So you're think of moving back to Ireland, the Celtic Tiger?  I have at least three friends that are in the process of either moving or accepting jobs on the Emerald Isle.  The country has seen record growth over the past ten or so years; it has been featured on the US investigative program 60 Minutes; for the past few years, people have been emigrating into Ireland from other EU countries, Asia and Africa.  All signs point to a great future; however, there are possible clouds on the horizon.

As wealth grows more people elect to own homes.  This trend has been happening in the US and in Ireland; it's also occurring in countries such as Spain and the UK.  In fact, there are now cable TV channels in the US and daily programs in the UK dedicated to owning, improving and flipping a house.  It's an international hobby.  It also augers poorly for the housing market.

All one has to do is to pick up a history book and see what has happened when the housing market has heated up: unchecked, it causes serious problems with the economy.  So, how does this issue tie in to delaying a move to Ireland?

Well, it's simple.  In modern times–certainly for five or six hundred years–Ireland hasn't experience the kind of boom it's enjoying today.  When one looks at housing prices in the US and in Ireland, they're clearly at multi-year highs.  When measured against affordability, housing prices in the US are at historical highs.  The Irish economy, more than any other developed economy, is uniquely dependent on the housing industry.  A recent article in the Irish Times indicated that as much as one fifth of Irish GDP is connected directly or indirectly to the housing industry.  It's a scary number, because when things turn–and they will–the Irish economy will get a double-whammy and the recession will be hard.

The US economy isn't in much better shape.  As housing prices continue on their inflationary journey, a wealth effect is created.  US tax law allows home owners to borrow against the equity in their homes and deduct the interest on that borrowing against their taxes.  In principle, these home equity loans should be used for home improvements, but today, home equity is used as "free money": people are using the equity in their homes as ATMs.  The money is borrowed at historically low interest rates.  Rates continue to fall and the expectation is that people can refinance these lows later.  If things go south–and the housing market will most definitely decline–there will be a huge drag on the economy.  If the wealth effect makes people profligate with their funds, just imagine what will occur if home prices level off or even decline?  Historically, housing prices seldom actually decline, but this time, there is a chance they will.  In terms of affordability–average home price to average annual income–prices are at historically high levels: significantly higher than ever seen before.  To correct the problem, either income has to rise dramatically or housing prices need to stagnate for a long time, decline for reasonably aggressively for a shorter time or combination thereof.

So, how does all this doom and gloom tie into moving from the US to Ireland?  The Irish economy is driven by (a) foreign investment and, currently, (b) the housing market.  Ireland has witnessed declines and sharp declines in GDP in the past, but the one that's imminent will be challenging.  It will be challenging because a new generation of Irish people have seen nothing but growth for almost a quarter of a century.  It will be tough because Ireland has a large, immigrant population.  Ireland is also, today, a relatively high cost country.  When the economy turns south, some people will leave, others will make demands on government transfer payments.  Certainly, the impetus that these immigrants gave to home price inflation will be gone.  Finally, it will be tough because people overpaid for their houses and will see them decline in value; there will be an "anti wealth effect."

My suggestion is to hold off on emigrating back to Ireland until after any downturn has occurred.  After all, housing prices would become more affordable and one would get to see, first hand, how the government handles something that Ireland hasn't seen in a long time: a full blown recession.   I'd stay put and see how things play out over the next five years.