The property slowdown in Ireland has caught several individuals off guard. One individual may be facing bankruptcy because he started taking a great many risks without looking towards the future of what could happen. There are over 200,000 people in Ireland that own houses abroad, and one in six individuals in Ireland have empty houses. With statistics like this it is easy to see that the housing slowdown is a national concern rather than just an isolated incident.
TSB/ESRI index has be showing that Irish housing prices need to be adjusted for inflation. In other words the housing prices were going up in the last decade, but in the last year they have lessened in growth and are even lower than 2004. This decline has hit a lot of people unaware. News is also showing that inflation is likely to cause more instability in the housing market as it moves up and the housing prices move down. The real prices that houses are selling for are going to continue to fall.
Savills, an international real estate agent believes that the Irish market is the worst of all European housing markets, or at least it was in 2007. Some figures were released recently in which Irish construction has dropped to a new five and a half year low in March. This means that there is not a lot of confidence for new construction to be bought up at least not at a great profit for the builders. In fact Ireland is seeing one of the weakest confidence rates in 27 European countries that were surveyed. Yet Ireland has the fastest population growth. This creates a unique problem.
In order to understand what is really going on in the Irish economy you may want to turn to the Central Bank of Ireland. Numbers from the bank were just published showing that the housing market is the weakest it has been in 14 years. These figures are showing that an overwhelming amount of individuals are not confident in the market to buy a home. This is of course a wise move. The prices had been going up which meant a lot of individuals were making money, but with the inflation finally catching up to other issues in the economy the housing prices are going to fall. For most it is considered that if you buy a home now you are just going to be giving money away.
The lending sector is something else to be concerned about. It seems that lending numbers have also fallen on a monthly basis for the last 26 and that there is nothing to help the current situation. There is going to be instability for a while and if no one has learned a thing from the last year it will continue to decline.
With many sides to the story it is hard to know what is really going on the in the market. Normally when housing prices fall it is a good time to buy, but since they haven’t fallen enough there could be issues.
Learning a Lesson
The truth is that no one really understands why the Irish market has begun to fall. They didn’t understand why it began to rise either. So if you are trying to gauge what to do in the next year you may find it difficult. Some of the experts have talked about a soft landing that will happen in the market and that the bottom has been reached, but is this really true? It seems that most of the information is coming from financial history with individuals looking back at the last 40 years and viewing the 17 different property cycles that have occurred. In fact if you do look at these numbers you see that a typical housing price slowdown sees a 70 percent decrease over the last occurrence.
The overall ending to this tale is that if we truly lose 70 percent at each decrease then we could see housing prices go back to the prices we saw in 2000 or even 1999. Of course we don’t really want to see that happen. In fact we would rather see a better income. In Ireland the interest rates are actually controlled by Germany so when there is a rise in inflation as there has been in recent months there is likely a rate cut in the near future to stop a complete bottoming out of the market.
In the US there have been a lot of aggressive movements. The US has seen a great deal of trouble in the last year with the subprime market crashing. This has of course affected the rest of Europe and more specifically the UK. The US Fed has cut rates since august with an aggressive stand. In fact they cut rates by ¾ of a percent two months ago. This rate cut was a huge surprise. The government has yet again tried to hold the reins on the banks and regulate lending. The US has seen a bailout on the national level for bad housing loans.
So with the shift in the American economic policy anyone can see that they have been scrambling to make up for their lack of restraint and help in earlier months. In Ireland you can at least be certain that the banking system is not as bad off as the US yet and there shouldn’t be a need for a banking crisis, like the one in the US. While interventions are not needed quite yet at least the banks have their eye on how to stop it before it becomes a huge issue.
There is also talk about privatising profits on an upswing while the nationalising losses are in a downturn. This is the same talk that the White House and the Fed have been proposing. At least in Ireland there doesn’t seem to be a need for this and therefore we may just let the housing prices fall to where they should be rather than scramble to fix a problem.
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