Property - why we are reaching the bottom: Marc Coleman

[kerrynorth]

An article by Marc Coleman on p.22 of today’s Sindo as highlighted on the front page. I can’t find it online. Please, please, please will someone out there who has bought the Sindo this morning (and showered afterwards) please post up the great sages words for posterity. Clearly the best is indeed yet to come!

[BrendanG]

Here ya go!

My centre is giving way and my right flank has collapsed. Situation excellent. I shall attack."

In the battle of the Marne in 1914, French general Ferdinand Foch found himself not only outnumbered and outflanked. He was also facing the redoubtable German general Von Moltke. Many military leaders would have crumbled. But he didn’t. Defying the odds, Foch made the best of a bad situation, took the field and won the day.

A century later, world financial markets – not to mention our own economy and the housing market that’s dragging it down – are facing daunting odds. But victory will demand more than just confidence and steady nerves. Before we can adapt Foch’s strategy, we need to know what the Foch is going on .

Rather than fighting all our battles at once, let’s look at the one closest to home. The one we know best how to win.

In our own housing market, prices are now back to where they were in late 2005. Back then, those prices were overvalued by 15 per cent and a soft landing was still possible. Thanks to the lending binge that ensued, the landing now won’t be soft. But, however bumpy, it could still be safe.

Since 2005 nominal incomes have been 10 per cent higher and interest rates have started falling. But, just as people were buying property in 2006 like there was no tomorrow because they feared they would have to pay more if they waited, people are now deferring purchases because they fear that prices will fall further. If fact can replace fear in people’s attitudes, the housing market can stabilise early in the new year.

Unfortunately, there is a fifth column undermining our war effort. I am not here referring to those who report negative but proven statistical facts. Nor to competent forecasters like the ESRI. Rather to those who, with no quantitative discipline to back their statements, tell us that house prices are going to fall by another 40 per cent. Yes, there is a property overhang in Ireland. But there are also half a million people aged between 16 and 24.

We are also a country whose population will grow by half a million in the coming decade and, according to EU forecasts, by two million in the next 50 years.

There is also the fact that much of the overhang is in areas that, due to absence of infrastructure, people don’t yet want to live. By going ahead with as much of the transport side of the National Development Plan as possible, those areas can be made desirable, firming up long-term prices so that prices can steady once confidence returns.

To bring back confidence, reporting on economics needs to be careful. Warnings, for example, that house prices could fall a further 46 per cent were based on a recent Davy Kelleher McCarthy (DKM) report on the Irish residential market. But, as DKM’s Annette Hughes herself pointed out, the 46 per cent figure was a worst-case scenario based on comparison with the US housing market. Because Americans are far less choosy as to what state they live in, and because in many US states mortgages are “non-recourse” (banks that foreclose on houses can’t come after a mortgage defaulter’s assets or income), house price falls in Ireland are likely to be far more moderate.

The lower of the DKM estimates for price falls, around 20 per cent from peak, is the reasonable figure. With most of this drop having happened, falls beyond that would be the obverse of the insanity of two years ago; a panic-driven downward spiral replacing an exuberance-driven upward spiral.

A dysfunctional stamp duty regime is making things worse. Thanks to non-indexation of house price thresholds, it now affects low- to middle-income families that it was never designed to burden. By basing the tax on the price of the house being bought, rather than on the capital gain, it is doing the opposite of what it is supposed to do. It is taxing those with negative equity who have to trade up, and not the wealthy.

This tax is sustained only by the laughably incompetent view that abolishing it would “destabilise the market”. As anyone with Economics 101 knows, tax changes do not destabilise the market. Loose control of credit, and bad planning, does that. What abolishing stamp duty – and replacing it with a tax on the capital gain of the house sold – will do is place equilibrium house prices on a solid level based on zero government intervention. House price trends will continue to be downward for some months yet, but from a higher base. That will cure the negative equity curse, remove the barrier to buying that stamp duty now is, and allow the coping classes to get on with their lives.

The delusion that reducing stamp duty would make it harder for house buyers is sheer nonsense. Any resultant increase in the house price would be less than the stamp duty burden and would, unlike stamp duty, be kept by the buyer in the form of housing equity. Reform would also help purchasers because, whereas most of any house price increase can be mortgage-financed, stamp duty cannot.

As for commercial property, this is the real reason why the taxpayer is being asked to safeguard our banks. But the potential liability is not, as many claim, going to amount to anything like €485bn. Like Brian Devine of NCB stockbrokers, I believe the true figure is closer to €15bn – a few billion more than one year’s spend on the NDP. In other words, diddly squat relative to the damage that will be done if no action is taken.

On Thursday, another French general of sorts, Jean Claude Trichet, took decisive action against daunting odds by cutting interest rates by a half a percentage point. But he cannot win alone. For nearly half a decade, too much economic activity was created on the back of loose money. Too many long-term assets were funded by short-term finance. This pushed the front line of major world economies out to positions that cannot be defended. With the Dow Jones back where it was in 2003 and our house prices back where they were in 2005, those front lines are shorter and more defensible. Political leaders must therefore not put too much pressure on generals like Trichet to defend levels of economic activity and asset prices that are undefendable.

Likewise, our own economy needs to retreat by 4 per cent over the next two years – just as IBEC and the ESRI last week predicted it would – to lines we can credibly defend. Strong regulation, fact-based analysis, a discouragement of illiterate panic-mongering and an end to dysfunctional taxes will be crucial weapons.

Marc Coleman is Economics Editor of Newstalk 106 to 108FM

To summarise, we don’t know what the fock is going on! Were all talking shite and all we have to do is build some roads to Roscommon and Leitrim to make them desirable (not sure what he can do for Sandyford) then abolish stamp duty, re-introduce CGT and with the help of God this will cause prices to start rising again in early 2009!

Oh and the bailout of the banks will cost a mere €15 billion “diddly squat” in Marc’s words.

[CelloPoint]

Coleman’s book is sold out on amazon.

(for all the wrong reasons I’d imagine)

[2Pack]

This article is utter rubbish.

It is a futile exercise best characterised as flailing about locating fundamentals that simply do not exist and even if they do exist they are meaningless overall .

1 in 8 of 16-24 year olds are unemployed. Did you notice or did you choose NOT to notice or to tell us . I care less either way.

Marc. You and many of your shilltastic commentatorati friends always try to ignore the elephant in the room.

**
" It’s the Empties STOOPID "**

[Green_Bear]

But there are also half a million people aged between 16 and 24.

Where are those half a million going to find jobs in the next few years, now that the main engine for jobs creation over the past decade (construction & public sector) are in reverse?

Remember this crowd back in 1979 and their experiences of the Ireland’s lost decade - the '80s.?
Ireland’s main response to economic downturn and mass unemployment has always been high taxation and emigration and there is nothing in the pipeline to indicate the situation will be any different this time. Fortunately, they are young and not tied to a mortgage and can seek opportunity elsewhere in the world, but how can you can be sure that they will be chaining themselves to a lifetime of debt, like the generation that preceded them did?

https://www.indymedia.ie/cache/imagecache/local/attachments/feb2006/460_0___30_0_0_0_0_0_corinne_silva_001.jpg

Is her future a lifetime of debt in Ireland or on the first plane out of Knock airport?

[snotser]

@Marc Coleman

We are also a country whose population will grow by half a million in the coming decade and, according to EU forecasts, by two million in the next 50 years.

@www.finfacts.ie

Listening to a number of Irish economists using the term “demographics,” it often struck me that Africa should be a byword for prosperity using such a criterion.

finfacts.ie/irishfinancenews … 4898.shtml

[2Pack]

Finfacts has come up with some absolutely choice comments in the past year or so , maybe they should host an Irish ’ Economists’ vs Pinsters head to head shindig and let us have at them

[kerrynorth]

This guy really does make it up as he goes along, ‘we need this 4% correction over the next couple of years’. What happened to your beloved soft landing Marc? I would say a collection of quotes from this clown over the last couple of years would be a hoot.

[Green_Bear]

In our own housing market, prices are now back to where they were in late 2005. Back then, those prices were overvalued by 15 per cent and a soft landing was still possible. Thanks to the lending binge that ensued, the landing now won’t be soft. But, however bumpy, it could still be safe.

How come, we are back at 2003 prices in much of the country with the Dublin market about to capitulate in the next few months as the banking crisis gets worse.

Mr Hurley said a study by the bank had estimated that house prices were overvalued by around 14%, but this did not necessarily mean house prices would fall. He said a soft landing - a period of low and stable house price inflation - was still the most likely outcome.

Talks on tightening banks’ lending rules
Wednesday, 8 November 2006
rte.ie/business/2006/1108/central.html

14% overvalued, yet in the financial stability report 2006 we find this?

Pg 28 Financial Stability report 2006.

Before he moved to Merrion Street, Lenihan was among those who had bought into the notion that the Irish economy was headed for a “soft landing”. Everybody, including Brian Cowen, his boss, had convinced us that was where we were heading. Now we know different. So how did all the experts get it so wrong, and does Lenihan have what it takes to put the economy to rights?

Three years ago, Ahearne warned that an Irish property crash was impending, while others were promising continuing buoyancy and growth. The economist later poured scorn on the forecasts of a soft landing. Bertie Ahern, the former Taoiseach, promised one in the course of the last general election, but he was not alone.
In an interview last December with Reuters, the financial news service, John Hurley, the governor of the Central Bank, was still talking about a soft landing for the economy and 3% growth in 2008, down from its October forecast of 3.5%. That same intelligence probably fed into the Department of Finance’s budget day calculation that month of 3% growth in GDP.
“We were never going to have a soft landing,” said Ahearne. “This is a crash in the housing market. Look at what is happening to price, to transactions [volume], to building activity.”

What happened to Ireland’s promised soft landing?
July 13, 2008, Stephen O’Brien
timesonline.co.uk/tol/news/w … 323518.ece

Marc Colemans lack of critical analysis is his downfall, he bought the soft landing crap hook, line and sinker like all the establishment figures did.

[fishfoodie]

Like I said before “mental midget”. I now think I might have been overly generous in that assessment.

[Tyrannosaurus]

how can we be hitting the bottom if the recession only just started?
Who employs these people

[StoppedClock]

Heres a prediction, I haven’t read the article yet but I am going to go out on a limb and say the man is a tool and the article is complete nonsense…

…right I’ll read it now and see if I was correct.

[whizzbang]

I hear he has gotten an advance on his next book “No! you shut up!”

[Duplex]

We are also a country whose population will grow by half a million in the coming decade and, according to EU forecasts, by two million in the next 50 years.

If the population does grow by 500,000 over the next decade and if we assume that household size remains at about 2.6 people, then we need to build approx 19,200 new homes per annum. But we don’t, we have 300,000+ empty homes so a housing supply sufficient for about 15 years of population growth.

If Coleman is going to address the issue of housing in Ireland he has to start facing the facts, no matter how unpalatable they may be to him.

[gaius]

Unfortunately, there is a fifth column undermining our war effort.

Always with the “stab in the back” excuse.

We are also a country whose population will grow by half a million in the coming decade and, according to EU forecasts, by two million in the next 50 years.

Leaving cert numbers have been dropping.

[jean_contente]

If you have a spare 700 yo-yo’s you can see Marc expand on his Focherian views at Croke Park on the 13th Nov.
Other speakers scheduled to appear include,Brian Lenihan,the bould Country Tom and Ken Livingstone.Many other vested interests in Private Finance ‘Initiatives’ for Public Capital Projects are going to say a few words.You can see the Agenda here
allislandpcc.com/v1/index.asp

[bungaloid]

Strong regulation, fact-based analysis, a discouragement of illiterate panic-mongering and an end to dysfunctional taxes will be crucial weapons.

wonder what he has in mind?

[bertthepert]

why is he always so optimistic? I thought he was a member of fine gael? did he switch sides at some point?

[m1ke]

This is a shambles of an article.

I have a serious problem with this guy passing himself off as some sort of authority on the economy. He claims that those who oppose him have ‘no quantitative discipline to back their statements’ and backs up his journalistic bull with stuff like ‘as those with Economics 101 know’. I think this guy is a complete and utter charlatan trying to pass himself off as an economist and trying to cloak himself in expertise. At least people like Brendan O’Connor don’t try to hide their ignorance behind a veil of socio-demographics and a dash of economics 101 lite. I don’t know how this guy got to be economics editor of anything. We actually have alright economics editors in the Irish Times (late Paul Tansey) and Irish Independent (Brendan Kennan I think his name is)… can they not get someone with some sense to replace this chump?

[PROFESSORI]

@Duplex

We are also a country whose population will grow by half a million in the coming decade and, according to EU forecasts, by two million in the next 50 years.

If the population does grow by 500,000 over the next decade and if we assume that household size remains at about 2.6 people, then we need to build approx 19,200 new homes per annum. But we don’t, we have 300,000+ empty homes so a housing supply sufficient for about 15 years of population growth.

If Coleman is going to address the issue of housing in Ireland he has to start facing the facts, no matter how unpalatable they may be to him.

Perhaps the following article from yesterdays Daily Express suggests where the tenants for all those empties will come from?

Sunday 12th October 2008
SECRET PLOT TO LET 50MILLION AFRICAN WORKERS INTO EU
express.co.uk/posts/view/656 … rs-into-EU

Saturday October 11,2008
Nick Fagge in Mali

MORE than 50 million African workers are to be invited to Europe in a far-reaching secretive migration deal, the Daily Express can reveal today.
A controversial taxpayer-funded “job centre” opened in Mali this week is just the first step towards promoting “free movement of people in Africa and the EU”.
Brussels economists claim Britain and other EU states will “need” 56 million immigrant workers between them by 2050 to make up for the “demographic decline” due to falling birth rates and rising death rates across Europe.
The report, by the EU statistical agency Eurostat, warns that vast numbers of migrants could be needed to meet the shortfall in two years if Europe is to have a hope of funding the pension and health needs of its growing elderly population.