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Housing will never be the same

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Last week I wrote about the pathetic investment options out there for Irish investors.

Despite high ongoing fees (mortgage, maintenance, insurance etc.) and the actual headache of being a landlord, it's easy to see why real estate functioned as the de facto investment portfolio for an entire generation.

Wealth creation was a rinse-and-repeat function where couples put money away until they had enough for the 'next house'. As a result, we have an economy where 70% of household wealth is tied up in real estate.

Driven by the profits it created, Ireland became obsessed with owning real estate.

But real estate as an investment won't be nearly as successful for our generation. (If you are able to get a house, that is)

All you have to do is look at the anecdotal evidence all around us to confirm this.

My parents bought the house they currently live in for 30k (pounds) 35 years ago. The house is now worth roughly 450k.

I typically despise these back-of-the-envelope calculations when It comes to property, given the endless variables and ongoing costs involved, but bear with me.

That's a gross return of 15 times the original value. Now there are upgrades, a change in currency and other adjustments to consider here, so for argument's sake, let's call it 10X.

To achieve the same level of growth over the next 35 years, you would be left paying 4,500,000 euros for what is a pretty modest house.

Sure, we will still see property prices increase over time, but the rate of growth won't be anywhere near as meaningful for one simple reason.

Interest rates.

Artificial Growth

Over the last 30 years, real economic growth has been stagnant, yet Ireland has experienced enviable nominal growth.

How did we manage it?

We created imaginary wealth.

We pushed interest rates lower and lower to stimulate economic growth.

And it worked.

After all, if you make 100k/year you can probably afford a 400k mortgage at 4%. At 2%, with the same 100k/year salary you can now take on 600k in debt.

So, were we getting richer, or was the debt just easier to afford?

Where do we go from here?

We have now squeezed interest rates as low as they can go.

The house price appreciation we have seen was justifiable because the mortgage rates on housing continued to fall in recent decades. This allowed people to take on more debt without severely impacting their ability to repay that debt.

If we go back to my parents, they were paying 14% on their mortgage. Mortgage rates are currently between 2 to 3%.

A relentless drop in interest rates gave way to higher and higher prices for houses, but interest rates are now on the floor.

The juice has been squeezed.

In fact, the trend has started to reverse, with rates expected to rise 1.5% in the first half of 2023

Be mindful that the same credit expansion cannot happen again.

How the next generation thinks about their investment options has to change.

Banks offering 0% returns for the use of your money and a housing ladder you can't get on are not your only two options.

If you need help creating your own investment portfolio, just reach out to me at mike@theislandinvestor or simply scan the QR code above.

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Massive increase in numbers using local bus services

Passenger numbers on local link buses across Kerry have increased by 1727% from 2020 to 2023 according to local Green Party Candidate for Killarney Diarmaid Griffin. This is the highest […]

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Passenger numbers on local link buses across Kerry have increased by 1727% from 2020 to 2023 according to local Green Party Candidate for Killarney Diarmaid Griffin.

This is the highest increase nationally and is due to the investment by the Department of Transport during this government term.

“This service was lacking in former times, especially in rural areas and is a welcome addition to the countryside and villages of Kerry.’ says Green Party Candidate for Killarney,” said Griffin.

“While in the past, a taxi was the only option for those not cycling or driving. Now a service to Killarney is available every Friday morning from my townland of Barleymount. This is just one example of the network of bus routes criss-crossing the county thanks to local link.”

“This project is a notable success as the figures show. Investment in public transport helps alleviate congestion, increases community cohesion and reduces rural isolation. This is all welcome news for the locality,”

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Two weeks to go to Killarney Musical Society’s production of ‘Michael Collins A Musical Drama’There is less than two weeks to show time for the cast of Killarney Musical Society’s production of ‘Michael Collins A Musical Drama’

Killarney Musical Society held its official launch on Sunday where cast members appeared in full costume ahead of the March 5 – 7 performance at the INEC Arena. The launch was […]

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Killarney Musical Society held its official launch on Sunday where cast members appeared in full costume ahead of the March 5 – 7 performance at the INEC Arena.

The launch was followed by a full rehearsal and director Oliver Hurley was also there to lend a hand.

“We were delighted to introduce our lead characters to you. We had Abbey Theatre players Brigid Delia and Michael, who are the narrators throughout the musical drama. Eamonn De Valera , Harry Boland, Joe Emmett, Arthur Griffith, Cathal Brugha, volunteers and of course the beautiful Kitty Kieran were in full costume,” said KMS PRO Linda O’Donoghue.

“Mother Ireland and her five graceful dancers were fabulous. Our director and choreographer Oliver, our musical director Michael Young and the full cast of 64 were there. The singing was powerful. The music in ‘Michael Collins – A Musical Drama’ is distinctly Irish. People will definitely enjoy it.”

TICKETS
Get your tickets in the INEC box office, online at universe.com or at the pop-up ticket office in the Laurel’s Pub, Market Cross from 12 pm to 4 pm between February 29 and March 2.

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