I believe strongly in P/E ratios whether it be in equities or property. Houses prices are now at a much higher multiple of earnings than they where a few years ago - this is not just in Ireland, but worldwide. At present I think there is a serious case of asset price inflation partly due to low interest rates in the worlds two biggest economies (EU/USA). We have no control over interest rates, so when they begin to rise, what will happen? Heres a typical situation in Dublin:
Young Couple: Joe (28) & Jane (27), both working in Dublin City Center
Mortgage: €390,000
Current Terms: 3.3%, 30yrs
Monthly Repayment: €1,708
Scenario B Terms: 6.9%, 30yrs
Monthly Repayments: €2,568
Thats a €850 extra a month.
Yes it is unlikely interest rates will double, but remember every 0.5% jump results in a €110 jump in the monthly bill and interest rates are currently at an
extrememly low level. The ECB is a very new system, so it's better to look at the US FED in recent years; check out
this chart. In 2000, the central bank rate was over 6%!
Like I said - there
won't be a crash; but with so much cheap money currently floating around, property is seriously overvalued; so it's likely we will have years of low growth to pay for the current boom times.