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Realistbear

Ecb Issue Another Warning Today For Ireland

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http://www.businessworld.ie/livenews.htm?a...rollingnews.htm

Irish property marked 'overvalued' - ECB

Thursday, February 09 11:14:07

(BizWorld)

The European Central Bank warned today that the housing market in Ireland and several other European countries is becoming overvalued following recent sharp price rises.
But house prices can also be measured against rents and returns on government bonds, and such calculations suggest that the housing market has been
overvalued since 2001
, it warned.

Inflation trouble brewing in Ireland as a result:

http://www.rte.ie/business/2006/0209/inflation.html

Inflation at 3% on higher mortgage repayments
February 09, 2006 11:24
The latest figures from the Central Statistics Office show that higher mortgage interest repayments as well as more expensive electricity and bin charges led to a rise in inflation in January. The CSO says that the annual rate of inflation rose to 3% last month from 2.5% in December.

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Like, duh, if the ECB think they've created a housing bubble in Ireland, they can, like, raise the rates to stop it.

Oh, except they can't, because then the German economy will crash. Ah, the delights of a 'one size fits all' currency.

Edited by MarkG

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The arguments put forward by bulls in Ireland (bulls are 95% of the population) are thus:

1) Immigration - Ireland has the highest level of immigration per capita than any other western European state. All these immigrants need somewhere to live.

2) Demographics - Ireland is the youngest population in Western Europe, all these young people fleeing the nest need somewhere to live.

3) Economy - Ireland's economic growth is among the strongest in Europe, and many economists are predicting this to continue for many years to come. Foreign investment is still flooding in and the only unemployed are those that can't/won't work.

4) The Doommungers are just crying wolf - The warnings so far have been proved incorrect, time and time again.

5) "Renting is dead money". Full stop. There is a real social stigma to renting. It's just something that Eastern European immigrants do.

6) Following on from 5. If you are a first time buyer, you must borrow what you can to get on the ladder now, because with prices rising by double-digit rates, you will be condemned to the renting underclass for ever if you don't.

7) Because prices are have gone up so far, the house you live in is your "pension fund". You will retire, sell it and live a millionaires lifestyle in Southern Europe - plenty have done this already. There are countless "accidental" millionaires in Ireland.

8) Property is a rock-solid investment. It is considered far safer and less volatile than the stock market.

Has anyone heard any others?

This is the mantra. It is repeated everywhere you go. It's all very surreal.

Edited by Flash

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Like, duh, if the ECB think they've created a housing bubble in Ireland, they can, like, raise the rates to stop it.

Oh, except they can't, because then the German economy will crash. Ah, the delights of a 'one size fits all' currency.

But Mark, people don't care about replacing the Queen's head on the notes in their wallets. It's just a picture, you see.

:ph34r:

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Like, duh, if the ECB think they've created a housing bubble in Ireland, they can, like, raise the rates to stop it.

Oh, except they can't, because then the German economy will crash. Ah, the delights of a 'one size fits all' currency.

I am sceptical that intrest rates should be used as a way of controling house prices. Seems a bit like using a nuke to swat a fly. Why not just increase supply? Surely a much less risky strategy.

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I am sceptical that intrest rates should be used as a way of controling house prices. [jellybean]

Interest rates are used to control growth in the money supply -- the root cause of the housing bubble. They are the most important control over a country's economy. The Irish no longer have that control. Joining the Euro has been a catastrophe for the Irish Republic as they will come to realise in the years ahead...

'The euro disaster' [september 2005]:

http://www.moneyweek.com/file/3081/euro-disaster.html

The whole point of currencies is to facilitate the efficient redistribution of resources. If my economy's on the up and I am importing too much of your produce -- commanding too many of your resources -- then the ensuing strength of my currency allows you to earn more from your exports to me. Keep this up long enough and I lose whatever competitive advantage I had before and the balance gets redressed in your favour. Free-trading currencies are a fabulously powerful progressive force, not so much levelling the playing field as actually positively discriminating in favour of the loser of the last round.

Take this away and there's no reason why the relatively deprived nation should be any better able to compete next year than this. Add in the free flow of other resources (like labour) and you'll find that all those with skill, education and funds migrate to the prosperous areas, turning everywhere else into sink holes. In short, you get an exaggerated version of Britain's long-standing North-South divide across nations.

Worse, because without free-trading currencies there's no obvious cost advantage to setting up in the more deprived area, costs in the well-off region sky-rocket. This can, of course, be exacerbated by a monetary policy that may be appropriate for neither the prosperous region nor the poor one. Rates will always be too high for the strugglers, condemning them to needless hardship. On the other hand, rates will also always be too accommodative for booming areas, sparking asset bubbles, sky-high property prices and inflation.

All this criticism of a single currency might have been dismissed by pro-Europeans as overly pessimistic doom-mongering not so long ago, but now it is possible to point to European countries with various of these symptoms. Countries such as Spain and Ireland have seen their economic growth takeoff, thanks in part to EU handouts. However, just when domestic monetary policy might have seen rates rise to contain the growth, the ECB has held rates unchanged at 2% for years. Property prices have gone through the roof as a consequence. On the other hand, 2% hasn't been nearly low enough to re-light the fire under Germany's boiler. This once-great economic success story for Europe has anaemic growth, and one in eight of its workforce is now unemployed. No wonder Stern magazine reported last June that the finance minister and the head of the German central bank had already discussed withdrawing from the euro.

Resource migration has also exceeded government expectations. British savings have hiked French and Spanish house prices and labour has migrated from the East to economic hotspots further West. The gap between the haves and the have-nots has grown. Rather than facilitating a united Europe, the absence of currencies accelerates the rifts.

[My bold emphasis]

Why not just increase supply? Surely a much less risky strategy. [jellybean]

That's exactly what Ireland has done. The Irish property boom demonstrates that even a dramatic expansion in new house builds does not constrain a housing bubble caused by cheap money...

'Ireland has highest European per capita house building rate':

http://www.finfacts.com/irelandbusinessnew...e_1000716.shtml

The strength and extent of the property boom can be seen in the fact that over a third of the current housing stock has been built in the past decade. Annual completions are 3.5 times what they were a decade ago, and the country has the highest per capita building rate in Europe.

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I am sceptical that intrest rates should be used as a way of controling house prices. Seems a bit like using a nuke to swat a fly. Why not just increase supply? Surely a much less risky strategy.

I agree with the first part. Monetary policy (i.e. interest rates) shouldn't be used to control house prices.

However, you can't just increase supply every time there's a rise in speculative demand, not least because of the very negative environmental effects.

Legislation and Fiscal policy (i.e. taxes) are what should be used by governments to control house prices.

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  • 302 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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