government trying to blame others for housing bubble

ronbyrne2005

THE Irish housing minister has accused banks and financial institutions of “greed” and “reckless behaviour” and of “hyping up” the property market with 100% mortgages and interest-only loans.
Noel Ahern has also criticised financial authorities for not taking steps to dampen market demand. The taoiseach’s brother said the banks’ behaviour had reduced the prospect of a “soft landing” when the property market takes a downward turn.



Despite the record supply of new homes in 2004 and 2005, Ahern said the price of houses was likely to increase by more than 10% again this year.

“The rampant competition for market share between financial institutions is one of the factors why all predictions for house prices have been wrong. They are creating a false demand which developers are cashing in on,” the minister said.

“The banks hyped it up at a time when everything was going well. It is all about market share. It is not taking the broader view of the borrowers or the country into account. It is dangerous when people are just playing their own game rather than looking at the overall national point of view.”

The housing minister also voiced his disappointment that the Financial Regulator (formerly IFSRA) had taken no action against institutions that continue to fuel demand with new products.

The Fianna Fail TD said the regulator had powers to require a bank or building society to place a percentage of their “mortgage book” on deposit with the Central Bank, restricting the amount of capital available as loans.

The Financial Regulator responded that its role is to ensure the solvency of individual financial institutions and the stability of the banking system and not to influence trends in the property market.

It also said that Liam O’Reilly, chief executive of the Financial Regulator, had warned that 100% mortgages were niche products that should not be marketed at a mass audience.

The decision by five of the country’s 11 mortgage providers not to increase loan repayments in line with the 0.25% interest rate rise announced by the European Central Bank in December tends to support Ahern’s view.

Customers with standard variable home loans from Permanent TSB, Bank of Ireland, Bank of Scotland, AIB and ICS have not been asked to pay the full interest rate increase.

Bank of Scotland, whose introduction to the Irish market was credited with bringing more competition between the indigenous players, put 0.17% on to its standard variable rate bringing it to 3.49%, the cheapest available.

Permanent TSB and Bank of Ireland passed on only 0.15% to its standard variable loan holders, bringing their rates to 3.7% and 3.75% respectively. Customers at AIB were hit with 0.2% of a rise in the variable rate to 3.5%, as were ICS Building Society members who are now paying 3.75%.

IIB Homeloans increased its standard variable loan by the full amount, as did Irish Nationwide, EBS, National Irish Bank, First Active and Ulster Bank. All 11 financial institutions increased the rates on their tracker mortgages by 0.25% as these are tied into the Central Bank rate.

The Financial Regulator said that 100% mortgages and other initiatives had been introduced when employment was growing, immigration was running at 50,000 a year, inflation was falling and interest rates were at an all-time low. “We are conscious that these factors are unlikely to remain in their current state for ever,” he added



Department of Environment officials are understood to have expressed their concern to the Financial Regulator about the likely impact that the new mortgage products would have on housing demand. They said the regulator cautioned against intervention in the market without being certain as to what the knock-on effects might be.
Ahern is convinced that young people planning to buy property in two or three years’ time are being pressured to bring forward their purchase plans by products such as 100% mortgages, creating artificially high demand.



He said financial institutions giving a 100% mortgage needed price increases in the market to cover their investment should anything happen. “So they are banking on, hoping for, and deliberately fuelling, price increases. The Financial Regulator has powers but I have been disappointed that action at that sort of higher level has not been taken.”

Ahern pointed out that the construction sector was building 23,000 houses a year in the early 1990s, but had increased output to a record 77,000 units by 2004.

While final output figures for 2005 are not yet available, Ahern said all the indicators suggested that the construction industry would probably match the 77,000 figure or slightly surpass it.

However, the minister said the trend in house prices had not followed the path predicted by most analysts in the light of increased housing supply.

While experts a year ago were forecasting increases of between 5% and 7% in 2006, the consensus now was that house price increases would again be well into double figures because demand was continuing to outstrip even these record levels of supply.

“The financial institutions compete vigorously among themselves, but they all play the game and they don’t badmouth one another,” Ahern said.

He accepted that only a small proportion of borrowers would qualify for 100% mortgages but said that the heavy marketing of the product was “throwing petrol on the fire when there was no need to” and hyping up overall housing demand.

“Everyone is out there trying to make a buck for themselves but there is too much greed coming into the thing,” he said. “If we keep throwing petrol on the fire, so to speak, we are not going to get this soft landing we have been talking about.

“If people are going to be reckless, and I think some of the financial institutions have been reckless — there is too much credit and no control whatsoever — I think that we could all end up in trouble.”
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"i think that we coould all end up in trouble" the government even thinks the housing market is out of control! wait till the sh1t hits the fan they will be blaming everyone except themselves

Captain Trips

Well the "government" didn't approve all the multi-million euro investment loans to construction companies selling overpriced apartments in Ringsend and calling it IFSC, did they?

Comparing it to Japan in the 80s, very similar situation here now. Private home owners are not going to be the cause of the bubble bursting but overe exposure to developers IMHO (and I am not an economist).

That easy commute from Athlone, the gateway to Dublin for €300k, hehe.

People fail to see that you will be sold what you want. Americans want cars, and they get sold cars by the truckload for cheap and easy deals. Irish people love property, so they will be sold property so easy it's like cooking toast. The banks are simply selling a product they know will be purchased by people who love the product.

E.g., Japanese love electronics products, and there you go. Mortgages are just another financial product, and there will be a crash. Maybe not next week or next year but it will happen, just like every other credit-driven country (Ireland is not the magical home of leprechauns who have endless pots of gold) like US and UK.

lostexpectation

Captain Trips wrote:

Well the "government" didn't approve all the multi-million euro investment loans to construction companies selling overpriced apartments in Ringsend and calling it IFSC, did they?

when are you going to stop regurgitating poor indo articles

Meh

The best measure of real demand (rather than speculative fever) in the housing market is rent. According to daft.ie, rents around the country have been static or even declining since 2003 (with a slight recovery since the end of 2004).

A Dub in Glasgo

Where is the article taken from?

Calina

Meh wrote:

The best measure of real demand (rather than speculative fever) in the housing market is rent. According to daft.ie, rents around the country have been static or even declining since 2003 (with a slight recovery since the end of 2004).

anecdotally, they look to be starting to slide a little again.

Sponge Bob

Meh wrote:

The best measure of real demand (rather than speculative fever) in the housing market is rent.

I agrees udderly Meh, if rent is generally dropping in area x then there is an oversupply of accomodation in area x , a simple one that . While the correlation is imprecise (rent COULD go up in area x EVEN while house prices in area x are falling) it is the best indicator of equilibrium in supply and demand .

If rents are tanking, falling widely by 10% or more year on year then the oversupply of accomodation is great ...and widely so.

I stopped believing both in soft landings and in rudolf the rednosed reindeer but one indicator did lag the other I must confess so I cannot derive a correlative from my experience