1 in 5 Homeowners are now in negative equity (340,000 people)

RATM

From todays Indo, makes for sobering reading.

http://www.independent.ie/business/personal-finance/property-mortgages/home-debttrap-hits-340000-1743497.html

AS many as 340,000 people could now be in negative equity following a sharp fall in house prices.

New research which reveals up to a third of a million people owe more on their mortgage than their homes are worth is considerably higher than recent estimates that found 250,000 homeowners were in negative equity.

Being in negative equity means you cannot switch mortgages for a better deal, fund a move to a larger home to start a family, or move house to take a job somewhere else.

Economist with property website Daft.ie Ronan Lyons has calculated that 340,000 people, or one in five homes, are now in this predicament.

"That's 340,000 homes where if the homeowners have to sell, they will not be able to pay the bank back solely through the money they get from selling the house," Mr Lyons said on his blog site (ronanlyons.wordpress.com).

The findings are broadly in line with a survey by Amarach Research in February, which found that 15pc of those with a mortgage thought their homes were worth less than they paid for them.

Mr Lyons estimates many of the homes bought in the past five years are in negative equity, especially those where a 100pc mortgage was taken out.

But even many of those who took out a mortgage since 2004 with a mortgage for 70pc of the value of the property (ie they had a deposit of 30pc of the value of the property) would also now be in negative equity.

People in negative equity have been characterised as being "prisoners in their own homes" as they cannot trade up or switch mortgage providers.

harsea8

If it is true, then it kinda pisses on the viewpoint that a further 50% drop in house prices would be good for the economy (aka Mr McWilliams). Somehow, I can't see that having a third of the population (or potentially more if house prices continue to decline) effectively trapped in their homes for the foreseeable future due to negative equity would be a good thing for the countries economy.

oceanclub

harsea8 wrote: »

Somehow, I can't see that having a third of the population (or potentially more if house prices continue to decline) effectively trapped in their homes for the foreseeable future due to negative equity would be a good thing for the countries economy.

"Trapped" in their homes is hyperbole, unless you think that not being able to trade up is a human rights abuse. People with negative equity will have to live where they are for now. But they still have a house; life will go on. Meanwhile, if property prices come down, rents will also drop, wages will not have to so high in order to meet the basic human need of shelter, and there may be light at the end of the tunnel.

P.

ntlbell

harsea8 wrote: »

Somehow, I can't see that having a third of the population (or potentially more if house prices continue to decline) effectively living in their homes for the foreseeable future due to negative equity would be a good thing for the countries economy.

fyp

engrish?

oceanclub wrote: »

"Trapped" in their homes is hyperbole, unless you think that not being able to trade up is a human rights abuse. People with negative equity will have to live where they are for now. But they still have a house; life will go on. Meanwhile, if property prices come down, rents will also drop, wages will not have to so high in order to meet the basic human need of shelter, and there may be light at the end of the tunnel.

P.

Thank you for teaching me a new word!


In terms of a 50% drop, I really cant see it going that far. Personally, I live in a €400,000 house worth €300,000. I really dont care, its my house, and I love it. I liked it when it was going up in value, I still like it when its going down! Do I see it being worth €150,000 in 3 years? No way.

Tigger

engrish? wrote: »

Thank you for teaching me a new word!


In terms of a 50% drop, I really cant see it going that far. Personally, I live in a €400,000 house worth €300,000. I really dont care, its my house, and I love it. I liked it when it was going up in value, I still like it when its going down! Do I see it being worth €150,000 in 3 years? No way.

you live in a €200,000 house worth €300,000 most likley

no-one believed me when i told them to sell thier houses and rent
i will soo be living morgagae free because i had the courage of my convictions

no-one belived me when i told then that a €300,000 three bed in a "commuter town" would crash in value leaving them paying off dead money (negative equity is far worse that people think, if you have a house you ca't sell you have to pay it off over 30 odd years thats double so a €270,000 mortgage is probably €540,000 on a house thats worth what €240,000 €180,000?)

is it gonna get worse i don't know but i wouldn't be paying €295,000 for a one be in an industrial estate just yet!

ntlbell

https://www.youtube.com/watch?v=0Lwlr5ZAoQ4

oceanclub

engrish? wrote: »

Thank you for teaching me a new word!
In terms of a 50% drop, I really cant see it going that far. Personally, I live in a €400,000 house worth €300,000. I really dont care, its my house, and I love it. I liked it when it was going up in value, I still like it when its going down! Do I see it being worth €150,000 in 3 years? No way.

Conventional wisdom originally said your €400K home would have double-digit increases at least 'til 2015 and steady rises after, and that land here - in one of the most unpopulated countries in the world, not far behind Afghanistan (*)- was bizarrely a scarce commodity.

Then conventional wisdom said that we'd see a "plateau" or "soft landing", despite this never having happened in the history of property bubbles.

Conventional wisdom swiftly followed up with confident pronouncements that, actually , what we were seeing was merely a long needed "correction", a correction that conventional wisdom itself had never forecast was either needed or would happen.

Conventional wisdom has now stated, more times than I care to remember, over the past 3 years, that we've definitely hit the bottom of the market and that there is value to be had. And in the form of Tom Parlon, conventional wisdom is trying to protect developers - who enjoyed the fruits of capitalism - from certain of its drawbacks (that is, when you overproduce a commodity, its price drops.)

We're in uncharted waters; hic sunt dracones.

P.

(*) http://en.wikipedia.org/wiki/List_of_countries_by_population_density

(The situation is worse when you consider that most land here is habitable, with no vast mountain ranges or uninhabitable areas such as desert.)

Fozzie Bear

engrish? wrote: »

Do I see it being worth €150,000 in 3 years? No way.

Not trying to be smart with you but.....

Your opinion is not exactly unbiased now, is it? Your a home owner and do not want to accept a potential loss of 250,000 which is perfectly understandable. You may not see it dropping to 150,000 but that does not mean it will not happen. Did you honestly see it dropping to 300,000 when you bought the house for 400,000?

It's a very bitter pill to swallow to think that you (like 350,000 others) are in negative equity and lost 100,000+ in the space of a year/18 months. This is one of many reasons why we are still seeing ridiculously high asking prices. People cannot yet accept that they are going to loose large amounts of money on their homes. Instead of cutting their losses now and selling for less then the house beside them they will wait until everyone finally cops on and drops prices. By then of course they will have lost the advantage as all the houses will be priced lower and similarly.

I don't take any delight in this, its a very harsh lesson and not one thank God I find myself in. I will keeping waiting and watching until prices come down to a realistic level before I take the plunge. Be that 3 weeks, months or years, in the end prices will fall a further significant percentage from the bubbles highs. Its simply economics and the example of other countries that have gone through the same that demand prices will drop further.

McWilliams has called it more or less correctly up to this point and I see no reason to start doubting him now. But for him and a (very) few other discenting voices back in the good ol days I would have rushed out and bought like all my friends and most of the country.

the_syco

So.... four fifths of the houses were built before the boom, yeah?

ionapaul

BOI Annual Shareholder Meeting wrote:

9:16 *BANK OF IRELAND ASSUMES 45% IRISH HOUSE PRICE FALL FROM PEAK

This is from this morning; BOI (and all the other banks) have consistantly under-estimated the effect the current crisis has had on asset prices and the economy thus far - it would be wise to assume -45% is the best case scenario.

ronbyrne2005

the_syco wrote: »

So.... four fifths of the houses were built before the boom, yeah?

Basically. I read in that 60-70% of Irish homes have no mortgages attached to them. Then theres the people with very small mortgages left. Basically anyone who bought in past 7 years (or more maybe) with 95% or more mortgages are in neg equity now.

oceanclub

ronbyrne2005 wrote: »

Basically. I read in that 60-70% of Irish homes have no mortgages attached to them. Then theres the people with very small mortgages left. Basically anyone who bought in past 7 years (or more maybe) with 95% or more mortgages are in neg equity now.

A third of Irish houses were built in the last 10 years (1999 - 2009)

http://www.esri.ie/irish_economy/permanent_tsbesri_house_p/

I presume the vast majority of those would have a mortgage attached. And I presume the same would apply to those built from 1992 to 1999 as well.

P.

gurramok

What about the BTL's on their multiple mortgages or no mortgages at all?

Won't they skew the figures a bit when 40% of new builds were bought by them in 2006?

whizzbang

ronbyrne2005 wrote: »

Basically. I read in that 60-70% of Irish homes have no mortgages attached to them. Then theres the people with very small mortgages left. Basically anyone who bought in past 7 years (or more maybe) with 95% or more mortgages are in neg equity now.

There are a significant number of homes that have never been sold so that may skew the "homes with no mortgages" figures.

oceanclub

whizzbang wrote: »

There are a significant number of homes that have never been sold so that may skew the "homes with no mortgages" figures.

250,000 empties at the last count. We could house the Tamil population of Sri Lanka with not much of a squeeze.

P.

ronbyrne2005

oceanclub wrote: »

250,000 empties at the last count. We could house the Tamil population of Sri Lanka with not much of a squeeze.

P.

Dont be giving FF ideas. They would happily import 200,000 refugess to create demand for their builder mate's houses but irish public are quite anti immigration in current economic climate.

whizzbang

How about we sell them to the Maldivians?
http://www.guardian.co.uk/environment/2008/nov/10/maldives-climate-change

mrgaa1

oceanclub wrote: »

250,000 empties at the last count. We could house the Tamil population of Sri Lanka with not much of a squeeze.

P.

250,000 empties - who counted them? Does this include all the houses/apartments that no-one will ever live in due to the area/estate they are in - the bricked/boarded up windows dwellings that existed before the boom?

And so what if there is negative equity - when you buy a new car its worth less, when you buy a new TV its worth less, a new computer its worth less. You take out a pension - the value can go up as well as down. Nothing is worth anything until its sold. If you look to sell and know you are going to get less than what you paid for it so be it. If you get more than what you paid so be it. This absolute bull**** about negative equity - its a lovely media term that means diddly squat. If one reporter would have the balls to stand up say "Yes there are lots of home owners in negative equity but they are only in negative equity if they try to sell their home" then I'd listen otherwise its no big deal.
And don't anyone say its a big deal to the homeowner. It can't be. They bought the house knowing that house prices can go up as well as down. Ignorance shouldn't be acceptable. You just have to accept the bad times with the good times.
Everything that you purchase is a risk. I've just bought a piano at ridiculous money - I know its not going to be worth what I paid for it again - ever. It will still work and play well - not by my hands - but I accept that what i've just bought will never be worth what I've paid for it.
I'm sorry but I have absolutely no sympathy for anyone in the "negative equity" position. We're all in it in some way and we'll just have to get on with it because there ain't a whole pile we can do about it.

oceanclub

mrgaa1 wrote: »

250,000 empties - who counted them?

The Central Statistics Office.

And so what if there is negative equity - when you buy a new car its worth less, when you buy a new TV its worth less, a new computer its worth less.

All these items generally get obsolete and wear out. Houses are not considered that way. Houses do not normally lose their "real" value - funnily enough, they do not gain much either.

"Yes there are lots of home owners in negative equity but they are only in negative equity if they try to sell their home" then I'd listen otherwise its no big deal.

Ah yeah, no bother to spend €400,000 on a house a few years ago that's worth €300,000 now. Sure, it's only made-up figures; it's not real money.

PS: You said 2 months ago we're not far from the bottom. How much longer do we have to go now?

P.

The_Conductor

oceanclub wrote: »

"Trapped" in their homes is hyperbole, unless you think that not being able to trade up is a human rights abuse. People with negative equity will have to live where they are for now. But they still have a house; life will go on. Meanwhile, if property prices come down, rents will also drop, wages will not have to so high in order to meet the basic human need of shelter, and there may be light at the end of the tunnel.

P.

'Trapped' in so far as they are not allowed by their mortgage providors to sell the property come what may. Its a bit sensationalistic- but when you consider that mobility is necessary in the modern world- and the sorts of jobs which are more and more common- and being pushed by the government- mean people can be asked to up sticks and move pretty readily- it most certainly is a problem.......

harsea8

exactly...they are not "trapped" in the traditional sense of the word, but if they lose their job they are restricted to reemployment with an area in which commuting is possible. This restriction, if applied to a sizable portion of the population over a prolonged period of time, could lead to more people having to sign on when they are let go, as they simply cannot find a job in their area and they cannot move to where the jobs may be.

One plus point is that remote or home working is becoming more popular for many office-based positions so that helps if you cannot physically move

bobbiw

engrish? wrote: »

Thank you for teaching me a new word!


In terms of a 50% drop, I really cant see it going that far. Personally, I live in a €400,000 house worth €300,000. I really dont care, its my house, and I love it. I liked it when it was going up in value, I still like it when its going down! Do I see it being worth €150,000 in 3 years? No way.

I understand your view. Irish property for a long time was a way to make money. Not so much now. If your property was 400k will it be 150k.

To be honest no one knows, its very likely that it will drop to 200k or around that in the next 24 months. Beyond that who is to say.

The main thing is that property is not selling. And it will continue to slow down.

Ireland isint facing a slight recession its facing a collapse of the housing market.

One thing is for sure, what you buy today is unlikely to be the same price for 10 years.

The_Conductor

bobbiw wrote: »

Ireland isint facing a slight recession its facing a collapse of the housing market.

To be honest with you- the collapse of the housing market is more sympthomathic of an overall malaise in the Irish economy than anything else. There are far worse economic troubles here- Irish government borrowing may hit 12% of GDP this year- and we are forced to account for the cost of our banking bailout- our national debt will be just under 400% of GDP.

Most people (who haven't lost their jobs) have already had a 20-30% cut in the net take-home pay- with further significant cuts likely when the 2010 budget is announced- along with a range of measures which are going to further notably destroy sentiment here (such as property taxes, increased sales taxes (VAT), large increases in direct taxation (possibly increases of between 30 and 40% on current levels), etc.

That people are in negative equity will almost not register- but as interest rates start to rise (as they will when conditions improve in the major EU economies- the average Irish person with their debts- is going to sink.

There is only so much tax someone can pay- before they hit breaking point- and they still have to pay their bills from the remainder- the assumptions the government make- simply do not add up........

Zambia

Sadly I would say a a piont in Time the the housing market became the Irish economy. Both where so well entangled one could not sink without dragging the other down.

Every time I hear a report on ireland on the BBC world service and European Stations I hear the same quote in relation to EC recovery.

"Economies heavily dependant on housing like Spain and Ireland will take some time longer to recover."

Instead of looking elsewhere to rebuild the economy I get the idea that everyone in Ireland especially FF is simply waiting for the property rollercoster to start again.

gibo_ie

Bank of Ireland has a little over 12,300 who has the rest of these supposed 340,000 ???
http://www.independent.ie/business/personal-finance/property-mortgages/over-12000-boi-customers-in-negative-equity-1744560.html

The affected borrowers account for 6pc of the bank's 195,000 Irish mortgages.

Group Governor Richard Burrows said yesterday he will be retiring in July, saying: "Accountability for these losses must be taken at the top."

Ha! Retire! With a big fat pension no doubt. If any of these were truly accountable they would have been fired.

So gibo_ie...Try not to fall for too much of a banks bull****. They're hardly going to come out and confess how badly they ****ed up now are they?

dan_d

The biggest part of the problem is that.....you could deal with negative equity (well kind of, besides a certain amount of bitterness!) if you don't have to sell your house and buy something bigger.
A large part of our problems is that hundreds of shoeboxes were built and loads of people paid over the odds for "starter homes". Now they need something bigger - as in a 3/4 bed as opposed to a 1/2 bed - and they are in serious negative equity, because let's face it no one in their right mind will pay 350,000 - 450,000 for a 1/2 bed anything anymore.
Totally agree with smccarrick here.The sums aren't adding up. You can't tax people to the hilt when they are also taking pay cuts, and paying for the massive mortgages the same gov allowed to develop in recent years. At some point the money has to start coming from elsewhere. Like halving the wages of the advisors and management and consultants to gov depts!!!

johnnyskeleton

gibo_ie wrote: »

Bank of Ireland has a little over 12,300 who has the rest of these supposed 340,000 ???
http://www.independent.ie/business/personal-finance/property-mortgages/over-12000-boi-customers-in-negative-equity-1744560.html

It's probably one of those statistical things, as in the banks do everything to reduce the numbers without outright lying. The 340k figure is probably nearer to the truth, but equally the daft research could have been by questionnaire and so people might exagerrate. Another thing the banks do is calculate negative equity based on purchase price e.g. 100% loan taken out in 2006 would be in negative equity if a few payments were missed.

Ultimately people don't really know because there is no accurate way of knowing what property is actually selling for at the moment.

johnnyskeleton

dan_d wrote: »

The biggest part of the problem is that.....you could deal with negative equity (well kind of, besides a certain amount of bitterness!) if you don't have to sell your house and buy something bigger.
A large part of our problems is that hundreds of shoeboxes were built and loads of people paid over the odds for "starter homes". Now they need something bigger - as in a 3/4 bed as opposed to a 1/2 bed - and they are in serious negative equity, because let's face it no one in their right mind will pay 350,000 - 450,000 for a 1/2 bed anything anymore.

The really nasty thing to come from the property bubble is the idea that young families, maybe on €25-30k from a single earner, should not be able to afford even a modest 3/4 bed house and that they should be lucky to get a small badly built apartment far from where they actually want to live.