Negative equity-Whats the big deal?

clairefontaine

I thought I read it in yesterday's Independent. Maybe I misread it and it was speculative.

Yes I know there is nothing in the article that mentions the figure- and I did point that out. But it was on a news announcement in the credit union.

Here is a better one.
http://www.broadsheet.ie/2013/04/26/a-e140-million-write-off-from-bank-of-ireland-and-aib/

So you mention myths floating around. Yes I would say this is more than likely in Tir Na Nog, where I see news announcements in the credit union queue but I can't verify them online.

So... doesn't Ireland have a very low repossession rate? What would the banks do with all those houses? Who would they sell them to? Is it because they are in so much negative equity that the banks would rather wait to repossess and sell them when they have resumed some value?

SBWife

The INM deal is a debt for equity swap with the percentage of equity involved contingent on the restructuring of the pension deficit and the company raising some new equity.

BUT the headline at RTE says €140m write off. It's always a problem when you have a financially illiterate sub-ed, who then gets quoted by the masses.

gaius c

Geuze wrote: »

Yes, it's bad that large firms like INM can negotiate debt writedowns, while it's nearly impossible for housholds.

See here:

http://namawinelake.wordpress.com/2013/04/21/the-thomas-crosbie-debt-write-off/

http://namawinelake.wordpress.com/2013/03/27/who-will-control-inm-after-the-mooted-debt-for-equity-swap/

You are aware that the end result of that deal was that the O'Reillys no longer control INM, i.e. they relinquished control of their asset (through dilution of their shareholding)?

You may not realise it but you've just advocated for repossessions and negotiation over any outstanding amounts.

gaius c

Geuze wrote: »

A mortgage is a liability to the household.

It is an asset to the lending bank.

You suggest that the bank buy the private mortgage.

But they already own the mortgage.

I think what you suggest is that the bank swap some of the mortgage loan for a share in the house??

They also hold the deeds to the house as well. Why would they give away money to buy a stake in an asset that they effectively own already?

y0ssar1an22

Thanks for all the replies. The country is certainly divided on this point. Some of the answers went over my head as I'm not an economic/finance expert.
What I do know is that economics is based upon supply and demand. Did we, the people, not create this bubble? We supplied the demand that caused the massive increase in house prices. In a country of ~4m (?) surely this demand was not sustainable and house prices would eventually fall? Just seems common sense to me.

As for the people in negative equity...I can sort of identify 4 categories of people:

1. People who bought to let, as an investment. Thats just a bad investment.

2. People who wanted to start a life with their partner or whatever, with a view to selling and up scaling in a few years. Crucially they may have known the mortgage was not sustainable and relied on the house price rising. Still an investment, really.

3. People who, whether due to tax rises/pay cuts, are unable to pay a mortgage. Mortgage was sustainable before pay cut/tax increases. Possibly over extended themselves and should have considered renting. Depends on amount of pay cuts and tax rise. But surely before you take out a mortgage you should consider your income decreasing by 10% and assess whether you can still afford repayments.

4. The people I feel sorry for-people who got laid off. What can these people do? Move into a smaller house? I don't really know. But I dont think this represents a large majority of the people in NE.

Anyway, as I know this is a sensitive issue, I will say this: These are the opinions of someone who is not an expert and may be wrong. Also, whatever happened to renting? Did every one in the country get a hard-on for owning their own house. I always thought you did that when you were in a secure job, and you only buy 1 or 2 houses in your life. Houses seem to have become like cars-wanting to up scale every few years.

Geuze

SBWife wrote: »

The INM deal is a debt for equity swap with the percentage of equity involved contingent on the restructuring of the pension deficit and the company raising some new equity.

BUT the headline at RTE says €140m write off. It's always a problem when you have a financially illiterate sub-ed, who then gets quoted by the masses.

Debt writ-down = 138m

Company worth 20m mkt cap this week.

Debt is reduced, shareholders inject new equity.

Banks end up with a 10m stake.

http://www.irishtimes.com/business/sectors/media-and-marketing/banks-write-off-138m-of-inm-debt-1.1374477

clairefontaine

y0ssar1an22 wrote: »

Thanks for all the replies. The country is certainly divided on this point. Some of the answers went over my head as I'm not an economic/finance expert.
What I do know is that economics is based upon supply and demand. Did we, the people, not create this bubble? We supplied the demand that caused the massive increase in house prices. In a country of ~4m (?) surely this demand was not sustainable and house prices would eventually fall? Just seems common sense to me.

As for the people in negative equity...I can sort of identify 4 categories of people:

1. People who bought to let, as an investment. Thats just a bad investment.

2. People who wanted to start a life with their partner or whatever, with a view to selling and up scaling in a few years. Crucially they may have known the mortgage was not sustainable and relied on the house price rising. Still an investment, really.

3. People who, whether due to tax rises/pay cuts, are unable to pay a mortgage. Mortgage was sustainable before pay cut/tax increases. Possibly over extended themselves and should have considered renting. Depends on amount of pay cuts and tax rise. But surely before you take out a mortgage you should consider your income decreasing by 10% and assess whether you can still afford repayments.

4. The people I feel sorry for-people who got laid off. What can these people do? Move into a smaller house? I don't really know. But I dont think this represents a large majority of the people in NE.

Anyway, as I know this is a sensitive issue, I will say this: These are the opinions of someone who is not an expert and may be wrong. Also, whatever happened to renting? Did every one in the country get a hard-on for owning their own house. I always thought you did that when you were in a secure job, and you only buy 1 or 2 houses in your life. Houses seem to have become like cars-wanting to up scale every few years.

What happened to renting?

Renting was for losers, that's what happened to renting. Like a lot of markets, it works when it convinces them if they don't buy X than they as a person, deep down to the core suck ****. So...buy this... and you won't suck anymore.

In a status driven culture, it works a treat.

So they buy X and fail to notice that in so doing prop up demand and blow a little bit of air into that bubble.

I feel bad for the people who didn't buy anything and are still getting ripped to pieces with the USC.

I despair over people I know who are still moaning and whinging about being broke, while still yapping on their iphones and booking their skiing holidays and paying their three mortgages. I just don't know what to say if that is some people's idea of poverty and being broke and their NE houses.

clairefontaine

Looking through the property pages, it looks to me like there is still a bubble in very boring parts of the southside.

The prices are astronomical and for what?

One was sold in D6 for 300K over its asking price.

Does anyone have a clue of what the prices of housing actually should be?

riclad

Theres a shortage of houses in certain areas, if lots of people wanna live in dublin 6, small no of houses for sale ,demand will cause prices to rise.

Thats how markets work,,houses are not like cars,
in theory someone could make 500k bmws model x,if the demand is there.
Theres no way of making more land,or more sites to build houses ,
in dublin 6 without knocking down existing buildings.
TRY even finding a suitable, site in dublin,6, and getting planning permission to build a house.

The type of person who buys in dublin 6 ,is not gonna buy a house in finglas ,or coolock,no matter how cheap it is.
The price of houses in a certain area reflects the demand, the supply in that area ,
and how easy is it to get a mortgage from an irish bank at the moment.

You could say the same thing, why does someone pay 50k, for a bmw ,
when you can buy a ford car for 15k?
Why do some women spend 300 euro on a designer handbag?

clairefontaine

So if your local council restricts zoning and building, perhaps also warehousing apartments, then you can keep the prices up?

SBWife

clairefontaine wrote: »

So if your local council restricts zoning and building, perhaps also warehousing apartments, then you can keep the prices up?

Won't make a dam bit of difference if no one wants to live there, if there's little or no demand it doesn't matter what you do with supply.

realitykeeper

SBWife wrote: »

Won't make a dam bit of difference if no one wants to live there, if there's little or no demand it doesn't matter what you do with supply.

If Ireland was suddenly populated by Israelis, they would have this shambolic country in perfect economic order within a decade. The ghost estates would become kibbutzes, the "austerity" would be replaced with real austerity and the public sector socialist types would be required to work for a living - after a 90% pay cut is imposed on them.

The negative equity we have seen is only the beginning - unless the Irish experience a collective paradigm shift on a massive scale this cannot be avoided. This is because a global depression is inevitable. Defaulters have to be booted out en masse because they are occupying houses other people want to buy at market prices. People won`t buy until the evictions happen in earnest because the defaulters are keeping the house prices inflated by their on going occupation. By moving them from "their" houses into cheap flats they could finish paying the mortgage on their former residence.

el pasco

realitykeeper wrote: »

If Ireland was suddenly populated by Israelis, they would have this shambolic country in perfect economic order within a decade. The ghost estates would become kibbutzes, the "austerity" would be replaced with real austerity and the public sector socialist types would be required to work for a living - after a 90% pay cut is imposed on them.

The negative equity we have seen is only the beginning - unless the Irish experience a collective paradigm shift on a massive scale this cannot be avoided. This is because a global depression is inevitable. Defaulters have to be booted out en masse because they are occupying houses other people want to buy at market prices. People won`t buy until the evictions happen in earnest because the defaulters are keeping the house prices inflated by their on going occupation. By moving them from "their" houses into cheap flats they could finish paying the mortgage on their former residence.

Your statement doesn't make any sense firsy why would we want or allow mass immigration of Israelis to Ireland?

We can't provide jobs for the people that we have never mind more people

And why would you pick Israelis for?
They are not exactly know for their great economic mangment
The country is bankrupt and to stay afloat has to recieve billions in US aid

Would you not pick say the Swiss who have a very stable economy?

And which Israelis would you pick?
Arab Israelis, Jewsish Israelis or other Israelis or the Palestinians?
If so why?

Even within these groups there are subsets such as in the Jewish Israelis you have Liberal Secular Conservate Orthodox and Ultra Orthodox latter group pay very little tax and don't do military service but have very large families

The budget is eaten up by defence spending and the Arabs will outnumber the Jewish people very soon

Secondly you say that "...by moving them out of "their" houses into cheap flats they could finish paying the mortgage on their former residence"

What drug are you on?
why on earth would you move out of your home to move into a cheap flat and still pay for your home and a flat??
How on earth could they pay for a flat and a house if they currently can't pay for a house at the minute??
Like think about this for a second would you leave your home to move into a small flat but still pay for your home?
What sense does that make?
So you have an empty home which you are paying for and a small flat which you are also paying for but you current cant pay for your home never mind a flat??
Answer that please!!

Secondly where would they go?

Cause the councils don't have the money flats or resources to house them all

Thirdly there is a new bankruptcy law being brought in so the debt would be written off

Fourthly the banks don't have the money to cope with a mass write down of debt and the state who owns the banks doesn't have any money either so they would have to go to EU/ECB/IMF/Germany for another bailout

I seriously doubt that they would want to or even could give us a second bailout especially since we our their only golden boy so to speak and it could destabilise the whole eurozone especially so soon after Cyprus and they couldn't afford that

It is also an election year in Germany so they definetely don't want to give more bailouts

So just as Ireland got near to the end of one bailout we would be dragged straight back into another even worse bailout
The banks would have near impossible lending criteria for a loan never mind a mortgage at the minute so if you think it's hard to get a loan at the minute now then you can forget about it if we get a 2nd bailout and a mortgage would be unthinkable

Finally the price of houses now is cheaper that it cost to build them so you can't get much cheaper and where would the demand come from to buy these houses?
If young people are emigration (so they don't need houses) and if there is a mass default (can't get loans never mind mortgages for at least 5 years) then where will the demand come from??

People only buy houses if they need them or want to invest in say buy to let if there is no demand then no one will buy simple

Why would you cut civil sevant salaries by 90% for
Ever civil servant especially the lower grade have seen pay cuts and many only earn around €25k a year so you want say a Garda nurse or teacher to work for €2.5k a year!!

So please sure answer my post to explain how this would work

realitykeeper

You appear to have misread my post el pasco - you might like to have another go at that.

The Corinthian

realitykeeper wrote: »

If Ireland was suddenly populated by Israelis, they would have this shambolic country in perfect economic order within a decade. The ghost estates would become kibbutzes, the "austerity" would be replaced with real austerity and the public sector socialist types would be required to work for a living - after a 90% pay cut is imposed on them.

LOL. Have you even been in Israel?

el pasco

realitykeeper wrote: »

You appear to have misread my post el pasco - you might like to have another go at that.

Could you please point out to me how I misread your post please Thank you

realitykeeper

el pasco wrote: »

Your statement doesn't make any sense firsy why would we want or allow mass immigration of Israelis to Ireland?

That was not what I said. I was saying if the Irish were all of a sudden zapped to parallel universe and in this universe the Israelis were zapped in our place - they would sort everything out. As for your antisemitic rant, I will not grace it with a reply.

el pasco wrote: »

why on earth would you move out of your home to move into a cheap flat and still pay for your home and a flat??

This is your reading error number two: I did not suggest that you move out of your home voluntarily. I was saying that defaulters really ought to be booted out literally - on the posterior with a steel toe-capped boot. Naturally they would still owe the balance on their mortgage even after the bank seizes the house so in order to pay that they would have to make do with a moldy, rat infested, asbestos laden single room flat. That way you cold keep up the payments on your negative equity. Better still, revenue could seize the money at source on behalf of the bank. (This deals with your second and forth points)

el pasco wrote: »

Thirdly there is a new bankruptcy law being brought in so the debt would be written off

In that case, everyone else is entitled to a free house too.

el pasco wrote: »

Finally the price of houses now is cheaper that it cost to build them so you can't get much cheaper and where would the demand come from to buy these houses?
If young people are emigration (so they don't need houses) and if there is a mass default (can't get loans never mind mortgages for at least 5 years) then where will the demand come from??

People only buy houses if they need them or want to invest in say buy to let if there is no demand then no one will buy simple

Why would you cut civil sevant salaries by 90% for
Ever civil servant especially the lower grade have seen pay cuts and many only earn around €25k a year so you want say a Garda nurse or teacher to work for €2.5k a year!!

You say the price of houses are cheaper than the cost of building them. Houses could be built at a fraction of their present cost if we a low labour cost economy e.g. an economy which paid our civil servants 10% of their current pay. Added to that, mass evictions would dump thousands of houses on the market which would drive down prices massively - it would be a bonanza for the non-stupid who did not over borrow.

Regarding bailouts - they are not needed. The government, banks and individual borrowers simple have to curtail their spending on themselves and if necessary spend every cent they have on paying what they owe. If that means handing the banks back to their former owners - toxic debt and all, so be it. Let them go bust. The banks cannot withhold deposits because to collect payment from mortgage holders they rely on the co-operation of the Irish judiciary which is subject to Irish legislation.

FREETV

If you all watch the documentary Thrive on youtube then you will learn about how the fractional reserve and negative equity and the controlling con that it is works. It effects you all and you need to watch it people.