Tuesday, July 3, 2007

Irish Property Goes Down the Poop Chute

Long, slow house price collapse

Our old friend, Professor Morgan Kelly of University College Dublin comments on the ongoing Irish property crash. He reckons that, if it follows global historical experience, Irish property will fall in value by between 40% and 60% in real terms over the next 8 to 9 years. He expects this to be a steady decline with no sharp corrections.

Posted by royston @ 11:38 AM (368 views)
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3 thoughts on “Irish Property Goes Down the Poop Chute

  • Stoatgobbler says:

    Also worth having a look at the Fed’s study of 18 economies’ house prices, their correlations, etc. Would tend to indicate a very high correlation in all (including UK, US, Ireland, Oz)but two economies – Germany and Japan – over the last 30 years. Also, they find (bizzarely) that house prices peak BEFORE rates, so perhaps we’ve seen the highs already. Well worth a look anyway.

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  • I don’t think it is bizzare that house prices peak first. Interest rates react to inflation with a lag and go in clear cycles when you look at history. Once people start to get squeezed, house prices stop rising – but interest rates don’t stop rising. Stored up inflation effects keep on trickling through once they get going (wage-price spiral / habit formation / expectation adjustment all contribute to this), and interest rates rise in response.

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  • bidin'matime says:

    I agree with Royston – if IRs don’t stay high, you get the effect we saw in 2005 – a falter in the market, then it takes off again. Rates have to stay high to convince people that the party really is over.

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