First a disclaimer. I am not an economist so go easy on me. I am not trying to make anything political, I am simply someone who wants to make sure I’m not (along with everyone else here) talking themselves into waiting for something that may never happen (reasonable house prices).
So let rip…
We have moved to a new age. The age of globalisiation. In this age the world is a lot wealthier, however the wealth is becoming even less evenly distributed. The markets have become much more effecient due to better educated people, more players with better information (got from use of the internet) and computers allowing rapid buying and selling of securities and rapid movement of capital. Due to this, upsets in the market are quickly resolved and the markets in general still have peaks and troughs but they last for less time. Further, the world is awash with money looking for a home like never before. The Credit crunch will pass quickly when we find out who has the bad debt and this capital will renew it’s search for a home. Apart from old world economies the main place it will come to rest is India and China. This allows India and China to supply us with dirt cheap goods. Western countries cannot compete against the costs of these two new (to be) economic superpowers.
So what happens in the west? Well the western countries divide into a large group and a small group. The small is the people with money and the large is the people who must work for a living. The rich (or new rich) in Irelnd own property and they rent out to the workers. Their party seems to on the verge of being scuppered as interest rates rise. However, this is only a temporary blip. Interest rates will drop down again and quickly as we are still being supplied with cheap goods from China and India. Far from this ending, the second stage is getting into full swing and they are now offering us services. Interest rates are going to go even lower in the medium to long term. In fact they will probably go below 2%.
What does all this have to do with house prices? Well, if this happens we will find that house prices are currently under valued. Now with the Irish Financial authority changing the stress check from 2% to 2.75% and salaries here under extreme pressure from India and China we will have entered a new age. Banks will now only lend to people who have capital behind them like buy to lettors who have been around for a while. Many “Well paid” workers who didn’t get on the property ladder pre 2006 will now be completely unable to ever buy a home. These people will now need to rent from the generation who priced them out of the market. Ireland turns from a home owner country into a reluctant renter country.