Market slowdown: is there an end in sight?

Dan O'Brien, Senior Economist, The Economist Intelligence Unit

12th Feb 2008

Dan O'Brien is our guest blogger, commenting on the latest Daft research on the Irish property market.

The future of Ireland's property market will be determined not only by domestic supply and demand factors, but also by developments in international equity prices, European interest rates and migration flows. Looking first at stock markets, recent weeks have seen economic uncertainty rise sharply as international developments have added to home-generated worries. The US economy has slowed sharply and equity markets almost everywhere, including Ireland's, have suffered badly.

But the global gloom is overdone. Investor sentiment internationally has over-reacted to America's woes. Moreover, the US policy response to the slowdown has been unprecedented, both in its speed and its magnitude. Outside the US, the rest of the global economy is enjoying one of its strongest periods of economic expansion ever. As most of this is driven by strong fundamentals, we at the Economist Intelligence Unit are forecasting only a modest slowdown globally in 2008 and continued strong expansion over the medium term.

This underlying strength of the world economy augurs well for Ireland as one of the most globalised economies on the planet.

Change in rents, 2003-2008

From global equities to Irish rents
It is too early to tell whether nervousness internationally will cause a further deterioration in sentiment in Ireland. It is certainly to be hoped that it will not, because there is considerable downside risk for the Irish economy currently, with most of it related to the property market. Nationwide, the supply of property available for rent on Daft has almost doubled in the past year, with most of the surge taking place in the second half of the year. Although demand for rental properties is likely to have expanded too, it will not have matched the doubling in supply. The inevitable result is to be seen in rents: the strong increases in the past couple of years are slowing sharply.

Why the sudden surge in supply? The most likely explanation is those who had invested in property but had not sought a rental income are now doing so. As interest rates rose, so did debt servicing costs, while at the same time capital gain evaporated as prices stopped rising. The likely result - those who had been willing to forego rental yield are less and less willing to do so.

If the increase in rental supply continues, watch for falling rents.

Interest rates: what chance of relief from Frankfurt?
The US Federal Reserve cut interest rates by 125 basis points in the last week in January. There have been frequent calls for the ECB to follow suit. Although the euro area economy does not face the same domestic imbalances that could tip it into recession, it will feel the drag from lower growth in the US (though to what extent is the subject of fierce "decoupling" debate among economists). As the European economic cycle is now past its peak, the low-point of the downturn could be made deeper by external factors. But the ECB will want to see much hard data confirming a slowdown before acting.

With the next move in interest rates a crucial determinant of sentiment in the Irish property market, it is important to look at how the ECB is likely to act. Provided euro area growth slows gradually, as we at the Economist Intelligence Unit anticipate, the ECB is likely to stay its hand in the months ahead. There are four reasons explaining why the ECB will not follow the Fed in lowering interest rates. First, in general the ECB prefers cruise control to the Fed's aggressive use of accelerator and brake when using the interest rate tool. Second, whereas the Fed is often accused of being too willing to do the bidding of financial market participants, the ECB is deaf to traders' cries of pain. Third, with little hard evidence that the six-month old credit crunch is pushing up retail interest rates significantly, the bank continues to worry about rising indebtedness and its consequences. Fourth, as the ECB is set to miss its inflation target by the widest margin ever, it is not about to take chances with price stability. With survey evidence pointing to rising inflationary expectations, it has repeatedly said that it is ready to raise rates if it sees evidence of second round effects (i.e. wages chasing prices).

Don't bank on a cut in interest rates in the months ahead.

The supply-side miracle
In addition to these important external factors, which will affect demand, local factors - determining supply - are also important. Figures for the first nine months of 2007 show the most rapid decline in housing completions in Ireland in the forty-year history of the index. What's more, the pace of the decline is accelerating. From a rate of zero year-on-year growth in the final quarter of 2006, the contraction reached -23% by the third quarter of 2007. How low could it go and where will it settle after the current period of instability? Although many estimates of where the long term trend in housing output range between 50,000 and 60,000, this seems very high when long-term trends are considered. As the graph illustrates, supply in the UK, US and euro area is subject to a certain degree of short and medium term volatility, but long-term averages are remarkably stable. Indeed, it is the relative inflexibility in supply, when considered against the backdrop of bettering financing conditions and rising incomes that explain the upward trend in property prices in most rich countries in the past decade.

Ireland's supply side, however, has been spectacularly different to the rest of the core of the developed world over the past decade. While the quarter-century period from when the data were first gathered (1970-95) followed the same stable pattern as elsewhere, the subsequent period is simply without parallel. The demand conditions in Ireland over the past decade have been uniquely strong relative to other countries, both in terms demographics and incomes. But they have not, however, been so unique as to explain the increase in supply. And one of the basic rules in economics is that when supply increases more rapidly than demand, downward pressure on the price follows.

History suggests that housing over-supply in Ireland is underestimated.

Migration: a two way street
One of the drivers of demand for property has been a rapidly expanding population. With the highest fertility rates in Europe and rates of inward migration unsurpassed by any other continental country, Ireland's population grew by 19.4% between 1995 and 2006. But labour mobility is a two way street. Recent immigrants to Ireland are likely to be unusually mobile, and can be expected to up sticks quickly not only if they lose their jobs, but even if opportunities elsewhere appear relatively better.

Nor should the possibility of the return of "indigenous" emigration be discounted. It is little remarked upon, but young Irish people have continued to leave the country in large numbers. In the five years from 1997 - the very height of the boom - outflows averaged 28,000 a year. In the previous five year period, when unemployment was in double digits, the average number leaving the country was 33,000. Although Irish emigrants recently have probably left for short periods of horizonbroadening, my guess is that the Irish remain unusually mobile. Moreover, the prospect of leaving home in an era of cheap airfares, email and Skype is considerably less daunting than it was the last time the country haemorrhaged its youth.

There is considerable scope for a marked turnaround in the recent demographic trends which have supported property prices.




HIGHLIGHTS:

National Rent Index
The Daft.ie National Rent Index

Stock and flow of properties
Stock and Flow of properties available to rent nationwide 2007-2008


SNAPSHOT:

Snapshot
Average Rents across Ireland in Q4 2007

Discuss This Article

  • Re: The Daft Rental Report Q4 2007

    Posted By: Jim Date: Tuesday February 12, 2008 @08:56PM

    Wow! what an unbalanced report! take a few examples:

    Firstly, in terms of population mobility, the report ignores social contact and plain old inertia. People don't emigrate merely on the basis of cheap phone calls.

    Secondly, in tracing the demand for housing, it overlooks 'hidden households' (where two households occupy one dwelling). The need for accommodation includes two family dwellings, such as where couples are living with their in-laws. Surely these should also be considered?

    Thirdly the document disagrees with all other commentators in suggesting that interest rates may not fall soon. I hope they do.

    Fourthly, it overlooks the location of rental houses. There's no point in saying that the amount of homes for rent has increased if these are holiday properties located in the back of beyond rather than in the middle of a large town or city.

    Fifthly, the increase in rented houses has nothing to do with investors foregoing incomes. Its because builders are holding onto their houses until the market improves and are renting the houses out in the meantime.

    Sixthly, although the report refers to indigenous emigration, it downplays the reasons for such trips (a year 'Down Under' or college in the UK) and while it explicitly quotes the numnbers leaving, it poignantly omits any statistics on the numbers returning.

    These are just a few examples but I find it hard to place much weight on this report.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: John Date: Wednesday February 13, 2008 @10:24AM

    Alright Jim, so if we follow your argument:

    > Firstly, in terms of population mobility, the report ignores social contact and plain old inertia. People don't emigrate merely on the basis of cheap phone calls.
    All evidence suggests the opposite - cheaper transport and communication costs have turned migration across Europe into a commute. No-one is arguing that all 4.3 million people here will up sticks and leave - the argument is that more people than ever can and will migrate. Very different and very disingenuous of you!

    > Secondly, in tracing the demand for housing, it overlooks 'hidden households' (where two households occupy one dwelling). The need for accommodation includes two family dwellings, such as where couples are living with their in-laws. Surely these should also be considered?
    Produce some census evidence/statistics that this is something (a) that is on a scale large enough to affect the property market, and (b) where behaviour is about to change suddenly and irreversibly. An analogous argument would be: don't forget all the old nuns and priests we have living in the country - they could suddenly decide to leave their communal homes and buy a new house each. They *could*, but they won't. Again, very disingenuous.

    > Thirdly the document disagrees with all other commentators in suggesting that interest rates may not fall soon. I hope they do.
    All other *Irish* commentators. This guy's made his stand - other people have taken a different stand. Let's see who's right. Certainly, his arguments tally with the mandate of the ECB, which has only inflation to worry about.

    > Fourthly, it overlooks the location of rental houses. There's no point in saying that the amount of homes for rent has increased if these are holiday properties located in the back of beyond rather than in the middle of a large town or city.
    It would seem from the detail of the report that this is not a concern - supply has gone up everywhere and where it's gone up most, rents have been static or falling. You can't disregard evidence just because you don't like it.

    > Fifthly, the increase in rented houses has nothing to do with investors foregoing incomes. Its because builders are holding onto their houses until the market improves and are renting the houses out in the meantime.
    So the report argues it's a mix of two factors: forgoing of incomes and not being able to sell. You say it's just one. Evidence?

    > Sixthly, although the report refers to indigenous emigration, it downplays the reasons for such trips (a year 'Down Under' or college in the UK) and while it explicitly quotes the numnbers leaving, it poignantly omits any statistics on the numbers returning.
    It's the net figure that's important. And if Ireland were to become unattractive to our young population... well see point 1.

    Nice try, Jim, but you can't disregard someone just because you don't like their message!

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Jim Date: Wednesday February 13, 2008 @09:39PM

    Sorry John, but you are clearly wrong on a host of issues.

    Firstly, surely you dont suggest that migration, which results from 'pull' and 'push' factors, arises from
    'cheaper transport and communication costs'? People dont migrate on the basis of cheap calls home and low bus fares abroad. Have a look at http://www.cso.ie" rel="external nofollow">http://www.cso.ie" rel="external nofollow">http://www.cso.ie" rel="external nofollow">http://www.cso.ie where you will find compelling statistics.

    Secondly, yes it is difficult to trace 'hidden households' with precision, but as lawyers say, 'it is not necessary to adduce evidence to provide the obvious'. Watch 'I'm an adult, get me out of here' on RTE for proof.

    Thirdly, yes, you are right, I'm unaware of any foreign commentators who expect ECB rates to fall; but thats not because they don't exist, its just because I know the Irish ones (and I note with some importance that you fail to dispute their expectations of lowering interest rates).

    Fourthly, regarding housing supply, look at http://www.cso.ie" rel="external nofollow">http://www.cso.ie" rel="external nofollow">http://www.cso.ie" rel="external nofollow">http://www.cso.ie which discusses falling numbers of dwellings being permitted by local councils since 2000. Where will everyone (natural population increase and high immigration) live?

    Fifthly, have a peep at the rest of the messages on this page, some of which explicitly acknowledge that builders are renting unsold apartments or holding them vacant pending a market change.

    Sixthly as regards migration, I agree that 'It's the net figure that's important' and again I refer you to http://www.cso.ie" rel="external nofollow">http://www.cso.ie" rel="external nofollow">http://www.cso.ie" rel="external nofollow">http://www.cso.ie for confirmation that net immigration is strong (67,000 persons last year).

    I've noted your message but find no part of it to be sufficient to justify a reversal of my previous opinion.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: J of G Date: Tuesday February 12, 2008 @10:37PM

    Very interesting. finally, some honesty is creeping in to the analysis of the numbers.

    This of course means that the renters have now got pricing power, and the rental market is going the same way as the 'For Sale' market - in that there will be a downward pressure on prices. People will stop offering the asking price for rents.

    We saw evidence of this last autumn, even though this site and the general property propaganda hegemonists where chanting the usual mantra of up, uP, UP!

    Falling capital values, rental yields below the ECB interest rate, increased competition from other landlords. These aren't downside risks, they are downside realities that people need to start facing up to. Fast forward to 2012 and knock 35% off the current value of your property and consider if a rental yield of 3.2% is worth the hassle?

    Question: why would anyone want to be in the buy-to-let market at all right now? I can imagine many of our property moguls trying to get out before they are forced too by the bank.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: J of G Date: Tuesday February 12, 2008 @10:45PM

    WHY THE SUDDEN SURGE IN SUPPLY?

    Could this have anything to do with the vast numbers of apartments being completed recently, plus the number of developers who are renting out properties because they cannot sell them? Have you driven down the N11 recently? Taken the train the Belfast and looked left as you cruise past Malahide and seen the number of 2 bedroom executive-luxury apartments? Not to mention the docklands D2/D4?

    The idea that there is a sudden surge in supply because a number of investors were previously too flush, diffident or shy to put there pension plan on the market is faintly ludricous!

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  • Re: The Daft Rental Report Q4 2007

    Posted By: The Aztec Date: Wednesday February 13, 2008 @10:03AM

    Honesty indeed. The increase in supply resulting in a fall in rents has been the 800 pound guerrilla in the room for some time now. Its basic economics and a reality banks and estate agents have been trying to keep from the masses for as long as possible. It will make things increasingly more difficult for the hangers on. The buy-to-letters just about breaking even on rent-to-mortgage or those receiving less rent than their monthly mortgage obligations. It will force a lot of people to sell increasing the supply of property even further into the buyers market.

    We're seeing the start of the final chapter in the demise of the Irish property market. I expect things to start snowballing downwards rapidly over the next 18 months. I think itís tragic that so many people have been locked into mortgages paying for ridiculously over priced properties - some for 35/40 years. In a lot of cases for poorly built, prefab properties in areas with poor infrastructure and town planning.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Obelix Date: Wednesday February 13, 2008 @11:48AM

    I thinK you are generalizing far too much! What you see on the train from Dublin to Belfast is not what you expect to see in other parts of the country. Property proces in nice towns on the sea in the South-West of Ireland are still growing as they are relatively cheap. Thay can offer a lot in terms of amenities and infrastructure. Tourism wil definetely make them more attractive. Some major projects are on-going and that will add more potential. What is happening is very clear: Irish people eventually discovered that there is a factor to be considered when investing in property: Quality. Property investments in the last 2-3 years have been brutal. People were simply buying everything assured by the fact that property would go up. I remember mad prices offered for property in Drogheda, Laytown, Bettystown, Co.Meath, Co. Kildare. People were buying without any clue of proximity to schools, creshes, potential employment. Houses in well served areas are still sellign quickly. These considerations you are making are too generic. They do not apply to all situations. Another consideration: I doubt that many people will be forced to sell by the banks, most Irish investors have a huge portfolio. those who will be forced to sell are the mad investors who convinced somehow the banks to give them huge loans where the banks should not have agreed. In the place where I leave rental monthly payments almost match mortgage monthly repayments and property is still being sold.

    I think there are still lots of nice properties out there, I think there is now a Quality factor people eventaully began considering

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  • Re: The Daft Rental Report Q4 2007

    Posted By: James Date: Saturday February 16, 2008 @02:19PM

    "most Irish investors have a huge portfolio" now who is generalizing?

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  • Re: The Daft Rental Report Q4 2007

    Posted By: LB Date: Wednesday February 13, 2008 @01:48PM

    The key thing is suplay vs. demand. The suply is seems to be huge in Ireland. 50000 completions in this year means 12 dwellings per 1000 inhabitants, this is a lot. In Poland (where construction boom has just started) this figure will be is less than 4 in 2008 - a largest-number of completions ever. But taking an example of 10 years with completion number of 80000 per annum it givess the number of 800000 dwelings/houses it gives only 200 dwellings per 1000 inhabitants in Ireland. The major question should be asked is: Is the Irish marked oversupplied? I don't know the answer. To answer this question we should compare the figures with the other countries.
    Another thing is the emigration factor. I do not believe Irish are going to emigrate for long term in large numbers. People always prefer to stay in incountry which is better to live. And Ireland is good place to live. I hope it stays so for long time. The obvious thing for Irish economy should be to become less dependant from construction industry. In next five years build as much as possible infrastructure and put attention on education to acctract more foreign high-tech (IT, bioengineering, pharmaceutical nanotechnology) business to fight unemployment and to increase revenue. Ireland has one of the lowest national debt so it can be done by borrowed money. It is not as bad as some may think it is.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: JimmyTheFish Date: Thursday February 14, 2008 @11:05AM

    Re: National Debt etc.

    This government has been so incompetent in spending money that it had what makes you think that it will spend borrowed money any better.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2007

    Posted By: LB Date: Thursday February 14, 2008 @12:58PM

    What makes you think that any other governemt will spent public money better? Let us hope that whichever government Ireland have they will stick to national development plan for next ten years or so.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2007

    Posted By: idiottje Date: Friday February 22, 2008 @02:55PM

    Back on topic, and stop bringing petty politics into this for the moment.

    The issues are:

    There is a credit squeeze on the banks, so they cannot raise capital as easily as they could before, so mortgage approvals are down. I think that last statistic I saw was on 40% of Irish households could currently be granted mortgage approval on the average asking price.

    It is predicted in some quarters that the economy is in for a rocky ride in the next 8 to 16 months.(They are the more generous ones) This has effected consumer confidence, so people are unwilling to buy, and are staying put.

    The falls in the last 8 months seem to be continuing, so people who are ready to buy now are holding off until the market bottoms out. And no matter what they heard about buy now, or you will miss out, until there is credible reports of house price increases, they will hold off.

    There is approximately a 10 month availability of housing stock (completed) on the market at the moment, with another 15% nearing completion. Sure builders have cut back, but that surplus is still there.

    The OECD has predicted this for many years, that the market was over inflated, and now there is a re-adjustment into more realistic pricing.

    It is not so much a matter of politics, but economics. All any of us can do is watch and wait to see how it pans out. Both buyers and sellers.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Anonymous Poster Date: Monday February 25, 2008 @07:23PM

    I think the builders still stick together regarding keeping the price level but it will be the smaller landlords who will break the builders neck on this matter as with rising oversupply they will at some stage start selling and letting cheaper

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Swan Eater Date: Monday February 25, 2008 @08:40PM

    There is another important factor that seems to be overlooked by everybody. This is the fact, that Ireland is effectively in the Stone Age when it comes to Internet use. The fact, that more properties appears for rent on Daft does not neccesarily mean, that they were not rented before and they are new entrants to the market. This, more likely means, that more people start using internet and start to believe, that this can be effective way to advertise. Supply can be the same, just numbers of those advertising on Daft are rising - thus information about changes in quantity of properties on Daft does not have to mean increased supply. Of course, the fact that people make effort to find alternative ways of finding tenants may suggest tighter market conditions, but only hard evidence would be falling rents.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: JimmyTheFish Date: Tuesday February 26, 2008 @11:21AM

    Sit down Bertie you had a hard couple days in the castle last week.

    Seriously, what planet are you on. Supply has substantially increased in the rental sector as the Canny McSavvys realise that they can't flip their properties and hae to rent them.

    • Reply to this message
  • Re: The Daft Rental Report Q4 2007

    Posted By: alex Date: Wednesday February 27, 2008 @08:29PM

    There is no doubt there are more and more rental properties coming available. i am watching Daft on a weekly basis and see properties taking a lot longer to rent. also I am presuming that it is the asking price that is used rather then the actual rent paid by the tenant when the deal is done. The reason for this is that I reconcile the rents in one part of the city for one type of place been so similar to another similar place in a better part of the city. For this reason then rental prices must be higher then the deals that are done. Can anyone advise?

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  • Re: The Daft Rental Report Q4 2007

    Posted By: JimmyTheFish Date: Thursday February 28, 2008 @11:18AM

    I don't really know what you are trying to say but anecdotally rents have been falling since mid 2007 all around the country. This is especially true in the NW esp in Sligo and Leitrim where it is possible to get a 3 bedroomed house for Ä150-Ä180 p.w.

    With more Canny McSavvy types having to rent their specuvetments I expect rents to fall even further. My advice to anyone facing a rent increase is to tell their landlord that they will become their ex-landlord if the try to increase rents.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: idiottje Date: Wednesday February 27, 2008 @05:17PM

    When is the next report due?

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  • Re: The Daft Rental Report Q4 2007

    Posted By: jimmythemonk Date: Monday March 3, 2008 @12:42AM

    relax - enjoy the trip down the slope.........it is all one way traffic for the forseeable future. Scaremongering you think so ...........

    a) credit squeeze preventing banks giving over inflated multiples......lending down 40%
    b) Germany recovering......confidence rising.....inflation on the up in EU...ECB may raise not cut rates
    c)Developers on the rack ...can't sell...adding to the rental pool....banks discussing "restructuring"
    d)Building trade making lay-offs
    e)London Olympics village to begin construction later this yr early next yr...good pay
    f)apparently alot of "Oirish" accents returning to london sites
    g)builders suppliers.....operating tigher credit terms....COD in some cases.....whose nervous now
    h)developers late into the market nolw being forced to cut prices to sell
    i) buying levels still 40% down
    j) Release of equity by retiredd parents/grandparents no longer an option to fund deposits.....now withdrawn
    k)historically up to 70% of gains made in a property boom are eventually given up in the subsequent correction.....which incidently tends to last up to 5 yrs...so 1 down 4 to go

    all that aside have many of you not seen the rise of the Euro versus the $ and not been worried.....since the euro's inception costs due to exchange rates are up by 100% - can't therefore expect big pay increases.....instead you may see job losses if the rates persist.....us absorbs 30% of output not to mention the "invisibles" element....it just aint funny



    read the small print

    " valuations that rise may also fall, past performance is no guarantee of future success"

    readjust your posture we are in for a tough time of it over the next few years........could never happen.......that's what they said about the tech bubble....Cash will be king

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Anonymous Poster Date: Tuesday March 4, 2008 @09:34AM

    Not to mention our reliance on the States. I read recently that a 1% drop in their GDP could result in up to a 1.8% drop in ours. Has anyone else heard anything similar? Seems outragous but if its true it makes things even more worrying.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Anonymous Poster Date: Thursday March 6, 2008 @02:17AM

    For jasus sake go out and have a Pint of Plain its your only man ! All things a have a cycle ,the sky is not falling.


    The tide will turn again ....


    Regards

    Aidan

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Anonymous Poster Date: Monday March 10, 2008 @09:48PM

    'Modest slowdown...strong fundamentals...relief from Frankfurt...Donald Duck....The tooth fairy'
    The speed and magnitude of the Fed's 'response' has pulled away the facade from a global economy propped up by cheap credit and ever-increasing consumer debt. This has all been forseeable for the last 10 years i.e borrowing for current spending is not growth, rising house prices is not economic expansion (this is really basic stuff; circular flow of income etc, the fact that the pundits still harbour hopes of modest slowdowns and soft-landings mean that even now, they still fail to understand what has been wrong with the economy for the past 10 years and how we got into this mess in the first place) As soon as the next US president is elected US interest rates will be hiked up and serious attempts at undoing the damage of the last 10 years will be painfully attempted (afterall he will presumably want to be re-elected) and when that happens the ECB which is currently desisting from rate increases (not decreases) will continue with its rate increases as a recovering dollar will inevitably add to inflation in the Eurozone. ECB rates of 5-6.5% are only 2-3 years away, not to mention the pending energy crisis and food shortages which will follow (land required for bio-fuels/fallout in US from cross-pollination of energy dependant GM crops etc). The scary part is our Government's solution to all of this...'knowledge economy...low GDP/debt ratio...being at the heart of Europe...4th level education....services driven.....Donald Duck...The tooth fairy :(

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Anonymous Date: Tuesday March 18, 2008 @02:08AM

    Will every one just chill out!
    Judging by everyones reaction it seems all everyone wants is to go back to the dire times of the 80's and then everyone will be happy.
    Oh, and for anyone spouting doom and gloom, if your predictions come true, ye will be very badly affected too. Just think of that before ye talk yourselves into trouble.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Tom Date: Tuesday March 18, 2008 @01:11PM

    It's inevitible that we are having a correction to the house prices that have incessently increased for the past decade as- in the long term - we can't afford these prices.
    If you look at the jobs pages- even for the jobs that are well paid- it is difficult to reconcile the rates of pay available to the cost of houses and apartments.
    In the past decade we've had sections of the economy that have been doing really well on the back of the boom - many who have performance-related bonuses - estate agents, financial services, retail, car sales, builders and tradesmen etc. and people have signed into 30 year mortgage contracts on the strength of these. Fact is, and always was, that this was an exceptional growth that was always going to be short-term and would correct.
    Many others supplemented their income in buy-to-let, flipping properties, property development, releasing equity, etc - revenue streams that are now also drying up.
    The government have also expanded the public sector over this period and we now have very large current expenditure requirements and as these are jobs-for-life and have limited scope for cutting, increases in taxes will be required. We have been used to tax cuts throughout the boom and again people have assumed this would go on forever. It won't, and again disposable income will be hit.
    There might well be an on-going demand in the country for housing, but not at the prices we have currently.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Don Date: Wednesday March 19, 2008 @10:38AM

    Its better from prices to come down at least in the short term, to boost the market, maintain jobs in construction and allow first time buyers to get on the ladder. In the case of new houses, surely only the developers huge profit margin is being effected!!

    It seems now that the housing market and sales have picked up significantly as prices have been cut. When equilibrium is restored, it would be better to see growth rates of 5% a year rather than 10-15%. Its really disconcerting for some one buying their first home to see a house they are buying jump Ä20000 in a week! Ä20000 a year would be more realistic and in some cases may be too high!

    As for rent, I recently advertised a box single room in my house in Cork suburbs. I nearly had to change my phone number as so many people were ringing me.
    It seems people will still need to buy their own house albeit at more realistic levels and there will still be a demand for new rental properties. Besides at a realistic 5% a year capital growth, I wouldn't be complaining as a buy to let-er...

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  • Re: The Daft Rental Report Q4 2007

    Posted By: developer Date: Sunday March 23, 2008 @08:12AM

    Developers do not have HUGE profit margins, especially ones that have bought which they are developing recently.
    They may make a lot of money, but donít assume their margins are huge. 13.5% of the price you pay on a new build is VAT, 9% of the site was most likely paid in stamp duty, i have seen development levies @ 33k per apartment in a development in Dublin. Plus all of this you have to build 20% social and affordable at cost price, but many developers do deals with the local authority and end up paying more to move these out of the development because they depress prices.

    After the place is built, there is not a huge margin to account for the all the risk. Save maybe for the drinks trade, this is the most taxed industry in Ireland.

    What I donít seem to see is a major readjustment in land prices!!! Has the penny not dropped that large appreciation in land cannot be relied upon as the developerís profit, and it needs to be priced in to the land sale... I would really like to see statistics on volume and values of recent land sales. There doesnít seem to be any..

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  • Re: The Daft Rental Report Q4 2007

    Posted By: Bob Date: Saturday March 29, 2008 @07:04AM

    Purchasers don't appreciate the difficulty and uncertainty faced by developers as to the number and type of dwellings which will be permitted by a council on a particular site or in a particular area. This, combined with high taxes and penal local authority charges, decreases developer confidence in relation to future land purchases.

    Moreover, as landowners' expectations as to the value of their sites remain steady and do not reflect market conditions, developers are not prepared to buy new sites on which housing can be erected, with most dwellings currently under construction being located on land which a builder has probably owned for several years.

    As house buyers are no longer queueing up at estate agents premises, developers are no longer travelling to land auctions and the forecast decrease in housing output for 2008 - 2009 is wholly consistent with this pattern. However, as a pick-up in the housing market is generally expected around September 2008, a small increase in residential construction activity will occur in 2009.

    However, there will be a time-lag between this increase in market activity and the construction of new homes in 2009 and price stabilisation will therefore occur in late 2008 or early 2009 which will instill a degree of confidence in the building sector. Only at that stage will developers consider future property purchases.

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  • Re: The Daft Rental Report Q4 2007

    Posted By: idiottje Date: Tuesday April 1, 2008 @04:40PM

    Well, Q1 of 2008 is over so I am looking forward to the next report.
    In the mean time, this economist has an interesting view of the current, and future state of affairs.

    http://www.rte.ie/news/2008/0401/economy.html

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