Japan's housing slump was scary, and ours could be too

The_Conductor

accensi0n wrote: »

So is it just people who took out huge loans to buys houses and were planning to sell them when the prices went up more that are affected?

Depends on what you mean. Affected by a more than doubling in mortgage repayments, or affected by negative equity?

People got very used to rock bottom interest rates, and as a result, not only are we mortgaged to the hilts (equity release mortgages were the flavour of the day as late as Q4 06), but we also have the highest level of credit card debt and personal loans per capita- in the whole entire world. The average Irish person has more than 4 times the personal debt of the average US citizen, and its the state of the US financial markets that have cast global financial systems into turmoil. If their situation was anything like the Irish situation- 1929 would be but an interesting hiccup in financial history......

People need a roof over the heads- negative equity is only an issue if they are not replacing the property they are purchasing with another property (or trading up (or indeed down) as estate agents like to put it). Sure- you are less wealthy on paper, but paper doesn´t keep you warm and dry at night- the roof over your head does (regardless of whether you own it or not). Sure- possibly as many as 250,000 may end up in negative equity situations- as long as they can continue to service the loans, its irrelevant. Even if they fail to service the loans, with the state of Irish bankruptcy laws, its still irrelevant, as the financial institutions are legally entitled to their pound of flesh, come what may. (Note: Irish bankruptcy laws are seriously antiquadated, and need to be urgently addressed- they have the interests of vested concerns at heart, and not the interests of the person they are allegedly protecting).

Interest rates are a much worse problem. With mortgage rates now pretty much universally above 6%, overdraft rates at 12%, term loans at perhaps 8-9%, and credit card rates averaging almost 24%- even people who are not saddled with the additional worry of negative equity really are struggling. We were encouraged by the government, the media and vested interests to splurge like there is no tomorrow- and by God we did. Now unfortunately comes payback- when the day of reckoning is upon us. Simply refinancing or using equity release products to resecuritise silly levels of personal debt are no longer avenues open to any of us. The average person, even those considered relatively well off, are hurting, and hurting badly.

The housing slump is as much sympthomatic of people´s feeling of economic well being, as it is a recognition of the excesses of the last few years. When people are worried about their finances, and finding the going difficult, they cut back. When sufficient numbers of people cut back- the feedback effect means insufficient activity occurs to justify keeping additional staff on (even in prestigious restraunts, well considered retail outlets and industries and employments that might once have been considered recession proof). You get an endless cycle.

What will happen if the government bring out a stimulus package of limited duration to try to clear the current overhang in the housing market? Personally I think that there are a lot more sellers hanging on there in the vain hope of a recovery, than there are buyers on the fence awaiting a government handout. If a 10% "bonus" (or whatever they would like to call it) is made available for First Time Buyers who close by a certain date- all of a sudden you are going to have a lot of sellers (other than developers) trying to chase these fortunate First Time Buyers, further depressing property prices, and furthering the expectation of those sitting on the fence, that if they hold out just another bit longer that they will get a "bargain".......

The government has totally ruined the economy with its administrations to the construction sector- as early as 2000 this was reiterated in the IMF report on the Irish property sector- which viewed Irish property as overpriced at that stage (but it subsequently went on to triple in price). Applying the logic the IMF used to value Irish property at in 2000- a total fall of 60-70% from peak Q3 2006 figures could possibly be arrived at. Would this be catastrophic? It would be catastrophic for the government and its finances- and would make a very harsh readjustment for the NDP and other longterm spending plans. It should not however have any meaningful detrimental effect on the average person walking down the street, other than to deepen the depression they find themselves in. After all- how many people walking down the street remember the days in the early 1980s when interest rates were habitually over 20%? Very very few........

jmayo

jetski wrote: »

better to live in denial i hear you say than face the truth your kids may be paying your mortgage? You have no one to blame but yourself for that....

"Anyway I don't see anything new in your OP that a lot of us doubters haven't been saying for a number of years"

If you’re so smart how did you end up with the possibility of your kids inheriting a debt? and besides i didn’t write it i only posted a link, and again if you don’t like it don’t read it, its not rocket science......

Did you read my post ?
Hello Sarcasm :rolleyes:

I said somepeople don't want to hear the truth ... yada yada
Did I say my kids would be paying MY mortgage ?

I did say that some people, including myself, have been syaing that we were in a dangerous bubble.

Is English language your first language because you seem to miss certain subtelties in a post ?:rolleyes:

10goto20

Nobody gains from a housing crash. Joe Bloggs may have been waiting for prices to drop even further but in the meantime he's lost his job.

10goto20

10goto20 wrote: »

Nobody gains from a housing crash. Joe Bloggs may have been waiting for prices to drop even further but in the meantime he's lost his job.

Thats partially correct. Not everybody loses their job. Also a crash is better than a bubble for the long term.

10goto20

Deleted User wrote: »

Thats partially correct. Not everybody loses their job. Also a crash is better than a bubble for the long term.

Overall as a nation the property crash is bad. There are some who will see positives in it, first time buyers waiting to pounce. But they're being a bit naive when you consider the grander scheme of things. A bubble is better because the overall majority gain, with the few losing. We now have the flip side, the overall majority losing and the few gaining. But even the few that are gaining are not really because they're part of an economy which is suffering as a whole.

jmayo

10goto20 wrote: »

Overall as a nation the property crash is bad. There are some who will see positives in it, first time buyers waiting to pounce. But they're being a bit naive when you consider the grander scheme of things. A bubble is better because the overall majority gain, with the few losing. We now have the flip side, the overall majority losing and the few gaining. But even the few that are gaining are not really because they're part of an economy which is suffering as a whole.

Yes the property crash will be bad, because it can take out once viable and thriving businesses as well as the ones that were just based around the bubble.

But you are the one being naive if you think that a bubble is somehow good, because it may benefit more people in the short term.
Remember wherever you have a bubble, then you will probably have a bust, and the bust is usually worse than the bubbles gains, so long term it is not good for the majority.

gurramok

10goto20 wrote: »

Overall as a nation the property crash is bad. There are some who will see positives in it, first time buyers waiting to pounce. But they're being a bit naive when you consider the grander scheme of things. A bubble is better because the overall majority gain, with the few losing. We now have the flip side, the overall majority losing and the few gaining. But even the few that are gaining are not really because they're part of an economy which is suffering as a whole.

Overall majority gains in a bubble and loses in a crash, who are they??

bugler

What a warped view of what has happened this country over the past few years.

ZYX

gurramok wrote: »

Overall majority gains in a bubble and loses in a crash, who are they??

Well one example is, the people who did not buy a house (ie the majority) benefited from billions of euro in tax take, which helped increase spending in all areas by government. Now that this billions is not available the majority will have to pay by a combination of higher taxes and less services

jetski

What a warped view of what has happened this country over the past few years.

+1

jetski

ZYX - when i asked you was english not your first language it was an honest question which i now know the answer. im not trying to get your back up and get you to reply because frankly you do my head in.

10goto20

jmayo wrote: »

Yes the property crash will be bad, because it can take out once viable and thriving businesses as well as the ones that were just based around the bubble.

But you are the one being naive if you think that a bubble is somehow good, because it may benefit more people in the short term.
Remember wherever you have a bubble, then you will probably have a bust, and the bust is usually worse than the bubbles gains, so long term it is not good for the majority.

Millions of people living in prosperity is not good...mmmm ok. You're saying the reason the boom is bad is because it crashed. Its nonsensical. Its the crash that is bad, nothing else.

The_Conductor

10goto20 wrote: »

Its the crash that is bad, nothing else.

Not necessarily.
What about all the people who piled into the property market- just to "get on the property ladder" with the intention of trading up to property which actually suited their needs when the opportunity arose. Even while their properties increased in value- the lack of construction of more reasonable standard and sized units meant they were forever indefinetely beyond their reach- particularly as people's salaries and their increases in salaries, bore no semblence to cost of living increases, increases in property values, or indeed underlying inflation rates.

The only thing which made people feel better off was the irrational euphoria associated with the paper gains in asset prices- which the banks were only too happy to convert in ready liquidity fueling a self perpetuating consumer splurge..........

Even if the housing slump did not occur- the day was always going to come when we would have had to sit down and look at our finances and start repaying the silly amounts of debt we got ourselves into. It wasn't a case of "if", rather a case of "when".

Its delusional to think that the crash and the crash alone is the sole "bad" aspect of our financial situation. There were several factors feeding into the equation- the housing slump was simply a catalyst for bringing all the other irrational factors into play simultaneously.

bugler

Well it's disheartening to see that many still can't grasp that rocketing house prices don't contribute anything positive to a society. I can borrow more money?! Great. Wow I'm so prosperous with all this cash that isn't mine, and the debt, which is mine.

Unless you're talking about some sort of mental well being that comes from sitting smugly in your 1,000 sq foot palace 'worth' 600k.

This is basically why Ireland got itself into the shape it is. A sizeable portion of the populace actually view a high cost of putting a roof over your head as a good thing. How messed up is that?

10goto20

smccarrick wrote: »

Not necessarily.
What about all the people who piled into the property market- just to "get on the property ladder" with the intention of trading up to property which actually suited their needs when the opportunity arose. Even while their properties increased in value- the lack of construction of more reasonable standard and sized units meant they were forever indefinetely beyond their reach- particularly as people's salaries and their increases in salaries, bore no semblence to cost of living increases, increases in property values, or indeed underlying inflation rates.

The only thing which made people feel better off was the irrational euphoria associated with the paper gains in asset prices- which the banks were only too happy to convert in ready liquidity fueling a self perpetuating consumer splurge..........

Even if the housing slump did not occur- the day was always going to come when we would have had to sit down and look at our finances and start repaying the silly amounts of debt we got ourselves into. It wasn't a case of "if", rather a case of "when".

Its delusional to think that the crash and the crash alone is the sole "bad" aspect of our financial situation. There were several factors feeding into the equation- the housing slump was simply a catalyst for bringing all the other irrational factors into play simultaneously.

Yes you're rich on paper up until the point where you cash in by downgrading or inheriting or by selling investments or whatever means. Until then its just paper, well now we don't even have it on paper so I'm not seeing the good in that. The crash in the construction sector has spread throughout the economy, followed by the credit crunch....I'm still not seeing any good in it. Sorry but I'm not getting it. A booming economy is good. A crash in a booming economy is bad, very bad when it comes as Michael O Leary said in a perfect storm of bad incidents. Its good for people who are waiting to buy a house, provided they haven't been affected by the spread of doom. And while we're talking long term that means every single person in the country will be affected in some negative way.

Sorry but I don't see the rosey side of all this. Had a look at your pensions performance lately?

ZYX

bugler wrote: »

Unless you're talking about some sort of mental well being that comes from sitting smugly in your 1,000 sq foot palace 'worth' 600k.

This is basically why Ireland got itself into the shape it is. A sizeable portion of the populace actually view a high cost of putting a roof over your head as a good thing. How messed up is that?

You are missing the point I made. The people who bought the houses are not the ones better off. Anyone who bought in last 5 years is much worse off. The majority of people did not buy a house in last 5 years and they are the ones who benefited. They are also the ones who are now to loose as they will have to pay more tax and they will see services reduced.

ZYX

jetski wrote: »

ZYX - when i asked you was english not your first language it was an honest question which i now know the answer. im not trying to get your back up and get you to reply because frankly you do my head in.

English is not my first language, but I still know that "i" should be spelt I. When a word starts a sentence that word should start with a capital letter. also "when i asked you was english not your first language" is poor grammer. What is your first language?

The_Conductor

ZYX wrote: »

English is not my first language, but I still know that "i" should be spelt I. When a word starts a sentence that word should start with a capital letter. also "when i asked you was english not your first language" is poor grammer. What is your first language?

Guys- stop right there. Its not relevant to the thread- and against the forum charter, to make comments which might be construed as attacking or insulting another poster. If you want to continue take it to PM or elsewhere.

S.

bugler

You are missing the point I made.

TBH, nothing I said was in response to your posts, more 10goto20.

Excessively boomy house prices don't help an economy, not via tax nor any other method. That's ignoring the fact that all this money we supposedly earned seems to have miraculously failed to have improved our public services. The boom was always going to end in tears, as it was as unsustainable as any pyramid scheme. Once the music stopped we were all in for a fall. Of course this didn't stop the gluttony.

They are also the ones who are now to loose as they will have to pay more tax and they will see services reduced.

Yes, I agree. Responsible people who didn't partake will be forced to carry the can for those who had less sense. But I'm not sure I'll notice any reduction in services, as they seem uniformly bad as it is.

jetski

S - thats fine by me as you see from the final sentence in my last post.

10goto20

bugler wrote: »

TBH, nothing I said was in response to your posts, more 10goto20.
.

OK so perhaps I should reply as it was directed to me. All I'll say is people revelling in the current economic climate need their heads read.

ZYX

bugler wrote: »

Yes, I agree. Responsible people who didn't partake will be forced to carry the can for those who had less sense. But I'm not sure I'll notice any reduction in services, as they seem uniformly bad as it is.

Not to labour the point, but it was "those who had less sense" that carried the can for "responsible people" by paying so much extra tax mainly by way of stamp duty for last few years.

gurramok

They're not to blame 10goto20. They ain't revelling either, they are disappointed that they were not lsitened to when all this was forewarned years ago.

What we had was a construction boom over 5yrs or so that seriously distorted the economy to nearly 25% of GNP and over €350bn outstanding in private debt. This should not have happened to the extent it did, the fault for that is mismanagement of the economy be it govt and the banks.

If we had an industrial boom not dependent on the construction sector, we wouldn't be having this conversation!

Now what we have is a population who may suffer from higher taxes\loss of jobs because of an over-reliance on construction, mismanagement of the economy is responsible for that.

Cheaper housing in lower prices and lower rents is a good thing for the majority and businesses, it makes our country competitive again.

jmayo

10goto20 wrote: »

Millions of people living in prosperity is not good...mmmm ok. You're saying the reason the boom is bad is because it crashed. Its nonsensical. Its the crash that is bad, nothing else.

Millions of people were living in false prosperity.
They were living in what people used to call the never never i.e HP.
You have to pay back the big mortgage and the credit cards you know.

The whole housing bubble boom was bad becuase ...
a) it meant that houses prices were inordinately high, they were many multiples of the ordinary person's salary, the prices were unsustainable.
b) this led to people having to borrow even more money over longer periods to be able to get on the ladder in the first place.
c) the only reason they were able to borrow the huge amounts was because the world was awash with cheap uncontrolled credit.
d) A lot of people over last 5 years have signed up their entire working lives to paying back a mortgage.
e) The houses are not worth what the buyers paid for them, meaning the owners now face negative equity.
There is a myth out there that negative equity is ok if you bought your "home" and intend on staying in for the foreeable future.
This theory is fine if any of the following doesn't occurr:
1. you do not lose your employment and are able to make the repayments
2. you do not have to move employment and thus move home
3. your starter home is perfectly suited for a growing family.
4. your are happy enough to learn that someone moves in next door to you after paying half of what you paid for your gaff.

The reason we have a crash is becuase we had a bubble :eek:
Don't you get that at all.
You can go out and get drunk out of your skull, have a great time, but the next morning you have one wicked hangover.
Welcome to the hangover :rolleyes:

jmayo

ZYX wrote: »

You are missing the point I made. The people who bought the houses are not the ones better off. Anyone who bought in last 5 years is much worse off. The majority of people did not buy a house in last 5 years and they are the ones who benefited. They are also the ones who are now to loose as they will have to pay more tax and they will see services reduced.

What services ?
The government ones like health ?
They have been sh*** all the way through the Celtic Tiger and Houseing Bubble. In case you have noticed our Helath System has killed numerous people through neglect, "systematic failures", malpractice and sheer incompetence.

Or are you talking about the services offered by our over paid and over staffed public services ?
Maybe you mean the service provided by NRA who are billing people for using a bridge that is 240 miles away from them ?
They have been sh*** for years, the government just have mor eof an excuse now.

ZYX

gurramok wrote: »

What we had was a construction boom over 5yrs or so that seriously distorted the economy to nearly 25% of GNP and over €350bn outstanding in private debt. This should not have happened to the extent it did, the fault for that is mismanagement of the economy be it govt and the banks.

If we had an industrial boom not dependent on the construction sector, we wouldn't be having this conversation!
.

Your points are of course correct but, if we did not have a construction boom we would not have had an industrial boom. We would have had no boom. The mismanagement of the economy is really how the money generated by the boom was spent.

10goto20

jmayo wrote: »

The reason we have a crash is becuase we had a bubble :eek:
Don't you get that at all.
Maybe you might undertsnad this:
You can go out and get drunk out of your skull, have a great time, but the next morning you have one wicked hangover.
Welcome to the hangover :rolleyes:

Its not as clear cut due to the dub prime fiasco. House prices needed a correction as you quite clearly point out. We didn't need an economic crash.

gurramok

ZYX wrote:

Your points are of course correct but, if we did not have a construction boom we would not have had an industrial boom. We would have had no boom.

I disagree to the extent of the relation between the two. What we have to agree is that the boom should not have been allowed to get boomier, that is one is controlled and that failure is hitting us hard now domestically.

ZYX wrote:

The mismanagement of the economy is really how the money generated by the boom was spent.

Yes, relying on stamp duty revenues to prop up an economy was the achilles heel. That money was not spent wisely hence continuing infrastructure problems.

Have both of you(zyx and 10gto20) not realised why this economic crash is happening domestically in the first place and how big this bust is?

Calina

10goto20 wrote: »

Its not as clear cut due to the dub prime fiasco. House prices needed a correction as you quite clearly point out. We didn't need an economic crash.

Unfortunately, becase 20% or so of our economy dependent on construction, any sharp contraction in the construction industry would have led to economic problems. The vast majority of people who were screaming for something to be done about the bubble before it become so big even the feel-gooders couldn't ignore the feeling that "it" couldn't go on realised this. They understand that the bursting of a housing bubble in an economy heavily dependent on residential construction will by definition lead to unemployment and economic issues. There are now also linked social problems because of the profile of that unemployment.

The world is not simple. We didn't need an economic crash and the way to avoid it first up is to avoid any asset bubbles funded by borrowings. Sub-prime or no subprime; CDOs and other murky derivative tradings or not...we were not going to avoid bursting a property bubble. The price of the bubble is an economic crash.

bugler

Not to labour the point, but it was "those who had less sense" that carried the can for "responsible people" by paying so much extra tax mainly by way of stamp duty for last few years.

No, there's a huge difference. Anyone who bought a property did so of their own free will. As far as I'm aware no one was forced to purchase property, take out a mortgage, pay all that tax to the government. They chose to. You may as well claim I as a non-smoker am benefiting from smokers because of the tax generated. Or heavy drinkers. Are they doing me a good turn?

Carrying the can means having no choice. The taxpayer who saw the insanity, the imbalance, the irrationality, can't opt out of paying for it. Hence why they're justifiably angry.