Many here (myself included) refuse to believe the talk of green shoots in the market on the basis that the numbers don’t make sense: property prices are still way out of whack with salaries, LTV’s are dropping, credit is non existent, job losses continue etc. All this stuff suggests property is still 30%+ overvalued.
But I’m wondering if this disconnect can be explained by people having money in the bank that is hard to see. In particular inheritance money, but conceivably other kinds of money that isn’t related to salaries, like cashed-in equity from the bubbletimes or whatnot.
Is there any chance that we are indeed nearing a bottom and the difference between the mortgages that salaries can bear and the high price of property can be accounted for by inheritance money or other forms of “hidden” wealth?
Many years ago, when we were starting out in life, the punt had just being devalued a well known business man in Cork, said to me, not to worry (we were living hand to mouth at the time).
He said that we “were now a second and third generation country, with massive amounts of assets, that’ll be transferred in time”. Now I didnt really understand that, and he explained that if the shyte hit the fan, the assets could be leveraged to assit the children of these people.
This was 1993, in 2010 I would imagine that the inheritance pile is less, due to many taking out mortgages to give the kiddies a deposit during the boom, or going as guarantors. I think Mc Williams was advocting at some stage that people should have given this pile to the kiddies during the boom, at the time I thought a figure in the high billions was mentioned, but I stand corrected on that.
There is serious money out there but with market valuations down by huge percentages it certainly is’nt as high as it was, our investments would be down by at least 30% over the past 3 years or €400,000 in money terms. I would doubt that we’ll ever make this up, and we are in our 40’s and hope to at least claw back some of it over the next 10yrs.
I have tried to put a figure on it but the information is impossible to get, and I think irrelevant as no one knows, what it is.
On topic anyway. I wouldn’t link some people having money in the bank with a recovery. Funds run out. Look at the Social Insurance find. The economy needs to be generating wealth for a recovery to occur i.e. GDP and GNP need a few strong quarters of growth IMO
I agree, again speaking personally we now use our savings for all “unexpected” expenses, new boiler etc, where as in the past I would have lashed it on to the credit card, and repaid it over a few months, and incurred a little interest to perserve our savings.
Now, its why am I willing to pay interest when I have savings earning a crappy interest rate.
I think people have spent money on playing down discretionary debt, and once this has happened, just start saving.
The economy does indeed need to generate wealth but I think people are simply shit scared of buying things, I know of a friend that has spent the last 4 months mulling over a Kitchen that is 50% cheaper than 2 years ago. She got a bonus and it covers the entire cost, with a few bob left over, but she just can’t make up here mind.
This is only one example but I think it would mirror a lot of people now.
The disconnect that would exist if we are indeed nearing a bottom of the market despite salaries not being able to bear market clearing prices. The only way for those two things to be possible is if people have some other store of wealth to make up the difference.
We actually have most of those, except the pigs, she’ll not allow me 2 hens ( which were going to form the basis of my son’s (9) summer enterprise, coupled with garden fruit and veg, homemade rubarb jam sold out in a day last saturday €1.10 a jar with 10c refund for used and new jars), so I’ll need to forgo the pigs, but thanks for the tip.
I have heard the “Inheritance” moneypot argument alot over the years. Its up there with the other bubble arguments like there is only so much land out there etc
The fact is though, its a zero-sum game…
If you inherit a home, you still need to find someone who can “afford” it to monetise the value of it. If others are not earning an income to buy it off you then its not worth what u think it is
As for cash on deposit in banks, just because a relative leaves you a large sum, it doesnt mean there is any more cash sitting in Irish bank accounts for the banks to leverage their lending off. All that has happened is the name of the deposit holder changes. The banks deposit base is the same. Ireland has one of the lowest level of cash on deposit as a % of house prices of anywhere in the world, ie house prices here are a higher multiple of deposits than any country in Europe or the US. Even the BoI Wealth of the Nation reports in the bubble days highlighted this fact (they didnt exactly highlight it, but it was there in the data they provided if you looked for it!)
This is why our banks are in more trouble than other countries. Its because the cash wasnt really there and we had to borrow 2-3x as much as organic desposit growth from abroad to keep the boom going, because the cash hitting the banks wasnt growing anywhere near as fast as house prices
S like I said, if X leaves Y, 1mln EUR, who cares…there is still the same amount of money in the country supporting house prices. You may have an argument if suddenly the Warren Buffets from abroad started to leave their billions to Irish people increasing the amt of cash circulating the system here…but of course that aint ever going to happen!
Why? I see it as very relevant. If you’ve a generous, secure, public sector defined benefit pension and tax free lump sum coming to you then you’re far more likely to throw your kids a few quid to buy a house than if you’re in a private sector defined contribution plan that’s just had a massive chunk of it’s value wiped out.
People in their 60’s came out of past economic debacles and tend to own their own home and have savings and little or no debt which they pass onto their kids to buy a house .
I don’t think inheritance money is distorting the market though . Ireland has just come out of a 13 year housing boom . People keep talking about the bubble years as been from 2001 to 2006/07 . I remember housing going nuts in about 1998 or so . ( maybe it was 95 , my memory is distorted by all the greed and glee by canny investors at the time ) I bought a run down place in Stoneybatter as a long term investment in 1996 and 2 years later it was like winning the lottery . Sealed bids , which I think are just nasty were being used as far back as 1998 .
Property is a illliquid asset and is slow to move and may take years for it to find its true bottom . Using terms like ’ bottom ’ and ’ recovery ’ is kind of weird in relation to property . As far as I know you can’t actually trade property on the stock market ( as in 45 Murphy Street is down 2 points today on the back of the latest NAMA report )
Got a cheque once about a grand or so, it was from the estate of an old spinster aunt who died and left all to her only living close relative (her brother, my uncle) and my dads brother ( my dad had passed on some years previous).
Now my uncle was entitled to take it all and put it in his pocket as the only direct family member left, but he wouldnt do it much to the dismay of some of his own family members.
He decided the estate should be divided in three as he had lost another brother prior to my fathers death and he split the proceeds between the three families which I thought was a very generous and decent gesture.
Hence I recieved my few bob and spent some of it wisely and some very unwisely.
And I’ll never forget him for it.