This time round, cracks will appear first in these private funds which, when squeezed by rising interest rates, will be forced by margin calls to come up with cash for their financial backers, forcing property to be sold to raise that cash, causing prices to fall. Interestingly, unlike 2008, because the average punter is not an owner this time but a renter, the resulting negative equity will not be as disastrous, but it will feel uncomfortable, almost recessionary.
This week, as the Kremlin woke up to the fact that it has a serious fight on its hands, one that it may lose, financial markets realised that the fight against inflation will be a long hard slog with severe implications for interest rates. During the week, many had “hoped” that US inflation would show signs that it was falling, meaning interest rates wouldn’t have to go up too much.
Although leading indicators for inflation are going the right way – oil and food prices are falling back while some of the global supply chain problems are being ironed out – US core inflation is stuck above 6 per cent. The Federal Reserve is now expected to raise rates by another 1 per cent in the weeks ahead bringing them to 3 per cent. US interest rates are now rising at their fastest pace in 40 years.
Today, the yield on prime office space in Dublin is still trading at a premium to other European hubs like Munich , Paris , Amsterdam and Madrid . As debt costs begin to rise with central banks across the world raising interest rates, each market drags the other one down like men tied to a rope falling over the cliff.
Yes, indeed every time rent goes up houses shrink!