Is Ireland in Store for Another Real Estate Bubble?

Contributed by Ryan Tollefsen, 09 May, 2018

Ireland is not immune to real estate bubbles, and the last time one happened there were several indications that it was coming. Now there are rumblings that there might be another bubble set to burst, and cause havoc and chaos in the financial markets. With that in mind, the Bank of Ireland has been putting money aside for months now to absorb any possible losses from residential mortgage defaults. If the Bank was not worried about this becoming an imminent, potential problem, why would it be putting money back for just such an eventuality? Some could argue that it is always good to have money set aside, but the Bank was not doing this all the time. This is a recent development.

What the Bank Has to Say About This Issue

What is taking place with the Bank of Ireland is important, but it is not the only thing people should look at when they are considering whether there is a housing bubble that is close to bursting. The Bank provides technical statements and information, some of which may be confusing to consumers and may be difficult to clearly understand. The only real point of clarity from the last statement the bank put out to the public on the matter was that the cost of the defaults (if there were any) could run to several hundred million euro. That seems scary to the untrained observer, because the idea of defaulting on that much money sounds as though it would send the country's financial markets into chaos.

But would it? Well, maybe. And maybe not. Depending on the definition of "several," it could really mean a lot of different things. Three hundred million euro is several, but so is thirteen hundred million euro. There is a definite financial difference between the two numbers, and one that could greatly affect the health and safety of the country's stability and future market. So it is only natural that people would be alarmed when the Bank said it has to put more money aside. It stands to reason that the Bank already had money aside to protect from losses, so putting more money aside indicates that the losses are going to be greater than was originally planned for. That could mean severe economic problems for Ireland.

There is More To the Issue Than the Bank

People who chase the property market are a big part of the issue. That is not to say that they are at fault for the bubbles that occur, but only that the more people who chase property the more the prices are driven up. Once that happens the property prices continue to climb, and sellers can make a lot of money. Buyers do not get the best deals at that time, and investors may shy away. Interest rates may also rise because of the "healthy" economy (i.e. so many people buying properties). But eventually the inevitable happens, and the market has to re-calibrate itself and readjust to lower prices and different conditions. When that takes place, people can lose a lot of money in the real estate market.

It has happened in Ireland in the past, and it may happen again. The question is whether this is what is currently starting to take place, or whether this is a small bobble in the market that will work its way back to normal. That is an important question, but unfortunately there is no easy answer for it. The market can be volatile, and things can change quickly, but it can also be stable for a long period of time. Because of that, one small change in the way the Bank is doing things may not truly be an indicator of anything going wrong. Instead, it may just be the bank trying to protect itself and be more cautious than it has been in the past. Investors and others in the real estate market should take note of that.

Property Prices Are Changing Now

The prices of properties are going up, and eventually what goes up has to come back down. This year? Next year? Five years from now? Who knows. That is part of the "fun" when it comes to getting into and out of the real estate market. People are just not sure what is going to happen from one day to the next, so they have to study what the market has done in the past and make a judgment call about what they think is best for them at that time. But they will not really know, because things can change in a way that is unexpected and different from what the market indicated. That is not always likely, but it may be the case.

With house prices rising so much, lending is becoming more reckless than before – and this can affect investors, renters, buyers, and sellers alike in the long run. People have to focus on whether this is a good time to buy a house, and it may be wise for them to exercise caution and hold off until the market corrects itself. That could take some time, though, so patience would be the watchword for people who decide not to get into the housing market right now. If they wait there will be a correction, and the prices will come back down to more "normal" or expected levels in time. There will always be real estate fluctuations in Ireland, just like the rest of the world, but the severity and timing of these fluctuations can really vary from one to the next.

The Bottom Line for Real Estate

The bottom line is this: there is a lot of uncertainty in the market with home pricing rising so rapidly. Whether the market will continue to climb or whether prices will fall and force a correction remains to be seen. Wise investors and buyers will wait a while, and give the market a chance to decide what is going to happen with it. If it starts to fall, buyers may be able to get much better deals and investors can purchase more properties. If it continues to rise, cautious purchasers may want to continue to wait.

Tags: business | Invest | investment | Ireland | construction |



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