prices fall? Yes, sell up. What else can they do?

It is just incredible how much prime Dublin property is empty. To Let signs are everywhere. It's like everyone wants to be a landlord - chasing tenants that don't exist. But hey, what does it matter?, prices are going up!

Your average man here just doesn't see it as a problem - the boys from the ECB may help him to focus.

Edited October 27, 2005 by Flash

[walktothewater]

"Many landlords are sitting on property with a negative yield now after mortgage expenses - What will they

do if prices fall? Yes, sell up. What else can they do?"

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em, hang on for dear life? The typical irish person sees only one investment class- property. In fairness the way equity brokers operate here I cant blame them. Overhead a colleague the other day discussing his recent BTL purchase, "sure what else can I do with my money?"

As the market tops out and stagnates, watch out for the government to step in and "protect the rights of owners". There'll be taxes on renters and subsidies to mortgage holders....

[Flash]

As the market tops out and stagnates, watch out for the government to step in and "protect the rights of owners". There'll be taxes on renters and subsidies to mortgage holders....

They can try! Ireland is fast becoming less competitive as it is, without the government deliberately making it worse by forcing the cheap labour to leave.

I do agree with you though, that they will try to fix it somehow - to buy Fianna Fail members just enough time to offload their property interests.

[Guest magnoliawalls]

"Many landlords are sitting on property with a negative yield now after mortgage expenses - What will they

do if prices fall? Yes, sell up. What else can they do?"

*****************

em, hang on for dear life? The typical irish person sees only one investment class- property. In fairness the way equity brokers operate here I cant blame them. Overhead a colleague the other day discussing his recent BTL purchase, "sure what else can I do with my money?"

As the market tops out and stagnates, watch out for the government to step in and "protect the rights of owners". There'll be taxes on renters and subsidies to mortgage holders....

But what proportion of the Irish population are mortgage holders? Wouldn't these subsidies have to be substantial?

How would taxes on renters be enforced? I used to live in Dublin and many landlords were operating on a cash-in-hand basis (partly so they could take advantage of the then first-time buyers grant, buy it in the name of son, daughter, grandchild etc and give them a cut).

For larger rental properties, it seemed that the norm was to have one or two names on the lease, these tenants would sublet the other rooms. If a tax on renters is introduced, the tenants whose names are not on the lease will probably pretend to be living at home.

I think the rental market is also more elastic than most people seem to believe - if a significant tax is introduced, many people will move back in with their parents, others will move to lodgings or rent rooms in large houses while pretending they live elsewhere.

[walktothewater]

But what proportion of the Irish population are mortgage holders? Wouldn't these subsidies have to be substantial?

How would taxes on renters be enforced? I used to live in Dublin and many landlords were operating on a cash-in-hand basis (partly so they could take advantage of the then first-time buyers grant, buy it in the name of son, daughter, grandchild etc and give them a cut).

For larger rental properties, it seemed that the norm was to have one or two names on the lease, these tenants would sublet the other rooms. If a tax on renters is introduced, the tenants whose names are not on the lease will probably pretend to be living at home.

I think the rental market is also more elastic than most people seem to believe - if a significant tax is introduced, many people will move back in with their parents, others will move to lodgings or rent rooms in large houses while pretending they live elsewhere.

I would say of those 25yo+ and in full-time employment, >80% have mortgages??? This is just a guess though, but certainly renters are very much the minority in general. Taxes and subsidies can be implemented in many many stealthy ways. The bigger issue is can they get away with sacraficing certain segments to benefit other? I.e. can the cartel of vested interests known as Ireland Inc. screw a particular segment of its population - answer: absolutely.

In the 50s, the vested interests limited jobs. Unions and government and certain favoured companies closed ranks on the 50s generation. They ended up in London and Boston and New York. Similarly, todays teenagers will be shut out of owning property in the 2010s and 2020s. A small, homogenous, insular-inclined country can work very differently from a place like UK or USA.