Negative Equity - can/will it happen?

faceman

Western_sean wrote:

Are these criteria are completely appropriate in a country with such a low population density?

ok heres my rant again, it almost a cut and paste from other threads!

Those of u who have studied geography and economics will understand this i think.

If you want to compare ireland to other countries, fine lets do that.

Ireland has 1 main CBD (Central Business District). Everything hinges off dublin. The UK has london, liverpool, birmingham, manchester, edinburgh, you get my drift. Cork, galway etc, do not compare to those cities.

The best paying jobs are GENERALLY in dublin. Its not easy to uproot from dublin and live elsewhere because:
a) the infrastructure is non existent outside dublin
b) there are fewer high paying employment opportunities outside dublin. There are higher risks associated with such a move, e.g. 1 or 2 big multinationals in a town, one goes boom and your future employment opportunities in the area are grim.

Regarding infrastructure, take travel for example. I recently read in the papers it was taking people living in clonee/clonsilla 90 minutes in rush hour to get to dublin city centre. thats only a 12 mile journey. How long does it take a similar journey in e.g. london, amsterdam, berlin? not 90 minutes!

If its taking people as individuals travelling to work that long, think of the impact on people trying to conduct business!

so gettin back to my original point, we dont have the luxury in this country in uprootin from dublin and moving elsewhere on our lovely island in alot of cases. If we did, the property game would be totally different and prices wouldnt suddenly rise sharply the closer you get to dublin.

Its doesnt take a genius to work out that we have shoite loads of land in this country where we could build houses. Makes bog all difference for the foreseeable future if there aint employment opportunities close by or decent infrastruture to get you there.

So you can compare ireland all you want to other countries you want all around the world. Its being done a million times over in the papers and on this website. But you cant compare apples and oranges.

I dont agree with our setup, but thats reality. Want it change, vote for someone in the election who will make it happen.

People in their mid 20's can afford 500k mortgages these days. the property market will halt at the price thats affordable. We're too property owning hungry in ireland to majorly affect this as its in our genes to want to own our own home. France, germany and other european destinations dont all share that desire. (E.g. in some areas in germany, its more common for people to buy what we would consider a second home/holiday home and rent in the cities closer to where they work)

anyway rant over, have a great weekend people!

Raskolnikov

Deleted User wrote:

Oh my God - look at other European Cities before you make statements like that!!

http://www.daft.ie/7203081

http://www.daft.ie/7286897

http://www.daft.ie/7270514

Berlin and Leipzig are not typical European cities so you can not pretend that their prices are typical for Europe. Why is it that the only property being flogged for cheap in Germany is in the former East? Use google and you'll find out why, wealth of articles detailing massive unemployment and depopulation.

gurramok

faceman wrote:

People in their mid 20's can afford 500k mortgages these days.

LOL...people in their 20's on maybe 56k salary each(112k x 4.5 joint income), not many of them around!
Its amazing how bulls pull figures out of thin air without reality, like La-La land

Hellrazer

what_car wrote:

5 weeks ago a house went on market at 440,000... still for sale.

last week price was reduced to 400,000............ still for sale..........
the housing market has slowed considerably......its all about affordability
and current interest rate hikes dont help... also read recently in the news that the number of mortgages being approved has also dropped ....

If you ask me I`d say based on those figures that theres an ideal example of what could happen in the future regarding neagative equity.

Imagine that house was bought by a purchaser last year for 420,000(being reasonable here assuming an increase in price of 5% )
This person has a 100% mortgage or possibly more considering the banks these days.

For some reason or another they have to move--work,family whatever.
Straight away you have a case of negative equity.If the house sells for only 400,000 that person still owes the bank 20,000.

With all these job losses lately in multinationals the above "prediction" is going to become more commonplace especially in the commuter belt where these multinationals base themselves.

daveirl

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daveirl

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gyppo

A lot of very valid points raised on this thread - however the point I would reiterate is the percieved demand for housing - how much of this demand is for rental to migrant workers whose future here is not guaranteed?

For example, if you were a polish worker coming over here to work, why would you rent here for the rest of your life, when you could return to your native country after a few years and buy a property for a fraction of the price it would cost here?

And when they do return home/move elsewhere, what do you do with all the empty accomodation then?

Negative Equity is a reality for some people

http://www.youtube.com/watch?v=SfR816vhcoQ

faceman

daveirl wrote:

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thats fine for cork. Its probably the next big city but incomparable to dublin. Its a small city. Not as many big companies there as dublin. Do the math.

daveirl wrote:

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Those acres and acres dont have houses on them because of zoning laws and government red tape. You need to challenge the goverment on that, not me cos there aint houses on it now is there kiddo?

daveirl wrote:

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if you're goin to offer decent debate then dont use methods like this. I never said ireland is entirely unique. I merely used comparisons to countries which, if you read the property debates on boards, regularly come up. If you think im wrong, then prove it. Compare ireland to the UK, germany etc. I cant wait to hear it.

daveirl wrote:

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dont understand what you mean here.

Maybe to help, rather than shooting my points down 1 by 1 like some begrudger, why not offer your argument/opinion in thought out detail with examples?

faceman

gyppo wrote:

A lot of very valid points raised on this thread - however the point I would reiterate is the percieved demand for housing - how much of this demand is for rental to migrant workers whose future here is not guaranteed?

For example, if you were a polish worker coming over here to work, why would you rent here for the rest of your life, when you could return to your native country after a few years and buy a property for a fraction of the price it would cost here?

And when they do return home/move elsewhere, what do you do with all the empty accomodation then?

This is a often a topic of discussion and at the moment no one can tell. My opinion of eastern european migrants is that unless the economy in their country improves to the likes of the rest of europe, then they have no financial incentive to return home permanently. But again Im only speculating but basing it on the existing indian/pakistan population in ireland who in recent figures represent a higher proportion of FTB's. (They have now built up a good credit history in ireland, thus the banks can offer high loans)

tallaght01

daveirl, Ireland IS different. If you're living in the UK and want affordable housing you can live in a variety of cities, yet still work for a large company with good prospects.....and imporantly, if that company goes bang you'll still have a chance of finding another job. Cities like Birminghman, Manchester, Glasgow, Liverpool etc offer these oportunities. Leitrim and Mayo don't. I agree with Faceman that a huge amount of our problems stem from the fact that we are dublin-centric, and that we have, essentially, one CBD for an entire country. It puts huge pressure on a single housing market, and the surrounding commuter belt.
I also dunno bout these swathes of green that you're referring to in Dublin. Seems to me they're building on strawberry patches nowadays.
And do you also really believe that there aren't ppl in their 20s who can afford a 500k gaff? I think it's yourself and gurramok who r living in La-La land, mate

daveirl

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I dont know what your all arguing about because to answer the thread title

Can negative equity happen?
Yes it can

Will it happen?
Only if people who bought recently sell up in the next while

jimmycrackcorm

Does anyone actually know of someone with negative equity?

Smoggy

Negative equity will be quite rare at the moment, but I have no doubt that there are people out there who are in this situation. Most of them will be FTB's and won't realise that this is the case and in many cases wont care as they will be in the house x amount of years.

Gurgle

Deleted User wrote:

Only if people who bought recently sell up in the next while

jimmycrackcorm wrote:

Does anyone actually know of someone with negative equity?

Smoggy wrote:

Negative equity will be quite rare at the moment

Does anyone actually know what negative equity is?

If you owe more than the value of what you own, you have negative equity.

If you buy a house with a 100% mortgage and borrow separately e.g. to pay the stamp duty, you have negative equity before you even get the keys.

So yes, thousands of people have negative equity.

When I bought my house, I got a 92% mortgage and borrowed the deposit from the credit union, along with £3k to furnish the house. I had negative equity until the FTB grant came through.

Its just another buzz-word for pretend analysts to bounce around.

Smoggy

I'm using the term "Negative equity" to mean that the amount your paying back for your place is more than it's current market value. I think thats what most people take it as.

"Negative equity is a term used in the housing market, usually following a general fall in property prices, to mean that the market value of a mortgaged house or flat is less than the amount outstanding on the loan used to purchase it"

Pa ElGrande

Negative equity is a term applied to property when the market value at which it will sell it is less that the oustanding debt secured against that property.
If you think about it, we take out car loans all the time, the minute we drive off the car sales forecourt we are already in negative equity (depreciation + loan + interest), so its an every day occurance.

When it comes to property it becomes an issue if you need to sell your house (a job move, growing family, or situation where you cannot meet the debt repayments - e.g unemployment, illness).
An observed trend in recent years has been young couples buying two bed apartments, in the expectation of being able to trade up to a three, four bed house in three to five years based on capital appreciation, in a rising market this strategy is feasible, in a flat or decling market it backfires.

It breaks the mythical 'housing ladder' as it becomes more difficult to raise the funds necessary to trade up and introduces a moral hazard risk for creditors. i.e. Am I going to keep paying a €500,000 mortgage on a property that's now worth €300,000, or will I skip the country to New Zealand? Banks have to increase their bad debt provision as a result.

Problems arise when your creditors won't allow you to sell, unless you can repay the debts outstanding, in such case you may find yourself tied to an area longer than you intended. It has been shown from studies that negative equity in housing affects social mobility and family formation.

Another consequence is that it reduces or eliminates home owners ability to subsidise their standard of living by using mortgage equity withdrawal (Top-up mortgages), thus having a knock on effect on such items as car sales, holidays, home improvements with a knock on effect on the economy.

References:

Home-owners on new estates in the 1990s
http://www.jrf.org.uk/knowledge/findings/housing/H212.asp

Negative Equity and British Housing in the 1990s: Cause and Effect
http://taylorandfrancis.metapress.com/content/cq03a0thyqh6385r/

faceman

Pa ElGrande wrote:

An observed trend in recent years has been young couples buying two bed apartments, in the expectation of being able to trade up to a three, four bed house in three to five years based on capital appreciation, in a rising market this strategy is feasible, in a flat or decling market it backfires.

Even though I dont always agree with you in a prior debates my friend, im 100% with you on this one. People will often tell you that their first home is just a stepping stone, and with cap. apprec. they will buy something bigger and better. But its all relative. Its not like your home will go up 30% and your dream 4 bed detatched will remain at 0% growth in the interim! Its a false prophet.

bico

gyppo wrote:

A lot of very valid points raised on this thread - however the point I would reiterate is the percieved demand for housing - how much of this demand is for rental to migrant workers whose future here is not guaranteed?

For example, if you were a polish worker coming over here to work, why would you rent here for the rest of your life, when you could return to your native country after a few years and buy a property for a fraction of the price it would cost here?

And when they do return home/move elsewhere, what do you do with all the empty accomodation then?

Ireland only recently reached the population it had a century ago and must be unique in the world where the global population more than doubled over the past century .
People in this country asume " they'll all go back when it's over". I don't think so . If people keep moving to cities that are much poorer with very high unemployment rates like Sao Paulo , Johannesburg , Mumbai etc , why will they decide not to come to Dublin with GDP per capita that is 120% the European average and an unemployment rate of 4-5% .
Because fortress Europe will keep the desperate , hungry and ambitious out ?
If you think it's going to end up like the 1980's with loads of empty buildings and vacant houses - then dream on

gyppo

bico wrote:

Ireland only recently reached the population it had a century ago and must be unique in the world where the global population more than doubled over the past century .
People in this country asume " they'll all go back when it's over". I don't think so . If people keep moving to cities that are much poorer with very high unemployment rates like Sao Paulo , Johannesburg , Mumbai etc , why will they decide not to come to Dublin with GDP per capita that is 120% the European average and an unemployment rate of 4-5% .
Because fortress Europe will keep the desperate , hungry and ambitious out ?
If you think it's going to end up like the 1980's with loads of empty buildings and vacant houses - then dream on

Any Polish people I've spoken to are here to earn money to buy a property back in their own country - that puts them as a transient factor in the accomodation market here, imo.

Afuera

gyppo wrote:

Any Polish people I've spoken to are here to earn money to buy a property back in their own country - that puts them as a transient factor in the accomodation market here, imo.

Ditto for any of the Spanish and Italians I know. I really can't imagine them hanging around in Ireland should unemployment start to rise when the economy inevitably encounters a slump. They complain enough about the weather, food, transport and costs etc. that I feel many of them would be quite happy to move on, except there's no great alternative closer to home... yet.

Western_sean

If you think it's going to end up like the 1980's with loads of empty buildings and vacant houses - then dream on

Why not? We have no control of our interest rates now, we have sod all small business except construction, I think by July we will have the 2nd highest minimum wage in the world, our highest value product at present is low tax rates and regulatory arbitrage. Both of which are easily replicated.What exactly will support this economy if housing demand doesn't pick up?

Cantab.

Western_sean wrote:

Why not? We have no control of our interest rates now, we have sod all small business except construction, I think by July we will have the 2nd highest minimum wage in the world, our highest value product at present is low tax rates and regulatory arbitrage. Both of which are easily replicated.What exactly will support this economy if housing demand doesn't pick up?

Maybe we should go back to what we're good at:

- tourism
- aim to be global leaders in "green" energy (not just tag-alongs)
- food: meats, quality dairy products (+ get rid of the hand-out culture amongst the farmers who feel they're entitled to subsidies to support their lifestyle choice)
- hard work
- cute-hoorism (it would be great if we could turn this into a positive thing like Michael O'Leary and Sean Quinn have done - encourage a competitive culture where people "go out and get it" for themselves without resorting to government hand-outs and screwing other people over)

Ireland as a tax dump is not sustainable - it should be acknowledged that this is the case. We've dug the hole and it's almost full - we now need to use the cash injection to promote indigenous and sustainable enterprise. The immigrants have almost milked the cow dry at this stage and will be heading off to pastures greener soon - it should be realised that mass migration is a by-product of EU integration.

Do-more

bico wrote:

If you think it's going to end up like the 1980's with loads of empty buildings and vacant houses - then dream on

Take a trip down to Co. Longford and witness it now.

Villages such as Keenagh, Drumlish etc. have quadrupled in size in the last few years but many of the houses have not been sold. The hamlet of Moydow for example was a pub and a few houses before this, but some bright spark decided to build a small estate of 13 detached houses, very attractive designs and each on half an acre. The estate is complete almost a year now and only 7 houses have been sold and only 3 are occupied (as of two weeks ago) All built because of tax incentives and not because of any inherent demand. The same is the case all over Longford, Cavan, Roscommon etc.

Many may well be purchased by County councils in the future for social housing, but the fact is that there are so many that I doubt that all can be absorbed in that way.