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Perfect Storm or Soft Landing

with 5 comments

Morgan Kelly (Prof of Economics UCD) and Pat McArdle (Chief Economist, Ulster Bank) debate the likelihood of a property crash (Kelly) or a soft landing in todays Sunday Business Post. I’m no economist, but Morgan’s side of the debate seemed more compelling and was more concerned with presenting real data to support his position. For instance the average rent on a 1m euro property is about 2000 euros a month, while the mortgage repayments now stand at around  4000 a month for the interest alone. Those economics demand high capital growth.

Pat on the other hand seems preoccupied with debunking common “myths” regarding the likelihood of an Irish property crash. As he admits himself, ( and I was thinking) , you would say that, wouldn’t you.

The full paper behind Morgan’s thinking is on his website.

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Written by Joe

April 15, 2007 at 10:30 pm

Posted in Uncategorized

5 Responses

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  1. The thing I’ve come to realise is that when banks talk about a soft landing, they aren’t talking about a soft landing for borrowers, they’re talking about a soft landing for lenders.
    i.e. – if you can’t make your repayments we take your house, but to save face all round you can rent it back from us and no one needs to know.

    What’s interesting is that the level of debt people are getting into means they’ll probably be less likely to take a risk on starting their own business.

    walter

    April 15, 2007 at 10:57 pm

  2. Thes banks have already made their money, so your right, its all about us poor sods in the trenches.

    Agree about the debt thing. Lets hope Macolm’s wrong, if he’s not we’re all screwed.

    Joe

    April 15, 2007 at 11:10 pm

  3. I find this so difficult to come to a conclusion on – we were in the UK for a property crash in 1988/89 and (as Malcolm says in his article) the only thing that actually changed between Dec 1988 and Jan 1989 was confidence. That was it. No change of government, no revelation of previously unknown unemployment figures. Just that people suddenly stopped believing.

    keith

    keith bohanna

    April 16, 2007 at 6:21 am

  4. Hi keith,

    In the paper that I link to, Malcolm Kelly refers to there being an imperfect market between buyers and sellers. THis leads to a herd instinct where we end up doing what others do. Markets are all about confidence and each interest rate rise makes renting less attractive and selling more, it finally reaches a tipping point when there are more sellers than buyers and what happens then is that speculators (typically those late to the market with the most to loose) then dump their excess inventory. Hence the perfect storm analogy, combining, rising interest rates, low rents, high repayment levels, excess unoccupied inventory leading to loss of confidence.

    Hey presto, a market crash!

    Joe

    April 16, 2007 at 8:38 am

  5. I agree that ‘confidence’ and ‘herd market mentality’ can start the stampede once that ‘tipping point’ is reaching.
    what those exact metrics (and u get differing viewpoints depending on who u talk 2 e.g. economist etc..) are is crystal ball glazing stuff.

    However (IMHO) it will happen and its just a matter of when. The big issue then is for how long, how hard will it crash and what the repercusions are.

    I don’t think it will be a pretty picture.

    Lal

    Lal

    April 22, 2007 at 1:50 am


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