On October 11, 2012 By Karl Deeter In mortgagesWith 3 CommentsTags: analysis finance, buying versus renting, first time buyers grant, irish tax, mortgage relief To buy or not to buy…
Karl I think your point that the interest has a relief has a value and that if that value is greater than the amount you expect prices to fall that great.
But what about the – much maligned – fundamentals?
Employment – bleak.
Net income – lots of tax increases on the way.
Property tax – only way is up.
Interest rate – might stay where they are for the short term but ultimately the only way is up.
Demographics – lots of emigration in the house buying cohort.
Global prospects – uncertain at best.
Supply – ok this a little lower recently but artificially so.
Credit – not a whole lot out there and I don’t think that is going to change drastically.
All excellent points, but property cycles tend to bottom when confidence and fundamentals are exactly as you describe, seen in the UK during the early 90’s and also in the early 70’s. The reduction in construction activity matched with the overhang which primarily exists in places people don’t want to live will create an ongoing two tier market – but this simply isn’t true for cities and that is why I’m confident we’ll enter another boom-bust cycle with right now being either the bottom or near to it for cities.
The credit cycle that you allude to shows this in a roundabout way, how can prices rise or stay flat when credit isn’t available? How can the CSO show a 47% increase in renters and no wonder if they all want to rent for life or eventually own a home? That transition will result in the standard dynamic, rents will rise, then property values start to rise which will compress rents (watching rental yields is a great way to observe the property cycle), credit expands and then it doesn’t which is when the next ‘big bang’ occurs. We’ve done it many times before, rinse and repeat!
thanks for dropping by
Well reasoned out points here & agree that this year would prove well to buy a home over the longer term. However, there are 2 specific points that you mention that I cannot seem to reason out.
You mention that the premium loaded to fixed rates is too high to justify this over variable. It is reasonable to expect or assume that interest rates will rise by a further 2% plus over the next 2 years, the 0.5% increments have started and the banks will be hard pressed to turn over profits (the injections from the ECB/IMF will have stopped). When you have a smaller pool of money to work, the only option is to raise rates, that simple. Interest rates could hit 8% by 2020, but who has a crystal ball,
Your point as to the credit cycle is very interesting, but to think we will have another boom is a challenging thought, considering what the property price bust will have done to the Irish psyche. I think a rational expectation would be in more of the region of a 20%-30% rise and then a level off to move with inflation. I would welcome your comments.