Dublin property prices falling by €4,500 a month

[Coles]

Re the large-scale slowdown in the eurozone economy in the second quarter, the easing of inflationary pressures and the upheaval on the financial markets of recent times; isn't it safe to say at least one of the interst hikes the ECB had planned is now off the table, especially considering the European Commission's downgrading of the eurozone's growth prospects over the next two quarters?

Considering housebuilding volumes have fallen to as low as they could realistically get (see the latest Ulster bank PMI report), a hold-off in ECB tightening could conceivably see a new flurry of activity in the sector. Granted, it is likely it will not be as strong as in recent years but that, along with a renewal in confidence in the sector due to the hold-off in interest rates could result in a renaissance in the property sector.

While I stress that I am not saying that we'll go back to 60 page Irish Times property supplements, isn't the possibility of the ECB becoming more doveish in the face of a cooling eurozone economy in terms of growth and inflation a concept that should be discussed. I mean, growth has slipped from 3.3% in Q4 06 to 3.1% in Q1 07 and has fallen further to 2.5% in Q2 07. This deceleration should lead to a similar deceleration in the interest rate curve. We could see rates of 3.5-4% this time next year and a recovered housing market.

The Ulster Bank PMI report (July 07) makes for very depressing reading. You should have a good look at it.

There will still be a rate rise in September, and the December rise is still very likely. The slowdown in the EU 15 is generally considered to be a blip, and mainly reflecting a construction slowdown. Hopefully that is the case, as a slowing European economy will not benefit our economy, or our housing market.

[kerrynorth]

The ECB remit is still to keep inflation at or below 2pc and the inflationary pressures are still there in the volatile energy and food sectors, as evidenced by producer inflation data. That is not to say that they do not look over their shoulder at the wider picture, or course they do. But inflation is still the key criteria.

[Coles]

The belief that the recent market “turmoil” is going to hold back interest rate rises from the ECB may be misguided in fact it may lead to higher interest rates. The ECB does not set interest rates per se, they merely set what they believe should be the target rate. The market sets the interest rates - however, the ECB - and all other central banks - are so big in the market that they can define the rate.Few can challenge the ECB as they effecitvely “produce” the money and can flood the market. That is what happened last week, although few economic commentators in Ireland really explained this.
Short term euro rates were rising rapidly and reached approximately 4.6%, that is .6% above what the ECB want it to be. They then flooded the market with money at 4% - offering the banks as much as they wanted at that rate. This drove rates back down to 4.1% because they were in all but name subsidising the markets.
This turmoil may all evaporate over the coming weeks and they may be no more pressure upwards on rates. But there is also an argument to make that if pressure on short-term rates continues upwards that the ECB will be keen to raise rates to 4.25% to keep in line with the markets and remove the disparity between what they think rates shoudl be and what the market does. It is interesting tha the ECB came in twice last week - which shows that the market was willing to assert itself.
The sub-prime woes are not over - in fact very few banks have really revealed what their expsoure is. I would like to know what the exposure of Spanish, Greek, Italian etc banks are?
There is a interesing circularity to this story as it is weak US housing loans that are affecting European rates now. One wonders what will happend if Irish loans start to go bad because rates rise- and who are holding them. They will no doubt have been “repackaged” and sold off to others.

-0749 on IrishPropertyWatch

[Ard-Taoiseach]

The Ulster Bank PMI report (July 07) makes for very depressing reading. You should have a good look at it.

There will still be a rate rise in September, and the December rise is still very likely. The slowdown in the EU 15 is generally considered to be a blip, and mainly reflecting a construction slowdown. Hopefully that is the case, as a slowing European economy will not benefit our economy, or our housing market.

I know that, but a slowdown from 3.3% to 2.5% is some fall and, if not halt the September hike, at least make the ECB policymakers very circumspect about raising interest rates further in December. The Eurozone's economy clearly peaked in the first quarter of this year. Given that a couple of the interest rate hikes have yet to make themselves felt in the economy, the ECB could very well endanger the eurozone economy by proceeding on regardless. Regarding the September hike, the likelihood of the hike fell below 50% in recent days and the likelihood of a Dec hike is somewhere in the 30s afaik, not very likely.

[Coles]

Still, it may be too early for an all-clear. ``Overnight rates declined, but one-month to three-month rates still reflect tight market conditions,'' said Christoph Rieger, a fixed-income strategist at Dresdner Kleinwort in Frankfurt. ``It's crucial that the markets regain more confidence again as the ECB reacts proactively.''

The three-month rate jumped as high as 4.47 percent today compared with 4.25 percent on Aug 1.

-Bloomberg

[Johnny]

Spotted today by Johnny on the Crumlin Road. There are three houses on this stretch for sale and one directly opposite too.

I'll post the photo of the vultures circling overhead as soon as I have it uploaded.......

[rockofcashel]

no its not Andrew.. the boom is getting boomier... isn't it.. isn't it

[Ard-Taoiseach]

I may have missed a class or two of economics, but isn't this exactly what is supposed to happen after interst rates are increased? To me, price reductions are a perfectly sensible strategy in the face of higher interest rates squeezing potential buyers. This street seems pretty competitive anyway, I'd imagine potential buyers are playing the various vendors off each other there. Remember, there are advantages to lower prices cowboy builders no longer are able to sell cheap tat off-plans and young couples can relax and take a broader perspective on where they want to live rather than be forced by the fact that the investor who's also viewing the house today has just gazumped them by €20,000 when they were viewing the property.

[Coles]

I may have missed a class or two of economics, but isn't this exactly what is supposed to happen after interst rates are increased? To me, price reductions are a perfectly sensible strategy in the face of higher interest rates squeezing potential buyers. This street seems pretty competitive anyway, I'd imagine potential buyers are playing the various vendors off each other there. Remember, there are advantages to lower prices cowboy builders no longer are able to sell cheap tat off-plans and young couples can relax and take a broader perspective on where they want to live rather than be forced by the fact that the investor who's also viewing the house today has just gazumped them by €20,000 when they were viewing the property.

Every cloud has a silver lining... I suppose.

[feargach]

Mmmm, but the problem is that people will stop consuming based on withdrawing equity from their houses, while their mortgages become steadily more expensive. That means job losses in the retail sector alongside the construction industry.

That means a much higher social welfare bill and a much lower tax take. The housing bust will hurt, and it'll hurt very badly. And the people hurt the hardest won't even have bought a house.