Property Market TV Hurray!

Tonight’s TV seems calibrated for an IrishEconomy.ie audience. To keep you all away from reruns of America’s Next Top Model after the news, we’ve got Richard Curran’s Property Crash, Where to Now?, and then The Frontline, both dedicated to the national obsession. Let’s hope the programmes are informative and advance the debate people across the country are having about property and its role in the Irish economy, now and into the future. Let’s also hope against hope that those debates are evidence-based. In that spirit, a nice piece of accessible research on the duration of housing cycles has just come out from Phillipe Bracke at the IMF. Bracke surveys 19 countries, including Ireland, and finds that:

On average, upturns are longer than downturns, but the difference disappears once the last house price boom is excluded. In terms of length distribution, upturns (but not downturns) are more likely to end as their duration increases. This duration dependence is consistent with a boom-bust view of house price dynamics, where booms represent departures from fundamentals that are increasingly difficult to sustain.

Table 2 on page 9 of Bracke’s study is also very interesting. His analysis squares with the findings of Edward Leamer for the US economy, and those of Morgan Kelly in his 2007 Quarterly Economic Commentary piece on the likely extent of price falls in the housing market, and in his subsequent work on the Irish Credit Bubble.

Update: Here’s the iPlayer link to Property Crash.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

111 replies on “Property Market TV Hurray!”

Expect John the intolerable will be along soon to poo poo this research and the facts on the ground. Followed by a denunciation of leamer for talking down the us economy

Richard Curran has a good track record here. His piece in the Business Post yesterday was reasonably optimistic. His assumptions seem plausible – wonder what other people think

The one metric that I find most surprising about our residential property bust is that we are down 43% from peak according to the CSO and given inflation has been flat since 2007 (I think we are 0.1% only up on a CPI basis) the real decline from peak is also 43%.

Northern Ireland, sans ECB cheap money, planning gombeenism, our Keystone Cops financial regulation, our ghost estate legacy and oversupply and with an unemployment rate of just 7.4%, is already down 45% from peak and in real terms, stripping out inflation, 52%.

Yes there are instances of prices 70-80% off peak but the CSO tracks eight mortgage companies and in the last year for which cash figures are available, 2009, cash accounted for just 6% of the total market.

What is most remarkable about our bust is not the collapse, but the structures we have put in place to distort, retard and generally prevent residential property finding its natural level. And these artificial interventions probably make our bust unique, so a 4-year bust, a 6-year bust, a 10-year bust? Who knows, with the level of distortion in the Irish (Republic) property market, it could last decades.

Once we accept that house price booms & busts are not a naturally occurring phenomena (you get that impression from a overly complicated IMF report ) – accessible it is not – its not meant to be I suspect.

Its just one more example of economic analysis masturbation.
These are not like 19th century agricultural commodities markets – where you might speculate on the weather or blight or some such.
They are a function of criminal credit markets only – a extraction game with no real economic function other then rent seeking.

@JS
“What is most remarkable about our bust is not the collapse, but the structures we have put in place to distort, retard and generally prevent residential property finding its natural level. And these artificial interventions probably make our bust unique, so a 4-year bust, a 6-year bust, a 10-year bust? Who knows, with the level of distortion in the Irish (Republic) property market, it could last decades.”

See Ezra Klein’s piece in Washington Post today, “Could This Time Have Been Different”
http://www.washingtonpost.com/blogs/ezra-klein/post/could-this-time-have-been-different/2011/08/25/gIQAiJo0VL_blog.html

Scroll down to where Klein discusses research by Reinhart & Rogoff that compares financial crises to “normal” financial downturns. “The historical record, they said, showed that “the recessions that follow in the wake of big financial crises tend to last far longer than normal downturns, and to cause considerably more damage.”
. . .

“But financial crises tend to include a substantial amount of private debt. When the market turns, this “overhang” of debt acts as a boot on the throat of the recovery. People don’t take advantage of low interest rates to buy a new house because their first order of business is paying down credit cards and keeping up on the mortgage.”
. . .
“Perhaps as a result, in 10 of the 15 crises studied, unemployment simply never — and the Reinharts don’t mean “never in the years we studied,” they mean never ever — returned to its pre-crisis lows. In 90 percent of the cases in which housing-price data were available, prices were lower 10 years after the crash than they were the year before it.”

@Jagdip Singh
@NoGuru
“What is most remarkable about our bust is not the collapse, but the structures we have put in place to distort, retard and generally prevent residential property finding its natural level.”

This is a long-standing issue in this Republic, where we have done the opposite ie. we have put in place measures/structures to ensure that property is very profitable for many.

It is becoming increasingly clear that the cast of of mind that got us into trouble still dominates much policy making. As an example, why has the Chairman of NAMA proposed using our money (ie. NAMA funds) to put a floor under property prices?

This is ensuring that the “free market” is designed so that property is an upwards only bet. Why do this for immobile non-internationally traded investments in a economy that depends on trading for prosperity – at a time when many businesses find it virtually impossible to fund their ongoing activities?

Despite concern about the extraordinary profits arising from property developments during the early 1970s, governments of all kinds since then have not taken key measures to ensure that the property market does not dominate economic policy making and implementation.

This is our version of the kind of coup that Simon Johnson (a former IMF Chief Economist) described here (courtesy of a Philip Lane posting in this forum in May 2009)
http://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/7364/

Within a week of the bank guarantee in 2008, the Examiner published this letter of mine (Business&Finance published it later in October 2008)

“THE crisis in Irish financial institutions is an opportunity to end the malign influence of property development/speculation on how we are governed.
This long-running source of economic and political instability has now resulted in the citizens of this Republic being loaded with unknown liabilities that may last for years, just as we are still paying levies on insurance premia 25 years later arising from the collapse of PMPA.

The current weakness of Irish-owned financial institutions due to lending for property development is a factor driving the Government deposit/loan guarantee scheme.

At the same time, Government’s smug dependence on taxes arising from property transactions (VAT, stamp duty, PAYE/PRSI from a bloated house-building workforce and capital gains tax) has undermined public finances with a speed that has shocked the governing class. Low standards arising from ‘softness’ on property development (eg, the Mahon Tribunal, the Telecom affair, tax-breaks) pervades much else directly under the control of local and national government, eg, house-building standards, provision of clean water, planning primary schools.

It is now time to change the view that we can build a common prosperity by selling land and buildings to one another.

Fortunately, part of the solution has already been worked out for us. In 1971, the then Fianna Fáil government appointed Judge John Kenny to consider, in the interests of the common good, possible measures for
(a) Controlling the price of land required for housing and other forms of development, and
(b) Ensuring that all or a substantial part of the increase in the value of land attributable to the decisions and the operations of public authorities… shall be secured for the benefit of the community.

Let us limit the scope for excess by government and financial institutions by controlling the price of building as Judge Kenny recommended. If it needs a referendum to copperfasten the constitutionality of any legislation for the measures needed, then this is just as important as another on the Lisbon Treaty.

This is the least the ruling class can do now that we, through the Government, have given huge guarantees to sectors that have over-reached their abilities. We do not deserve the hard landing that the self-satisfied networks of Government, financial institutions and property development have now made for us. ”
http://www.irishexaminer.com/archives/2008/1004/opinion/end-malign-influence-of-property-speculation-on-the-way-we-are-governed-73915.html#ixzz1aN6O6fqx

The Kenny Report is available here
http://www.irishlabour.com/dublinopinion/Kenny_Report_1974.pdf

@ Stephen,

A lot of people suggest the lack of credit is driving house prices down. Although I think Irish house prices are still too high, I wonder if the adjust would be more gradual if credit was freely available. i.e. are potential (credit) buyers anymore rational than those from 4yrs ago? We are drawing them from the same population.

Anyway my question is what does the theory say about asset prices being driven by credit? Is a heathly market one where the credit based price equals the cash price?

I was thinking about this w.r.t. car prices vs property. Although not on the same scale, many people need credit to buy a new car. However car loans don’t seem to drive price higher. My most likely explanation for this is cars depreciate in value and lenders factor this in.

@NoGuru
Good link.
They could have been writing about Ire.
“The stimulus was a bet that we could get out of this recession through the one path everyone can agree on: growth. The bet was pretty much all-in, and it failed. Reinhart and Rogoff are not particularly surprised. It’s hard to get through a debt-driven crisis without doing anything about, well, debt.

In our crisis, the “debt” in question is housing debt. Home prices have fallen almost 33 percent since the beginning of the crisis. All together, the nation’s housing stock is worth $8 trillion less than it was in 2006. And we’re not done. Morgan Stanley estimates there are more than 2.2 million homes sitting vacant, and 7.5 million more facing foreclosure. It is housing debt that has weakened the banks, and mortgage debt that is keeping consumers from spending.”

I posted Rogoff’s comments about Ireland on another thread. I think he is closer to the mark than some of the demented puffery we are now getting from the great and good.
Talking up an economy doesn’t seem to work just as you will not talk up growth.
The debt is still there and rising.

Did anyone else find it hard to understand the significance of the claim that
“upturns are more likely to end as their duration increases”?

@Peter
<>
What the author means is that the longer house prices increase without interruption, the more likely they are to stop increasing.

While an obvious point to an Irishman in 2011, this is a necessary point to make in response to the general belief, widely held to children of the Great Moderation, that “house prices only go up”. It is also a necessary first step to show that house prices are determined at least in part by fundamentals and not by some random walk process.

Hope that helps,

R

@ahura

I think the key difference is that the supply of cars can generally be adjusted to match demand.

I used to attempt to lecture people to the effect that the increased earnings and credit in Ireland were basically first order being used to inflate property prices rather than benefit the nation very much. My reasoning was that the culture meant that most people would all choose to use their new found “wealth” to try to acquire the same asset type – they were all after the same thing.

It was a hard sell.

@Grumpy, in lectures I have a game with 500+ students. I get them to bid, via text message, on a 20 euro note. The catch is whoever is second must pay me the amount they bid, creating a ratchet effect. I’ve often had students bidding 50 euros for a 20 euro note. It’s a cool teaching tool. Asset prices can be manipulated very easily once simple rules are in place to detach them from fundamentals. Here’s an example of the game from last week, scan forward to about 30 minutes in.

26 reasons by property prices will continue to decline for a long long time

A) Income taxes will rise substantially for everybody
B) Significant Property taxes will be introduced for owners
C) Significant Indirect tax increases- VAT/Excise
D) Interest relief for investors will be further reduced from current 75%
E) Rent Allowance will be decreased by some material percentage
F) Personal Insolvencies will increase when the law is changed in their favour
G) Continued downward wage pressures-or no pay increases at least till 2015
H) As competition in Banking is reduced then mortgage margins will rise
I) Emigration will continue by current and future potential homeowners
J) NAMA releasing finished properties onto the market mopping up demand
K) ECB raising interest rates to normal levels once Europe crises recovers, ie by 1%-3%
L) Property owners/investors in tight financial straits will be forced to sell
M) People realise that property in Ireland is still expensive vs other countries
N) More builders are put into receivership and properties are sold at large discounts – don’t forget there are 300,000 empty properties
O) Rising fuel prices decrease disposable income and discourage commuting
P) The Croke Park agreement falls apart and public sector pay falls
Q) Unemployment rises and
R) Loss of economic sovereignty
T) Deflation or very low inflation causes debt to have to be repaid in full rather than inflated away at lenders expense.
U) Stiffer regulation forces banks to provide mortgages with more caution
V) Interbank lending to Irish Banks does not return to pre-crisis levels and the Banks have to price margins very conservatively-A given
W) Building costs decline further as NERA is disbanded and new build houses can be profitably sold for less.
X) Development land has plummeted so land costs can lead to further downward pressure on prices of future developments.
Y) Commercial rents continue to decline and contagion negative pressures apply to residential rents leading to lower property asking prices
Z) Contrarily the current booming birth rate will provide demand in 25 years time-for subsidised housing at the least

You can add the eurozone crises etc to that now too.

@ Ahura

re cars vs property

Many people now accept that banks selling mortgages were in fact selling leverage. The idea was the more you could buy, the bigger your potential profit (whether short or long term). As you noted, due to obvious depreciation that pretty much anyone can understand, there is never any ‘profit’ to be made buying a car.

@ Grumpy (/ Eoin),

I’m thinking more of the effect on the demand side rather than supply. I mentioned ‘cars’ as an area where credit is often used but doesn’t seem to increase price.

Say we have 3 scenarios where buyers A and B wish to buy the same house. Scenario 1: no credit: buyer A has 250k savings and buyer B has 200k; so buyer A sets the upperbound for the price. Scenario 2: Bank X provides loan (of up to 300k), buyer A and B compete; bank X sets the upperbound for the price. Scenario 3: Buyer A has 250k savings no credit and Buyer B has 30k savings and credit, buyer A and B compete; bank X sets the upperbound for the price.

So unless buyers A and B show some discipline when accessing credit, bank X has a great say in determining the price. It’s probably fair to say that Scenario 1 will have the lowest house prices. I’d suggest that an extreme version of scenario 2 happened in Ireland between 1997 and 2007.

Now I’m not arguing that mortgage credit is a bad thing. It’s very important and helps a great number of people. But I don’t think it’s healthy if it drives the price. I don’t have any problem where banks enable larger numbers of people to purchase houses, but offering individuals larger and larger amounts of credit only really benefits the seller. Cheap housing should be easier to sustain; though this is problematic given existing levels of outstanding mortgages.

I was kinda hoping there was a well known rule/ law (commandment or something) of economics that covered this, but had escaped me.

@ Stephen,

That’s for the link. . Your paper deals with post crash, it’s the buildup I’m thinking about.

@Jim

That’s a very compelling argument :-{

Z+1: all the buy-to-letters can’t sustain the mortgages on their ‘property portfolio’ any longer (that’s a lot of accountants and lawyers going into the new bankruptcy scheme when it gets here).

@Ahura Mazda

There is a well known rule in relation to property which works well, works in almost all parts of the world and works despite the prevailing interest rate.

Buy when market rental yields are greater than 10% and sell when market rental yields move to 5% or below. Always be in a rush to sell at 5% or below and never be in a rush to buy.

You simply cannot go wrong. Bring it to your grave.

One of the most galling aspects of the property crash has been the unquestioning desire to ‘keep people in their houses’. As someone who never bought during the boom (smug but true) I don’t get the twisted logic.

People who bought have had the following off me already (i) low interest rates – an effective tax on my savings (ii) mortgage interest relief – when it was still available it was always higher than the tax relief I got for renting (iii) mortgage forebearance, the type of thing that my landlord would laugh at if I didn’t pay the rent on time (iv) time spent living in their own house with all the associated benefits.

Why do the people who bought houses want to stay in them? Presumably because they can’t stomach the idea of the rented sector. But then surely our first priority should be people who are actually renting right now – their lives must be terrible! My family have never had a home they can call their own – where’s our reward for not joining in the bubble?

But the smart renter who never played at the casino doesn’t get a look in. They made the right call but unfortunately they don’t have an army of vested interests (mortgage brokers, banks, estate agents, the newspapers with their property supplements, NAMA etc etc) lobbying on their behalf.

Here’s the bottom line. Yes it’s true that the quality of a lot of people’s lives would deteriorate if they were evicted and forced into the rented sector. But in every instance the quality of someone else’s life would improve. Why are we pretending that having a properly functioning property market with prices at a real clearance level would only create losers? There would be plenty of winners, and guess what – on average they’d be people who deserve it.

@Johnny Foreigner

You also have some economists on the airwaves, who were less astute than you, claiming that basically the only reason you didn’t take out a mortgage was because you couldn’t get credit.

@Eoin, Ahura

I’m not sure it was specifically about seeking profit. More that it was seeking the same thing as the next person and the next. Ie a house, or a bigger house, or a house in a posh neighbourhood.

I can recall a group of 12 to 14 year old boys looking at an auctioneer’s window in about 1999 or so. Each was boasting about which type of house they wanted to buy. It was weird. Really weird. I imagine that most, several years late, found out how much credit they could raise and went after the most expensive property they could. But it wasn’t just that small group, it was almost the entire nation.

More money, more credit, fed straight through to higher prices. Classic monetarism.

And Eoin, ZV plates.

@grumpy
Indeed. One would imagine from all the ‘analysis’ that everyone who could buy did buy. Simply not true.

@Johnny Foreigner
+1
Probably the main driver behind the “debt forgiveness” industry we are swamped with right now is less to do with sympathy for those unable to pay mortgages, and others caught in negative equity, than spin from the mortgage/banking industry who want their loans repaid, and want it from the source they are more likely to get it from – i.e the taxpayer. This has the added bonus for the banks that there is no, or small penalty for imprudence, to inhibit the bubble from inflating all over again.

@AMcGrath
Agreed but let’s not give Joe Public the Homeowner too much of a break. Most of them shudder at the thought of renting and let’s not even mention social housing. Most would consider a squatter to be a parasite. Ironic.

+1 Johnny Foreigner

Under a worst case scenario…..a mortgagee kicked out of their family home for non-payment could be….gasp….forced to go and live in a rented house…..at taxpayer expense as a last resort if necessary.

Sadly, Irish public policy is driven by a mushy “empathy” for “people like us” (e.g. nice middle class families)- and not by principles such as vertical or horizontal equity – or the concept of personal responsibility. If we suggested gifting large mortgage-free houses to, say, a bunch of people currently in social housing – you’d see a difference in attitude.

You’re leaving out another subsidy. As a renter, my own taxes are used to support an absurdly high floor on rents (and subsidise BTL landlords) via the rental allowances paid by social welfare.

@remnant
And let’s not forget the massive tax evasion still being perpetrated by the BTLers.

The ’empathy’ you note is as fake as a two-bob note, it’s naked self-interest. Where was that empathy in the 90s when rents were going through the roof and families were shuffled by the BTLers from one grotty hole to another like pieces on a chess set?

@remnant
And one more – the mob that took out all the 110% liar loans have eliminated reasonable credit availability for the generation coming behind.

That mob is whinging up a storm on the Frontline now, willingly assisted by Pat the Plank. All of them innocent as the pure driven snow, never thinking of the capital gains, only wanting to put a roof over their heads. I guess all the houses for rent didn’t come with a roof.

1: Shelter is not a discretionary spend.
2: Renting was actually more expensive than buying.
3: The credit bubble represented the only time in our history when we could house and support our population without them having to emigrate (sad but true).
4: The banking system is still broken

And one more – the mob that took out all the 110% liar loans have eliminated reasonable credit availability for the generation coming behind.

…And the horse you rode in on you foreign ignoramus.

That “mob” was simply those young Irish people who wanted to have a secure roof over the heads of their families, without the ever present threat of a gombeen landlord throwing them out on a whim. Tenants have little to no rights in Ireland in practice.

And as to the “liar loans”, how dare you. How dare you suggest that first time buyers, with no experience or understanding of the property market, with no clue of how the mechanics of compound interest even works, could ever have known more about what was going to happen to their mortgages than the professional crooks who gave them the loan and sentenced them to a lifetime or debt or an almost certain bankruptcy.

[b]HOW DARE YOU[/b] attempt to divert the majority of responsibility the national mortgage disaster from where it RIGHTFULLY BELONGS; with the reckless, predatory and irresponsible banks who knowingly fuelled a doomed property bubble for their own financial benefit. The banks who conned two generations of young people into unsustainable debt, who deliberately gave more more debt in 100% mortgages to sustain the bubble when it began to falter, who shamelessly gambled the wealth of a nation and then blackmailed the same to cover their losses. The real liars, who took out colossal interbank loans and defaulted on every single one of them. HOW DARE YOU.

All of them innocent as the pure driven snow, never thinking of the capital gains, only wanting to put a roof over their heads.

There is no innocence in this crisis, only degrees of guilt. But the rank guilt of six banks in Ireland outweighs that of all the rest of her 4 million people put together. The only reek that rivals it is that of the Irish state, and it’s continued, wilful failure to bring justice to the over-mighty few who mortgaged all of Eire to jackals even greater, and who still stand unpunished for it.

No-one is going to come out of this smelling of roses, but in spite of the insults and injustice heaped upon them, the honest people of Ireland can still remember the scent of lilies.

@ OMF,

+ 1. for the righteous indignation.

It really is hard to swallow it all sometimes.

# Eureka Says

1: Shelter is not a discretionary spend.
Shelter as a concept, yes. The particular type of shelter you choose is discretionary.
2: Renting was actually more expensive than buying.
At the time. That’s not how decisions about house purchases should be made.
3: The credit bubble represented the only time in our history when we could house and support our population without them having to emigrate (sad but true).
It depends on what you mean by ‘house’. If you mean everyone has their own 3-bed semi-d with a garden then you are right. Why are we aspiring to that?
4: The banking system is still broken.
And it will continue broken until we face up to reality.

@OMF

Stop, please, my heart is breaking. The ‘roof over my head’ line is a real talking point these days isn’t it? Wanting to own a house is simply a desire, nothing more nothing less. People all over the world choose something else whether it’s living with parents, renting or social housing. Do you look down on these people with their pathetically narrow ambitions? You’d be disgusted by the smelly Germans and French with their silly little rented apartments. I agree that renting in Ireland is not pleasant. Imagine if all the money and effort spent on chasing the ‘dream home’ had gone into agitating for legislation to improve the rental market.

As to the picture of the naive Irish parent (almost certainly with babe in arms), browbeaten into submission by the evil banker – pull the other one it’s got a green flag wrapped around it. There’s a canny mcsavvy accountant deep in the heart of most people who pull on the ‘ordinary Joe’ disguise.

Two questions

1. There is a form in front of you. It asks you to state your income. You make 20,000 a year. You put down 40,000. Is that a lie?

2. What should we do for all those perfect nuclear families you love who are currently renting? How can the State rush to their aid given that their lives are so miserable by your account?

@disgruntled observer

Why did so many people buy overpriced houses? Let’s say you are right – it had nothing to do with a love affair with home ownership. What we’re left with is even more ugly – speculation, greed, fear of missing the gravy train. If I was looking to find patriotic excuses I’d stick with the roof-fetish that OMF is spinning.

People all over the world choose something else whether it’s living with parents, renting or social housing. Do you look down on these people with their pathetically narrow ambitions? You’d be disgusted by the smelly Germans and French with their silly little rented apartments.

Again, your ignorance of the Irish domestic situation is glaring. There has never been a history of tenant right in Ireland, up to and including the present day. With the exception of protestant tenants in Ulster, most tenants never enjoyed even the most basic protections from the capricious whims of landlords. The long term effects of this can be seen in the marked contrast between farmsteads in Ulster and the rest of the country.

The precarious situation of tenants extended and still extends to residential tenants. Ask about the flippancy with which landlords treat deposits. Ask about the proliferation of 1 month leases. Ask about the lack of leases in many cases altogether. Ask yourself just how advanced tenants rights can be in the only country in the developed world without a national property register.

People buy in Ireland because it is dangerous and foolish to rent in this country.

1. There is a form in front of you. It asks you to state your income. You make 20,000 a year. You put down 40,000. Is that a lie?

More ignorance. In Ireland, there was little in the way of the US “sub-prime” market you are referencing here. All of the households who took out loans in Ireland were making considerably more than that, and all their details were accurately recorded by the bank. Every form was in proper order on the borrowers end.

The problem in Ireland was that the banks didn’t need people to lie on their application forms. The banks were the ones doing the lying; conning people into lending far more than they could sustainably afford, over-lending to deliberately drive up the housing market, and then lying to the central bank and financial regulator about the true extent of the banks own insolvency. The Irish mortgage crisis is entirely the creation of the six Irish banks and no-one else. The banks were fraudulent.

You seem to think that Ireland is identical to your own country–a typical American conceit. Ireland is different. Irish lenders were different. Irish banks were different, albeit just as greedy and fraudulent as American ones. If you want to contribute responsibly to the mortgage debate in Ireland, please, educate yourself further on what you’re talking about.

@ OMF/Eureka

This is very much a generalisation, but a fairly broad-based one in my view – i know quite a few people, young and by no means “rich” people, who, having bought their starter home, decided to move up the property ladder as their incomes increased and they maybe started to look at marraige or wanted (note: not needed, wanted) a bigger home (or move from apt to house) or wanted (note: not needed, wanted) to move to a slightly (and i mean slightly) better area. They got the bigger and better home. Most of them wanted to keep the original home as an investment. We became a nation of property investors, whether conciously or subconciously, and eventually tried to leverage ourself up as much as we could. We rarely bought the house that was appropriate. We bought the biggest house we could or that the bank would allow us to. It was never about what we needed, it was about what we wanted. I had to talk my friend out of buying a three-bed past Gorey in Co Wexford in 2006, even though he worked in Dublin City Centre, cos he felt he’d never be able to afford a house otherwise, but at the same time he could easily have rented in Dublin but didn’t want to.

In terms of renting being expensive vs buying, well thats not always and hasn’t always been the case, but even if it were, renting is cheaper in terms of not requiring any upfront deposit, as well as being far more flexible in terms of ability to move and far more cyclical in terms of adjusting prices to the state of the economy. For younger people with less certain job/income trajectories it would seem to make much more sense for them to rent.

More TV from last night, Tonight, with Vincent Browne.

http://www.tv3.ie/shows.php?request=tonightwithvincentbrowne

On it, Browne repeatedly asked Brendan Howlin if the government would instruct NAMA to go after loans to the full value the property developers borrowed from the banks, rather than the amount that NAMA paid for them after the haircut.

I haven’t got sound on this computer, so apologies I can’t point you at the right time on the show.

@Eureka
“2: Renting was actually more expensive than buying.”
Gee and look how that one worked out. Which has turned out to be the more expensive action?
Still, if renting was cheaper than buying, who cares about negative equity?

“3: The credit bubble represented the only time in our history when we could house and support our population without them having to emigrate (sad but true).”
Once again, look how that turned out? Mind you, I grew up in the ‘seventies. I remember well the whole families that lived in the massed tented villages, the huddled masses with their starving wains. Oh wait, no I don’t, it didn’t happen.

The credit bubble was a bubble. It has destroyed the economy for a generation. Anyone who says that any good came out of it is telling porkies.

@OMF
I rent in Ireland. It’s not as pleasant as it could be. It’s not dangerous and given the bubble it was far from foolish. I’ve no idea what the blather about the history of Ulster is for – I guess you’re one of those guys who gets hungry every time he reads about the famine.

“all their details were accurately recorded by the bank. Every form was in proper order on the borrowers end.”

Oh my aching sides.

“You seem to think that Ireland is identical to your own country–a typical American conceit.”

Just because I’ve put ‘foreigner’ in my stage name doesn’t mean I am one. Just like you aren’t necessarily a freak. I think.

@OMF Calm down

Im agree 100% on bankers and finance professionals… they are scum with very few exceptions.. so far nobody has came up with a better suggestion than the one I put forward a few years ago on bank losses …. shoot a banker for every billion.

Unfortunately the powers that be have decided against that policy, a real shame as it would have the effect of minimizing bank losses.

But Johnny is right…. More and more specials are not going to fix anything… its time to attempt to create a republic… everyone with equal rights and responsibilities…. and that includes tenants, mortgage holders, home owners, landlords and companies/institutions that own property..

e.g.
1) If you’re a tenant and don’t pay full rent, you should be treated the same as if you’re a mortgage holder and are not paying the full mortgage.
2) If NAMA is exempt from a certain tax then everyone should be

Oh and by the way, plenty of people lied on their application forms, by themselves and were helped to lie by the professionals who were taking commission on the mortgages.

@ Johnny Foreigner

I don’t know if you can’t see a con or if you’re just disgruntled because you think that somewhere there is a mythical bottom from which you wish you could profit, but it just don’t seem to want to arrive.

A question for you. Do you understand what social chaos is?

If you’re from the states you might have seen the pictures in this link.

http://www.businessinsider.com/satellite-tour-foreclosure-cities-2011-1?op=1#ixzz1KuFPpmIC

I suggest you scroll down through it. I’d also like to ask anyone else who’s reading this and who clicks on the link what they think would be the social consequences of following American style foreclosure policy here. I can tell you this. We’re a passive enough lot, but there is a line that doesn’t get crossed here. There’s a reason other than just the sheer politics of it all that we don’t have an American style foreclosure system.

Even the economics is against you. The system of foreclosure and bankruptcy in the states isn’t working. The rate of foreclosure has actually increased. The market isn’t clearing. And it’s not going to clear. The scale of the shock is too large. The system is in disequilibrium. All that’s happening is that communities are getting gutted.

By the way. I rent. And no it’s not in my self interest to make the case I make if I see it in the narrow atomized sense you so clearly do. But I have friends and family with mortgages, some of which are seriously struggling. If you saw past the tip of your own nose you’d see that self interest doesn’t just include yourself.

@ Gavin

that line seems to come from Harry Crosbie’s interview on the Late Late show. It sounds a bit far fetched to me. I could imagine NAMA going easy on property developers who cooperate with them and generate value in particular property assets, but it won’t be as simple as NAMA only looking to get back what they paid for the loans. For instance, lets say NAMA pays 60M for a 100M property, and it sells on for 70M – you think NAMA isn’t going after that 10M? Thats cuckoo insane. Maybe they won’t chase the other 30M, but what Crosbie stated, and VB continually restates, makes zero sense in that context. I imagine it’ll depend on what assets are there to be chased and what cooperation and value-add they got from the developer.

@disgruntled observer

“If you saw past the tip of your own nose you’d see that self interest doesn’t just include yourself.”

First, I’m from Ireland, not that it matters. Second, I totally agree that we shouldn’t just act out of self-interest. I’m happy to carry on renting. I’ll wait for the bottom of the market, it will come around one day. The ‘homeowners’ will become de facto renters when the banks restructure their mortgages and I’ll pay for it through low interest rates, no credit availability, a bent tax system etc. I have already put my hand deep in my pockets for the homeowners and I’m sure I’ll carry on doing so.

What I won’t do is pay off someone else’s mortgage. Why? Because someone else won’t pay my rent. The people who want me to pay their mortgage are the one’s who are acting solely out of self-interest. They simply do not want to move out of the house they think they own and if that means other people, including people like me who do not own houses have to pay then so be it.

Re social chaos – do you not think that building vast housing estates on the edge of villages in Leitrim meets that criteria? We’ve already had the social chaos. Now it’s time to sober up.

@Bond.

No I think you’ve got it wrong the fact is if the sale goes through at €70m then NAMA gets the €70m. The fact remains that teh €30m is written off – what else can they do? There is no further assets to sell. I simply don’t see any upside for a bank doing what they did to Mick Wallace yesterday – whats the financial benefit for a bank – the guy has no money, aside from a TDs salary. Explain the reasoning here.

The bigger issue is of course that the €30m is written off. Why can it be ok for NAMA – a State agency to be pragmatic and economcially sensible and take the view that the original valaution was wrong – the price today is supposedly fair and yet many thousands of homeowners don’t seem to be able to get similar deals with State owned banks with regards their mortgages. The pain goes on.

@ Johnny Foreigner

“…and I’ll pay for it through low interest rates, no credit availability, a bent tax system etc. I have already put my hand deep in my pockets for the homeowners and I’m sure I’ll carry on doing so.”

Ok, first things first. Interest rates have nothing to do with forebearance. They’re a function of credit availability, nothing else. In the states despite having an insane level of foreclosures interest rates are on the floor. Here, interest rates for borrowers is actually increasing, that they’re on the floor for savers is a function of the broken banking system. And from the point of view of the banks, it makes sense for them to do principal writedowns instead of foreclosing. Because as I pointed out above, the market isn’t going to clear if left to itself after such a shock. Instead you’ll have a glut of supply and no demand. You’ll have another hole punched in the banks balance sheets and a further withdrawal of credit. Mortgage credit is now the exclusive domain of Freddie Mac and Fannie Mae in the states. Private banks have stepped out of the housing market.

“What I won’t do is pay off someone else’s mortgage. Why? Because someone else won’t pay my rent.”

What happens to you when you can’t pay your rent? The state kicks in and does so. Please note I said, can’t, not won’t. I understand that you’re looking for fairness, and hey I’m with you on that, but I think you’re seeing things through a very jaundiced lens. Plus on this point, as Karl Whelan has pointed out, you are already paying in taxes for this. The banks were given a very large sum of money indeed to deal with mortgage losses.

“Re social chaos – do you not think that building vast housing estates on the edge of villages in Leitrim meets that criteria? We’ve already had the social chaos. Now it’s time to sober up.”

Oooooh, that ain’t social chaos. You can call it many names, insane, idiotic, stupid, thick planning, and that’s just to get started, but that ain’t social chaos.

@ YoB

(a) the issue was that VB/Crosbie claim that NAMA is only going looking for the 60mn that NAMA paid for the loan, not the 70mn the property sale generated. You seem to accept that that is a bizarre suggestion.

(b) on the 30mn – if the developer has loads of assets left over, i assume they will try and get their hands on some or all of them. Not all of them are broke, it’ll depend on a case by case basis, and, as i suggested, how much the developer actually helped to get the asset sold off at a decent price

(c) If Mick Wallace is completely broke (ie he doesn’t have any pension or personal assets?), then you are right, whats the point in chasing him, because his currently salary will never even make a dent in 19mn of debt. However a homeowner oweing 250k and earning 40k a year clearly has some long term ability to repay a significant portion of the 250k. There’s clearly moral questions there about sweating people for cash for the next 15 years, but it makes sense for the banks, looking after their own interests, to try and do it. Liam Carroll will never repay the couple of billion he owes, ever ever ever, and never even repay 1% of it in all likelihood. An average homeowner will always have the potential to repay 50%+ of whatever he owes to the bank, no matter what.

NAMA are not making a call on the current “fair value” of the asset, they’re making a call on what they can practically hope to ever get from a developer when you gauge up the entire cooperation vs debt outstanding vs bankruptcy equation.

@OMF
“How dare you suggest that first time buyers, with no experience or understanding of the property market, with no clue of how the mechanics of compound interest even works”

Didn’t see any of these people in the front line of Frontline. What stood out was a women who borrowed €1 million, and was amazed that she was being required to pay back more than half of it, and another well groomed lady who was outraged by the suggestion that she should reduce her spending on fancy hairdos so that she could repay her debt.

Pat tried to work up some sympathy with some feigned outrage and within that comfy middle class constituency they certainly have lots of media support. But outside that there is virtually none that I have heard. Those were exactly the ones who we suspected would hop on the debt forgiveness bandwagon, as sooon as it started to roll

@disgruntled observer

We could argue forever about the ECB and interest rates. What matters is that it ends up being a transfer of money from savers to people with debts.

Regarding the State paying my rent, yes you are right. I’d be happy use the Rental Supplement scheme as a model for the proposed mortgage forgiveness scheme You don’t get anything if you (i) refuse social housing (ii) have a job (iii) have other capital or savings. You can only get the supplement if you live in accommodation where the landlord/bank approves of it. The maximum you can receive is matched to rent supplement.

@Bond

I do agree the statement is bizarre and it really is without foundation – perhpas Harry Crosbie believes it to be the case but I believe he’s wrong.

On your point (b) again I agree with you it will depend on a case by case basis it seems however as you pointed out in (c) that in many many cases there is simply no point in going down the bankruptcy route (new or old).

The point about the homeowners is rather different and this is where I disagree with you and the issue wasn’t brought up in last nights programme but I’ve mentioned it here before.

As an individual borrower I sign an agreement with my bank in good faith to repay the cash in full. Fine.

My influence as a borrower on the wider property market outside of my mortgage and my purchase is practically nil for the vast majority of borrowers.

The law works on the understanding that both lender and borrower enter into the arrnagement in good faith and it also assumes that neither party seeks to undermine or compomise the market deliberately or otherwise.

Why would either party deliberately want to ensure the market is compromised? Clearly the borrower in repaying wants to ensure the asset being bought has a reasonable chance of mainatining its value and generally seeks to maintain it etc etc.

In the case of the lender however all the evidence suggests they went out of their way to virtually ensure the long terms stability of the market was compromised.

Rental yields were screaming a no go area for many years before the bust came. But the banks ploughed on regardless and screwed the market up for all those who had transacted in said market for at least the past 10 years. Last nights programme clearly highlights some of the daft lending decisions made.

The question for me, which obviously arises, is why given that the lenders have ensured the screw up can they go back to borrower and say sorry mate we know we screwed the market up, everyone knows it, but you know what, we still want our 100% back regardless. Is this logical? Forget fairness – is this stance logical?

Can any average adult explain to me how it makes sense that the law is so utterly blind to the wider market actions of the lender under an individual contract where the actions of the lender outside the contract can have such a profound effect on the ability of the borrower to repay the loan due under its terms.

I believe the law as written was never supposed to have to deal with the cicumstances where the stupidity perpetrated by the lenders is oh so evident and yet all borrowers are still subject to their individual contracts and blind to the wider market issues. Clearly this is a daft situation.

The normal ‘out’ for any individual who wants to relieve him/herself from a loan is to sell the property and perhaps work off the difference over time. Given the likely PTT falls of c70% were going to see and with an incredible over supply still evident this normal ‘out’ has been denied to borrowers. Can any half educated explain to me that the borrowers are to ‘blame’ for this turn of events – clearly the answer is NO.

The blame and risk simply has to be divided up any other suggestion is avoiding this fundamental legal blockage.

@Gavin Kostick

“Browne repeatedly asked Brendan Howlin if the government would instruct NAMA to go after loans to the full value the property developers borrowed from the banks, rather than the amount that NAMA paid for them after the haircut.”

I think we all know the answer to that now… and they will eventually get a discount on a discount (and a number will have still salted enough away somewhere to live out a comfortable life).

Interestingly, I was talking to a banker this morning who’s been dealing with a non-NAMA developer loan problem this week. After asset sales they can bring it down to about 3m owed. The bank offered to write off a massive chunk (I know not why), leaving the guy still owing half a million in the vain hope that at some point over the next few years he might be in a position to pay it off. He went berserk, expecting it all to be written off. When queried about his lifestyle and cutting his cloth etc. (which is very high roller/international/expensive lifestyle on what seems to be very little income according to his statement of means) he went even ‘berserker’!

Imagine what it must be like when you are dealing with people who owe tens/hundreds/thousand of millions if this is the attitude of the minnows….

I can understand someone struggling/unable to pay their mortgage for relatively piddling amounts getting upset at seeing a small group being let off with huge sums and it would be helpful if there were a consistent approach on property debt, regardless of who you are or what you owe..

I guess eventual interest rate rises (significant ones) aren’t a million years away and the problem is just going to get worse as far as I can see. But as some of the comments above mention, you are always going to get the ‘chancers’ who want to jump on a bandwagon they don’t really need and if there’s one thing my beloved Ireland is full of, it’s chancers.

@Yields or Bust
“Can any half educated explain to me that the borrowers are to ‘blame’ for this turn of events – clearly the answer is NO. ”

For a huge number of borrowers the clear answer is YES.

1. Mortgage equity withdrawal
2. Second homes, holiday homes
3. Investment properties at home and abroad
4. BTL
5. Trophy homes – no you really cannot all live in Rathgar
6. Liar loans
7. Profligates (using that extra 10% to go on the cruise of a lifetime).

If you can prove that you engaged in none of these shenanigans then we can start to talk about giving you some help with your mortgage along the lines of the rental supplement scheme. Of course you will lose your house and have to move to a council house or into a rental. But maybe you’ll learn something about making ends meet from your new neighbours.

The bank shareholders have been wiped out. The banks are now owned by the taxpayers .Any renegotiation of the mortgages will have to be financed by the budget ,sooner or later. Any quantitatively meaningful relief of the mortgage holders will enormously increase the budget deficit. At the present time is it sensible?

@Johnny

The ‘turn of events’ I was referring to is the excessive developlments financed by the banks which have ensured a market which is unlikely to see any sort of growth – inflation linked or otherwise – for years as excessive speculative supply suffocates us all.

Your tone suggests that every Tom Dick and Harry was buying second houses in Bulgaria and the likes. This is simply untrue I can honestly say I know nobody who owns a foreign holiday home.

Your tone suggests many were lying about the extent of their income – what part of P60 do you not understand? Liar loans for someone who bought and sold 7 times over the past 12 years is simply untrue. Always had to produce full documentation each and every time. I doubt I was unique.

Your tone suggests we all went to the Bahamas every other month on cruises of a lifetime – again untrue. Evidence suggests the mortgage equity withdrawals was a massive UK issue – not so here.

I’ve never wanted your desired to live in Rathgar – D4/D6 represent c0.5%% of the entire Irish housing stock – again your mis representing the average situation.

In fact are you correct in anything?

By the way after retirement and with no income aside from a State pension how exactly do you pay for your rent? Oh back to the Govt again is it? Most people buy a house to live in it, pay for it and avoid the need to ask for Govt handout after retirement hence the reason to buy outright.

The ‘blame’ might be said to lie mostly with bank-employees – top management & directors. But I’m not aware of clear-outs there?

Banks have no incentive to write anything off unless they are presented with a worse alternative. The worse alternative is: Bankruptcy.

The current legislation makes the threat of bankruptcy an empty one as borrowers consider the consequences to harsh.

If a 5 year bankruptcy had been an option then some people would be more than halfway through it and could be looking forward to getting out from under unpayable debts in a not too distant future. But reforms to help those needy are blocked.

@ Jesper

“The ‘blame’ might be said to lie mostly with bank-employees – top management & directors. But I’m not aware of clear-outs there?”

Of the 74 exec and non-exec directors in place at the Irish banks in Sept 2008, 64 are now gone. Of the remaining 8, 4 are at BOI, 4 are at EBS, and 2 are at ILP. Anglo and AIB have had complete clear outs.

@Yields or Bust
“I can honestly say I know nobody who owns a foreign holiday home.”

Head off to Wexford or Kerry the next time a bank holiday weekend comes around. I’ve seen it estimated that as much as a third of the residential building in Ireland at the height of the boom was on 2nd properties.

“what part of P60 do you not understand?”
What part of self-employed and self-assessment do you not understand?

“Your tone suggests we all went to the Bahamas every other month on cruises of a lifetime – again untrue. Evidence suggests the mortgage equity withdrawals was a massive UK issue – not so here.”

I’m saying that a lot of people engaged in conspicuous consumption because they thought they were rich because they thought their houses were worth a lot more than they really were. I lived in Ireland during the boom – the ugly consumption really did happen.

“By the way after retirement and with no income aside from a State pension how exactly do you pay for your rent?”

I’m not against the idea of buying a house – I would like to buy a house. I agree – it would not be pleasant to rent in old age or have to rely on the government for accommodation. Does that mean I should buy an overpriced house I can’t afford. I’d prefer a third option – buy a house when it’s affordable. If that means waiting then I’ll wait – since when was deferred gratification not an option?

@Eoin
Come now, you are well aware that boards of directors do not run companies. Management run companies. How much of the middle and senior management of the banks is gone?

Sorry for drifting back on to the topic.

I thought Richard Curran’s “Property Crash, Where to Now?” was pretty weak. He spent far too much time trying to set a date for when property prices reach a floor. Besides disagreeing with his conclusions, I think bottom-picking (itself) prolongs the adjustment.

The Pat Kenny show was odd. He was more animated than usual and seemed to be driving the direction of comments being made. Even Ronan Lyons got short shrift. There was one bit where Pat suggested that the banks lose nothing and only the foreclosed mortgagee loses. I’d be surprised if PK believes this. Hopefully personal circumstances weren’t effecting Pat’s performance.

The ‘new beginning’ mortgage solution was presented as a 3-way win. Very little detail was provided and no poking was allowed. At a glance it seemed to me that the person could service the mortgage so I didn’t see why it should be restructured.

I’ve no idea what the blather about the history of Ulster is for – I guess you’re one of those guys who gets hungry every time he reads about the famine.

How deep are you going to dig this hole? The history of tenancy in Ulster is paramount to this discussion. Do some reading on the Land Wars and Michael Davitt. While you’re at it, read up about the Land Annuities and how DeValera stopped paying them. And on the subject of the famine, read up on the Encumbered Estates act, where Irish Landlords had to be bailed out as they had starved all their tenants out and had no-one to rent to( a process mitigated considerably in Ulster)

For a huge number of borrowers the clear answer is YES.

1. Mortgage equity withdrawal
2. Second homes, holiday homes
3. Investment properties at home and abroad
4. BTL
5. Trophy homes – no you really cannot all live in Rathgar
6. Liar loans
7. Profligates (using that extra 10% to go on the cruise of a lifetime).

1. Engaged in largely by older parents to pay for their children’s loans. Neccessistated by bank inflated house prices.
2. Buy to let and affluent market. A large segment of troubled mortgages true, but not the people most in need or deserving of debt forgiveness.
3. As above. Even less of these.
4. As above. Again, these people don’t need a bailout. Bankruptcy will do.
5. Weak argument given the small numbers involved. Most of these have been bailed out via Nama anyway. (Also, confirmed for south-sider)
6. Virtually non-existent in Ireland.
7. 100%+ mortgages are entirely the fault of the banks who were throwing unnecessary money at lender. Entirely. Borrowers don’t even come into it. The bank was being imprudent here.

First, I’m from Ireland, not that it matters.

Then you’re probably some Mid-Atlantic south-sider who spent more time watching Friends than reading a history book. In any case, keep the handle. You may as well be living on the moon for all you understand of the Irish housing market.

@OMF
Not for the first time, I wonder what property bubble you’ve just lived through and whether it was the same one that I did.

@Obsessive Math Freak

What exactly do you mean when you say that the banks should pay for the reckless loans? Banks are just big buildings scattered around the country usually with brick facades. Do you want the bricks to pay off the loans? Or the depositors in the banks to stop receiving interest? Or do you want the bank cashiers to have their pay docked? If you want the bank shareholders to pay, forget it, there isn’t any available shareholders’ funds left. The government owns most of the equity, and it is barely enough equity capital to keep the banks functioning, at an impaired level. So Johnny Foreigner is correct, the effective transfer you are proposing is to the reckless borrowers (ignorant or otherwise) from the taxpayer and public beneficiaries (such as via cuts in social welfare, public health, education, etc.).

@OMF
Maybe you are right – maybe Michael Davitt was on people’s minds as they signed up for an 800k semi (especially those near Croke Park). I’ve heard a lot of excuses but that’s a new one on me.

@Gregory
The banks can pay by no longer existing as credit machines although I do not expect such a outcome.
Watching Richard Currans latest piece about the property crash.

John Bourke formerly of Irish Permanent was quoted

“Everybody wants a bit of it and why wouldn’t they , the deserving , the less deserving and the undeserving – they all want a bit of that and even the undeserving might want a bit of it.
AND THAT WOULD WRECK THE WHOLE SYSTEM.”

What I think he means by this is that it would destroy the CREDIT SYSTEM – but the credit system is not the money system.
Irving Fisher wanted to nationalise money – not the banks , when you nationalise banks you nationalise the credit/ debt.
The debt owns the goverment , so therefore the goverment does not own the banks.
Whats really sad about Currans programme is that it links asset price growth via credit growth – which is indeed the only outcome with this present private money system.
That means that real production is tertiary to credit production – getting the real wealth accumulation back to front.
Which is indeed what we have witnessed and will continue to witness.

@OMF / Johnny Foreigner / Gregory Connor,

Reading some of the above reminded me of my favourite aphorism:

“Hell hath no fury than a vested interest masquerading as a moral principle”.

Gregory is right when he simply points out some basic facts above.

And Colm McCarthy was right when he said if there are people who can’t pay, well that takes care of itself.

(But some other commentating ‘geniuses’/advisors (Constantin, Jill Kirby etc.) are I believe, in negative equity (they got it wrong before) and they should excuse themselves from answering questions or making suggestions when they have such a major vested interest).

Some people invested money in the stock market in recent years trying to make up enough for a house when it hits bottom, it went ok for a while but they are again in negative territory, and there is no movement to compensate them for their beaten dockets. Could you start one maybe? (FG did take it up before for just one stock, eircom shareholders’ votes, but everyone laughed…except just some silly shareholders…but vested interests now want to think it’s different for houses, and at other people’s expense).

The people who called it right did not fuel the biggest man-made housing bubble in human history, could see it for the immoral insanity it was, and yet are being (or have been) financially attacked by various vested interests.

People who bought in the past wanted the price to go up afterwards and to hell with the people behind them – with maybe an attitude of ‘let them eat cake, in social housing’.

They are caught out now and are crying ‘boo hoo’.

They didn’t protest or agitate when prices were going up, and the government didn’t intervene to stop it going up.

While not at the top of the queue, people who bought were ‘collaborators’, (perhaps unwittingly in some cases) but now the ‘Vichy Regime’ has fallen, and they are trying to climb in the priority of victims (though unlike in 1945 France, at least even they cannot claim to have been part of the Resistance…though no doubt they would if they could burn the documentation/uniforms).

@Gregory

Please for Gods sake don’t get suckered into the arguments that it takes two to tango and an asset is only worth what a buyer is willing to pay for it blah blah.

For the love of God your a man of intellect please don’t fall at the last fence. That’s the sort of stuff Joe Duffy comes out with the banks have been recpaitalised to the tune of €24bn. They have ample cash to cover their lending errors.

Property is a leverage driven business – if the credit doesn’t flow the market reverts to cash only buyers and prices collapse – this is what we’re seeing at the moment. In other words the credit providers in a leverage driven asset market dictate the market price – this is as true today as it was when banks first started to lend against property – and the fact is banks in such a market will ALWAYS dictate the market price, never the consumers.

If banks misprice the asset class against long run cash valuation metrics such as rental yields then its the banks who should pay the penalty. They price the product. They always have the opportunity to say no to any deal. This is a leverage driven market it is ordinarily not a cash market. That’s the fundamental difference between buying vegatables on the square and buying property – the normal consumer has virtually no say in property price – it is the preseve of the banks to dictate if the price is fair or otherwise.

If banks get that pricing model wrong, it is simply absurd to suggest that the consumer should bear the cost of that error. I refer to my comment above regarding the daft legal position for borrowers who can’t sell houses because of the actions of the banks in the wider market. As indicated this is a leverage market so errors on behalf of the credit providers need to borne by them.

Lending is a risky business the margins banks make compensates for that risk – the risks are many including valuation risks – it’s the banks JOB to price these risks correctly. With PTT falls likely to be +70% or more it is crystal clear the banks failed in their duty to get the numbers right.

Quite why you can’t see this is beyond me.

Borrowers have a duty to repay their loans however if the actions of the banks in the wider market ensure that situation becomes untenable then who is really to blame? In a leverage driven market the onus simply has to be on the banks to ensure a stable fairly priced market all else is somewhat irrelevant.

@Yields or Bust
We are the banks – why can’t you admit that? When you say the banks have to pay you are saying that we, all the people in Ireland including our kids and probably their kids have to pay. It’s a simple decision about resource allocation in our society – how much do we allocate to people who have large mortgages and how much do we allocate to all the other things we can do with our resources.
Let me put it another way – how do you propose we pay to recapitalise the banks (again) once we have given homeowners their bailout? Raise taxes? Cut public spending? And how much of each?

@Johnny

Eh the small matter of the Unguaranteed Bond Holders – all €16.4bn of them at the last count.

We do indeed own the banks – others would suggest not BOI I would suggest that without the Govt stepping in when it did BOI would have gone the way of the rest of them.

In simple terms the previous financiers all get zero for the effort – but unfortunately in the wisdom of the ECB they don’t see it that way. Quite why your guess is as good as mine. Don’t quote contagion back to me becuase most sensible folk believe that argument to be as hollow as Pat Neary.

@Yields or Bust

I suggest we arrange a conference between the people in negative equity and the guys with the unguaranteed bonds. I’m sure they can come to some agreement. I’m delighted to hear it won’t cost me anything.

@Johnny

No its not the parties that need to talk – its actually the ECB and the Irish Govt. Sadly you’ve already paid – what we’re trying to do here is get some of the loot back. Repeat – you’ve already paid.

By the way why are people so animated about potentially helping out the average guy and so happy it seems to have the banks once again dictate proceedings?

It seems odd when the folks in NAMA are willing to be a lot more pragmatic about the original daft bank lending practices and valuation techniques but the size of the NAMA issue is many many multiples the cost of fixing the mortgage mess, and the developers are getting paid in ‘managing’ the problem and will likely see significant write offs.

It seems as if many Irish people are quite happy to see thousands of fellow Irish live a life with absolutely no prospect of ever seeing the other side of a German pension fund bond investment in BOI or AIB. This strikes me as very odd behaviour.

@John
The problem with that argument is that depositors such as this Dork which stood at the sidelines for over a decade – (I was sceptical since 1995 & bearish since 2000) would not have had such large deposits without the banks loaning out unsustainable credit.
We are all part of the same financial ecosystem if you accept that credit / money creation must remain a private affair or even if you don’t.
Now the banks are fixing the leverage problem by fixing us (ie effectivally taxing & extracting credit deposits) and setting the bond holders free.
– this is why we must export to “remain competitive” – only people with legal paper can buy goods – we have less internally and externally they have more.
WHATS THE POINT IN ATTACKING SHEEP – THERE IS NO SPORT IN IT.
We saw themselves as livestock and were butchered – the hyenas have escaped once again as we have jackals pretending to be our leaders.

@Yields or Bust

“By the way why are people so animated about potentially helping out the average guy and so happy it seems to have the banks once again dictate proceedings?”

I’ve no problem with you or anyone else helping out the average guy. In fact I am the below-average guy – I’m renting a house – a living hell according to most homeowners. So please put me at the front of the queue when you are doling out assistance.

With respect to having the banks back in business it can’t happen quick enough. The only positive I can see in having contributed to their recapitalisation is the possibility of getting a mortgage some time soon. I don’t want that capital going to pay off other people’s mistakes – I’d like to make my own mistakes first.

Banks going back into their tradional business will be disastrous in the long run.
The economy can no longer afford to take from the future via private credit provision.
We must spend money rather them credit so as to increase whatever meagre wealth we have remaining.
Despite the propoganda Japan from the mid 90s to mid 2000s has increased real wealth rather then funding a tempory unsustainable growth spurt via credit inflation that is payed for perhaps a decade after the event.

@ GO’C: “So Johnny Foreigner is correct, the effective transfer you are proposing is to the reckless borrowers (ignorant or otherwise)”

Reckless? – ignorant? – otherwise? ???

Reckless: You ARE referring to the banksters? Yes?

Ignorant: You believe what you are told! A leaf blowing in the wind! Yes?

Otherwise? ???

@JF: “Let me put it another way – how do you propose we pay to recapitalise the banks (again) once we have given homeowners their bailout?

It will NOT be a bailout. It will be a legal bankruptcy. Your future credit is trashed. Very bad news.

Banks post writedown. Shareholders and bondholders take the hit. After that is, our gutless politicians have made a start at accepting their moral, legal and collective responsibility for the citizens of this state – not just the slightly misguided voters who put nice seats under their bums.

Our Dear Leader tells the bank directors that the citizens of this state are not a bunch of reckless, (ignorant or otherwise) gamblers – with other folk’s money. In two words – “Get stuffed!”

We trash the banks. That’s capita…. opps, I mean neo-Socialism. Very confusing world. Significant re-calibration essential.

Please let me remind you that we had a 10 week bank closure in mid- ’80s. The sky is still up there!

We do need banks, sure. Just not this shower of thieves, social jackals and conmen.

Brian Snr.

@ Johnny Foreigner

Rock on!! Well done, holding your corner – and sorry for the ad hominens. There’s no public policy rationale for transferring taxpayer income to people SOLELY on the basis of decisions they entered into with regard to mortgages/property purchases? And no one has convinced me that I should pay to keep someone in their (larger?) owner-occupied house when I myself am renting. Or, that, such mortgage holders are more deserving of state help than, say, handicapped kids with special needs whose assistants are being cut, etc.

But hey, guess what, we don’t even get to have this debate in Ireland – the media, VIs, et al jump straight to the “self-evident” conclusion that stressed mortgage holders are a “victim group” worthy of your and my tax monies – and have a God Given right to their family home”. Just like they jumped to the conclusion that property prices could only go up!!!

Couple of points:

a. The banks were indeed reckless but bank shareholders have been wiped out……

b. If banks committed frauds on the mortgage holders – shurely we’d see loads of criminal or civil cases – and the overturning of what were, after all, voluntary contracts. I’m sorry but IMHO, barring fraud/force/mental disability, being stupid or greedy shouldn’t spare you from the consequences of a contract.

c. Smoke and mirrors on Michael Davitt and the landlords, most oppressed people on earth etc. And what does it have to do with the price of tea in China anyway? (e.g. someone putting a BMW on their mortgage, parents buying multiple homes for their teenagers).

Newsflash: Peasants/tenants were dirt everywhere in Europe well into 19th century (e.g. Austrian or Russian landlords had security of tenure – Serfdom meant they literally owned their tenant peasants). Landlordism was ended in Ireland by the forced expropriation of the landed class and UK taxpayer funded loans for purchases – a privlege denied English tenant farmers for example – who usually only got land ownership in the 1950s and 1960s as the Labour Government’s inheritance tax laws started to bite.

d. As to “social chaos”_ is this just shorthand for and criticism of the US model (lose your home but no recourse), I’m wondering would many Irish folks in negative equity actually prefer that outcome?

We do indeed have a problem with the concept of personal responsibility in this country. Just had a laugh at that syndicate of solicitors all claiming that they should be absolved of their personal guarantees for some property punt – because they didn’t understand the legal documentation.

@remnant

+1

I’d thought of raising the MOPE (most oppressed people ever) issue but it only encourages more selective self pity.

We’ll hear more about debt forgiveness tomorrow when the Keane report is published. Expect more of the Frontline guff and not a renter to be seen on camera or within microphone distance.

@ Johnny Foreigner

The Dork has the right of it above.

“The problem with that argument is that depositors such as this Dork which stood at the sidelines for over a decade – (I was sceptical since 1995 & bearish since 2000) would not have had such large deposits without the banks loaning out unsustainable credit.”

You think you were so smart staying outside of it all, but you weren’t outside of it. You’ve been as duped as the average first time buyer if you think you are. You and everyone else here, commenting on this thread, taking their respective positions are in the same eco-system. Savers and debtors are not mutually exclusive from each other. One doesn’t exist without the other. Your position reminds me of the Germans who see trade deficits as moral vices and surpluses as virtues. They’re two sides of the same coin.

You’re not the virtuous creature you think you are.

@ Everyone.

This conversation spurred me to go and buy Conor McCabes Sins of the Father. I’m reading the housing section at present. And from the part that I’ve read so far, I can tell you, the vast bulk of what we think we know about housing here is bunk.

This mess is a consequence of a century of government policy. I recommend a read of this book if you think otherwise.

@ remnant

“As to “social chaos”_ is this just shorthand for and criticism of the US model (lose your home but no recourse), I’m wondering would many Irish folks in negative equity actually prefer that outcome?”

I’m sure there are those who would love that outcome, and considering the scale of the debts that have been heaped on people in what they assumed would remain an inflationary market, but turned out to be the exact opposite, I wouldn’t blame them for it. BUT, first you should know what’s actually happening in the states. First and foremost, non-recourse, doesn’t mean you don’t have a legal obligation to pay. You do. And most people, and I would assume people here would be the same, are choosing to pay if they can. If you’re foreclosed on because you can’t pay, you get principal writedowns and walk away free. If it is considered a strategic default, the banks in the states can and are taking people to court. So who are the strategic defaulters there. Overwhelmingly, they are those with second properties (i.e. speculative/investors, as opposed to owner/occupiers).

I refer you to Yves Smith on this one. She’s written extensively on the American mortgage market.

I would also like make the point, that far too many people on this board can’t seem to get their head around the concept of the family home, as opposed to an investment. Most people are not buying their home so that they can flip it at a later date.

And finally. No. By social chaos, I meant social chaos. Those satellite images are horrendous. Each one of those dots represents misery.

It is so depressing …. The powers that be have clearly decided that mortgage forgiveness is THE thing now …. AFTER the banks have been nationalized, of course never before… And to whoever said well if your pissed off about this, why weren’t you pissed off about NAMA … The answer is this isn’t an either/or type situation, there is plenty to be pissed off about.

The whole thing stinks of insider-ism. The insider developers and bankers passed the losses parcel onto the taxpayer and now it’s time to really gull that taxpayer because those same insiders are likely to get another HUGE gift in the form of mortgage forgiveness. And forget about the “little victim” line, that is complete BS, the ones who will get the most forgiveness will be the same shameless hucksters that leveraged up to their necks on the way up, because they are insiders. The honest, striver will get screwed ….. Again.

What really boils me up is the bare faced cheek and the Pravda esque shut down of dissent … The land wars … davitt …. are you F’ing kidding me? Try reading about the French revolution or the 1848 revolutions instead. How did they go?

@DO:”This mess is a consequence of a century of government policy.”

I’d re-write that somewhat. A century of background – maybe, but it certainly dates from early ’70s. Build up was fitful until ’90s. Then it got real traction.

Gov to blame. Somehow doubt it. Haven’t the brain-power. Though if they were only looking at a short-term gain, yep. Over 70 yr though? Too many banana skins to slip on.

@ Bklyn_rntr “… there is plenty to be pissed off about.” Spot on! Just wish some folk would direct their fire at those actually responsible. But then if you start naming the – ahem, guilty, you run a bad risk.

The duty of sheep(le) is to be shorn. Until we decide otherwise!

Brian Snr.

@Disgruntled Observer

“Savers and debtors are not mutually exclusive from each other. One doesn’t exist without the other. Your position reminds me of the Germans who see trade deficits as moral vices and surpluses as virtues. They’re two sides of the same coin.”

In one sense you are right – I’ve been a mug. I viewed the bubble as dangerous gambling, little did I realise that a big comfy safety net was being prepared for the gamblers at my expense. But don’t bring virtue into it – the most depraved form of morality is consequentialism where we only worry about outcomes when we judge the virtue of our actions.

The ‘solidarity’ between owner and renter you propose reminds me of the love we were asked to show to the bankers in 2008. I don’t remember any reciprocity between 1995 and 2007 – where was all the love from the homeowners towards the renters back then? All I remember is the reaction on people’s faces when I told them I thought there was a housing bubble (at a period when 20% rises in HPI were common) – I was looked at like I’d just announced I had an STD. People didn’t want to hear about it.

And the German comparison is ridiculous for 2 reasons. First, while I was saving/not buying a house there was more than enough consumption in the economy – it’s not like my few euros were needed to inflate it even further. Second, I’ve made it clear that I want to buy. I’m not like the German or Japanese housewives who are salting it away till kingdom come regardless of price – I want to buy now, just not at these prices. And my demands on price are not ridiculous given that we are still above the long-term trend.

@Johnny

‘I’ve made it clear that I want to buy. I’m not like the German or Japanese housewives who are salting it away till kingdom come regardless of price – I want to buy now, just not at these prices. And my demands on price are not ridiculous given that we are still above the long-term trend.’

This is the point I’ve been making on this thread for years. The price is the key to all this mess. Your analysis was obviously ahead of the posse but you seem to think that the posse was simply in it for a big bet. They were not. In the vast majority of cases the buyers, who I have significant sympathy for, were average folk who simply wanted to buy a house and who felt that prices were running away from them, so they saved and stepped onto the housing escalator.

Sadly we now know most of them (300k in round numbers) got their timing wrong.

300k average people getting their timing wrong in an asset market driven by 3rd party lenders simply should not happen. The lenders knew or at the very least ought to have known the prices relative to rents simply made no sense. It’s worth remembering that 98% of Irish residential transactions simply would not happen without the leverage providers approval. As I’ve indicated many many times banks always had the opportunity to say no to these deals – they chose not to – and cannot now suggest they too got it wrong – its their day job to understand the market which their credit effectively controls.

From about 2000 onwards the long run relationship of average net rental yields was breaking down. You may correctly argue that the normal folk should have seen this coming. My argument has always been that this is a leverage driven market and those in control of the leverage control the prices. The banks have the skills to know when the market is hot or cold – this is their job. Any banker lending money into a property deal at net yields of 1% in Dublin in Q1 2006 simply cannot expect that deal to go to plan – all market evidence in the property world will quickly tell you that the upside risks are completely outweighted by the downside expectations.

Rental yields mean revert banks know this, does the average consumer? I’m pretty sure they don’t.

@YoB

Hope I am not being a pest on this: A relative keeps pestering me about buying/not buying a house (to live in). I keep saying “Keep well away, until prices are at about -50% of current.”

So: if the total purchase price was E300,000 (inclusive of charges and duties). How do I calculate the yield? Would I have to factor in depreciation as well? Thanks.

Brian Snr.

A letter in today’s paper should be apposite,

“Sir, – The fuss over the closure of the barracks in Mullingar (Home News, October 10th) illustrates perfectly the thoughts of the French economist Bastiat and the 18th-century Scottish historian Alexander Tytler, who both said, words to the effect, “A democratic society will collapse when everybody thinks they can vote themselves a share of somebody else’s money.” – Yours, etc,

R D BANTON, Kevin Street, Tinahely, Co Wicklow.”

http://www.irishtimes.com/letters/index.html#1224305638447

Though Ireland may be the exception, they just emmigrate or ring Joe Duffy instead. Why for example haven’t we insisted on implementing the suggestions in another letter in the same paper today:

“Sir, – Because Mick Wallace gave personal guarantees, he may now be declared bankrupt and if that happens, he is deemed unfit to represent the people who elected him and will have to give up his seat (Breaking News, October 10th).

On the other hand, the bankers who made the banks bankrupt still get massive salaries and pensions. Equally, the politicians who made the country bankrupt by giving guarantees with taxpayers’ money also retain their posts, pensions and expenses.

The very least that should have happened is that all bankers in charge of the banks during the period when they were working towards bankruptcy, should not be allowed to act as directors again and any politician (including opposition TDs) who voted for the bank guarantee scheme, should have to give up their seat and their pension.

This bunch should then be joined by the faceless public servants and regulators who served their own interests so well and did not give two hoots about doing the job they are employed to do. – Yours, etc,

CIARÁN SUDWAY, FRICS, FSCSI
Crannagh Way, Rathfarnham, Dublin 14”

If there were a fair way to do this, why not have the government give a one off tax refund of €30k to each and every house in Ireland that pays tax. Then suspend fees on early mortgage payment, and write in the refund note that, if you have debt, you are expected to use this money to pay off some of the amounts you owe. This would have the effect of 1) it is fair to every taxpayer 2) if it is used to pay mortgage, the net effect would be a 15% to 20% haircut on the average mortgage 3) if you continue to pay current interest and principal, the mortgage will be repaid faster and finally 4) if you are a fool and spend it, then the government captures part of the cash back in taxes and you can’t then come crying about not being able to pay your mortgage.

Seems fair to everyone as far as I can see.

@Bklyn_rntr

Now all the government has to do is find a 50 billion pot of gold somewhere ~(30,000*1,600,000 households)

Easy peasy

Bkln-rntr,

you mean “income-taxpayer”?

Because as Vincenzo Brown regularly correctly says, “everyone over the age of about 4 pays tax”, and that ‘the word “taxpayer” is ideologically loaded as for many it implies “income-taxpayer” as if somehow they are the only ones who count’

@Brian

You need to find a comparable house in the area that is currently being rented that your relative intends to buy. Local estate agents, local newspapers will have details of whats currently on offer in terms of rent – work on the basis that you can at the very least bargain down by 10%.

So you now have a cash cost of a comparable property – over the long term we know that this rental cost should (will in time) be 7% of the value of the house on a net basis. The net is important becauase the market norms suggest 1 month is lost to landlords to covers their costs.

So for example if the rent was €1,500 per month. The house should be valued as follows:

Rent @ €1,500 pm *11 = €16,500/0.07 (long run net yield average) = €235,714.

The €235k can be compared to peak prices – I’ll hazard a guess that €235k compared to peak will represent a fall of c66%.

Mean reversion in terms of yield also means yields can and do go beyond their long run average. The ALLSOPS auctions suggest that residential property is currently selling in a cash market (86% of all ALLSOPS transactions are for cash) at 8% yield for houses in the wider market (8.36% in Dublin, 7.68% Rest of Country).

There is no doubt that the number of cash only buyers will dwindle as time moves forward and then you’re facing a propect of a normalised leveraged market resuming (if at all). Given the additional financing risk with a leveraged buyer my thought would be that the yields have to push out further (prices lower) to compensate buyers for the additional deal risk.

Where do the yields eventually get to? I haven’t a clue – but what is likely is that top line i.e. rents will fall from here as the Govt rent allowance is curtailed however the impact this move has on market rents is extremely difficult to model but it simply has to be negative. In Dublin where supply in tighter the impact maybe less severe.

So yields pushing higher than 7% I believe is a given, so the €235k above would, if I was buying represent the max I would be willing to pay given the facts as presented here.

@YorB

“As I’ve indicated many many times banks always had the opportunity to say no to these deals -”
Are you implying that the borrower had no choice?
Look Johnny Foreigner has taken yards of abuse for opposing the suggestion (HOW DARE HE?) that people like himself who saw the bleeding obvious that houses were grossly overvalued over the last 15 or so years and waited patiently for the inevitable collapse, should now be penalised for this prudence or “deferred gratification” as the sociologists put it. Although a home owner myself I agree 100% with everything he said. Unlike his opponents he uses no obfuscation, evasion, or attempts to evade personal responsibility. Sure the banks were reckless in lending to people who cannot afford to pay – both to homeowners and developers.

There are always people who take out loans and find later for whatever reason they can’t pay. I am sure there are people in genuine hardship due to their own ill-advised or reckless borrowing. Frontline only managed to put up front a couple of the more obviously well heeled, which I guess is hardly likely to encourage much sympathy from the rest of us.

We objected and rightly to the bailout of the bankers. For consistency sake alone we are morally obliged to object to bailouts of others who contributed also fairly directly to the bubble. Two wrongs just will not add up to right.

These Johnny foreigner roundabout debates are farcical – until you seperate your money from the banks their loans are your deposits as when they create loans they create deposits.

The simple solution 3 years ago was to transfer Irish credit deposits to the sovergin and give the useless mortgage paper to the bond holders.

The job would have been done and we would have had no sovergin crisis. – property would have crashed immediately to -80% but people would have not lost their savings.
Mortgage contracts would have become uncollectible so who cares what the final price of the asset would be.

Once the state became the banks the banks became the state
“Nationalise money , not banks” – Irving Fisher

I meant income tax household, so assuming 1.5m houses and excluding pensioners and welfare recipients, the total would probably be 30bn, and if half of them spend some of it, then approximately 10% + of this amount would return to the government in the form of consumption taxes.

My point was, €16bn was the number mentioned as unsecured bondholders, €6bn is the amount we are told that was already provisioned by the banks, that is a total of €22bn using bad maths (the provisions are reserved and the bonds are not really new capital) but anyway, since we are already in the land of assuming that a) mortgages can be forgiven without any contagion effect and b) unsecured capital already on the BS can be treated as new capital, why not use those same assumptions to actually propose something that would help demand, and therefore employment. More importantly it would be fair to all income taxpayers, the spenders and the savers alike!

Dork that’s one solution …. Another would be to force the banks and their directors/managers to actually assume the risk they insist they are uniquely qualified to value (no limited liability for banksters) …. I read somewhere that investment banks were unlimited liability partnerships until 1981 or something in the US. Was it Lehman or Salomon Bros which went limited liability first… It was one of ’em … Where are they now, I wonder? And is their destiny a coincidence? Maybe not.

In Ireland and here in the US, the idea of assuming any responsibility, never mind actually providing the service you are licensed to do, has disappeared. Imagine the bare faced cheek and sense of immunity one must have to go to court to have a debt contract annulled because it purpose, to enter a clandestine share support scheme, was obviously illegal. Am I wrong or is this what a member of the Quinn family did? And who has gone to jail for the open admission that directors of a major insurance company and a major, failed, bank, were acting illegally and have no problem admitting it!! It is surreal!

@AMcG: “We objected and rightly to the bailout of the bankers. For consistency sake alone we are morally obliged to object to bailouts of others who contributed also fairly directly to the bubble. Two wrongs just will not add up to right.”

I’d go along with this – to a point. But there are two distinct issues and althought they are intimately connected, their causes and outcomes are vastly different. Confusion is understandable.

One ‘wrong’ was perpetuated by persons who put themselves forward as ‘professionals’, but who were behaving in a deeply flawed manner. The other group were ‘amateurs’ (the vast majority I would guess) – sheeple if you wish. So their responsibility is of a much different kind.

The key issue here, and it is still being dodged with all the amazing foot-work skill of Cassius Clay – and then some: the totally unequal nature of the formal (legal?) mechanisms available for individuals who borrowed to purchase residential property (as their home – not as a speculative investment) – as opposed to incorporated companies some of whose senior personnel misrepresented (lied?) about the financial status of their companies, to the leader and deputy of the elected government of this state. So, across whose back is the stick being applied? And, why?

It might be some excuse, but little comfort, to admit that we have never encountered such a drastic financial predicament. But what is totally inexcusable is the steadfast obduracy of our politicians, ardently urged on by their Bankster buddys to put into place any plausible process to resolve (permanently) this dreadful mess. And do not neglect to inquire about the ‘interest’ the Civil Service chappies may have.

Diliberate misrepresentation is somewhat different to ill-informed, excited behaviour. No? Quite!. So punish the fools, and reward the cheats.

Brian Snr.

We have just experienced the greatest property crash in the history of mankind. It was both a residential and commercial property crash. The property professionals are the Society of Chartered Surveyors. The commercial property crash was a function of reckless Irish banks and ruinous Irish commercial lease law. Upward-only rent reviews tied to long leases is the most anti-tenant commercial lease law in the world. No other country in the eurozone tolerate these feudal leases. In Ireland lease lengths are 35/25 years, no break clauses and rents reviewed every 5 years using the notorious ratchet upward only rent reviews. A substantial body of tenants felt there was systemic corruption of the rent review system with secret agreements, side agreements and other corruption rampant.

In the rest of the eurozone lease lengths are on average 5 years with rents reviewed annually by changes in the consumer price index. The reckless Irish banks lent tens of billions against these ruinous leases ,not against the properties. The Society of Chartered Surveyors lobbied against the tenants to retain these ruinous leases. The Society of Chartered Surveyors are the most anti-tenant orgnisation in the world. This crew also runs the rent review/arbitration system. What chance did a commercial tenant have.

@BW Senior
“One ‘wrong’ was perpetuated by persons who put themselves forward as ‘professionals’, but who were behaving in a deeply flawed manner. The other group were ‘amateurs’ (the vast majority I would guess) – sheeple if you wish. So their responsibility is of a much different kind. ”

I was of course referring to the principle that it wrong to use my money to bail out banks who borrowed (and lent) recklessly on the bond market. For the same reason it is wrong to bail out tose who fuelled the house price bubble by paying inflated prices, for ,in many cases whether you admit it or not, speculative reasons. Even for not speculative reasons.

We are fond of referring to our high standards of education – but suddenly naivety and ignorance is being trotted out as a defence for what was at base greed – a desire to get on this mythical property ladder. Bail these people out and no lesson will have been learned – The bubble will reinflate in the certain knowledge that their is no real downside to the bet. Caveat emptor!

The spin from the debt forgiveness brigade who include, as someone else as pointed out above, some high profile vested interests such as Constantin Gurdiev, is that any solution would be confined to the truly needy. Frontline put some pretty obviously unneedy examples up front, fuelling my suspicions that there are many relativly well heeled waiting to jump on the bandwagon.

@AMcG: “Frontline put some pretty obviously unneedy examples up front, fuelling my suspicions that there are many relativly well heeled waiting to jump on the bandwagon.”

Thanks for the thoughtful reply. I think your ‘suspicions’ are well grounded.

My concern is that we may end up with some form of ‘debt’, resolution, restructuring, writedown or writeoff – whatever, but it will be framed by those who have access, and possibly control, over those who will enact the legislation. “Rent-seeking, here we come -again!”

I am reading a very spooky monograph at the mo. “Interrogating Irish Policies” – William Kingston. Makes Bram Stoker’s “Drakla” (sic) look like a child’s bedtime fairytale.

Thanks again.

Brian Snr.

@AMcGrath

For the umpteeth time please can you understand what I’m saying – the housing market is a leverage driven market, it is not a cash market in its ‘normalised’ state.

This matters beyond all the rest of the arguments laid out here and elsewhere.

Without leverage the market simply stops to function. The providers of the leverage are the banks. They have the choice to let you or I play in that market. If as borrowers we chose to play then common sense would tell you and everyone else that the banks are comfortable with both your choice and theirs.

The players in the market accept the rules but, and its a very large but, the games do not begin unless the banks allow it to begin. So stuff said such as a property is worth only as much as someone is willing to pay for it is simply wrong. Its a daft thing to suggest. A property deal (in 98% of cases where leverage is required to get the deal over the line) is utterly dependant on the bank saying yeah. Without their blessing the games stop.
So as a result a property is actually (in 98% of cases) only worth how much a bank is willing to lend against it. Please for the love of God get this. It’s quite important.

Given the above – the truth of the matter is that banks ultimatley price property – not consumers. Think about this.

A developer buys land and goes to the local bank with a plan to build 50 new houses – he submits his estimates on costs and unit prices to clear the bank loans and make a profit, the banks either agree or disagree on the numbers. On the assumption that they agree – the banks already know the minimum prices that the units have to sell for to clear their loan and to allow the developer make a living.

My basic argument is that is virtually all cases presented to the banks since about 2000 the unit prices in such deals relative to actual rents on the ground for similar properties made no sense. In simple terms the banks have agreed on prices that were completely unrealistic from the get go.

ALL mortgages agreed and sold thereafter based on these prices (the banks prices) were wrong. Repeat the prices were wrong.

Now the question is does the pricing error sit with the developer, the bank or the mortgagee?

In my view, as indicated above, none of these transactions would have seen the light of day unless a lending officer or a director in a bank gave it the green light. Not one house would have been built (in the vast vast majority of cases) without the blessing of the bank.

The leverage the bank supplies allows the wheels to turn. They set the minimum prices and consumers have a choice to accept them or not. Should the consumer know if the prices are right of wrong? You believe he/she should – I believe the consumer ordinarily wouldn’t and takes advice in relation to a large transaction such as the purchase of a house. They ask an auctioneer, the ask parents, they look at
similar deals, they ask solicitors, they ask accountants, they weigh up the pros and cons.

Now did the average consumer over the period from 2000-2007 ever receive advice to the effect that the houses are approximatley 40%-70% overvalued? Well given the number of houses bought and sold in the period the answer was probably no. Was the advice received dire? Yes – primarily becauase most of the professionals (and non professionals) giving it had a vested interest in ensuring that the answer was to buy and buy today. The Govt also encouraged that the answer was buy and buy today because of the various reliefs etc provided.

Now given these facts and they are the facts can you understand that average person , who only ever wanted to buy a house to live in, and in the meantime can no longer afford it (because of job loss, pay reductions, rate increases etc etc) and can’t sell it and can’t potentially move on in life for all the reasons above should feel agrieved from the turn of events as pressented?

Only a fool would suggest they at least deserve that the banks, in mispricing the deals in the first instance and flooding the market in excess property and screwing up the market for the next 10 years, should at the very least be partly to blame and suffer some monetary penalty.

Basic logic would suggest this to be the case. It’s not about fairness its about logic.

The other question for me which arises is that if the ownership of the banks was still in the private sector (I appreciate its a rather large if) would you really give a damn what agreement the banks and your neighbour came to in terms of debt forgiveness? I know I wouldn’t – so is the ownership of the banks the real issue in preventing people allowing the banks to deal with their mis pricing error. As time moves on it seems to me that this is becoming the case.

@Yields or Bust

Reckless bank lending and ruinous Irish commercial lease law combined to create the monster commercial property bubble. If Ireland had regular eurozone commercial lease law i.e five year CPI linked rents instead of 25 year upward only rents , the banks ,no matter how reckless they were could not have lent 100% LTVs etc because the commercial tenants could walk after 3/5 years. In Ireland they were trapped for 25 years. The reckless banks lent against these ruinous leases not against the properties. The rent was the symptom , the lease law was the disease.

No other eurozone country had a monster commercial property bubble/bust. The Society of Chartered Surveyors , the property professionals/experts organised the valuations , the lease law and the arbitration system.

Yield or Bust,

Please stop saying ‘the banks’ when contrasting with ‘the home-owners’, you should compare the (then) ‘bank-owners’ on one side of the deal, and the ‘home-owners’/borrowers on the other.

The ‘bank-owners’ were the share-holders, who were wiped out.
There is no bail-out for them (and rightly so).

‘the home-owners’ were on the other side of this private deal between a private company and a private individual.

the whole deal went bad for both PRIVATE parties.
but they managed to drag the rest of us into it and mess up the economy.

not only did the buyers in this private deal mess up their own finances, they collaborated in supporting the immoral high house-price structure and didn’t object, agitate, protest about how rotten it was, in fact the OPPOSITE – THEY WANTED THEIR HOUSE PRICE TO GO UP AFTER THEY BOUGHT AND TO HELL (OR JOBSTOWN) TO ANYONE BEHIND THEM WHO COULDN’T AFFORD THE SAME QUALITY HOUSE, A LESSER QUALITY HOUSE, OR ANY HOUSE AT ALL !

In normal times, the ‘bank-owners’ (the share-holders) made good money when the bank was well run, if the risk went bad they lose – it did and they did. And the same is true on the other side of any PRIVATE deal that goes horribly wrong for both sides.

Karl Deeter rightly said last night that these people now want to jump a queue of 100,000 people on the social housing list by converting the house into social housing and STAYING IN IT!

They are entitled to shelter – but get in the queue. When their houses are then used to clear the people AT THE TOP of the social housing queue, then these people can be housed (although snobbery may mean they won’t like all of the accents their kids will have to hear).

It is important to teach a multi-generational lesson so that Irish people do not get involved in this type of mania again, and getting a social house when it’s YOUR TURN will help instill a sense of fairness.

Also please read Gregory Connor above again.

YorB
“- the truth of the matter is that banks ultimatley price property – not consumers….ALL mortgages agreed and sold thereafter based on these prices (the banks prices) were wrong. Repeat the prices were wrong….consumers have a choice to accept them or not.”

I think you have answered your own elaborate points in that statement. “consumers have a choice..” I wouldn;t presume to patoronise mortgagees by implying they are unable to look at their contracts on the one hand, and their income on the other and decide for themselves if they could afford it.
I believe they did and figured that the ever expnding capital gain had the power to make them rich. This expanding bubble if it had continued would always have been at someone elses expense.

Yes the vested interests all around – banks, developers, Government, property supplements, RTE ( e.g House in the Sun) and others property porn, encouraged and fed the greed.

I remember one particularly edifying episode – don’t ask me why I watched it – where a pretty ordinary Dublin couple had difficulty deciding between two apartments somewhere in Bulgaria.

At the end of the programme the presenter came back to them.

“Well have you made a decision?”

“Yes” they said.

“Well which will it be?” he asked them

“We’ll take the two of them!”

@AMcGrath

Average property consumers visit the property shop once or twice in their adult lifetime. Hence the reason why they place a high degree of reliance on advisors – banks and the like – because these guys are doing this day in day out and they ought to know – yeah?

In all respects the nomal property buyer is a complete novice and despite your obvious higher intellectual calling many property consumers are less fortunate. When the special advisors are all wrong and were so for the best part of a decade it hardly seems logical that the ulitimate consumer – the real novice in the room – carries 100% of the burden of everyones elses error. To me, a reasonable sort of person, this state of affairs simply does not pass even the basic smell test and as a result I feel it requires a fix because it’s infecting all aspects of the economy despite the fact that folk like yourself pretend otherwise. In any walk of life fixes were never designed to be fair.

Yields or Bust,

They don’t carry 100% of the burden – the people on the other side of the deal, the shareholders, were wiped out, that’s a pretty big burden.

The state can help the foolish house-purchasers if they qualify for social housing, but they should join the back of the queue. Why should the people at the top of the social housing queue be made suffer by these people jumping ahead of them, or worse getting (part, or all of) a free house?
The people at the top of the social housing queue should be housed faster, and have greater choice, when the houses of these people become available. Then everyone can be housed.

@YorB
If the reference to “your obvious higher intellectual calling” is an attempt at sarcasm then I feel it is a little uncalled for. The only intellectectual quality required when making such a once in a lifetime purchase is a basic common sense. Most people are equipped with this to some extent but obviously many let greed override their better instincts.
If house prices are increasing annually by figures well in excess of your annual salary, then common sense is screaming at you – that there is something rotten in Denmark. Why would any householder work when their house was apparently generating more “income” than their job. Did everyone believe that this state of affairs would continue indefinitely? Many did and many others thought they could call the bottom and get out ahead of the crash. Not so easy with illiquid assets like houses, and so many are stuck and now want those they thought they were smarter than to bail them out.
I agree with john o’brien if you gambled and lost take your medicine and your place in the queue. The shareholders were swallowed without a second thought and in fairness to them little or no complaint.

@John & AMcGrath

And the unguaranteed bondholders?

‘I agree with john o’brien if you gambled and lost take your medicine and your place in the queue. The shareholders were swallowed without a second thought and in fairness to them little or no complaint.’

Shareholders are in the game to make money the vast vast mojority of those who buy a house are in it to put a roof over their head- greed is not the driver – you obviously believe it is, I think you’re wrong.

If greed was the game then people would be timing the market and going from owner occupier to renter and back again to take advantage of the likely price moves. There is simply no evidence that this was the case.

People buy homes to live in them not to play the market – so using terms such as gambling is missing the point. In the event that people moved and made money they invariably recycled the cash into another house purchase for the purpose of living in it. I moved 7 times in 12 years because of work requirements – I never once believed I was gambling with my family and their requirement to settle down.

‘If house prices are increasing annually by figures well in excess of your annual salary, then common sense is screaming at you – that there is something rotten in Denmark’

This is precisely my point.

The evidence that is now emerging is telling us that the house prices were wrong when compared with the market fundamentals. My argument has always been that the market is dependant on the banks leverage and they price the assets. If they mispriced them can you please explain to me why the consumer should be asked to pay 100% for their mis pricing error?

You believe the consumers should have known better and not engaged -what I’m suggesting is that those who wanted to buy should have been advised to stay away as the prices were fundamentally wrong. The banks have an obligation under Regulations not to sell financial products to consumers that are unsuitable the normal caveat emptor is set aside in financial transactions involving a Regulated financial institution. The prices were unsuitable as they were out of step with the rental yield fundamentals but the banks still continued to lend.

No amout of I’m not paying from my neighbours mortgage guff can get around that awkward fact.

The banks screwed up their customers the market and sadly the country.

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