After Saddam, the surge

1
The Property Market A Soft or Hard Landing The
Economic Implications
Presentation by Austin Hughes Chief
Economist IIB Bank to
February 7, 2007
2
Is it only a dip?
3
Where are we heading?
4
A Perfect Storm

• A faster ECB
• Limits to accessibility
• Doubts about government intentions
• Sharply higher supply
• Some unrealistic expectations

• One mans correction
• is another mans collapse.

5
Where Next?

• Property market should reflect the broader
  economy
• unless a bubble is about to burst.
• So are Irish house prices way out of line and
  
• bound to fall?

6
Higher House Prices reflect a transformed economy
(1)
(Source Budget 2007)
Link to file\\wyel1001\ann.hicks\marg_a\My
documents\My documents\Projects\House price
related to GNP chart\Copy of Housing Statistics
for Dept web site_ soc afford9 mths to Orla 22
dec.XLS
7
Higher House Prices reflect a transformed economy
(2)
Link to file\\wyel1001\ann.hicks\marg_a\My
documents\My documents\Projects\House price
related to GNP chart\Copy of Housing Statistics
for Dept web site_ soc afford9 mths to Orla 22
dec.XLS
8
How far out of line are Irish house prices?
9
Spending power has exploded in the past 10 years
More income tax and PRSI as of gross salary for
two PAYE earners on 50K
10
So Irish households have had more spare cash
11
House price growth broadly in line with economic
growth
12
Like night follows day?
13
Recent history not as scary
14
Interest rates matter but no longer mangle
property markets
15
Back to the Future
16
Is Ireland that different?
17
A Cold Winter Has Some Way to Run

• ECB not finished yet
• Sentiment has softened
• Some bad news on house prices to come

• How big are the risks?

18
Borrowing Costs Set to Rise Further According
to the ECB

• ECB interest rates remain at low levels
• The outlook for price developments remains
  subject to upside risks
• Very close monitoring is of the essence so that
  risks to price stability do not materialise
• Acting in a firm and timely manner is warranted

Jean Claude Trichet Jan 11th, 2007
How much further have rates to go?
19
Will the ECB overdo it again?
20
Oils well that ends well
21
Interest rates arent really that low
22
Are Higher Rates Starting to Bite?
23
Where is borrowing?
24
How big is Irelands borrowing binge?
25
Can Irish home buyers stand higher rates?
Mortgage Repayments as of Net Income (2 earners)
26
Has consumer sentiment towards property changed?
27
Irish house prices over the next 12 months will.
A much smaller house price increase is expected
28
Rising rents suggest there is still solid demand
for accommodation
\\wyel1001\ann.hicks\marg_a\My documents\My
documents\EXCEL\Austin\2007\Presentation
Charts\January\CSO private rent year on
year\Query rent.xls
29
The Population Story is Still Key
30
Are We Still Underestimating Migration?
Average monthly PPS applications from EU
accession states
31
What matters most?
Borrowing costs
SSIAs Budget Money
32
Stronger Building Has Dampened House Price
Inflation
33
Summary

• Cooling underway but not a collapse.
• Property values not out of line with an
  exceptional economy.
• ECB to hike again in March but then
• Irish consumers more cautious on property market
  but still confident.
• Demand is still likely to rise faster than
  supply.
• Modest rise in house prices expected in 2007 and
  beyond.

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APPENDIX
35
House Prices in line (1)
36
Are House Prices Nearing a Peak?
What the OECD thinks

• Number of episodes of major downturn following
  peaks 24/36

A clear and present danger?
OECD / WKP (2006) 16 Paul Van Noord
37
So Why Have Prices Picked Up?
38
Will the ECB make the same mistake?
39
Unlike the past interest rates and Euro are
acting in tandem
40
Germans still cautious
41
French borrowing has steadied
42
Italian business has improved
43
Its still hot in Spain