At the bottom of the Interest Rate Cycle?

The Indo are claiming yesterdays decision by AIB to raise their mortgage rates on 3, 5 and 10 year fixed products marks the end of the era of low interest rates. In truth mortgage rates didn’t fall as far in this down cycle, which was driven by banking solvency issues, as they did at the low-end of the last cycle (the dot.com bust). Other banks are bound to follow suit very quickly and the Indo are advising home owners to lock in at these low rates, while they are still available.

Euribor interest rate futures suggest that the ECB may begin raising interest rates later this year, or early next year. The implications for the Irish economy are dire, if the Eurozone generally enters a recovery phase with rising interest rates while Ireland languishes dealing with the fallout from the housing bust. Irish property prices are still in free fall and construction, once a major part of the Irish economy, continues to contract.

Adds: Derek Brawn, reports that the consensus estimate for inflation in Ireland for 2010 is -0.2%. In otherwords, if Euribor futures are accurately predicting the future path of ECB base rate movements, in 2010 Ireland faces both deflation and rising interest rates. Great news for savers and those with jobs and no debts, grim for everyone else.

  • Mick Fealty

    Mack, is it time yet to up sticks and buy a cheap gaffe in Dublin?

  • Mack

    That depends, if a house seems affordable and you’re not fussed on catching the bottom then buy it, but I don’t think we’re at the bottom of the market yet and I still think houses are overpriced.

    There’s huge a oversupply of apartments in Dublin, so if you were looking for a city base (rather than a family home) – these have come down in price a lot and will (probably) fall a good bit further.

    These links are useful :-

    http://daftwatch.thepropertypin.com/

    I would expect to see the supply in second hand homes as measured by daftwatch to fall significantly in the run up to a market bottom.

    http://treesdontgrowtothesky.com/

    Price drops continuing , although the rate has slowed (may be seasonal). Trees don’t grow to the sky measures price drops in asking prices for already listed properties (i.e. it doesn’t measure new listing coming on at lower prices).

  • Glencoppagagh

    Mack
    If Irish prices do indeed continue to fall, then the productive parts of the economy should become more competitive and participate in any recovery in demand which might encourage the ECB to increase rates.
    It will be salutary in the long term for Irish property to get hammered further. With luck the meomory will linger long enough for people to break their property habit for good.

    And I think Mick would be particularly ill advised to jump into Dublin property at the current exchange rate.

  • Dave

    More fun ahead under this one-size-fits-all farce as the Irish economy diverges from other economies in the Eurozone, showing again that all are different and that each should set its own policies based on their respective economic dynamics. Enjoy the fun ahead as interest rates under the ECB rise based on the needs of the German economy, causing the flood of defaults on Irish mortgages as the finger is removed from the dyke, and causing the taxpayer to realise just how utterly ruinous was both membership of the Eurozone and its insistence that the Irish taxpayer be forced to assume liability for the debts owed to Europe’s banks (willing complied with by the EU’s puppet administration AKA the Irish government).