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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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Bumper GAA weekend in town

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Killarney is set for a bumper GAA weekend as Kerry faces Cavan in a do-or-die All-Ireland Senior Football Championship preliminary quarter-final.

The game is scheduled for Saturday, June 21st, at Fitzgerald Stadium in Killarney, with a 3:30pm throw-in and traffic and parking restrictions will be in place on the bypass and on all approach roads.
Kerry will be looking to recover quickly from their recent defeat to Meath in their final round-robin match.
The match will be streamed live on GAA+. Radio Kerry will provide live commentary with Timmy Moynihan and Ambrose O’Donovan. Jerome Henry will officiate the match.
This game is one of four All-Ireland SFC preliminary quarter-finals. The other Munster county still in the championship, Cork, will play Dublin at Croke Park at 6:15pm on Saturday, with that game also broadcast on GAA+.

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Killarney café to host free event in aid of local charity

A local cafe in Killarney is hosting an event to celebrate cherished sporting memories in Killarney. The event is taking place in Clann Housing, Coill na Darrach on June 28 […]

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A local cafe in Killarney is hosting an event to celebrate cherished sporting memories in Killarney.

The event is taking place in Clann Housing, Coill na Darrach on June 28 and it is part of the wider Alzheimer Society of Irelands sporting memories initiative.

There will be stories, photographs, and memorabilia shared on the day.

The Alzheimer Society of Ireland is organising a sporting memories initiative which aims to harness the power of sport to spark memories and create connections with people living with dementia.

John Don O’Donoghue, who is a joint organiser of the event, is emphasising the importance of events like these for those who suffer with dementia.

He said: “They offer people, especially older adults and those living with dementia, a meaningful way to reconnect – not just with their memories, but with each other. We’ve seen first-hand how powerful it can be when someone’s face lights up remembering a match, a goal, or a moment they thought was long forgotten.”

All members of the community are welcome to attend and take part. The event is free and guests are encouraged to bring their own photos, memorabilia and stories to share.

For more information, please contact: Triona Heffernan or John Don O’ Donoghue Email: soccermemoriescafe@gmail.com

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