more on housing this time ireland in particular

i've been trying to sell my home here in spain for 8 months.

ok, so i'd love to be able to keep it going and travel to and fro oz as before. sadly, the yrs are taking their toll on the travelling where my lady is concerned. and as she's the one with the ‘do ray me’ and me with the ‘body’, it is i, who has to follow the orders. bugger ! money IS more powerful than sex !

the property mkts flat here. interest rate rises here in spain, will imo, for the first time in spanish history, be felt very hard. why ? well, up until some few yrs ago, the parents/grandparents supplied the home to the son when he got married (most did/could anyway) and the inlaws bought the furniture. note, few homes were mortgaged. that WAS the custom when property WAS cheap. now the kids are forced to mortgage to buy. grandparents house gets sold by the son/dad and the money goes to buy luxuries such as mercs and bmw’s. all of which were out of reach before. the ‘nuevos ricos’ !

back just some 10 yrs or so, peseta interest rates were in their teens and at times even up into the twenties. now spain is 'europe' it has the cheaper interest rate enviroment and stabler euro. now tho, the europeans are seeking work here and the northern europeans retiring to the sun have forced house prices into the stratosphere and beyond. building costs and wages have gone up with it.

with interest rates now going up just a touch at a time, it will hit even harder later than it is now. then we’ll have fewer property sales. then fewer builders wanted. then fewer other tradesmen wanted. then less furniture gets sold. etc. etc. and down down we go. the (long drawn out ?) property price retracement has started. usa. europe. oz. nz. uk to follow ?

slump., bump, slump, diddly down down down. where housing leads, the economy follows. for me, in my book, anyway.

enough of me, here's the bloomberg bit on Ireland.



bloomberg

Irish Mania for Homeownership Squeezes Consumers as Rates Rise

By Dara Doyle

Sept. 5 (Bloomberg) -- Ken McKenzie, a university researcher in Dublin, is shelving his overseas holiday plans this year. He blames the European Central Bank for keeping him at home.

``I had been thinking about Istanbul, Stockholm or maybe Canada,'' says McKenzie, 30, who now spends 38 percent of his 2,500-euro ($3,215) monthly salary to pay an adjustable-rate mortgage. ``But with rates going up? Forget about it.''

In Ireland, where almost eight in 10 dwellings are owner- occupied, the frenzy for property is forcing many buyers to scrimp after prices quadrupled in a decade. The Irish central bank is concerned about a potential collapse as interest rates rise, pushing debt costs higher. That may leave western Europe's fastest-growing economy vulnerable to a slowdown.

``There's a sense of a bubble,'' says Alan Barrett, senior economist at Dublin's Economic and Social Research Institute. ``One in eight workers are in construction. If there's a wobble, it gives you the potential for a big unemployment increase.''

The ECB, under President Jean-Claude Trichet, has increased the bank's key rate four times since December, lifting it to 3 percent from 2 percent.

Although the bank left rates unchanged last week, Trichet sent a signal that further increases were likely. Speaking to reporters in Frankfurt on Aug. 31, Trichet said ``strong vigilance'' was needed to safeguard against inflation, deploying language he has used to flag the last four interest-rate increases.

Investors are betting on another rate increase by the end of the year. The yield on the interest-rate futures contract maturing in December was 3.66 percent yesterday.

Strong Growth

Ireland's gross domestic product expanded at an annual rate of 5.8 percent in the first quarter, led by consumer spending and investment in new factories and roads. The euro region's economy grew 2.1 percent in the same period, according to Luxembourg- based Eurostat.

Ireland and Spain are likely to be among the hardest hit as the ECB raises rates, according to a February report by JPMorgan Chase & Co. Spurred by record-low interest rates and falling unemployment, Irish house prices rose 335 percent to an average of 303,247 euros from 1995 to 2005, the fastest growth among 18 countries surveyed by the Paris-based Organization for Economic Cooperation and Development.

The property boom has strengthened the traditional Irish desire to own a home, says Frank O'Dwyer, chief executive officer of the Irish Association of Investment Managers. Seventy-seven percent of Irish homes are owner-occupied, compared with 45 percent in Germany and 58 percent in France, according to Ireland's statistics office.

``Property is part of the psyche here,'' O'Dwyer says. ``People found out if you bought property you couldn't go wrong.''

Central Bank Concern

Irish Central Bank Governor John Hurley recently reminded consumers that house prices can fall.

``The acceleration in house price inflation has increased the risk of an overvaluation in house prices and, as a consequence, has clearly increased the probability of a sharp correction,'' Hurley said in a July 12 report. Hurley is a member of the ECB rate-setting panel.

The Irish market has defied forecasts of a decline before, as surging employment and immigration cushioned the impact of the ECB's last round of rate increases. In 2000, the ECB boosted borrowing costs to 4.75 percent from 3 percent.

`Resilient Race'

``Ireland is one of the few countries in Europe where the economy is growing fast, the workforce is growing, employment is growing, so you would expect demand for houses,'' says David Went, CEO of Irish Life & Permanent Plc, the nation's largest mortgage lender. ``The Irish are a pretty resilient race.''

Dublin-based Irish Life & Permanent said June 23 that new home loans rose 60 percent to 4 billion euros in the first six months of the year, compared with the same period a year earlier.

Prices may remain stagnant in 2007, after 10 percent growth this year, as banks rein in lending to first-time buyers, according to the Independent Mortgage Advisers Federation, whose 80 members accounted for 8 billion euros of mortgages last year.

As prices rose over the past decade, debt soared. Mortgage debt held by homeowners jumped to about 109 percent of disposable income in 2005 from 46 percent in 1998, as the Irish took advantage of falling interest rates to take bigger loans.

The buying spree is being stoked by generous tax incentives for property owners. The government allows a deduction for mortgage interest and doesn't tax property or capital gains on the sale of owner-occupied homes.

Housing Minister Noel Ahern said Aug. 30 he wants to raise the capital gains tax for property investors from its current 20 percent level to cool speculation and ease price pressure on first-time buyers.

100% Mortgages

Royal Bank of Scotland Group Plc's First Active unit in July 2005 became the first lender to market mortgages that cover the full cost of a home. It has since been followed by Irish Life & Permanent and Bank of Ireland Plc, the country's biggest lender by assets.

Ireland's financial regulator, Patrick Neary, on July 25 said he was concerned about growing demand for 100 percent mortgages as well as interest-only loans in which borrowers don't pay back any capital. The products are ``not suitable for everybody,'' Neary said at a Dublin press conference.

``You have to take some responsibility for your actions, and people don't seem to be doing that right now,'' says Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin. ``People are losing the run of themselves.''

The housing crunch has led some aspiring homeowners to camp out for the chance to buy properties that don't yet exist.

Camping Out

In June, would-be property owners lined up for as long as four days to secure apartments at the Hunters Wood development that is still under construction in the foothills of the Dublin mountains 10 kilometers (6.2 miles) southwest of the capital. Sherry Fitzgerald, the Dublin-based company handling the sale, says it expects more campers when the next set of homes goes on sale later this month.

As many as 75 percent of new homes in Dublin are being sold before they're built, says Paul Murgatroyd, an economist at Dublin-based real estate company Douglas Newman Goode.

Prices in Dublin, as measured by square meter, are now higher than those in London, Zurich and Paris, the OECD says, estimating that Irish housing may be overvalued by as much as 20 percent. The average price of a Dublin home is now 409,000 euros, 56 percent more than outside the city.

``The faster the increase in house prices, the greater the chance of a hard landing,'' says David Rae, an OECD economist and one of the authors of a June report on the Irish property market. ``The effects for the economy could be severe.''

Construction Slowdown

A slowdown in the housing market may curtail a construction boom that has gobbled up vacant land, hotels, pubs and sports stadiums across the country.

Building companies, which account for one-fifth of Ireland's 160 billion-euro economy, employ 13 percent of the working population, according to the International Monetary Fund. Some 86,000 houses were built in Ireland last year, or 21 dwellings for every 1,000 people, four times the European average.

Liam O'Mahony, chief executive officer of CRH Plc, Europe's third-biggest maker of building materials, says he expects the Irish market to cool.

``It makes sense that at some stage Irish housing numbers have to begin to drop down somewhat,'' he says. ``A population of 4 million people can't keep building 80,000 houses per annum.''

CRH, with 66,000 workers, is the largest publicly traded employer in Ireland and ranks No. 3 in market value behind Allied Irish Banks Plc and Bank of Ireland.

Consumer Caution

As rising mortgage payments eat into wage packets, spending on everything from holidays to furniture may slow. First-time homebuyers are already spending 27 percent of their incomes on repayments, almost double the level 10 years ago, according to Dublin-based EBS Building Society, the country's biggest customer-owned lender.

The challenge of finding affordable property is driving people farther away from Dublin, a city of 1.1 million people.

The Dublin commuter belt has expanded to reach 100 kilometers from the city, from 25 kilometers in the 1980s, encompassing towns in the surrounding counties of Meath, Kildare and Wicklow, according to CB Richard Ellis Group Inc., the world's largest provider of commercial property services.

Aileen Power has just moved to Kildare, commuting a total of three hours to and from her office in Dublin. She moved from a two-bedroom cottage in Ringsend, 25 minutes from her office, to a 415,000-euro, four-bedroom house in Kildare.

``It's about bang for your buck,'' says Power, a marketing executive. ``There's no way we could have afforded anything like it in Dublin.''

Dining In

McKenzie, the university researcher, is carrying a 100 percent, 35-year mortgage on his 210,000-euro apartment in the commuter town of Ashbourne, County Meath. He estimates that ECB rate rises will boost his monthly bill above the 940 euros he pays today. When he bought the two-bedroom apartment in December, the payment on his mortgage was 810 euros.

As his disposable income shrinks, McKenzie is getting used to more nights at home in front of the television.

``Now each week I go to the cash machine and take a set amount and try and live on that,'' McKenzie says. ``I've already cut down on meals out. It's the price you have to pay to buy a house in Ireland these days.''

To contact the reporter on this story: Dara Doyle in Dublin at [email protected] .

Last Updated: September 4, 2006 19:35 EDT