phew! all over .. property prices to rise 10% this year [Irish Times]

zod

PROPERTY PRICES will bottom out in the first half of 2010 and may rise by as much as 10 per cent by the end of the year, managing partner of Bloxham Stockbrokers Pramit Ghose has predicted

Among the “unusual investment possibilities” included in Mr Ghose’s “surprise” list is the expectation that the recapitalisation of the two major Irish banks, AIB and Bank of Ireland, will be greeted enthusiastically by private investors.

Nationalisation of the banks will thus be avoided, he predicts, and will facilitate the recovery of their share prices over the coming years.

Mr Ghose also predicted that the share prices of both banks will break the €3 mark again at some point this year.

Great news for the economy .. fill ur boots :pac:

Sarn

Difference in opinions.

07/01/10
Alan McQuaid, Chief Economist, Bloxham Stockbrokers, commenting on the latest Daft research on the Irish property market.

Alan McQuaid wrote:

I would expect house prices to drop another 10-15% on average this year, with Dublin again seeing the biggest decline. But as prices start to recover, Dublin should see larger gains than elsewhere, though the major cities should quickly follow the upward trend of the capital.

ei.sdraob

long thread here already anyone interested

http://www.thepropertypin.com/viewtopic.php?f=4&t=27410

The_Honeybadger

I'm no expert on the property market but where I live has so many unsold (and many unfinished) houses I really cant see how this could happen in my area. Myself and my partner are also discussing moving to cheaper rented accomodation in a less in-demand area so I have been keeping an eye on the houses for rent on daft for the past six months or so. As far as I can see the same houses that were up there six months ago are still there, so the rental market cant exactly be flying either, I realise this is totally anecdotal before anybody jumps down my throat with stats. I heard Mr Ghose speak once at a conference in Galway in 2002 and he was actually boasting on the podium about properties he owned in the capital as he was laying out his credentials to the crowd, perhaps he has a vested interest in the market recovering. Until the banks start giving finance to first time buyers again there is no hope of a recovery anyway. And don't forget the wave of reposessions coming down the line as people can no longer afford their monster boomtime repayments and they hand back the keys to the banks.

nesf

Amusingly optimistic.

ninty9er

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

leninbenjamin

nesf wrote: »

Amusingly optimistic.

Not necessarily. Exports are doing ok, which means there's a sizeable enough population in the private sector who've bypassed a lot of the recession. And whatever the public sector chose to moan about, pay rates are healthy and so is job stability for the vast majority. All in all a sizeable sector of the population have been completely bypassed by the recession, and are just sitting on the sidelines waiting for things to completely bottom.

For example, friends of friends are in the market for a house have maintained that they are noticing prices have stabilised. They reckon prices bottomed out here in Galway around Sept. and have even gone so far as to say they have noticed in some areas they are creeping up again.

Remember, the statistics on empty houses and that are skewed by many holiday homes and complexes built for the purpose of tax avoidance, not necessarily because there was any market demand to begin with, so I find it hard to read too much into any information on the property market. It's all in people's heads tbh.

PCPhoto

are these the same economists that have been saying for the past twelve months that house prices will drop only 10-15%..... ok maybe 20%....... no wait ... 25%....... erm.... maybe 30% .... erm... in some areas 30-40%.

FFS....it took most economists in this country 6 months before they realised we were in a recession.

cbreeze

mickeyk wrote: »

I'm no expert on the property market but where I live has so many unsold (and many unfinished) houses I really cant see how this could happen in my area. Myself and my partner are also discussing moving to cheaper rented accomodation in a less in-demand area so I have been keeping an eye on the houses for rent on daft for the past six months or so. As far as I can see the same houses that were up there six months ago are still there, so the rental market cant exactly be flying either, I realise this is totally anecdotal before anybody jumps down my throat with stats. I heard Mr Ghose speak once at a conference in Galway in 2002 and he was actually boasting on the podium about properties he owned in the capital as he was laying out his credentials to the crowd, perhaps he has a vested interest in the market recovering. Until the banks start giving finance to first time buyers again there is no hope of a recovery anyway. And don't forget the wave of reposessions coming down the line as people can no longer afford their monster boomtime repayments and they hand back the keys to the banks.

Probably the most sensible comment on the whole property scenario I have read so far.

Anyone who owns properties and has access to media is obviously going to start pushing their own agenda, otherwise known as VESTED INTEREST PARTIES (VIPS). Read Derek Brawn's 'Ireland's House Party'. Poor little Pramit should ....

cbreeze

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

way to gnikcuf go mate!!!

imme

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

are you suggesting the FF led govt get directly involved in the setting of the price of development land.:eek: Never mind that there's probably enough undeveloped/unused/half built/convertible properties in the country to satisfy demand for another year without any new builds.

nesf

leninbenjamin wrote: »

Not necessarily. Exports are doing ok, which means there's a sizeable enough population in the private sector who've bypassed a lot of the recession. And whatever the public sector chose to moan about, pay rates are healthy and so is job stability for the vast majority. All in all a sizeable sector of the population have been completely bypassed by the recession, and are just sitting on the sidelines waiting for things to completely bottom.

For example, friends of friends are in the market for a house have maintained that they are noticing prices have stabilised. They reckon prices bottomed out here in Galway around Sept. and have even gone so far as to say they have noticed in some areas they are creeping up again.

Remember, the statistics on empty houses and that are skewed by many holiday homes and complexes built for the purpose of tax avoidance, not necessarily because there was any market demand to begin with, so I find it hard to read too much into any information on the property market. It's all in people's heads tbh.

Your friends are only seeing a stabilisation in asking price this doesn't necessarily mean there's been a stabilisation in the actual sales prices. I agree that the oversupply argument is overplayed, much of this oversupply is empty because it's built in areas where there's nowhere close to enough demand to fill them even in the good times. That said, with an interest hike inevitable in 2010 I'd consider it far too early to call the bottom of the market. The pace of decline may slow and even perhaps bottom out but an increase in price? That is a fair while off at a national level.

Riskymove

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

actually you dont get it...The irish position over recent years has been:


1. if you dont have a house and are lookiong to buy, you want them to be as cheap as possible

2. if you have a house you want to have bought it cheaply but then for it to rise dramatically....if only to laugh at people buying the house beside you for 3 or 4 times the amount you did!!

3. if you are selling a house and buying a new one you want to see house prices go dramatically up where you live and dramatically down where you want to buy!!

usual Irish insanity about land/property/money

bangersandmash

PCPhoto wrote: »

are these the same economists that have been saying for the past twelve months that house prices will drop only 10-15%..... ok maybe 20%....... no wait ... 25%....... erm.... maybe 30% .... erm... in some areas 30-40%.

Pretty much. Will this prediction be better than the one he made in March 2008? We'll see.

Combined with evidence of improved sales of new homes over recent weeks this looks like an early signal the housing market is turning: if so, it bodes well for the economy and stockmarket.

jmayo

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

Ehh we actually need house prices to fall because they are still too high, or at least what people are asking is too high.
Of course due to the fact that there is no public record of house prices we aren't sure what are the differences between asking and selling prices.

BTW you aren't reading the party line ala frank fahey.
The government need house prices to rise so that NAMA won't make a big loss. :rolleyes:

ei.sdraob

jmayo wrote: »

Ehh we actually need house prices to fall because they are still too high, or at least what people are asking is too high.
Of course due to the fact that there is no public record of house prices we aren't sure what are the differences between asking and selling prices.

BTW you aren't reading the party line ala frank fahey.
The government need house prices to rise so that NAMA won't make a big loss. :rolleyes:

yes thats yet another problem with property market in this country, no transparency

look at stock market, at any time one can know exactly how much they have, and hence make better decisions

the data is out there, revenue commissioners have the selling prices of all properties
theres nothing stopping them annonymising the data and releasing it to the public

in UK i believe one can check the land registry as well for prices in area, not so here

aidan13

"For example, friends of friends are in the market for a house have maintained that they are noticing prices have stabilised. They reckon prices bottomed out here in Galway around Sept. and have even gone so far as to say they have noticed in some areas they are creeping up again."


I can definitly agree with this. I bough in Naas in August. We were looking for over a year. Any nice house that we looked at were sold in 2-3 weeks to a figure very close to that of the asking price. This was so frustrating becasue all people were saying was to wait and let them drop and sure theirs loads out their. We didn't find that. What we found were very nices houses in nice areas that you would love to live in were selling quickly, and forget about that stuff about putting in rediculously low offers, by the time you tried playing that game, the house was sold to some one else.

Now their are still houses up for sale that were up for sale 1yr ago, slashing their prices. Thats fine but we weren't interested in them, the one's that we were interested in sold very quickly.

The estate that we have moved into has approx 30 houses in it. Since we moved in 3 houses in the estate have went up for sale and have sold within a month of going up. I'm fairly sure people have their own opinions and experiences in the market, all I'm saying is that the houses that I would have liked to buy and their were about 5 all shifted very quickly and for very close to the asking price.

westtip

zod wrote: »

PROPERTY PRICES will bottom out in the first half of 2010 and may rise by as much as 10 per cent by the end of the year, managing partner of Bloxham Stockbrokers Pramit Ghose has predicted



Great news for the economy .. fill ur boots :pac:

yeh right. Irish residential property outside of selected pockets of certain locations will fall to a realistic level over the next five years....

seamus

aidan13 wrote: »

I can definitly agree with this. I bough in Naas in August. We were looking for over a year. Any nice house that we looked at were sold in 2-3 weeks to a figure very close to that of the asking price. This was so frustrating becasue all people were saying was to wait and let them drop and sure theirs loads out their. We didn't find that. What we found were very nices houses in nice areas that you would love to live in were selling quickly, and forget about that stuff about putting in rediculously low offers, by the time you tried playing that game, the house was sold to some one else.

Even in a recession and a falling housing market, some areas will be more desirable than others. A 3-bed close to shops, busses and schools will be snapped up if it's offered at a price which may not be a significant drop from the peak. The exact same house in a lonely housing estate in rural Ireland will drop well more than 50% on the peak.

The banks refusal to lend has created something of a backlog in people who would still like to buy (there are a lot of them), but there is a glut on the far side of unsold houses with little or no appeal. So I think the housing market will "stabilise" as the global recession lifts and credit becomes more freely available. I mean "stabilise" as in, "Act like a normal market again". That is, the glut of quick-built houses in those out-of-the-way places will continue to fall in price while the more desirable homes will start to see demand from people who can now secure a mortgage and are more wiley about what they buy.

This year? Maybe. Lending will probably start to flow a bit better from Q3. We are also in the grip of a baby boom which is going to last for the next 5 - 10 years. This will create demand for bigger homes - all those people who bought two-bed apartments will run out of space and will be casting an eye out for family homes. Bad news for apartments, but good news for people who had the sense to buy a house close to amenities.

I would be very surprised if the banks don't spot this trend and come up with a negative equity buster that will somehow allow people to carry their debt onto a new home.

jmayo

seamus wrote: »

...
The banks refusal to lend has created something of a backlog in people who would still like to buy (there are a lot of them), but there is a glut on the far side of unsold houses with little or no appeal. So I think the housing market will "stabilise" as the global recession lifts and credit becomes more freely available. I mean "stabilise" as in, "Act like a normal market again". That is, the glut of quick-built houses in those out-of-the-way places will continue to fall in price while the more desirable homes will start to see demand from people who can now secure a mortgage and are more wiley about what they buy.

This year? Maybe. Lending will probably start to flow a bit better from Q3. We are also in the grip of a baby boom which is going to last for the next 5 - 10 years. This will create demand for bigger homes - all those people who bought two-bed apartments will run out of space and will be casting an eye out for family homes. Bad news for apartments, but good news for people who had the sense to buy a house close to amenities.

I would be very surprised if the banks don't spot this trend and come up with a negative equity buster that will somehow allow people to carry their debt onto a new home.

I believe there are a few problems with this synopsis.
Firstly Irish banks will only start to lend after NAMA and further massive recapitalisation so there won't be huge lending and when that happens is another question.
And those stuck in 2 bed apartments are looking at a huge chunk of negative equity so you think the banks, kept afloat by us all, should offer them new mortgages ?

Don't expect the glory days of easy mortgages in Ireland to return.
Also if there is economic recovery in Eurozone, then watch interest rates rise and that will severly hit current mortgage holders and fufure applicants.

And to cheer you up even more don't hold your breath waiting for foreign lenders to start dishing out mortgages in Ireland.
The ones here already have been severly burnt and some are trying to get out.

Sleepy

seamus wrote: »

We are also in the grip of a baby boom which is going to last for the next 5 - 10 years. This will create demand for bigger homes - all those people who bought two-bed apartments will run out of space and will be casting an eye out for family homes. Bad news for apartments, but good news for people who had the sense to buy a house close to amenities.

I would be very surprised if the banks don't spot this trend and come up with a negative equity buster that will somehow allow people to carry their debt onto a new home.

As one of those who's recently had a baby (a year and a half ago) who's still in rental accomodation, I really hope they don't.

With any luck, I'll be in a steady job again in a year or so's time and looking to get a mortgage for a *reasonably priced* home for my family. This won't happen if those that threw their money into the wind are allowed to throw good money after it.

ninty9er

jmayo wrote: »

BTW you aren't reading the party line ala frank fahey.
The government need house prices to rise so that NAMA won't make a big loss. :rolleyes:

I've had arguments face to face with govermnment ministers and councillors (of all colours) who've said that "that's very reasonable for that piece of land so close to the city!"

While it wasn't far off, it was still expensive (given the very restricted PP), overpirced by about 20%-25%. But land has intrinsic value which fluctuates very little compared to built-on land.

The goverment doesn't need property prices to rise, it just needs to pitch it's purchase price at trough level giving it a reasonable expectation of profit in 10-15 years.

Fratton Fred

I guess that this year will also see NAMA release a whole load of apartments on the market as well, then we could see potential saturation of the market.

seamus

jmayo wrote: »

Firstly Irish banks will only start to lend after NAMA and further massive recapitalisation so there won't be huge lending and when that happens is another question.

The availability of credit on international markets is more of an issue than the capital available IMO.

And those stuck in 2 bed apartments are looking at a huge chunk of negative equity so you think the banks, kept afloat by us all, should offer them new mortgages ?

I didn't say that I think they should.
I said that I think they probably will. If banks can find a way to keep people in debt at minimal risk to themselves, they will. No, they don't really learn. They only thing a bank loves more than someone with a €300k mortgage and a solid payment history is someone with a €400k mortgage and a solid payment history.
The banks aren't massively concerned with the actual value of the asset that's underpinning the loan so long as the borrower can be trusted to pay it back.

It will be up to the regulator to keep an eye on this and shut it down if someone figures out some odd package for allowing people to increase their mortgage while maintaining their negative equity.

However, I would be in favour of any product that allows someone to buy a cheaper home. For example, someone has a €400k mortgage on a house with an actual value of €250k. The bank is "stuck" with that €150k negative equity, but they're at risk of that €250k losing value.
So they allow the borrower to move home into a €150k house.

1. The other €100k from the sale is realised.
2. The risk to the bank is reduced - a % drop on €150k is better than a % drop on €250k
3. The non-realisable equity of €150k hasn't changed
4. The borrower's ability to repay has improved because their mortgage has dropped by €100k, meaning that they're less likely to default and the could even reduce the term of the mortgage, meaning that the bank realises the loan earlier.

In fact, I can't see any downsides to that, but maybe I'm missing something.

MI5

jmayo wrote: »

Ehh we actually need house prices to fall because they are still too high, or at least what people are asking is too high.
Of course due to the fact that there is no public record of house prices we aren't sure what are the differences between asking and selling prices.

BTW you aren't reading the party line ala frank fahey.
The government need house prices to rise so that NAMA won't make a big loss. :rolleyes:

Wouldn't surprise me one bit, if interested parties were to organise an auction or two or three of specific houses in specific locations, and orchestrate a rigged bidding process to get the impression out there that the tide has turned. That would be post NAMA of course, and when the banks are doing some property lending again!:cool:

Riskymove

seamus wrote: »

In fact, I can't see any downsides to that, but maybe I'm missing something.

doesn't this mean that the bank is still owed €300k with an asset being worth €150k

instead of €400k with an assest worth €250k

same thing really is it not, with the only change being a lower mortgage to the customer?

and, of course its dependent on being able to sell the asset

tbh your point

The bank is "stuck" with that €150k negative equity, but they're at risk of that €250k losing value.

the bank is only affected by negative equity if the person cannot repay the mortgage and it seeks to sell the asset

seamus

Riskymove wrote: »

doesn't this mean that the bank is still owed €300k with an asset being worth €150k

instead of €400k with an assest worth €250k

same thing really is it not, with the only change being a lower mortgage to the customer?

No, because if house prices drop by 10% after the customer moves house, the amount of negative equity is now €165k instead of €175k.

and, of course its dependent on being able to sell the asset

Everyone has his price

the bank is only affected by negative equity if the person cannot repay the mortgage and it seeks to sell the asset

It represents a higher risk though because it cannot be realised by selling the asset. If the customer defaults, the bank loses that negative equity, effectively (I know the debt still hangs over the person's head). It's in the bank's interest to help customers clear that negative equity.

Riskymove

seamus wrote: »

No, because if house prices drop by 10% after the customer moves house, the amount of negative equity is now €165k instead of €175k.

well, that assumes the same price change for all houses/locations which is unlikely

but anyway I see what you are saying, its in the context of further price drops

but then

Everyone has his price

in the context of ongoing price drops its hard to see someone realising the 250k, it may already be too late

seamus

It could also be something that could be used in response to jingle mail. That depends on what volume of jingle mail they are getting.

In order to simply hand the house over and escape your debt, you need to effectively flee the country. So if someone is sitting in negative equity, no room in their house and no visible way out, they may decide that fleeing the country and starting somewhere else is the way to go.

Whereas if the bank can offer them a way of getting a bigger house, just a little more out the way, the bank keeps that borrower.

That may be a very niche requirment, I very much doubt there are many people fleeing the country to escape negative equity.

Sleepy

seamus, I have to say I think you're really onto something here.

The only potential problem I can think of is that the banks hold loans on the asset side of their balance sheet so could reducing the 'good' loan levels have a negative impact which we'd then have to deal with in NAMA2?

It really does seem like a good idea for some who over-stretched to get their mortgage and are are now on reduced salaries / single salaries.

Rev. BlueJeans

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

Where does that leave NAMA then?

jmayo

ninty9er wrote: »

I've had arguments face to face with govermnment ministers and councillors (of all colours) who've said that "that's very reasonable for that piece of land so close to the city!"

While it wasn't far off, it was still expensive (given the very restricted PP), overpirced by about 20%-25%. But land has intrinsic value which fluctuates very little compared to built-on land.

The goverment doesn't need property prices to rise, it just needs to pitch it's purchase price at trough level giving it a reasonable expectation of profit in 10-15 years.

But the wholepremise of NAMA is that they someday sell the assets they are stuck with on defaulted loans at something close to what was paid to the bank for the loan, which is 20-30% discounted from original value of loan.
For exampler.
In order for NAMA to break even that field that was originally bought with 20 million loan needs, to be sold by NAMA for around 15 million depending on discount (lets say 25%) applied when they bought loan from Anglo ?
Now that doesn't even take inot account all the administration involved so add on another 50 thousand for that alone.

Even though I always at ff I know Fg & Labour also did their bit at local level.
One of only councillors in Roscommon who took a stand was Luke Ming Flanagan who is often the butt of jokes by other party and their activists.
If only they had listened to him they might be less houses and people with less stress as they relaxed smoking the odd joint.

seamus wrote: »

The availability of credit on international markets is more of an issue than the capital available IMO.
I didn't say that I think they should.
I said that I think they probably will. If banks can find a way to keep people in debt at minimal risk to themselves, they will. No, they don't really learn. They only thing a bank loves more than someone with a €300k mortgage and a solid payment history is someone with a €400k mortgage and a solid payment history.
The banks aren't massively concerned with the actual value of the asset that's underpinning the loan so long as the borrower can be trusted to pay it back.

It will be up to the regulator to keep an eye on this and shut it down if someone figures out some odd package for allowing people to increase their mortgage while maintaining their negative equity.

However, I would be in favour of any product that allows someone to buy a cheaper home. For example, someone has a €400k mortgage on a house with an actual value of €250k. The bank is "stuck" with that €150k negative equity, but they're at risk of that €250k losing value.
So they allow the borrower to move home into a €150k house.

1. The other €100k from the sale is realised.
2. The risk to the bank is reduced - a % drop on €150k is better than a % drop on €250k
3. The non-realisable equity of €150k hasn't changed
4. The borrower's ability to repay has improved because their mortgage has dropped by €100k, meaning that they're less likely to default and the could even reduce the term of the mortgage, meaning that the bank realises the loan earlier.

In fact, I can't see any downsides to that, but maybe I'm missing something.

Dangerous game if you are saying increasing the mortgage all the while the assets protecting it is off in the other direction.
It would be different if you are investing in business or something that makes money per say but a house doesn't, although thinking they did is what got uis into this mess in the first place.

Am I missing something here, so you are suggesting the bank decreases the loan, and borrowers negative equity, when the original securing house is sold because person gets lower mortgage on new property ?
I bet somewhere along the chain someone is left with large loss on negative equity and bank can be stuck with defaulting loan somewhere along the line.
Although on plus side it could be developer/builder who would have been saved, sorry taken care of, by NAMA.

Actually the bank is not stuck with the 150k negative equity, unless the borrower defaults and declares bankruptcy.
The borrower is stuck with it.

I have argued on another thread I worry about banks starting to play funny games possibly at behest of government since we are, or probably soon will be, the owners of said banks.

ninty9er

jmayo wrote: »

For exampler.
In order for NAMA to break even that field that was originally bought with 20 million loan needs, to be sold by NAMA for around 15 million depending on discount (lets say 25%) applied when they bought loan from Anglo ?
Now that doesn't even take inot account all the administration involved so add on another 50 thousand for that alone.

NAMA isn't planning on selling the loans. The loans will still be due, but to NAMA

So loan of €10m to Developer A from AIB is now taken from AIB for €5m by NAMA.

Developer A still owes NAMA €10m. AIB is no longer in the equation. Property values will only matter where these companies are no longer in a position to repay NAMA. In this case assets will be liquidated.

Liam Byrne

ninty9er wrote: »

Developer A still owes NAMA €10m. AIB is no longer in the equation. Property values will only matter where these companies are no longer in a position to repay NAMA. In this case assets will be liquidated.

Developer A signs loads of stuff over to his wife, or sells them for a nominal value = end of assets.

Developer A goes bankrupt.

AIB is up €5m based on what they would have gotten otherwise (i.e. zero)

NAMA (and the Irish State) is down €5m.

Developer fecks off.

ninty9er

Liam Byrne wrote: »

Developer A signs loads of stuff over to his wife, or sells them for a nominal value = end of assets.

Developer A goes bankrupt.

AIB is up €5m based on what they would have gotten otherwise (i.e. zero)

NAMA (and the Irish State) is down €5m.

Developer fecks off.

A lot of the due dilligence on those is backed by personal guarantees from partners in law firms. Some of those people are seriously ****ed!

seamus

jmayo wrote: »

Dangerous game if you are saying increasing the mortgage all the while the assets protecting it is off in the other direction.
It would be different if you are investing in business or something that makes money per say but a house doesn't, although thinking they did is what got uis into this mess in the first place.

I'm actually saying that people should be allowed to reduce their mortgage debt by moving house rather than be stuck with negative equity on an unsuitable residence.

Obviously it would be in the bank's interest to do it on a case-by-case basis: examine the applicant's needs and compare the proposed new property against the old property to ensure that the person's not getting themselves into worse trouble. But I suppose we are talking about banks really.

Am I missing something here, so you are suggesting the bank decreases the loan, and borrowers negative equity, when the original securing house is sold because person gets lower mortgage on new property ?
I bet somewhere along the chain someone is left with large loss on negative equity and bank can be stuck with defaulting loan somewhere along the line.

The borrower's negative equity actually doesn't change, but the chances or accumulating more are reduced. Yes, if house prices continue to decrease, the new guy who bought the house may be stuck with negative equity, but that's the nature of the beast. The actual burden is now spread out across more customers, which presents less risk.

In reality I'm thinking five years down the line where house prices have generally stabilised (no more than a 2% change in either direction), credit is more freely available and the unemployment rate has stabilised, but people can't move to more appropriate accomodation because of the negative equity burden.

Actually the bank is not stuck with the 150k negative equity, unless the borrower defaults and declares bankruptcy.
The borrower is stuck with it.

As I pointed out though, it's an unsecured loan, effectively. It presents a higher risk to the bank because it's unlikely to be able to capitalise it if the customer defaults. So it's in the bank's interest to help the customer pay it off ASAP - the bank still gets their money, but lowers the risk profile of the customer.

jmayo

ninty9er wrote: »

NAMA isn't planning on selling the loans. The loans will still be due, but to NAMA

So loan of €10m to Developer A from AIB is now taken from AIB for €5m by NAMA.

Developer A still owes NAMA €10m. AIB is no longer in the equation. Property values will only matter where these companies are no longer in a position to repay NAMA. In this case assets will be liquidated.

But the first fly in the ointment is that becuase AIB have to write off €5m, they need something close to this amount in capital, hence we are spending €5m buying loans and another €5m on recapitalisation.
Actually I would rather go with this than spending €10m through NAMA, since at least we should own AIB (nationalisation) with this option.

But the big argument with your over optimistic synopsis is everything would be fine and dandy if the developer was able to keep servicing the loans as they were transferred to NAMA, but we all know this is not going to happen on a big chun of these loans.
Some of the developers haven't serviced the loans at all as they are either to be completely repaid on sale of the securing assets or on completion and sale of development or in other cases the developers have gone bust already.

Thus NAMA is left with defaulted loan and an asset that is maybe as low as 10% of original loan, in other words about 30-40% of what NAMA paid for loan.
Thus NAMA takes a big loss i.e. we the citizens take a big loss.

ninty9er wrote: »

A lot of the due dilligence on those is backed by personal guarantees from partners in law firms. Some of those people are seriously ****ed!

Personal guarantees are going to be worthless since those giving them can declare bankruptcy and where are you then.

A lot of these people will have siphoned away their cash, transferred assets ala david scumbag drumm or ran to another country which protects personal wealth (even of dictators) ala derek quinlan.

The family home is protected AFAIK even if it was worth 20 million at the peak.
Even in today's market it would still be worth more than a 3 bed semi.
If this is true it should be changed that a family home only to the value of a 3 bed semi is protected with anything above that can be confiscated.

So my dear ninty9er, these people aren't seriously ****ed, but is is you, me and all the other suckers that will probably be seriously f***ed.
Hey we might have something in common after all

Then again you are in the party you mightn't be

Sleepy

seamus wrote: »

As I pointed out though, it's an unsecured loan, effectively. It presents a higher risk to the bank because it's unlikely to be able to capitalise it if the customer defaults. So it's in the bank's interest to help the customer pay it off ASAP - the bank still gets their money, but lowers the risk profile of the customer.

There's also the huge political win for the government in that the customer has now been "protected" from defaulting on the original mortgage.

Now, with a reduced principle, the mortgage will attract less interest so the Bank will make less money on the loan (unless it's stretched out significantly further than the original term of the mortgage). This has two possible impacts:

Either the banks will do these deals for customers where they can make more money out of them by stretching the length of the mortgage.

or

The bank will make less money and thus take longer to pay back the state.

seamus

Sleepy wrote: »

There's also the huge political win for the government in that the customer has now been "protected" from defaulting on the original mortgage.

Indeed, my thinking is that the bank would probably build in some additional caveats, such as requiring the customer to maintain the term but move onto a five-year fixed rate, or some form of special augmented variable rate, 0.5 or 0.75% above the normal rate. The mortgage is still more affordable, but the bank is extracting more interest from the loan than it normally would. Save a windfall, the customer is stuck with the bank until the negative equity has been cleared.

Just to give an illustration of the above:

The interest payable on a €400k mortgage over 30 years @ 4% is ~ €288k. The repayments are ~ €1900/month

The interest payable on a €300k mortgage over 30 years @ 4.75% is ~ €263k. The repayments are ~€1560/month.

So while the bank loses around 9% of the interest it would have gained, the customer's repayments have dropped by 18%, reducing their risk of defaulting greatly and making the bank's loan portfolio more stable. Not to mention the capitalisation of €100k that has been returned to the bank through sale of the original property.

The government could easily introduce incentives to allow banks to write off that 9% (but don't tell the public!).

dan_d

My understanding on all this is pretty fuzzy bar the basics, but can someone explain to me if I'm wrong with the following:

I bought a house last year for 390,000. I decide next year to sell and get 300,000. I then buy again for 180,000.

So - I now owe the banks 270,000. Which is less than I owed in the first place.

Obvioulsy I'm turning a blind eye to the difficulties of actually getting the second mortgage, this being a hypothetical situation.

Is that a very simplistic view of things? Am I totally misunderstanding things here?

seamus

dan_d wrote: »

My understanding on all this is pretty fuzzy bar the basics, but can someone explain to me if I'm wrong with the following:

I bought a house last year for 390,000. I decide next year to sell and get 300,000. I then buy again for 180,000.

So - I now owe the banks 270,000. Which is less than I owed in the first place.
...
Is that a very simplistic view of things? Am I totally misunderstanding things here?

I think what you're missing here is that you won't buy the same house back for €180,000. If you sell your house for €300k, then you will have to pay €300k to get it back, if you want to buy it back immediately.

However, if you pick a different house elsewhere, that costs €180k, then yes, you now only owe the bank €270k. Theoretically. In reality, you wouldn't be able to sell the first house without clearing the entire mortgage.

DanSolo

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

They don't say this because it won't make them any money to say house prices are in a slump.
How is saying "house prices MAY rise" a prediction anyway? It's a simple statement of fact. "house prices WILL rise" is a prediction. (A bad one!)

ConsiderThis

Fratton Fred wrote: »

I guess that this year will also see NAMA release a whole load of apartments on the market as well, then we could see potential saturation of the market.

I thought the whole (unspoken) purpose of NAMA was to try to keep prices high?

Dannyboy83

http://www.independent.ie/business/personal-finance/property-mortgages/land-values-down-90pc-from-peak-2014252.html

By Dara Doyle

Thursday January 14 2010

Building land values outside Dublin have fallen by as much as 90pc from their peak levels, according to CB Richard Ellis Group.
Development land in Dublin has dropped on average by “at least” 50pc, CB Richard Ellis said in a report today.
“It would be premature to say that the property market is likely to experience a rebound in 2010 but there are certainly signs that sentiment is slowly improving,” said Guy Hollis, the managing director of the company’s Irish unit.
“The reality is that it is going to be 2011 before we see any discernible turnaround in performance.”
- Dara Doyle

Property prices have only started declining really, its going to come down a lot more.

You would definitely have to be on some mind altering substances to buy this year, wait until 2011.

jackiebaron

I dunno,

Yeah this guy Ghose is a seasoned finance dude but I can't for the life of me work out where he comes to the claim that houses will rise 10% this year. In order to have that kind of growth you would need demand. Where will the demand come from? With 400,000 people on the scratch the last thing they would want is a flipping house to buy. People are emigrating to Canada, the Poles have bogged off back to Warsaw (better to be on the scratch where it's cheaper and close to Mum for dinner).

So I'd have to ask where will the deemand come from? Also, isn't there a massive oversupply of these shoebox houses that were thrown up in every corner of the country?

The_Honeybadger

jackiebaron wrote: »

I dunno,

Yeah this guy Ghose is a seasoned finance dude but I can't for the life of me work out where he comes to the claim that houses will rise 10% this year. In order to have that kind of growth you would need demand. Where will the demand come from? With 400,000 people on the scratch the last thing they would want is a flipping house to buy. People are emigrating to Canada, the Poles have bogged off back to Warsaw (better to be on the scratch where it's cheaper and close to Mum for dinner).

So I'd have to ask where will the deemand come from? Also, isn't there a massive oversupply of these shoebox houses that were thrown up in every corner of the country?

While this is purely anecdotal again, I am 29 years of age and I reckon most of my friends and peer group don't have houses. Some are renting, some have moved back in with their parents etc. I personally know many people that are simply waiting for the right house at the right price, obviously they will need mortgage approval first but they will eventually buy. Many areas of the country are totally saturated with houses and prices will definately stay low here, but there will eventually be demand in areas with high population and employment (if companies ever start hiring again). However I think these first time buyers will be extremely cautious about what they pay and where from now on. You won't see people sleeping in their cars queueing to buy houses from now on that's for sure. It may also become very difficult to get mortgage approval, even if the economy does recover and people get back working, interest rates will go up and that will mean affordability will go down. Unneeded houses have been built in the most unsuitable places and these will be the ones that will not recover in price IMO.

gurramok

mickeyk wrote: »

While this is purely anecdotal again, I am 29 years of age and I reckon most of my friends and peer group don't have houses. Some are renting, some have moved back in with their parents etc. I personally know many people that are simply waiting for the right house at the right price, obviously they will need mortgage approval first but they will eventually buy. Many areas of the country are totally saturated with houses and prices will definately stay low here, but there will eventually be demand in areas with high population and employment (if companies ever start hiring again). However I think these first time buyers will be extremely cautious about what they pay and where from now on. You won't see people sleeping in their cars queueing to buy houses from now on that's for sure. It may also become very difficult to get mortgage approval, even if the economy does recover and people get back working, interest rates will go up and that will mean affordability will go down. Unneeded houses have been built in the most unsuitable places and these will be the ones that will not recover in price IMO.

Talking about 'high demand' areas, there are right now apts asking for about 200k on the southside Dub Docklands in the 'business district' near me and still have not sold after a year asking.

I suspect there are buyers who are renting(like me) and waiting for the right house(rather than apt) at the right price with all the assumptions of job security, steady income etc thrown, its just that there are far fewer of them than in previous years and todays FTB's are yes more choosy on what they want than the previous bubble chasers.

As the property market is a 'ladder', the market needs FTB's to buy again in sufficient numbers to get a fully functional market back and that ain't happening yet until prices reflect value for money.

The_Honeybadger

gurramok wrote: »

Talking about 'high demand' areas, there are right now apts asking for about 200k on the southside Dub Docklands in the 'business district' near me and still have not sold after a year asking.

I suspect there are buyers who are renting(like me) and waiting for the right house(rather than apt) at the right price with all the assumptions of job security, steady income etc thrown, its just that there are far fewer of them than in previous years and todays FTB's are yes more choosy on what they want than the previous bubble chasers.

As the property market is a 'ladder', the market needs FTB's to buy again in sufficient numbers to get a fully functional market back and that ain't happening yet until prices reflect value for money.

Agreed, the current asking prices for houses are still outrageous in most cases, whether these could be negotiated downwards significantly is anybody's guess as there is no sales index, as we know.

I am in the exact same situ as yourself, renting and waiting, can't see myself buying in the next few years unless my work situation changes dramatically or house prices fall much further. Alot of people I know are in this situation.

Rujib1

mickeyk wrote: »

Agreed, the current asking prices for houses are still outrageous in most cases, whether these could be negotiated downwards significantly is anybody's guess as there is no sales index, as we know.

I am in the exact same situ as yourself, renting and waiting, can't see myself buying in the next few years unless my work situation changes dramatically or house prices fall much further. Alot of people I know are in this situation.

You may well be right.
Then again, I know of one situation where house was for sale 15 months ago for €245k. Several drops later in asking price and it's now advertised at €189k.

Friend has made an offer of €150k, before xmas! Seller now come down to €170k and making all the phone calls! I bet it will go at €160k.

Maybe now is the time to buy, based on making low ball offer.

The_Honeybadger

http://www.independent.ie/breaking-news/national-news/over-300000-homes-lying-empty-2021818.html

I know its the indo but if there is any truth in this it makes Bloxhams prediction look even more far fetched

bryaner

ninty9er wrote: »

Why can't the econotwits get this:

WE DON'T WANT HOUSE PRICES TO RISE! WE WANT AFFORDABLE HOMES!

Well they can't get too much cheaper trends will show this