Irish residential property prices have continued rising during last year’s Covid-19 crisis and are on target to rise again by an average of 4 per cent in 2022. A contrived supply shortage of building materials, stringent new government regulations and the runaway inflationary price of raw material will make property inflation much worse in 2022. The potential buyer is left more vulnerable than ever and is being priced out of the market.
The Unspoken Property Bubble
There is growing concern about a property bubble burst to rival the 2008 crash. Both the government and the Central bank seem to have their heads in the sand about this. This ostrich treatment could lead to another housing market crash in 2022.
Despite the governments apparent lack of awareness or indifference the market is practically screaming “We are in another bubble and it’s about to BLOW!” As rampant inflation is already taking off like a rocket people’s ability to buy houses or pay their mortgages is steadily diminishing. This will be further accelerated as people will be driven from their jobs by government led policies are resulting in employers firing staff for not taking the “Jab” and by people becoming incapacitated and even dying as a result of having done so. The widening cracks are already showing.
The Denial phase
Right now, just as in the lead up to the 2008 crash we are again in the denial phase. The property Titanic is racing towards another iceberg. The usual ‘experts’ and talking heads just as they did prior to the last crash are trying to convince us that there is no danger of a bubble burst despite the fact that it already exists. They won’t even admit to the existence of a bubble. This present denial is the new normal.
This time things are completely different as the entire economy is based on denial. The jargon of denial is deafening. Denial seems to be the government’s economic policy as the plunge us deeper and deeper into debt. The experts are keeping very quite. Are those not largely the same bunch of experts that promised us that there was no crisis and we would have a soft and comfortable landing in 2008? The soft landing parachute failed to open in 2008 and it doesn’t even exist this time around.
The simple fact is that the housing market has been artificially and deliberately inflated and kept high by those including the government who have been profiting from it up to now but they failed to factor in the soaring inflationary cost of raw material or the destruction of the economy by their economically disastrous bungled response to the Covid-19 debacle.
Virtue Signalling Government
The government are about to reap a bitter harvest that will threaten their very survival as a result of their destructive shutdown of the entire economy during 2020/21. Nero’s fiddling couldn’t have done any better. The problem will be magnified by the fact that the government are no longer in control. They have been so busy ‘virtue signalling’ to their masters in Brussels and their globalist masters that they have completely lost sight of the true state of the domestic economy. Their “Leprechaun Economic” thinking and forecasting is based on an economic view skewered by the IFSC and the multinationals. They are failing to see or pay attention to the destruction of the native economy which has been largely driven by small businesses and SME’s.
Predatory Property Speculation
The property market has grown artificially because of foreign speculators buying whole phases of housing and apartment developments that domestic home buyers cannot compete with. New Zealand put a stop to this predatory property speculation simply by banning the foreign predators from buying property in NZ. The result was an immediate stabilisation of the NZ property market. This cannot happen because the government are not in control of such a decision. That’s Brussels call and their ‘open economy’ model is detrimental to the pressing needs of the nation states which they are intent on weakening further.
Market Cooling and Contraction
Describing what is coming as ‘a cooling of the market’ is the mildest way we can express what is about to arrive. Economists won’t agree with this analysis but when did they ever get anything right? Just look at their flawed analysis prior to the 2008 crash. At first there will be an obvious easing of demand as potential first-time buyers have already been largely priced out of the market. Their need for mortgage financing is being uniquely challenged even for those with good incomes with the inflated and record-high home prices driven by the factors mentioned above and the low property stock inventory.
If ‘cooling of the market’ sounds like a conservative theory remember that there will never be an agent, an expert or a government ‘source’ out there sounding the alarm bells until the meltdown is already upon us.
Those of us who made it through the 2008 crash can well remember how, even at the first 10% drop, most of the talking heads and media pundits claimed it was just a bump on the road and things would soon bounce back. They bounced all right but not in the direction they predicted.
Following the first and subsequent 10% drops in the next year or so they will repeat the same. It’s their mantra. It wasn’t until closer to the 30% price crash that we started hearing “The end is nigh!” from that group of experts and professionals. There will be no bailout for the banks this time if they are left vulnerable by what is coming. Beware of being robbed of your cash by a bail in.
Housing Supply Trend Reversal
Housing supply in relation to demand in Ireland remains well below the normal level, but there are two things that will reverse this trend. First will be the Covid-19 casualties which will be driven out of the market. Depending on the numbers this could be catastrophic. Second is the projected trend in inventory stock growth. If more homes come onto the market in 2022 together with the less availability of buyers could kill home prices resulting in a domino effect that could severely depress the market.
When the potential sellers start to sense they are going to miss the opportunity of selling at inflated levels things will begin to turn ugly. There will then be a rush of inventory on to the market that due to greatly reduced demand will quickly go stale as happened in 2008. Much lowered prices will then be the only way to move housing stock. The seller’s market will become a buyer’s market.
A major factor that will result in a price cooling effect is the growing lack of affordability. Many potential first time buyers are finding that the market has been continually moving further and further out of their reach. As housing prices become less affordable the demand from buyers inevitably drops off.
Millennial Misery Magnified
Demographics can and are already complicating the outlook. If the surge of first-time buyers who are mostly millennials are priced out of the market or become Covid casualties it could be the first sign of a major problem in the 2022 housing market. Renting millennials are already paying exorbitantly high rents, so for many of them it’s hard if not impossible to accumulate a down payment. Their financial eligibility is nearly impossible to achieve because of the inequitable relationship between house prices and income levels. The millennium generation’s home buying prospects have already been hammered by the results of the 2008 Recession and now they are suffering a second blow because of Covid lockdowns and layoffs. With the Covid pandemic sending prices through the roof, this generation could become trapped in a vicious renting cycle and never be able to afford a home of their own.”
The Inflation Pitfall
Inflation has started to run at its hottest in a very long time. This will inevitably affect mortgage rates which are currently running as low as 2.5% and what if due to rampant inflation they reach 1980’s double digit levels?
Being optimistic and assuming that the economy remains stable, starting sometime in 2022, inflation will start to drive up short-term rates over the next two to three years. If the inflationary trends continue 5 year fixed mortgage rates will be hit even harder two years later. That will push up mortgage rates to unaffordable levels. We have seen it all before unless of course we are media pundits and economists.
A few bankers and clued in economists are privately sounding alarm bells already about a “what if” scenario in which Central banks wait for too long to deal with inflation by raising interest rates. That is a very likely scenario as they tend to lock the door after the horse has bolted.
As this policy mistake is likely to be made it could result in the start of big disruptions in the 2022 housing market. If Central banks are forced into to raising interest rates by 1% or even more within a month, the ripple effects could result in a catastrophic economic earthquake.
A number of loan providers would be frozen out of the market amid a rush of people trying to get applications in before rate increases. Deals could slow to a snail’s pace bottle neck. The average selling prices would be very likely to drop, and the past years rising prices could be rapidly reversed. It all happened before.