The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears

Gerard Kennedy and Tara McIndoe-Calder provide an overview of the state of Irish mortgages in this article in the latest CB quarterly bulletin –  available here.

9 replies on “The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears”

What is the correct term for a market where there is nothing to sell ? Those Soviet era shops that sold nothing, for example. Or a mortgage market that is cash only.

Although far from ideal, holding a mortgage in negative equity
is not necessarily an issue for those who can continue to meet their mortgage obligations.

Another outing for the “In many cases negative equity will not be an issue” canard.

David Duffy of the ESRI touts this line as well.

For supposedly financially literate people this is an incredible dumb thing to say.

As I’ve said before:
Negative Equity is the amortization of the misappropriation of capital.

To expand:

Saying NE is generally not an issue, is confusing cause and effect.

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

The global credit bubble was pushed into housing by the banks and the politicians in Ireland.

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

It’s only a push factor if you think of housing as a speculative investment – like stocks or gold – and if you assume that the housing bubble, and the havoc from it’s bursting, was a given.

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

A housing bubble distorts everything. It turns a utility into a speculative asset and brings all utility consumers into the speculative market. NE is a symptom of the housing bubble.

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

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

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

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

The loan level data used in the paper – is there a version of this available for researchers? Is it possible to obtain it using a freedom of information request?

I know the dataset was pulled together by Blackrock – but we did pay top dollar for it and it seems such a waste to have a handful of people (well qualified no doubt) working on it when so many more researchers could be using it.

The data protection commissioner (Billy Hawkes) might object to it – but surely it could be anonymised and shared in a controlled manner.

What is wrong with a cash market? sales volumes would recover just fine if the market was allowed to operate but of course it is not and nationally we persist with this dillusion of the value of property. the decision to sell must be taken from the vendors where mortgages are in arrears, and sold at the price the market will pay. it works well for shares, manpower, cars why not property? vested interests continue to evade the truth. Winston Churchill dealt with flat earth specialists when he spoke of the truth, being incontrovertible, malice may attack it, ignorance may deride it, but in the end, there it is

2nd attempt at this…

The loan level data used in this report – what’s the likelihood of obtaining a subsample of this data? I know the taxpayer paid Blackrock top dollar to pull the data together. It seems a missed opportunity to have only a handful of people (well qualified no doubt) working with the data whilst a body of Irish university researchers have to scratch around for substandard, out dated non-Irish data (uci datasets anyone?).

Admittedly there are likely to be issues with data protection, but some sort of sign out system might help.

@moderator: any reason for not publishing my previous comment? Seriously, people on this forum talk about redesigning the euro and yet Irish economists can’t even cobble together a properly functioning website.

Kenneth, when preparing a bid for a research contract recently I rang the Central Bank and enquired about access to this dataset and was told that shouldn’t be a problem once I was willing to come into their office and carry out the analysis in situ, as for data protection reasons they couldn’t allow to original data to be taken from the building. The data are already anonymised and cleaned and contain very few variables so there are no data protection concerns about identifying individual households during reanalysis of the data. I always find that the Central Bank staff are very helpful when dealing with enquiries of this sort.

Comments are closed.