Barrington Medal lecture

Yvonne McCarthy (Central Bank) will be giving her Barrington Lecture on Thursday evening in the ESRI. Full details here.

The title, “Disentangling the mortgage arrears crisis: The role of the labour market, income volatility and negative equity”, gives an indication of its policy relevance.

30 replies on “Barrington Medal lecture”

One of the major problems in the current mortgage crisis is the length of those mortgages in negative equity. Many people have 30 or 35 year mortgages with very little capital being paid off for the first 10 years. 6 years of paying down our debts has not reduced debts sufficiently to allow stock to be released onto the market. This means fewer houses are being sold, fewer mortgages are being redeemed, and less taxes are being paid. Deleveraging is delayed and economic activity is suppressed.

One measure which could help is if the banks recognise their losses on tracker mortgages by writing down mortgages for those who switch to a variable rate, giving the same repayments. This would allow people on trackers to sell up earlier at no cost to the bank when compared ot their losses if those people do not sell. Obviously there is a loss as compared to a sale with a tracker but that is not happening and any such loss is illusory. Another measure would be to reduce the redemption figure for trackers for a limited period to encourage saes and redemptions.

RBS was in the news (bad division) yesterday. Apparently they have to set aside almost three-thousand million pounds in order to ‘settle’ claims that some of their staff mis-sold some financial products – about 1 million of them! – to the banks customers.

Now, might it just be the case that Irish financial institutions also mis-sold mortgage products to their customers. Like, residential mortgages that the borrower would not be able to repay, like Like, you know, like – it slipped the lender’s attention, like, that they should have requested robust documentation from each borrower, like. And only lent 80% of the value of the asset, like. And demanded a 20% cash deposit from savings, like!

There are a few other piffling problems, but sure the wretched bank staff were rushed off their swivel chairs – they had urgent golf appointments to attend to. And the hell with the financial well-being of their borrowers.

Where does that sort of piss-poor performance lead to? – ‘Shitsville’!

from migrants to mortgages,a road less travelled-link to paper above.

i find the paper fatally flawed for two principal reasons,well actually quite a few,the valuation methodology for LTV’s is also all over the place.

1-exclusion off sub prime lenders.
2-the ugly lumping together off BTL/PPR in the data.

The author totally jumps the shark in this paper,how can you exclude subprime,which represented 3% off mortgage lending but is 10% off arrears?
Level of sub prime mtg arrears,3 times higher than those in the sample,56% off subprime more than 90 days in arrears in comparison to the national average of 17%!

“I am informed by the Central Bank that, at end September 2013, six of these firms had a total of 17,807 primary dwelling (PDH) mortgage accounts and four had a total of 659 buy to let (BTL) mortgage accounts. Regarding the level of outstanding debt on these accounts, there was a total of €3.354bn in outstanding PDH debt and a further €0.132bn in outstanding in BTL mortgage debt. Of that outstanding debt, mortgage accounts amounting to €1.885bn (PDH) and €0.050bn (BTL) respectively were in arrears of over 90 days.”

http://www.kildarestreet.com/wrans/?id=2014-01-21a.185&s=noonan+mortgage+arrears#g187.r

Brian Woods Sr – Are you not equally bothered by the fact that typical mortgage lending LTVs are still at 92% (AIB) and 90% (all other lenders)?

The regulators and legislators are not interested in preventing people from taking on copius amounts of debt. There is, apparently, nothing wrong with it.

@ Sean Lyons: Obliged for the down-load link. Comments follow.

A borrower enters mortgage arrears as a consequence of some negative-event/s (shock). That is, there is a specific causal process from:

event or events ———————> mortgage arrears
[causal process]

Figuring out the ‘causal process’ is not the same as describing or comparing the characteristics of non-defaulters v defaulters, then attempting to predict whether or not they may, or may not, actually be defaulters or non-defaulters. “Events, dear boy. Events.”

The events that will cause a borrower to enter into a mortgage default are knowns – known to the mortgage providers, that is. If not, these providers are either incompetents or charlatans and have no business in the lending business. It would be the equivalent of bookmakers not only having no information on the prior ‘form’ of race horses, but dismissing such information as being “Too costly to collect and analyze.” Or some such PR guff.

Next, there is the probability that a specific event may, or may not occur. A careful analysis of the financial histories of many prior residential mortgages would be useful here. Computing probabilities should be a doddle for a competent Actuary.

So: You have a list of known events. You also know, from historical evidence, whether or not those events will affect the mortgage in a negative manner – cause a default. And you should have a plausible actuarial model to compute the likelihoods of the occurrence of the known events. You should also be able to ‘estimate’ the level of ‘severity’ of the event on the ability of the borrower to repay the mortgage as agreed: (death, injury, illness, loss of job, marital separation, children, etc., etc.).

Now each potential mortgagee is fully informed about, and aware of all the above as she enters the mortgage lender’s office? Yes? No? I believe the probability of an affirmative answer on that would be close to 0.001.

“Oh! You mean to say that assembling a list of risk factors, and computing the likelihood of their occurrance using historical data, is the responsibility of the mortgager, and they will have this information available BEFORE a potential borrower comes through the door?” “Why yes!” “Oh!”

They didn’t know, did they? And if they DID, then where is their paperwork?

Your income is the key determinant of your ability to service ALL your loans, not just your mortgage. Duh!

Value is NOT the same as price. Value is an opinion. Whereas Price (or rental income) is a fact. For residential mortgages ALWAYS use facts. And if in doubt – say NO!.

As long as folk refuse to acknowledge how a well run, low risk mortgage lending business SHOULD have been operated – but was not, and why not, then all attempts, suggestions, proposals, schemes, plans, etc., at ‘curing’ a 20% default rate (when it should be 1% – 2-%) are impossible. But the financial ‘beauty’ of the aforementioned is that being impossible, they will abide!

@ Ronan: I am horrified – really shocked. Its reckless in the extreme.

But sure, that’s only the personal opinion of someone who has been keeping a close eye on this issue since 2005. Riiiight!

Given our ‘wonderful economic climate’: If I had the power to do so, I would mandate that (for a private, residential mortgage to form a home) the Loan-to-Opinionated Value ratio shall not exceed 0.75, AND I would mandate the balance as a CASH payment from savings AND additional cash to pay for all the transaction costs. That is, if you have no evidence of regular saving, and do not have a pile of readies to do the deal – its, No!, No!!, No!!!

“The regulators and legislators are not interested in preventing people from taking on copious amounts of debt. There is, apparently, nothing wrong with it.”

You’re joking? Right? That’s impossible!

@BWSnr,hi Brian you may find my views more aligned towards yours when it comes to PPR,specifically people subjected to predatory lending,the BTL shower not so…

ok lets have a look at Yvonne’s LTV work…..pg 4 on.

why is debt owned to various lenders consolidated,ignoring the capital stack and resultant servicing costs,are borrowers paying more ‘seconds’ or HLIOC’s than firsts?

WTF is with using the lenders originating value to bench off,have no updated valuations been carried out,drive by’s,BPO’s-brokers opinion of value,specifically for those in arrears?
Why ignore actual purchase price data if available,but thankfully that daft daft survey was not used:)

so in summary the LTV is extrapoilated from the lenders original ‘value’ determined prior to granting the loan now in default,debts are consolidated despite a first having priority?

@ john: Thinking about this just makes me cringe all over. For the life of me, I find it near impossible to understand how allegedly competent lenders (who should know the risks involved) can behave in the manner they are doing (and did).

Using an LtV metric instead of Loan to Posted Price – or (posted rental), ratio as a reliable metric in a mortgage originating process, is clearly wrong. The amounts of money involved are so large – you’re not buying a fridge! But that’s me! So why use it? Laziness, carelessness, what?

Re: 3.1 Definition of Variables

Value is a opinion: a professional one maybe, but still an opinion. And the ‘average’ of an opinion is a more reliable estimate? One of the first things I used to tell my students was, “BEWARE of the ‘Meaningless Mean'”. Ok, she rescued herself by mentioning the CSO Price Index and ptsb/ESRI price index.

Knowing how to draw a valid sample would not hurt. I fancy the ‘population’ of private res properties in Ireland is heterogeneous. It is difficult to compute reliable estimates from such a ‘stew’.

Re: 4.3 Income and Mortgage Burdens

cf: # 2. She mentions mortgage-repayment-to-income ratio. Not clear whether ‘income’ is gross or nett of taxes. I know this ratio as one of the ‘Golden Rule of Mortgages’. I believe its been known – and was used, for 70 years or so? Fell into disuse with the advent of Sub-prime. If it had been used, there would have been NO Sub-prime crisis. What does that say to you? The ratio value is different for ‘before tax’ or ‘after tax’ income. You have to be specific about that.

She is in the ballpark with that ratio value. But one of the other rules is the ratio of, the total-of-all-your-debt repayments, to your after tax income. And these rules assumed that your mortgage was ‘fixed’ for 30 years. Variables and Trackers ‘muddy the waters’.

Her assertion that Neg equity is ‘driving’ mortgage distress cannot be correct. I would have thought that NE was a consequence (an outcome) of the decline in the value of the asset. Keeping in mind all the caveats about how an ‘asset value’ is pulled out of the Magician’s Hat.

I have not had a reply from Ronan yet. Bit surprised he got his comment in before mine. But his quote about the legislators and regulators – if true, is a shocking and damning indictment. It effectively accuses them of, at best , – “Willful Blindness”, or at worst, “Reckless Endangerment”.

Cheers.

@Yvonne McCarthy

You are to be congratulated on this paper. As far as I can see the findings have huge implications, in terms of social policy in this country, as well as the ‘resolution’ of the issue of housing affordability.

I thought a few things were particularly significant.

1. Section 4.3 :Median income of €35,000 for arrears. Combining this with a median MRTI ratio of 28% would leave a couple on a gross of €35,000 with the following scenario.
Gross €35000/12=2916, Net Monthly €2345 less mortgage €816= €1528 per month for everything. [No pension, PRD, subs, nothing].
Even without children, this is not sustainable. With children, if it were me, I would not even attempt to pay the mortgage. If one did, doing so could only have long term negative consequences for the whole family.

2. Table 4; Very surprising result, that those in the (0-50%) positive equity group, have the highest % of arrears; far higher than those in negative equity. If I understand the chart correctly, this is an explosive finding and points to a real problem with affordability.

I don’t pretend to understand the probit models etc, but I do have one quibble with the paper and indeed with much of the mortgage arrears analysis. My quibble is that I do not believe that both OO and BTL should be analysed or resolved in the same fashion.
Only from a bank/ creditor perspective are these the same issue. i.e a loan in arrears. BTLs can be resolved without any disruption to tenants/families etc, and in many cases are a failed investment of an investor in overall positive investment equity. That is not the case for an OO, where eviction, if that were the policy, would have huge negative short and long term effects on those dislocated.

Congratulations again on your paper. I hope it is studied by those who have the best interests of the country at heart.

@John Gallaher – I am afraid I don’t see anything in that report specifically relating to Average LTV ratios for the FTB cohort. Thought I feel a little disadvantaged by my tablet. General themes of declining household debt may hide numerous subplots within.

Personally, and my view is formed partially from interactions with people at the coalface, I believe most FTBs max out their potential borrowings, some with their paltry deposit fleshed out by a parental “gift” (another wonderful practice still deemed kosher by our Regulator) I don’t believe either the CB or the IBF produce clean LTV stats for FTB borrowing, to do so might raise uncomfortable questions. For similar reasons no detailed stats are produced for those in arrears of 3 years. Or 4 years. Over 2 years is the upper classification AFAIAA, no one is keen to address the question of how many years it is reasonable to live mortgage free.

@Brian Woods Snr – Given we have endured one of the worst housing busts in modern history I find it strange that no real restrictions have been placed on lending. No max LTVs, no max multiples of salary. Apparently the banks are still best placed to judge on this, and as we know a bank won’t make a bad decision because they may go out of business off the back of it! But thanks for everything you’ve done, Mr Elderfield.

Anyway, not to fear. Dublin houses are up 15% YoY, and I see plenty of fairly grim 90 sq metre 3 bed semi-Ds in Suburban Dublin coming on at 350k or so. Sure we’re nearly back to where we belong.

Just to clarify, as I think had to be done on a couple of other occasions for other names, “Ronan” and “Ronan Lyons” are two different people!

Hope to see some of you there this evening.

By Post Author

@ Joseph R: “I hope it is studied by those who have the best interests of the country at heart.”

Joseph, I’m not certain whether or not this is meant to be taken literally or is a crafty piece of sarcasm.

I’ve ‘studied’ a few things in my life, but I was unable to ‘do’ anything about them: I may have had the motivation, but I had neither the means nor the opportunity.

We would not be in this mortgage crisis (which is a tame term) but for the decisions (or non decisions) of senior executives in the financial institutions who ‘lent’ into the owner occupier residential sector. It is known (though not widely) who those execs were/are. What we are dreadfully ignorant about is, ‘the when’, ‘the how’ and ‘the why’ of their decision making.

Absent a full accounting about these, no exit proposal (or whatever you wish to call it) will solve the problem of massive unpayable debts coupled with static or declining incomes – stable incomes being essential to pay down those mortgage debts. We will of course be subjected to a Blitzkrieg of PR guff from the usual suspects and their useful idiot supporters as they attempt to scare and stampede us. Are they, by any chance, attending propaganda classes in Pyongyang?

These mendacious folk KNOW exactly what the problem is. And, they KNOW what the only viable exit process is. But they also know, that should they implement that process – they would be exposed to public ridicule as the incompetent charlatans that they are. Can’t have that, now can we! So, it ain’t gonna happen. Period.

In effect, those currently in positions of authority, who know the identities of those bank executives and also have a clear understanding* of the events that initiated the process, whose outcome is our mortgage debt catastrophe, have a high negative motivation to solve it.

For the life of me I cannot understand how Ms McCarthy’s paper will have any positive affect whatsoever. But, fair dos to her for publishing it -it would have been quite an effort. However, she will cop a few negative criticisms about it. And, in my opinion, quite correctly so. She should, like those mendacious charlatans I mentioned above, have seen nothing, said nothing, written nothing. Courage or foolishness? Take your pick!

* I do not accept for one millisecond that former (or current) regulators and government ministers were/are ignorant of the decisions taken – or more correctly, their knowledge of the complete abandonment of prudent lending risk models – as these models applied (and still apply) to the issuing of mortgages to owner occupiers.

Moral: If I drive my motorbike at speed, knowing the brakes have been disabled: Probability of an unpleasant ‘incident’ = 1.01!

@”Ronan Not,Ronan Lyons” the report does have some lovely graphs though,the bit from pg 51 ‘lending’ tracks the decline in juice to households.The cum. decline in mtg lending is 6.3 B over 3 years,hardly indicative off high ratio lending or a functioning mtg. market!

The irony is now would be the perfect time to leverage yourself to the hilt,but irish banks are like dublin buses they come in 3’s,never there when you need one.A decent competent lender would do great with a mezz lending play,a high ratio lender would simply clean up.
I was a bit gobsmacked trying to understand a borrowing rate of 2.81% on a five year or longer with 12.9% default rate on PPR and 21.2% in the deadbeat income generating BTL category.

Regarding FTB’s it continues to be govt policy to hype and promote home ownership,while limiting supply via exhaustive planing,zoning,repo’s and tax incentives.Banks are just responding to govt policy and customer demand.

Correct on the stats its 360 and out nothing else available,it simply should be 90 days,why are any other numbers relevant,your in default or current.But i’m sure certain people will look more harshly on a 2 or 3 year non pmt situation than 91 days,thats irrelevant and only muddy’s the issue of non payment.

Regarding,restricting lending why bother,just the markets work next time,hows Anglo and Nationwide doing…….

@BWSnr,Brian all lenders should have a copy of the P&S or purchase and sale agreement on file and provide the PP in the ‘tape’,over here its pretty simple zillow,street easy or curbed provide property pricing and history.Lending should be based on purchase price not ‘value’.Valuation is not a science its also backward looking in that they use comps from the ‘past’.

‘Valuers/Appraisers” are a joke just shrills flogging gaffs,we bin them,even in the commercial space they are conflicted.How often do you think they can get the value ‘wrong’ killing the deal and continue in business,considering the client/buyer is paying the fee?

Not sure if you can access this but heres a davy note on mortgages/banks,worth a ..

“Thus far, information on the characteristics of borrowers in arrears has been lacking. However, two new studies have provided us with information on the mortgage repayment to income ratio (MRTI) of borrowers that have filled in Standard Financial Statements (SFS) as part of the Central Bank’s MART process. For example, Lydon (2013) analysed 55,000 SFS collected in 2012. Here the average MRTI ratio was 41%, albeit with the distribution skewed upwards. For example, among 17% of borrowers, the MRTI ratio is greater than 60%. A recent study of 26,000 PTSB mortgage account holders that filled in a SFS found that the average MRTI ratio was 47%, albeit greater than 54% for one-quarter of borrowers.”
http://www.davy.ie/davy/article.htm?id=economicsmonthly20140116_16012014.htm

@ jg: Much obliged. I can access the Davy page. I was at the lecture. Guy to my left was a Mac Coille (from Davy’s). That’s the Irish form of my name! I said hello!

45 attendees. Good presentation. Thanks due to Ms McCarthy. No real new data came out. But plausible explanations were given for some of the more obscure points: the actual data is patchy and difficult to obtain. Appears the sub-prime Irish lenders are a problem in the mortgage arrears area. Not included in the data sets analyzed.

I asked one of the other attenders about the MRTI ratio. Uncertain about his answer. Appears the Golden Rule: 20% cash down; 26% of your nett to pay mortgage and 32% of your nett to pay all loans was consigned to the chiller 15 years ago. And folk wonder why we have a mortgage arrears crisis! That MRTI is a Median – so 50% of sample are above it! Oooops!

What we need is a time series: 1996 – present of No. of OO mortgages originated: amount loaned: paid off; current (performing or in arrears). If the data shows that mortgages 1996 – 2002 have a lower rate of defaults than 2003 – 2009, then it should be possible to nail down a cause (change in risk model).

Attempting to understand this crisis – let alone finger the cause/s is hamstrung by the nature of the available data – most of which is only available on a limited basis. I’ll make some inquiries at the Central Stats Office. Central Bank stats are mostly confidential.

Taking a liberty here: Have you heard, or read about ‘The Bridge’, a joint Swedish-Danish crime drama with a female detective in the lead? Series II is showing on BBC4. Also the Swedish versions of Stieg Larsson’s trilogy of Lisbeth Salander novels. Those females are right-royal ball-busters! Harry Callaghan is a pussycat by comparison. Terrific stuff. Apart from the sub-titles!

@BWSnr,Brian i will get the chap here to upload some “tape” on resi deals from over here for you to have a look at.Basically,a spread sheet off loans,that is for sale or sold recently.May be able upload a loan pool closer to you,just not my market but will ask around…

herself has me watching operation transformation and “Ireland’s Fittest Family” it’s excellent tv,my money of the MMA team,or mixed martial arts family.The bridge I will track down and yes almost booked a trip after reading those “dragon” books,the movies not so good.

Mbl apols for brevity,typos awful grammar as usual:)

Brian here “valuers”………25% off the market price,beyond the realm of possibility for the National ASSET MANAGEMENT Agency to lay a few bricks,its income producing and ready to go with market demand…….oh well:)

“At nearly a 25% premium to the asking price for the office and residential complex in Leopardstown, the sale price underscores the appetite for this specific real estate portfolio above and beyond the broader rush to invest in the recovering Dublin property markets.”

http://www.costar.co.uk//en/assets/news/2014/January1/Green-REIT-and-Kennedy-Wilson-edge-out-Blackstone-to-win-NAMAs-Central-Park-for-c310m/

@ john: “One swallow does not a summer make.” Grrrrrrr!

What I would like to see would be the ‘original’ pay-back projections. I’m assuming that after 2/3 years of operation the owners hoped that the whole sheebang could have been ‘flipped’ – for a very juicy premium – thank you very much!

Of course, if I were a pessimist, I might intone in a sombre voice: “That’s not a + 25% premium – its a – 50% writedown on the original investment!”

Every time I encounter these ‘reality shows’ I am minded of Jane Fonda and Michael Sarrazin in ‘They shoot horses – don’t they?’ That dance hall proprietor (Gig Young) was a real jerk! The modern trash-TV equivalents cannot even come close.

“At nearly a 25% premium to the asking price for the office and residential complex in Leopardstown, the sale price underscores the appetite for this specific real estate portfolio above and beyond the broader rush to invest in the recovering Dublin property markets.”

Is there a website for this type of realtor porn?

The mix of papers in this issue also indicates the internationalisation of the Journal. The first volume of the Journal of Valuation was virtually exclusively UK and dominated by the University of Reading, its first home. You can almost picture Andy Baum, the first editor, running up and down the corridor pleading with colleagues for papers to fill his new love child. The latest issue has no authors based in the UK and they come from as far away as Australasia, Asia and Europe. The papers are on a diverse range of issues which include leases, retail rents, airports and mixed use developments. It also includes one paper on one of the issues that seems to be exercising many minds in the real estate industry and that is sustainable buildings.

rity of both did know; they didn’t However, one issue that was strangely lacking from the accepted papers was whether valuation had a part to play in the financial crisis and its solution. I found this surprising given that Sir John Vickers, head of the Independent Commission on Banking in the UK suggested that;

“The shock from the fall in property prices, even from their inflated levels of a few years ago, should not have caused havoc on anything like the scale experienced. Rather than suffering a ‘perfect storm’, we had severe weather that exposed a damagingly rickety structure”. (Vickers, 2011, p2)

However, in his interim report, although there are mentions of real estate they are all refer to how we got into the mess in the first place, they were not part of the solution. But more recently, the head of NAMA, Daly, addressed the Chartered Surveyors in Ireland and suggested that valuation and valuers had avoided their responsibility by hiding behind the excuse that they had done as they were asked by providing market values, no more or no less.

“The crisis in which Ireland now finds itself has, as its source, a banking implosion which was driven ultimately by a property market bubble. It would be remiss of me to appear in front of a gathering of construction and property professionals such as this without raising the question of whether, at least collectively, you could have been more vigilant in drawing attention to the enormous systemic risk which was being created. Many of you must have wondered about the sustainability of the ever-escalating upward price spiral that was developing by the middle of the last decide, a spiral driven by cheap money and by a coterie of bankers and market participants who appeared to lack a basic understanding of the dynamics of a properly-functioning market. You must have questioned whether a fourfold increase in commercial and residential property prices in the decade after 1997 could possibly have been justified given its ever-increasing divergence from the trend of economic growth over the same period.
I expect that the valuation professionals amongst you will claim that your job is to provide the best estimate of the market price of a particular property at a particular point in time. However, there is a widespread external view that your responsibilities are more extensive than that. This applies also to other professions such as accounting and auditing which have been similarly criticised for adopting a narrow interpretation of their responsibilities during the evolution of the banking and property bubbles. At a time when many lay people with no great knowledge of the property business were becoming increasingly alarmed at the disconnection between the prices being paid for properties and the intrinsic long-term economic value of those properties, could the two professional bodies not have signalled some concern at what was taking place?”

(Extract from address by Frank Daly, Chairman of NAMA to The Society of Chartered Surveyors 12th April 2011)

NAMA is the Irish National Asset Management Agency and was established in December 2009. Its purpose is to acquire assets in the form of property-related loans from the Irish bank. The overall objective of this process is to bring stability to the banking system by removing impaired loans from the balance sheets of individual banks.

The message is clear. The valuation profession should be identifying ways in which it can extend its advice beyond confirmation of current price and signaling to not just clients but to a wider community about the dangers of asset price bubbles. Real estate professionals have a wider duty than to the client. The academic community, through these and similar pages, has a duty to aid real estate professionals to undertake these tasks and should be identifying and testing approaches by which these objectives might be achieved. However, when it does, does anybody listen?

This presupposes that the industry and its academic support network actually knew we were heading for a fall. My view is that the vast majority know when and they didn’t know what would prick the bubble, but they did know that it would be pricked. Any cash flow undertaken in 2005 and 2006 with any sort of objective inputs would get to a negative NPV, certainly in the UK or Ireland which, if you believe the global indices accurately reflect differences between countries, had the highest peak and the largest falls in asset values. If they got a positive they were cheating.

This also presupposes that anybody wants to stop a financial crisis ever happening again and that is highly debatable. The behavioural finance literature is depressing in that it shows that there are too many opportunities to make money and too few risks of losing it in a bubble and crash. So it is a shame that the UK ICB doesn’t realize that real estate could be a much bigger part of the regulatory solution as well as being the problem because, without a sound regulatory solution, it will all happen again.

So the Journals, including this one as it has its 28th birthday this summer, need to keep publishing work that not only advances our theoretical understanding, but also addresses the major practical problems of the day and ultimately aims to impact on the behaviour of real estate markets in the future.

Neil Crosby

University of Reading

July 2011

In the long run the value of an asset must be linked to the income that can be generated from it,rent in the case of property,dividends in the case of shares. It is quite possible for individual assets to shoot up in price since residential areas can become more fashionable and companies can have very successful products. But in aggreggate,share and property prices are constrained by the real growth rate of the economy. Rents cannot rise faster than income for long before no one can afford to rent. On the same basis if house prices outstrip GDP,more and more of a homebuyer’s income must go to service the mortgage. This cannot last.Of course in the short term,changes in interest rates,lending practices and the rest can cause house prices to overshoot.
” Housing prices should not outstrip inflation in the long term because,except for land restricted sites,house prices should tend towards building costs plus normal economic profit” Bob Schiller

Property bubbles are diffucult to stop, because they have a lot of supporters while they are inflating. Banks are making money from lending,estate agents and valuers are making money from commissions on property transactions, and the broadsheet media property advertising revenues soar. Home owners feel richer because their home is worth more.

The Irish Society of Chartered Surveyors are the Irish property professionals,and are self regulated. They engaged in three practices which inflated the property bubble;

One,the property valuation error, unwittingly valuing all five euro notes as twenty euro.
Two,they administered the draconian Irish feudal commercial property lease law on behalf of a cartel.
Three,ninty five per cent of all property sold in the state,is sold by surveyors and they controlled where the property advertising money was spent. Almost all of this money was spent with the broad sheet media and the Irish Times,the owner of the property portal MyHome.ie, got the lion’s share. During the years the bubble inflated, the Irish Times main source of revenue was property advertising,and the surveyors were allowed free rein with their puff pieces and property propaganda. Essentially this paper became the largest property market in the state with a newspaper bolted on. Their recently retired chairman,David Went was the CEO of Irish Life and Permanent during the property bubble years and was responsible for it’s demise.

The third item was the fatal one,the “paper of record” became the “paper of property”, and facilitated this propaganda. There were other useful idiots ,like the soft landing economists etc etc.

@John Corcoran,any chance some new material this is getting a bit old:

first off its rather difficult to follow is their a point,to the post above but this is after all the irish economy,and DOD kindly once again and again and again and…provided a link to ‘oul’ Luke that champagne socialist/communist who lived in dartmouth sq. and drove to ‘sessions’ in an E Type jag:)

the good ones die youg,better burn out than fade away crap…..another self indulgent destructive selfish dipsomanaic who refused get treatment and drank himself to an early death is a sea of puke and p**s..how romantic….

@JC your posting is complete garbage a waste time energy and space it simply makes NO sense none.
What are RICS members supposed do take out ads or stand outside the central bank screaming that the end is nigh…

honey i just shrunk AIB’s performing loan book,great news for borrowers bout time too:)
http://www.independent.ie/business/personal-finance/leading-lender-to-allow-mortgage-switching-for-first-time-in-five-years-29980370.html

@BWSnr,thought i had been ‘dorked’ so refrained from posting,will pop up a proper response shortly.

“The mortgage crisis was a result of too much borrowing. Greed and fraud also played important parts. The mortgage crisis was triggered as this situation built momentum.”

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