ESRI: First-time buyers facing 10 years in mortgage bind


#1

#2

Ah, yes… David “[*In many cases negative equity will not be an issue * (https://www.thepropertypin.com/viewtopic.php?p=307474#p307474)” Duffy.

Still knockin’ 'em out of the park.


#3

esr.ie/Vol41_1/06-Duffy.pdf - PDF


#4

Langer!

It’s still there:

Okay, David Doofus Duffy, here’s a ying for your yang:

Do you still think your (repeated) statement makes sense?


#5

But in some way a lot of us agree that the negative equity is not an issue.
If you bought your house as a home, not an appreciating asset, if you found it affordable enough when you took the mortgage - why would you care anything up the “built up value” in your own HOME.
To people who want a home, value in thier house is akin to value in their left kidney.

I’m not saying anything about value, competitiveness of the economy etc, just if you are happy with your home in Ireland why care? You AGREED a price, and handed over money, job done.
Neg equity only an issue for those moving abroad.

A more important issue is being able to pay the mortgage, this is a toughie for a LOT of people.


#6

Yes, but do you not see a relationship?

People no longer have either the option of the home ATM to tide them over (much as I hate the concept) or selling the house if they end up unemployed, on reduced income, or just unable to afford the house. The social consequences of knowing you are ‘stuck’ and that you over-paid are greater than the economic consequences of not being able to move to take up a job.


#7

But saying NE is not an issue is confusing cause and effect.

What David Duffy is saying is that NE is not a factor after the purchase is complete. This sees NE as a push factor - one that influences economic decisions. This is the wrong way to look at it.

It’s only a push factor if you think of housing as a speculative investment - like stocks or gold.

Housing is a utility. It is a necessary evil for most. The price being paid for NE is a pull factor - it’s draining economic resources into a sunk cost. The “cost” was an overpriced, speculative asset - not a house.

So NE is a symptom of the loose lending, corrupt planning, tax-break mania. It’s what happens when you turn a utility into a commodity.

It’s also the misallocation of capital amortised over the life of the mortgage.

Thinking of NE as a cause of economic judgments is to dismiss the bubble period as a given, whereas it’s really the symptom of the bubble echoing down the ages for the next 30 years.


#8

There is currently a TV advert running on UK television that even though it has nothing to do with housing, mortgages or negative equity, it does clearty show what a mistake it is to overpay for something.

The advert shows a railway station announcer deing distracted by a guitar playing by itself beside him, and a voice saying “you could have afforded that guitar if you’d shopped around for cheaper insurance” (or words to that effect).

Negatice equity is a sharp reminder that you overpaid for it!


#9

I think the point is a good one, as people can get so excited by headline figures of who’s in negative equity that they forget that homes are consumption goods as well as investment goods. For those who are happy in their home, and remain safely employed, negative equity will not be an issue.

Hence the attempt by myself and others to try to figure out who’s actually vulnerable here.


#10

Vulnerable to what, however?

The issue is if you have a group in negative equity and decide only some of them need to be aided in some respect, for whatever reason, those who are not part of the subgroup could justifiably argue there’s no social justice in helping others when they are not helped…and this is a key issue for the wider population at large because you have a wider group who will a) pay for that support and b) who arranged things that they would not need it for themselves.

It was disengenuous up front to say that negative equity is not an issue. At the very least it is an impediment to mobility which may be required on an unplanned for basis. It closes off a source of funding, for example, for progressive works on a property. And it is a millstone around the country at large.

The responsible move would have been to prevent the bubble from inflating in the first place - this bubble was foreseeable and therefore preventable, but even when it was at its height, we had economists - admittedly vested interests sewn in their wallets - but supposedly knowledgeable people all the same - suggesting everything would be fine. The vulnerable have already been screwed over.

I fully recognise that we have major issues now and they have to be addressed, but in general, it is not a responsible position to take that “negative equity will not be an issue” because a) this is not true in general and b) it is only true for a subset of those affected by it.

As to how we address it, that’s a harder question. In terms of dealing with it, a key requirement will be for those in negative equity to recognise their own culpability and contribution to their predicament. Right now, the blame game is in full force and this helps nothing. It’s the banks fault. They shouldn’t have lent us the money. It’s the government’s fault, They should have regulated the banks. Both these are true. But I don’t hear anyone, not one person who is in this position saying “I shouldn’t have borrowed all that money”.

And that’s what it comes down to. If we as a nation are going to look at debt forgiveness, it needs not to be onesided. Those whose debts are being addressed under dealing with debt or negative equity will have to make a key contribution too. Someone, at some stage, suggested a special tax for those who exploited any such scheme. Others have pointed out the lack of justice involved in allowing someone who screwed up in this way to actually keep their homes under the circumstances.

All this has come about, all these discussions have come about, because negative equity is an issue and it is a major issue even if you are not directly affected by it because you as a taxpayer will be buying into the support of any scheme that addresses this.


#11

I don’t understand how you can repeat this nonsense?

See Yoganmahew’s post above about the economic relationship.

See my post above about the push-pull factor.

See Calina’s post about the wider economic fallout.

NE is a symptom of a much wider economic malaise, and anyone affected by it will have one less option available to them when the wider social and economic implications of the housing bubble hit.

You seem to be divorcing the overpayment issue from the reason why they overpaid - which squarely put the housing issue back in the investment category, not viewing it as a utility.


#12

I can’t see what everyone’s getting so upset about.

I have it on good authority that Negative Equity can’t happen in ireland anyway.

Marie Hunt, CB Richard Ellis. April 2007. Responding to Future Shock.


#13

Indeed and this calling of the prudent, the cautious, irresponsible or dangerous is an indication of how far thinking fell in the boom. That the same people are still leading the country, the banks (largely) and commercial thought is disastrous.


#14

I’m not trying to repeat any nonsense. I’ve been one of the few people who’s paid any attention to negative equity while others have worried about banks and other issues. The point I’m making is that someone who’s paid €400k for a 3-bed family home in, say, the Dublin area, and who has a stable job (and remember probably more than 4 in 5 people are in the same employment situation as they were in 2007) is much less of a worry, even with their home worth only €200k now, than someone who’s about to lose their job and who’s paid €350k for a 1-bed somewhere that’s now only worth €175k.

I’m not for a minute suggesting that they don’t have one less option open to them. I’m talking about this from a policy perspective - for whom should the Government consider a policy response/intervention?

I’m not sure how, when I say something one way, “let’s focus on the vulnerable”, that you can disagree and then point me to someone (yoganmahew) who’s saying the exact same point another way, “People no longer have the option of selling the house if they end up unemployed, on reduced income, or just unable to afford the house”!


#15

The issue I have is that there is this shocking tendency in this country to try and fix symptoms rather than causes. While I will freely admit we need to address the mobility problem in the short term, it must absolutely form part of a wider system reform to prevent this from happening again in the future. The government needs to consider a policy response that benefits the country as a whole, and not a bunch of people who were basically shortsighted in their vision of the future, who did crazy things. Most short term responses do not address this yet it would benefit a greater part of the community if they did.


#16

Ah, now you’re misrepresenting me, at least a bit. My concern is the social impact that knowing they are in this situation will have. The bad scenario doesn’t have to happen. People will stick with the secure job, over-save, attempt to extricate themselves from negative equity because they are aware of the danger they are in.

There is also the problem that people are in inadequate housing or location currently. They have bought a pup and now they are stuck with it. Whether they can afford it or not is a different question. But this is a massive bringing forward of future consumption, a huge misallocation of capital that will continue for years and years. This has a quantifiable cost to the economy and, rather than blithely saying it doesn’t matter, I’d like to see some numbers as to the cost and the cost at various interest rates.

Negative equity is an indication of mispriced housing. It is the main sign we have that people really did over-spend on housing and by how much they did. In the wider context of the economy, it will tell us how much we can expect consumer spending growth to be below trend by.

No?


#17

Brendan O’Connor (the genius behind: “There is no such thing as a good or a bad time to buy. It’s always a good time to buy.” - July 2007) gives us the benefit of his wisdom on negative equity in today’s Sunday Indo:

This blight on all of our futures must be tackled
Not only is negative equity hindering our recovery, it will leave the most vulnerable with an impossible burden, writes Brendan O’Connor
independent.ie/opinion/analy … 06181.html


#18

The headline on the front page should have read “Brendan grows a brain”.
At least he appears to have read the ESRI report before making his comments. This must be counted as progress.

The report must have being doing the rounds at the Indo, like one of those viral e-mails. Read it and send it to ten journalists of your acquaintance. Reading the report has become ‘de rigeur’ at the Indo and seems to have been the source of many opinion pieces.

independent.ie/opinion/analysis/the-banks-have-nama-but-who-is-there-to-help-homeowners-like-us-2106184.html

The solution to NE, NAMA for the little guy or short selling ‘apres’ Stiglitz.

But is civil war looming in the Indo?

independent.ie/opinion/analysis/we-have-to-pay-a-price-for-our-mad-excess-what-you-didnt-go-mad-2106174.html

Jody Corcoran, ‘It wasn’t me what done it, why should I pay for it?’

Relatively informed opinion pieces - definitely progress.


#19

I agree but ensuring that this doesn’t happen again in the future does nothing for those who are trapped now. I don’t feel there should be a policy response except for those for whom there is no alternative, the last thing we need is a Monty Python-esque “I’m Brian and so’s my wife” all-and-sundry amnesty of mortgage debt, just because a clamour is being made about half a million people living in homes worth less than what they paid for them.
This was exactly my point to begin with - and indeed David Duffy’s.

Mostly yes - a little no. At lesat for some, their decisions now and over the course of their mortgage will be different than if this hadn’t occurred, in particular their labour-leisure decision (although clearly for some, perhaps even most, they will be underemployed).


#20

Okay - so you have someone who paid 400K for a house during the bubble period and the house is now worth say 200K.

If we look at Japan:

https://www.kipnotes.com/Japan%20-%201990s.jpg

The price reverts to the long-term average.

The expectation for most people is for (NAMAless) house prices to track inflation when it’s a utility.

The bubble distorts everything. It turns a utility into a speculative asset and brings all utility consumers into the speculative market.

Wages have to adjust to meet the cost of servicing the debt burden and bank lending practices have to loosen to fuel the bubble. Government policies, like sections 23 and 31, make the speculation lucrative. Massive leverage becomes the norm.

The 400K house should have been 150K say. The 250K difference (plus interest!) is the cost to the buyer and to society at large.

Saying government (and/or banking) policies are now needed to save those they doomed - is the economic equivalent of Stockholm Syndrome.