Disconnect between house prices and the state of the economy

If we end up taking 100bln and funnelling most of it to the banks then the only way the full cost of that interest doesn’t become a direct drain on the exchequer is if the banks are borrowing from the government at the same rate (or with a premium) and actually making the interest payments to the government. In order for that to happen it is in the government’s interest to limit the recognition of further losses by the banks. One key way to do that is to try to keep house prices propped up so that the mortgage losses Morgan Kelly wrote about last week don’t materialise. The Mortgage Arrears proposals published this week would go some way to achieving that. Is it not also likely that the government would carve off part of whatever borrowing they negotiate now to allow the banks to trickle enough mortgage funding onto the market so that house prices continue to drift down at a relatively leisurely pace, as they have been doing for the past couple of years, rather than dropping off a cliff.

To be clear, I am not advocating for this. I want to buy a house so I would be happy to see prices drop sharply. But I’ve just got this feeling that logic isn’t going to apply in this case. Look at Japan where it took 12 years for prices get down to the point where they had been only 8 years before the peak.

Could you explain why a foreign investor would prefer Irish property, as opposed to Bulgarian, Hungarian, Greek, Spanish, Polish, or even ex-East German?

Because the same thundering herd that proclaimed that Irish share prices or Irish bank bonds were great value will tear into the “never been so cheap” housing and commercial property funds. One bitten, twice an idiot…

The IMF have an incentive to see the housing maket find an equalibrium quickly. It will reveal the full extent of the banking hole to be filled.

The Dept of Finance have an incentive in house transactions churning - More revenue from Stamp.

NAMA has an incentive to see an improved sentiment in housing market with Long term economic value in mind.

The Forces in Control of Policy all want to see the market clearing level in the market reached.Sooner then later. The current gap between supplier price and demanders price will be manipulated in some way. I dont forsee the current low levels of activity being allowed to Continue. How much money on the sidelines may emerge once the transaction levels increase? very hard to guess at.

There are two conflicting sentiments here.

Sentiment will improve when prices fall to a reasonable level and economic growth picks up.
which entails the destruction of the notion of “long term economic value”

Cheesus Christ, I can’t believe we’re still talking about property prices and when to buy, I think there is a lot of denial as to what’s just happened, I’ve completely given up on buying a house in this banana republic of ours for a loooooooong time. Not a fucking chance I’m signing up for a lifetime of debt, if I’ve learned anything from all this it’s this, owing a bank 100’s of thousands of euro is bad fucking idea and interest truly is dead money.

Hold on a second, the clue is in the site title.

Well capital flows around the world seeking investment. There is an enormous amount of reserves built up in emerging economies and savings rates have risen substantially in corporations and the consumer sector in the US etc.

If the property stock is undervalued in this country over time capital will flow towards it as return opportunities become more limited in a recovering world economy.

It could take years i dont know but i dont think you will see some of the apocalyptic scenarios.

You might be right about the current moment but what about over a 25 year horizon?

Your still going to be paying for a roof over your head . You owe your future self 100,000’s of thousands in paying for shelter over your lifetime

Now may not be the right time but if your young enough i wouldnt rule out ever borrowing forward that future stream of payments.

I think your logic would work if the 100bln didn’t eventually have to be repaid and we had time on our sides to artificially support the market. The sad fact is that this debt does need to be repaid and the IMF/EFSF will make sure it does by forcing us to tighten our belts in a material way over the next few years.
The fact that the loans are coming at 5% will also incentivise us to repay them as quickly as we can, because its equivalent to a 400bp overnight increase in the ECB rate for a large part of the Banks/Govt liabilities, which will be very very painful.

The banks cannot afford 5% or anywhere close, so obviously the taxpayer will have to up its effective subsidy to the banking system. Its impossible to suggest that the banks fully pass on this extra cost to Mortgage holders etc (although I suspect they will squeeze some more juice out of those who can pay by hiking variable rates and then adjusting terms for those who cannot afford it)

Agreed that the mortgage arrears proposals will prevent an overnight collapse in house prices. No one wants that and it would be very destructive.
However, it cannot stop the continual drip in prices as the whole country moves towards facing the reality of its debts and starts repaying them.

At the end of the day. As much as the Govt would like, we can no longer just kick the can down the road to try and maintain a housing market detached from fundamentals.

This IMF/EFSF development is the beginning of of the process where debts start being repaid instead of thinking we would never have to face them. There is no-one left to lend to us eternally at a low interest rate. The ECB has just given up. The funding rate just went up 400bps for a large part of our liabilities. We can’t ignore realities at 5% like we could at 1%.

Market forces caught up with the Banks/Govt and will continue catching up with the housing market, albeit in a drippier kind of way as naturally the Banks/Govt will start addressing problem mortgages in a slower more surgical kind of way.

My workmate who sits beside me was viewing houses in the greater Dublin area close to where we work.

He knows through a friend a secretary working for a property developer who has 3 bedroom houses advertised online for X. The secretary informed his friend that the developer would be willing to accept X - 23 %. My workmate was considering this for the last few months. He will live in the house for life and works close by. (Of course dependent on many factors I know).

Today he was informed that the 4 bedroomed houses in the development that are advertised online for Y would be open to offers by the developer of Y - 43 %. Developer needs to sell them quickly apparently, debts owed. I told workmate to offer Y - 55% as the developer sounds desperate. The developer does not know of the secretaries advice to my workmate.

Workmate has loan approval. Ready to start family. He’s currently arranging a deal. I haven’t posted actual prices as I’d say it would be easy enough to find the development if I did.

I would definitely not be buying right now and I don’t think my workmate realises what’s going to happen with this country in the next while but he will never move too far from where he grew up. I just thought I’d post something regarding what I know will actually be accepted on these houses compared to what is being advertised. Apparently according to workmate a couple of the houses have been sold very recently at y - 43 %.

This equates to monthly rent * 12 * 14.2 ]

P.s. I read the Pin (and many economic sites) a lot and I know a lot of the faults with everything here. I could have probably summed everything up with - ‘Workmate buying house at 43 % less than advertised’ but feck it I’ve written all this up now so I’m posting it.

^^ No, good post - always interesting to get real world anecdotal evidence.

Is this the only country where people can’t afford their mortgage AND theres thousands of empty houses?

Leverage is going to be killed in this market.

The capital that is will be put into the banks (IMF) is just replacing the money that left.
AIB and BOI have had over 20B in withdrawals
ECB have old us they intend to stop supporting Irish banks they way they have.
The number one agenda on Irish banks is to repair their balance sheets.
The last thing any Bank wants now is new loans and then take the risk of having trouble further down the line.
There will be a Real Estate mkt. Cash Mkt with the minimum amount of leverage as possible from a banks point of view…

The best thing the IMF can do now is to force the banks to start selling non-performing loans at mkt value.
If they start doing this then ones views of property need to be changed.
at the moment though, there is only one direction for house prices (6 months) and that is down.

From a psychological point of view, who honestly would be very committed to buying a house now.
Very few… Hang tight lads and start getting real tough with Estate Agents and Vendors.
Take no crap from them.
The country is Fucked. Houses should be the least of your worries.
Earning a living, protecting your family and trying to stay positive is what you should be focused on.
The smart people now are those who are renting. Realise how lucky you are.

Good post Economic Crash Dummy.

Not a discount if still advertised at bubble prices, to get an idea had there been any discount from the top of the market (expressed in % terms) and are the x and y prices at a further discount along the lines of what you said from an already applied discount. What would the total discount from the top be then ??

If a small development and largely sold the developer is in the sub NAMA pool of €20m minus loans and will have a bank going postal on him and needs cashflow. Nothing to lose by making an offer.

What would the fully discounted price for the 4 bed have gotten him in the same area in 2006, 1 bed apartment perchance …2 bed???

Actually there’s an interesting angle that could help bring about better tenancy laws. For jersey wearers the thoughts of being helpless to stop foreign investors buying up all around them might inspire them to frustrate the market by introducing ironclad letting agreements etc…

The whole thing is rigged
independent.ie/business/iris … 88887.html

Plenty of proof around, NAMA being one.

Lenihan makes a statement to this effect

I’ll give you a few figures for where I am currently renting 2.5 miles away in a similar area, these houses maybe slightly nicer here in my opinion but it’s further out of the way than where he is looking. I’m renting in a 3 bedroom house, two people total in house. My rent is very low as the landlady lives here and just needs to have one other occupant to help out with the mortgage. She used to have two people renting here years ago. I renegotiated the rent earlier in the year also.

She bought the house in 2005 at X. I have checked price history on Google and have seen houses on this road sell in 2007 for X + 45 % … (Insanity).

A house sold around 3 months back on this road which was last advertised at X - 16 %. It had come down over the months from what it was first advertised at. I’d say they accepted less than the advertised price but who knows how much. 16 houses or apartments have sold in this area in the last six months or so as there has been a drop since the last time I was tracking them so there does appear to be some sales in the area (Why, who knows?). Some of the advertised prices appear to still be bizarre. Anyway, a new house on this road is being advertised online recently for X - 16%, which is the last advertised price of the other one that sold. I will see how much it goes down to over the coming months. I think it would be ridiculous to buy anything around here for anything over X - 40 % based on rental yields. This area is a little further out than the area my workmate is looking at.

So,

If you take X + 45 % to equal Z (Insanity price on my road):

Then the advertised price of the 3 bedroomed house that my workmate was looking at would be Z - 45 %.

He is going to try to buy the 4 bedroomed house roughly 2.5 miles away from where I am now for Z - 57 %.

In my opinion though the peak bubble prices are meaningless as there would only ever have been one or two houses in any large housing estate that sold for those prices. Most houses would have sold for € 50,000 or € 100,000 or € 150,000 thousand less. Having said that there were probably some developers who sold entire estates at bubble prices. :unamused:

I’ll probably be returning to this thread periodically to correct my algebra. Those are the figures anyway if they’re any use to you.

Age is another factor that people need to consider, after all no one wants to be paying a mortgage out of their pensions. Assuming a 25 year mortgage, you must buy before you reach 40 years old.

So for some people, the need to buy soon is quite important otherwise they may be having to rent in their retirement, this is a very strong incentive for you if your pension is likely to be modest.