When did Morgan Kelly first identify the property bubble?

[Firefly]

Another fact is that house prices have still not hit bottom. I don't want to go against posting rules and I certainly do not have a crystal ball. But if you consider that in the UK the average income to house price ratio went down to about 3 after the bubble in the 90s and that the average income in Ireland is about €34k then house prices could still have a long way to fall.

Hi Chris,

Weren't interest rates a lot higher in the UK at this time though? Surely with such a difference in interest rates the 3 x multiple isn't as valid. Perhaps % net disposable income would be a better yardstick as this would exclude the differences in incomes taxes also?

 

[44brendan]

I'd imagine that if a graph was drawn over a 50 year period on a corelation between average income and average house price it would be difficult to see a continuous relationship. I think the point above about interest rates, would need to be factored in to any conclusions made.

 

[Chris]

I agree that a ratio to disposable income would be more relevant, but I dob't think such a ratio exists or would be easy to put together. Interet rates are also an important factor and in the mid 90s the BoE had rates at about 6%.
At the peak of the Irish housing boom the income to house price ratio was about 8.6 (€310,000/€36,000). Today it is at about 4.6 (€157,000/€34,000). And that decline has happened despite record low interest rates. What do you think will happen when, not if, interst rates start rising towards historic averages?
The unfortunate truth is that interest rates and taxes are only going in one direction.

 

[DerKaiser]

What do you think will happen when, not if, interst rates start rising towards historic averages?
The unfortunate truth is that interest rates and taxes are only going in one direction.

All other things being equal, prices would fall - through reduced demand for credit amongst those to whom credit is available.

Increased availability of credit to a wider demographic might offset this, but that's a separate matter.

 

[Firefly]

I agree that a ratio to disposable income would be more relevant, but I dob't think such a ratio exists or would be easy to put together. Interet rates are also an important factor and in the mid 90s the BoE had rates at about 6%.
At the peak of the Irish housing boom the income to house price ratio was about 8.6 (€310,000/€36,000). Today it is at about 4.6 (€157,000/€34,000). And that decline has happened despite record low interest rates. What do you think will happen when, not if, interst rates start rising towards historic averages?
The unfortunate truth is that interest rates and taxes are only going in one direction.

MASS default of mortgages.