Bloomberg: Irish to seek postponement of Anglo Promissory Note tomorrow pending deal

darkman2

http://www.bloomberg.com/news/2012-03-21/irish-said-to-ready-bank-debt-proposal-as-ecb-gather-tomorrow.html



Announcement coming tomorrow of some sort? Dow Jones says Friday

ECB may issue announcement of its approval of Ireland's deferral of EUR3.1B in scheduled payment by this date.

jank

Good news, if true.

No doubt if it had been negative this page wout have about 5 pages by now.

FreudianSlippers

I think this is promising vis-à-vis the potential of a restructuring of the Anglo debt. I think the article hinted at it towards the end, but it would seem that although all the details aren't hammered out; this would appear to be buying some time in order to facilitate the finalisation of a larger agreement in relation to the debt as a whole.

Interesting to see our current market rates compared to Greece and Portugal. I think that should be a good answer to the people wondering what we're getting from being "good boys and girls" compared to Greece. As much as it pains people to believe it, we're making some serious progress.

kippy

FreudianSlippers wrote: »

I think this is promising vis-à-vis the potential of a restructuring of the Anglo debt. I think the article hinted at it towards the end, but it would seem that although all the details aren't hammered out; this would appear to be buying some time in order to facilitate the finalisation of a larger agreement in relation to the debt as a whole.

Interesting to see our current market rates compared to Greece and Portugal. I think that should be a good answer to the people wondering what we're getting from being "good boys and girls" compared to Greece. As much as it pains people to believe it, we're making some serious progress.

Where can one see those rates?


On the subject of the delaying of the payment, this is nothing but good news and if it is part of a larger deal to restructure the debt, even better,

FreudianSlippers

kippy wrote: »

Where can one see those rates?


On the subject of the delaying of the payment, this is nothing but good news and if it is part of a larger deal to restructure the debt, even better,

FTA:

Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.9 percent today, down from 9.1 percent at the start of December. The yield on the equivalent Greek security is 18 percent and on the Portuguese note it’s 12 percent.

You should be able to find the up-to-date info on the ISE website too.

For some level of comparison, Germany is at 3.25% and the UK is 4.75% on those same 8 year bonds.

BeeDI

Interesting to hear what public school, gentry like Shane Ross will have to say abou this:rolleyes:

antoobrien

kippy wrote: »

Where can one see those rates?

The irish rates are being discussed in a bonds thread. If you want to get the others, google knows where they live.

lets get working

good news on bond delay , i wonder will it be enough to get people to vote yes on fiscal treaty, as the song goes time will only tell lol

beeftotheheels

ECB press office apparently told a journalist that if we don't make the payment we'll be in default but people are losing the run of themselves over this issue.

There is a hole in IBRC which we will have to fill hence the notes. IBRC pledges those notes to the Central bank in return for cash which the Irish Central bank printed. The Irish Central Bank has to get back all the cash it lent to IBRC to unprint it. This the law requires.

So while we can extend the duration of the notes, or lower the coupon or whatever, we still have to fill the hole in IBRC and make sure that the CBI gets back all of its cash. So, if we extend the duration of the debt and leave everything else equal, we've caused that notes to fall in value. Which makes the hole in IBRC a bit bigger. But we've promised to fill the hole in IBRC no matter how big it gets. So we now have to put a bit more in to fill up the hole we just made.

Renegotiating the promissory notes could give us cash flow advantages, it could give us timing advantages. But ultimately, one way or another, we will have to put enough cash into IBRC to fill up the hole, not a cent more and not a cent less. This can only be about timing of us filling the hole, it cannot alter the size of the hole that we ultimately need to fill.

eire4

Hopefully this is just a case of something temporary being put out there so we are not paying out the 3billion at the end of March. It does seem like with other countries getting deals to lower their debt burdens that Ireland has so far been punished for performing well since the bailout by getting no deal to resturcture and lower our debt burden.

Einhard

beeftotheheels wrote: »

Renegotiating the promissory notes could give us cash flow advantages, it could give us timing advantages. But ultimately, one way or another, we will have to put enough cash into IBRC to fill up the hole, not a cent more and not a cent less. This can only be about timing of us filling the hole, it cannot alter the size of the hole that we ultimately need to fill.

That's a good analysis of things as they stand, but I wonder would extending the payment deadline until 2024, as is being mooted, give us greater leverage in dealing with the issue down the line? At the moment, Ireland is between a rock and the ECB. We are in hoc to them to sustain both our public finances and the liquidity of the banking system, so should they make a demand on us we essentially have to acquiesce. For their part, they are loathe to have any hint of default impact on market sentiment towards the euro area. So, even if they were privately sympathetic to Ireland's position, they are bound to act in the interests of the eurozone as a whole when there is any potential conflict with those of Ireland.

However, fast forward 13 years and things will (hopefully) be very different. Ireland should have long regained economic sovereignty by then and be in a position to stand independently on the world markets, while the euro crisis should be well over. Both Ireland and the ECB will not be constrained by the same factors that are impnging on them now. Both parties will have more freedom to act and, in that light, some form of default on the Anglo debt might be more palatable.

That might be wishful thinking on my part, but I don't think it's at all beyond the realm of possibility.

Good loser

I'd rather we paid our debts - as they become due and as we've pledged.

Passing the bills on to our children is not fair.

lets get working

our children did not pledge to pay these debts the government who did do not and did not have the right to pledge the irish people will pay, the banks lied and as in any court of law with any respect liars and cheats dont have any authority to rop and thive from any people, now if the guilty want to go to germany and pay what they have then good luck to them, the law is the law lol

beeftotheheels

Einhard wrote: »

I wonder would extending the payment deadline until 2024, as is being mooted, give us greater leverage in dealing with the issue down the line?

There are definite benefits to pushing out the timing of payments but where yesterday's proposal possibly failed was in failing to recognise that if you push out payments you depress the NPV of the note which causes both IBRC and CBI problems. The NPV of the note has to remain sufficient to keep IBRC solvent and to collateralise the ELA. Which actually reduces the amount we can gain from any note renegotiation.

Sand

As noted above, if Ireland pushes out the payments then it has to pay more interest in the long run - it just shoves the burden further and further onto younger and future generations. The ECB is not going to approve any deal where it doesn't extract its full pound of flesh.

So a restructuring to push the burden out onto future generations might be good news for those who plan to die in the next 5 years or for politicians who are always happy to kick the can down the road, but other than that its just a re-arrangement of the deck chairs by the same class of fools who originally sold the promissory notes as a mere accountancy trick with no real world implications for Irish debt...its like your dog celebrating a few crumbs brushed from the table of the master.

And the point-man for the Irish negotiation with the ECB on this is Patrick Honohan who represented the ECB in the negotiations over the Irish bailout back in November 2010. Or wait, was he representing the Irish state? God help us if he was. As it stands, the news has gone ominously quiet around this so its not looking too hopeful that even a rearrangement of the deck chairs can be negotiated.

later12

Sand wrote: »

And the point-man for the Irish negotiation with the ECB on this is Patrick Honohan who represented the ECB in the negotiations over the Irish bailout back in November 2010.

He didn't represent the ECB in negotiations. He is a member of the governing council, but not involved in negotiations on the ground, nor with the executive council and the economics division of the ECB like the then chief economist Juergen Stark who had real executive influence over the Irish bailout.

The NCBs and their governors are independent. That may not be a perfect situation, but it is the situation designed by politicians, and it is the situation we are faced with.

The ECB as an institutional structure deserves quite a lot of criticism, and the behaviour of the ECB deserves quite a bit of criticsm.

But the non-patriotism of the individual governors is not something for which they respectively deserve criticism. So I think this undertone of a criticism of a relatively small player like Honohan by opportunist politicians and some media commentators is very unfair. I think the Peter Matthews motion to 'summon' Honohan to appear before the Finance Committee was a particularly naive and politically opportunistic gesture.

jased10s

not our debt simple.

You dont go to the race track and ask for your winnings even though you lost.

And if you get paid out for losing then can i buy a ticket...

antoobrien

jased10s wrote: »

not our debt simple.

You dont go to the race track and ask for your winnings even though you lost.

And if you get paid out for losing then can i buy a ticket...

The construction bubble was not gambling, but it wasn't normal business either. What happened was that any profits were rolled into the next investment and used to leverage more borrowing so that they could make more profits.

That's the way business has worked since the gold standard was removed - get over it!

As for the it's not our debt nonsense, there's approx €140 billion in residential mortgages (only about €40 billion in buy to let), so somebody was buying the houses & apartments that these "gamblers" were building.

To state that its not our debt is to ignore the (at the time) very real demand for the services that these people were providing, as well as the willingness of the people of this country to pay pretty much anything for them, while they totally ignore the concept of value for money as well as the size location & quality of what was being built.

Sand

later12 wrote: »

He didn't represent the ECB in negotiations.

Well, officially he represented Ireland. Somehow though the only people who seemed to be arguing for Irelands interests were the IMF and they were surprised and shocked to find the Irish negotiators (Honohan?) going against them.

Honohan was also credited by Morgan Kelly for cutting the knees off Brian Lenihan in his negotiations with the ECB by going onto morning radio to announce Ireland was going to go into a bailout scheme - this was at a time when the ECB was aggressively campaigning to force Ireland into a tributary status (in which they ultimately succeeded) and the Irish government were trying to avoid (more through denial than any patriotism).

So the idea of sending Honohan out to the ECB to argue the case for any sort of meaningful restructuring (i.e. one that improves Irelands fiscal burden over the long term) is pretty hilarious. We'll be lucky if he doesnt come back with us owing twice the money at twice the interest rate.

jased10s

antoobrien wrote: »

The construction bubble was not gambling, but it wasn't normal business either. What happened was that any profits were rolled into the next investment and used to leverage more borrowing so that they could make more profits.

That's the way business has worked since the gold standard was removed - get over it!

As for the it's not our debt nonsense, there's approx €140 billion in residential mortgages (only about €40 billion in buy to let), so somebody was buying the houses & apartments that these "gamblers" were building.

To state that its not our debt is to ignore the (at the time) very real demand for the services that these people were providing, as well as the willingness of the people of this country to pay pretty much anything for them, while they totally ignore the concept of value for money as well as the size location & quality of what was being built.

For god sake this is why this country is corroupt and fecked if your response is anything is to go by , Because you accept corroupt practices and defend them.

I have a house and debt and im paying it back along side the USC that goes towards paying the bailout that the bankers got.

They gambled and couldent lose but yet you defend it !
The domestic market is on it knees because all the money is being sucked out to pay these non losers.

Will you get a brain ffs.

Phill Ewinn

antoobrien wrote: »

The construction bubble was not gambling, but it wasn't normal business either. What happened was that any profits were rolled into the next investment and used to leverage more borrowing so that they could make more profits.

That's the way business has worked since the gold standard was removed - get over it!

As for the it's not our debt nonsense, there's approx €140 billion in residential mortgages (only about €40 billion in buy to let), so somebody was buying the houses & apartments that these "gamblers" were building.

To state that its not our debt is to ignore the (at the time) very real demand for the services that these people were providing, as well as the willingness of the people of this country to pay pretty much anything for them, while they totally ignore the concept of value for money as well as the size location & quality of what was being built.

Educate yourself. Read up on Nama. Tell me again who sat with Cowen and negotiated the banking debts.

I honestly can't believe anyone could make such a silly post.

later12

antoobrien wrote: »

the willingness of the people of this country to pay pretty much anything for them, while they totally ignore the concept of value for mone

Care to describe the true concept of value for money, in economic terms which individual consumers are expected to follow?

Because I really consider this retrospective self-flagellation about how wasteful people were in not obeying some obscure "value for money" law (as though value were represented on a scale etched on the side of Croagh Patrick) to be one of the biggest myths to have emerged from the crash.

I think we would be better off examining the basic determinants of supply and demand that give rise to movements along their respective curves and which may cause the overall curves to fundamentally shift position (in the case of the demand curve, for example, heightened expectations and wage inflation, etc.)

By all means lets look at the factors that dictated market prices during Ireland's economic boom, but perhaps taxpayers need less of the (usually ideologically driven) theories of value and some quasi-occult preaching about the popular ignorance of value for money.

later12

Sand wrote: »

Well, officially he represented Ireland.

He represented the Central Bank of Ireland as part of his wider allegiance to the ECB. He does not represent the Irish people, the Irish government, nor the Irish economy at large.

This notion that Honohan was supposed to stick up for Irish interests in spite of his role as a board member of the ECB 'because he's one of us' must be beyond my level of comprehension I'm afraid.

JoeGil

antoobrien wrote: »

The construction bubble was not gambling, but it wasn't normal business either. What happened was that any profits were rolled into the next investment and used to leverage more borrowing so that they could make more profits.

That's the way business has worked since the gold standard was removed - get over it!

As for the it's not our debt nonsense, there's approx €140 billion in residential mortgages (only about €40 billion in buy to let), so somebody was buying the houses & apartments that these "gamblers" were building.

To state that its not our debt is to ignore the (at the time) very real demand for the services that these people were providing, as well as the willingness of the people of this country to pay pretty much anything for them, while they totally ignore the concept of value for money as well as the size location & quality of what was being built.

Good point. It's amazing how sometimes people think that debts generated by Irish banks under the tutelage of the Irish government might be paid by somebody else.

ArmaniJeanss

later12 wrote: »

Care to describe the true concept of value for money, in economic terms which individual consumers are expected to follow?

Because I really consider this retrospective self-flagellation about how wasteful people were in not obeying some obscure "value for money" law (as though value were represented on a scale etched on the side of Croagh Patrick) to be one of the biggest myths to have emerged from the crash.

Whilst not quite 'etched on Croagh Patrick', estimating the value of a house is trivially easy.

Take the average monthly rent for similar houses in the surrounding area, multiply it by 11 (months of the year, ommiting a month for repairs and non-occupancy), then multiply it by between 14 and 20 (representing years) depending on whether you envisage it as being an investment with a return of 7% or 5%.

So if a 2bed apartment near the IFSC rents for €1200 a month, then a rough value is €1200 x 11 x 15 = €198,000. €264K at an absolute upper limit if you use 20 years, the lower figure is better though.

That people were willing to pay €500K+ for such properties was indeed an instance of 'not obeying a value-for-money law'.

jased10s

ArmaniJeanss wrote: »

Whilst not quite 'etched on Croagh Patrick', estimating the value of a house is trivially easy.

Take the average monthly rent for similar houses in the surrounding area, multiply it by 11 (months of the year, ommiting a month for repairs and non-occupancy), then multiply it by between 14 and 20 (representing years) depending on whether you envisage it as being an investment with a return of 7% or 5%.

So if a 2bed apartment near the IFSC rents for €1200 a month, then a rough value is €1200 x 11 x 15 = €198,000. €264K at an absolute upper limit if you use 20 years, the lower figure is better though.

That people were willing to pay €500K+ for such properties was indeed an instance of 'not obeying a value-for-money law'.

500k for a 2 bed apartment ! just LOL.

you figures make no sense...

later12

ArmaniJeanss wrote: »

Whilst not quite 'etched on Croagh Patrick', estimating the value of a house is trivially easy.

Take the average monthly rent for similar houses in the surrounding area, multiply it by 11 (months of the year, ommiting a month for repairs and non-occupancy), then multiply it by between 14 and 20 (representing years) depending on whether you envisage it as being an investment with a return of 7% or 5%.

What if the average monthly rent is €2272.73 and we use the 20 year figure?

That people were willing to pay €500K+ for such properties was indeed an instance of 'not obeying a value-for-money law'.

If the monthly rent is €2272.73 (which could arise by rent inflation, enhanced expectations, increased wages and easy availability of cash), the "value" of the property implied by your frankly ridiculously arbitrary method is €500,000.

ArmaniJeanss

later12 wrote: »

What if the average monthly rent is €2272.73 and we use the 20 year figure?

If the monthly rent is €2272.73 (which could arise by rent inflation, enhanced expectations, increased wages and easy availability of cash), the "value" of the property implied by your frankly ridiculously arbitrary method is €500,000.

Yes if the average monthly rent is €2272.73 then indeed you can get to a €500K value. Unfortunately properties getting such a rent were more likely changing hands for €1M+.

When you get into potential rent inflation, capital appreciation, increased wages then you are getting into the realms of the stupidity that caused the problem in the first place - the 'current price doesnt matter because it will magically increase in value for ever' logic.

But actually valuing a property at the time of purchase is trivially easy. Rent x 11 x 15. There's absolutely nothing 'ridiculously arbitrary' about this, it is a basic value-for-money-law, to use your phrase. Accepted just about everywhere in the world.
http://www.mortgagebrokers.ie/blog/index.php/2009/06/29/the-investment-method-of-property-valuations/

ArmaniJeanss

jased10s wrote: »

500k for a 2 bed apartment ! just LOL.

your figures make no sense...

Not sure what the LOL is. Plenty of newbuild 2beds went for €500K+, €600K+. Theres about a dozen five story blocks of them in Dublin Docklands for starters.
I agree it was an LOL price to pay if thats what you mean.

****
How do my figures 'make no sense'? It actually surprises me that something as ridiculously simple as how to get a rough value of a house is still not known by people.
It worries me that we are Irish are destined in a couple of generations after a recovery to be back to a situation of queueing all night to buy phase 1 off the plans because phase 2 will be 30% more so get in now. And buying an identical property as an investment in Cape Verde or Somalia or The Moon because its a quarter of the price of the one in Dublin so it really must be a bargain.

coolshannagh28

Honohan is playing dog in the manger . Are we to believe that the French and German representatives on the ECB are not acting in franco-German interest . His latest musings on buy to let are the latest examples of his delusion , and will only exaggerate the worst property crash in history and further erode his precious pillar banks balance sheets . I predict another bailout soon . He pre empted the first one and naturally history will repeat itself .

later12

ArmaniJeanss wrote: »

But actually valuing a property at the time of purchase is trivially easy.

I think we're on two different pages. I'm clearly not talking about present value. I'm complaining about what I described earlier as the Irish belief in some objective or inherent "value for money" in property prices.

My point is that €500,000 on such a two bedroom apartment in the IFSC could have represented "value for money" given some specific circumstances. So could €1,000,000 under another set of underlying circumstances.

Scoffing at prices in excess of €500,000 spent on some Dublin apartments has become a national past-time for some people. People ask "what were they thinking?" of anyone who happened to have purchased above what is now, somewhat arbitrarily considered to be a true value for a given property.
The facts as I see them are that (i) many such properties could quite reasonably enjoy or have enjoyed such values and (ii) adaptive expectations would suggest that consumers may be wise to pre-empt shifts to the left in the demand curve (for example) which sets a new market equilibrium and causes prices to increase steadily over time, as we currently see in London for example. This is what I mean when I say that 'value for money' is not etched in stone. It is an entirely arbitrary concept.

ArmaniJeanss

later12 wrote: »

I think we're on two different pages. I'm clearly not talking about present value. I'm complaining about what I described earlier as the Irish belief in some objective or inherent "value for money" in property prices.

My point is that €500,000 on such a two bedroom apartment in the IFSC could have represented "value for money" given some specific circumstances. So could €1,000,000 under another set of underlying circumstances.

Scoffing at prices in excess of €500,000 spent on some Dublin apartments has become a national past-time for some people. People ask "what were they thinking?" of anyone who happened to have bought at what is now, somewhat arbitrarily considered to be a true value for a given property.
The facts as I see them are that (i) many such properties could quite reasonably enjoy or have enjoyed such values and (ii) adaptive expectations would suggest that consumers may be wise to pre-empt shifts to the left in the demand curve (for example) which sets a new market equilibrium and causes prices to increase steadily over time, as we currently see in London for example. This is what I mean when I say that 'value for money' is not etched in stone. It is an entirely arbitrary concept.

I don't think that your example (i) ever applied i.e., I don't think there was a ever say a 2 bed near the IFSC which at the time of its purchase could justify a valuation of €500K. The incoming rent didn't justify this valuation, it wasn't even close to doing so.

So it came down to your example (ii) future expectations. And you are totally correct in that there are many situations were my simple Rent x 11 x 15 valuation will say No but not tell the whole story. Areas of London being a good example, if you can work out where the next Notting Hill is going to spring from :-)
But unfortunately most Irish purchasers didn't think this through. The price of the property would continue to rise purely because the price of the property would continue to rise.

If the current price can't be justified, and you can't come up with a really good solid reason why prices will continue to rise then it has to be a bad value for money purchase imo.

FreudianSlippers

Plus most of them were of a shockingly shít quality. At least in other places you get a good flat!

Scofflaw

ArmaniJeanss wrote: »

Not sure what the LOL is. Plenty of newbuild 2beds went for €500K+, €600K+. Theres about a dozen five story blocks of them in Dublin Docklands for starters.
I agree it was an LOL price to pay if thats what you mean.

****
How do my figures 'make no sense'? It actually surprises me that something as ridiculously simple as how to get a rough value of a house is still not known by people.
It worries me that we are Irish are destined in a couple of generations after a recovery to be back to a situation of queueing all night to buy phase 1 off the plans because phase 2 will be 30% more so get in now. And buying an identical property as an investment in Cape Verde or Somalia or The Moon because its a quarter of the price of the one in Dublin so it really must be a bargain.

The resistance shown to the idea that there is such a thing as a fair or reasonable price for a house is something that helps explain the bubble - but is also something I thought or at least hoped we'd seen the last of.

later12 wrote:

(ii) adaptive expectations would suggest that consumers may be wise to pre-empt shifts to the left in the demand curve (for example) which sets a new market equilibrium and causes prices to increase steadily over time, as we currently see in London for example. This is what I mean when I say that 'value for money' is not etched in stone. It is an entirely arbitrary concept.

That's an almost entirely incorrect use of the term "adaptive expectations" - which is where, when prices are going up, people believe they'll continue going up, and vice versa on the way down. Adaptive expectations absolutely don't "lead to a new market equilibrium" - on the contrary, they're what drives a market into disequilibrium. In the long-term house prices have an equilibrium - there are now well-studied historical long series of house price data (such as the Herengracht data), and what they show is that while prices fluctuate over the years they change very little in real terms.

Your arguments are strikingly, and sadly, reminiscent of the bubble arguments - that there is no "real value" of a house except what other people are prepared to pay, and that when people are prepared to pay more, then the market has in some fundamental way changed, as opposed to prices being a short-run deviation from the mean which will inevitably be corrected for. All the available data says you're completely wrong here - prices do always come back down after a general property boom. An individual property may permanently increase in price with increased local amenities - or fall with a decrease - but there is no general situation in which a rise in property prices in itself generates a new stable market equilibrium.

cordially,
Scofflaw

later12

Scofflaw wrote: »

Adaptive expectations absolutely don't "lead to a new market equilibrium"

Did you even read what I wrote?

I said a shift to the right (or left) in the demand curve can lead to a new market equilibrium. Adaptive expectations assist individuals in pre-empting shifts in the curve. That is not the same thing at all as saying that adaptive expectations set a market equilibrium. This is blatantly clear from what I have just written...

Scofflaw

later12 wrote: »

Did you even read what I wrote?

I said a shift to the right (or left) in the demand curve can lead to a new market equilibrium. Adaptive expectations assist individuals in pre-empting shifts in the curve. That is not the same thing at all as saying that adaptive expectations set a market equilibrium. This is blatantly clear from what I have just written...

Evidently not! And that's actually an even worse use of "adaptive expectations", if anything.

cordially,
Scofflaw

later12

I have no idea what you are actually arguing here.

That sideward shifts in the direction of supply and/or demand curves give rise to new market equilibria, or alternatively that market participants and market analysts make use of historical data in helping them anticipate the direction the curves will travel or the degree of movement that will arise along a supply or demand curve in the future? Which is it?

Because i see absolutely nothing controversial in these statements. I can only assume you took some alternative meaning from these statements, so some clarity as to what I am supposed to be defending might be helpful.

Good loser

In valuation there are three absolutes

- the money price

-the time/date

- the currency

Any 'value' only applies for the instant of the transaction - once you write it down it's gone as time has passed.

Scofflaw

later12 wrote: »

I have no idea what you are actually arguing here.

That sideward shifts in the direction of supply and/or demand curves give rise to new market equilibria, or alternatively that market participants and market analysts make use of historical data in helping them anticipate the direction the curves will travel or the degree of movement that will arise along a supply or demand curve in the future? Which is it?

Because i see absolutely nothing controversial in these statements. I can only assume you took some alternative meaning from these statements, so some clarity as to what I am supposed to be defending might be helpful.

I guess there's a couple of issues:

1. the idea that a rise in market prices "sets a new market equilibrium and causes prices to increase steadily over time, as we currently see in London for example". The available long run historical evidence suggests that no such thing is likely to be happening in London, because real property prices fluctuate around the mean rather than undergoing phase transitions, except in relatively specific circumstances.

2. given that the long-run trend for real property prices is to fluctuate around the mean, it seems likely that there is a relatively consistent way in which people value property.

3. again, given that the long-run trend for real property prices is to fluctuate around the mean, 'adaptive expectations' are perhaps the most useless thing one can possibly bring to bear on property prices. That is, while people do indeed tend to say "hey, prices have been rising for the last x years, they'll continue going up", that's not actually a useful predictor over anything but a part of the curve.

cordially,
Scofflaw

later12

Scofflaw wrote: »

I guess there's a couple of issues:

1. the idea that a rise in market prices "sets a new market equilibrium and causes prices to increase steadily over time, as we currently see in London for example".

No. I did not say a rise in property prices sets a new market equilibrium. I clearly said (and repeated) the example that a shift in the demand curve causes the market to clear at a new (higher) position. You are misreading the post despite my having already pointed this out.

For the sake of simplicity I have tried to pare this down to shifts in demand and supply. We can agree, I presume, that shifts in demand and supply for property can arise for heaps of reasons: some fundamental, some to do with investors' expectations. I mentioned some of these earlier.

It does not matter a damn whether these shifts are ultimately wise or not. That is none of my business for the purpose of what I am describing, i.e. how the market's system of price rationing can lead to higher rents and property prices. That these can endure over time - over decades, perhaps.

The available long run historical evidence suggests that no such thing is likely to be happening in London, because real property prices fluctuate around the mean rather than undergoing phase transitions, except in relatively specific circumstances.

All prices fluctuate around a mean in a given time series in a free market. That statement is meaningless. A mean is just a relic of history.

I assume you mean, rather, that deviations from the mean are temporary and that the price quickly reverts back to some notion of 'fairness'.

Again, incorrect. Ambrose, Eichholtz & Lindenthal (2011) found "persistent and substantial deviations of market prices". They also found that " 'bubble condition' periods do not necessarily end with the bubble bursting but could as well be resolved by slow convergence of prices and fundamentals". Note: this is a reversion to fundamentals: not the observed long term average.

Now I don't know about you. But I wouldn't consider this information particularly helpful nor practical for property investors looking for "value for money". Which was what I asked for.

The fact is that fluctuations occur. It is, as far as I can see, rather sensible that property investors would aim to pre-empt such fluctuations in a way that is appropriate to their needs. Doing so can be irritatingly difficult. That was my point on the difficulty of seeking "value for money".

We don't expect John and Mary O'Brien to undertake survival analysis models on the Lucan property market while they commute back to their rented flat. That would be totally unreasonable. It is not a simple matter to establish "value for money" as was perhaps suggested.

3. again, given that the long-run trend for real property prices is to fluctuate around the mean, 'adaptive expectations' are perhaps the most useless thing one can possibly bring to bear on property prices. That is, while people do indeed tend to say "hey, prices have been rising for the last x years, they'll continue going up", that's not actually a useful predictor over anything but a part of the curve.

I find it particularly interesting that you demonstrate such faith in long-run averages. It seems to me that you are doing the exact same thing you criticized earlier by effectively informing your perception of a reasonable price rationing framework according to how historical prices materialised relative, at least in part, to market expectations. That strikes me as slightly hypocritical.

To get back to the point, I wasn't particularly advocating adaptive expectations as some sort of all-seeing eye peering unto some universal truth.

I have suggested that people may find it useful to compare forecasts to out-turns, but more importantly, the theory behind adaptive expectations can help to explain market behaviour and property price movements as they actually occur. That was the context in which I brought it up. It doesn't particularly matter whether it works it matters that investors use it.

If property prices are consistently outperforming expectations due to a rise in population and incomes (as happened in Ireland), for example, then homeowners will hold off on selling their properties, leading to excess demand whilst supply slowly adjusts. In theory, the market corrects (there may be a contraction), and then clears to arrive at a new equilibrium which will inform the overall average. But the market equilibrium is not the same as the 'long term average, which are two terms I get the impression you are using interchangeably.

later12

More on topic, this today from the joint committee on Finance that Honohan was supposedly "summoned" to during the great 2012 lockout

http://www.rte.ie/news/2012/0327/anglo-business.html

Central Bank Governor Patrick Honohan has told an Oireachtas committee "it now seems likely" that efforts to restructure the payment of promissory notes to the former Anglo Irish Bank will be successful.

and...

Governor Honohan said the March 31 payment would be funded with the payment of a long-term bond at current market rates. He agreed that interest rate would be in the region of 6.8%, but said the economic value was in reality much lower because the bond would be passing between State-owned institutions.

Unforuntaely, Honohan's more interesting comments in relation to exceptional support to the Irish banking system is not on the Committee record, as it would have arisen outside of the public portion of the meeting.

jased10s

seems likley we will pay more intrerest on debts that are not ours over a longer period.

Thats if this shambles works.