Property Market 2019

Bob24

aloooof wrote: »

I could be way off here but would that not be very much on the high side for a civil servants salary?

Yes - we were talking senior civil servants (the bar at which you put senior is arguable I guess, and as far as I know 100k or more jobs do exist in the civil service, but I guess at the 75k point you are including quite a bit more people).

Graham

PokeHerKing wrote: »

How was it put together? What criteria was used? A comparison of Mortgage applications from the mid naughties and the bust years would be a much easier way to measure demand in my opinion.

Reported to the Central Bank by the 5 major banks in the market during 2002 - 2019 as part of The Bank Lending Survey established by the Eurosystem in 2003.

As general indicators go I'd say it's a reasonable source.

If you have a more authoritative source I'd be interested to see the data.

aloooof

Bob24 wrote: »

No one is saying mortgages values didn’t drop and that it wasn’t harder to get one on average.

The simple point is that a good chunk of the population was still able to get one.

Again see the central bank report I posted a fees posts back, the number of mortgage drawdowns in 2011 was 10000 vs 30000 in 2017.

That is a lot less for sure, but one third is still a chunky amount and shows that the bank’s doors were still very much open for someone with a decent salary and stable job - which was the case of large minority of the population.

Thinking out loud here (so possible flaws in my logic), but if supply is taken into account in the context of these figures, it changes the picture.

In other words, if there was greater supply in 2017, I'd imagine the number of drawdown's would have been even higher again? Would supply have been higher in 2011 or 2017?

PokeHerKing

Graham wrote:

If you have a more authoritative source I'd be interested to see the data.

As the poster above has said a Central Bank report showing that banks are currently lending at a third of the ratio they were lending, at the height of the biggest property bubble in the states history. I reckon 2/3rds being property speculation sounds about right.

So the drop off is demand not lending. Obviously tighter criteria is a factor but the simple fact is nobody was speculating after the crash hence lending dropped significantly.

Browney7

Graham wrote: »

Loan demand appeared to remain relatively consistent yet lending fell off a cliff.

That doesn't support the hypothesis that banks facilitated much.

Are the original figures you posted loan drawdown amounts? Looks like 25 billion versus just under 3 billion? Are they total lending figures or just owner occupier purchases?

That 25 billion you'd expect was based on high LTVs on very high property prices - 110% mortgages etc and people having little or no deposits.

Fast forwarding to 2011 the banks were up sh1t creek of which there's no disputing but there looks to be a figure quoted later showing 10000 loan drawdowns? Again, house prices had dropped sharply in that time so the amounts people needed to borrow fell significantly. There is definitely a gearing effect going on here but it's chicken and egg too - did banks reduce lending because they had no one to lend to or because the people that would have borrowed stayed on the sidelines watching it all crumble? Also, unemployment definitely affected younger people more. People who kept their jobs and sitting on cash piles needed to borrow far less.

It's actually in a bank's interest to keep lending to a high quality borrower in recessions as to stop doing so will add fuel to the inferno raging on their balance sheet.

Graham

PokeHerKing wrote: »

As the poster above has said a Central Bank report showing that banks are currently lending at a third of the ratio they were lending, at the height

What do current lending figures tell us about availability of mortgage finance during a recession?

JJJackal

Bob24 wrote: »

Let’s say our civil servant is in 75k, has been saving for a few years and had a 50k deposit. Spouse in similar situation.

They take their 10% pay cut.

Will that get a mortgage? Absolutely yes.

Absolutely they will

House price pre recession 575000
House price post recession 517500 (10% reduction in house prices)

Total mortgage pre recession is: 150K salary therefore about 525 mortgage (repayment 2213 per month at 3% over 30 years)
Take home pay pre recession is lets say 75K per year after tax pension... (50%)

Thus mortgage as percentage of net salary is 35.41%

Total mortgage post recession is: 135k salary (10% cut) therefore about 467.5k mortgage (repayment 1971 per month at 3% over 30 years)

Take home pay (at least 50% tax - these will definitely be the people hit hardest in a recession with tax increases) lets say 67.5K per year after tax pension...

Thus mortgage as percentage of net salary is 35.04%

So if house prices fall 10% (it is possible that it will be greater; I suspect the chances of house prices falling back to 2011/2012 levels are low (for that to happen we would need another worst recession of all times inside 10 years - in which case the civil servant will be getting a 50% drop in income because we wont be able to afford to employ anyone) - a 10-20% drop is more possible) and they lose 10% of income they are in exactly the same situation. In a very bad crash you would think that they lose more than 10% of gross income with much higher increases in tax as they are in the well off group. However if they had bought pre recession they would be x number of years into mortgage (paying down cost of house rather than still renting)

Its interesting to look at someone in 2005 who bought (based on a mortgage of 3.5 times their income rather than a silly figure) versus someone who bought in 2012. What is the difference in cost over the lifetime of the mortgage (assuming that the person who bought in 2012 was paying rent between 2005 and 2012 and the 2005 person is on a tracker).

Edit : of course you could be carrying over the pre recession mortgage into post recession times - very tricky to take in every factor

Graham

Browney7 wrote: »

Fast forwarding to 2011 the banks were up sh1t creek of which there's no disputing but there looks to be a figure quoted later showing 10000 loan drawdowns? Again, house prices had dropped sharply in that time so the amounts people needed to borrow fell significantly. There is definitely a gearing effect going on here but it's chicken and egg too - did banks reduce lending because they had no one to lend to or because the people that would have borrowed stayed on the sidelines watching it all crumble?

Agreed, house prices dropped so average transaction values fell.

House prices didn't drop 90%
Demand didn't drop 90%
Lending dropped to less than 10%.

Anecdotally, plenty of people recognised property prices were unfeasibly low. Very few could do anything about it.

Which brings us right back to the start of the debate. A few quid in the bank is no guarantee you'll be able to finance a house purchase during a recession/crash.

shenanagans

I think it's more to do with the applicant than the bank when it comes to getting a mortgage. If you've a perfect credit record and regular savings they cant refuse you. In a recession if you have a permanent job, savings and good record then you'll get a mortgage....many not large amount but in a crash you won't need huge mortgage.

PokeHerKing

Graham wrote:

What do current lending figures tell us about availability of mortgage finance during a recession?

Well if we're only drawing down 2/3rds more now than we were at the height of the recession I think it shows we were very far from 'not lending' during the recession.

Bob24

JJJackal wrote: »

Absolutely they will

House price pre recession 575000
House price post recession 517500 (10% reduction in house prices)

I think this is not comparing like for like.

For the government to impose significant pay cut to civil servants, we are talking about a bad recession such as the last one, which would have crashed house prices a lot more than 10%.

A lighter recession might reduce or freeze pay progression, but not revert it.

If for your exercise you are making the assumption that pay cuts and tax increases are the same as during the past recession, accordingly you should make the same assumption about house prices.

JJJackal

Bob24 wrote: »

I think this is not comparing like for like.

For the government to impose significant pay cut to civil servants, we are talking about a bad recession such as the last one, which would have crashed house prices a lot more than 10%.

A lighter recession might reduce or freeze pay progression, but not revert it.

I think a light recession now (with the amount of money the irish gov owe) will lead to a lot of pay cuts or tax hikes

I am making an assumption of a small house price and small pay cut - in the last recession the 2 civil servants mentioned could have lost 25% of income? Plus gov had minimal debt so take the hit for longer

I guess its hard to know

aloooof

PokeHerKing wrote: »

Well if we're only drawing down 2/3rds more now than we were at the height of the recession I think it shows we were very far from 'not lending' during the recession.

This isn't accurate. You're out by a factor of 3.

The_Conductor

Bob24 wrote: »

Yes - we were talking senior civil servants (the bar at which you put senior is arguable I guess, and as far as I know 100k or more jobs do exist in the civil service, but I guess at the 75k point you are including quite a bit more people).

I'd imagine its a small enough cohort- you'd be talking about AP or higher grades.

zreba

Worth noting is that small fact that banks didn't run out of capital during the last crash as Irish taxpayer injected money into them (bailed them out).

Banks may not get a second bailout though.

The_Conductor

zreba wrote: »

Worth noting is that small fact that banks didn't run out of capital during the last crash as Irish taxpayer injected money into them (bailed them out).

Banks may not get a second bailout though.

It depends on what happens with their non-performing loans. At the moment they are under EU instruction to bring them down to EU norms (of between 3 and 4%). For example AIB is currently at just under 12%.

zreba

The_Conductor wrote: »

It depends on what happens with their non-performing loans. At the moment they are under EU instruction to bring them down to EU norms (of between 3 and 4%). For example AIB is currently at just under 12%.

Even if they bring them down to near 0%, how much of a price drop can banks sustain before going under water again?

The minimum deposits of 20% add a safety zone of 20% for banks, but FTBs only need 10% deposit. A price drop by 30%-40% and nearly no mortgage withdrawn in the last 3-4 years would be safe.

Considering the above, in my view, banks wouldn't get into big trouble on house price correction of 20%, but 30%+ could cause trouble and decreased lending (up to a halt).

The_Conductor

zreba wrote: »

Even if they bring them down to near 0%, how much of a price drop can banks sustain before going under water again?

The minimum deposits of 20% add a safety zone of 20% for banks, but FTBs only need 10% deposit. A price drop by 30%-40% and nearly no mortgage withdrawn in the last 3-4 years would be safe.

Considering the above, in my view, banks wouldn't get into big trouble on house price correction of 20%, but 30%+ could cause trouble and decreased lending (up to a halt).

In an environment where they can't foreclose on loans, and personal bankruptcy law is pushing all the risk back on lenders- Irish lending institutions can only hope to keep their margins sufficient to cushion any delinquent borrowers. Our levels of delinquency are far above international norms- which is why despite our remarkably high interest rates- international lenders quite simply can't tolerate the risk associated with operating in Ireland.

We need reform of our lending institutions- and the ability to foreclose in a timely manner.

zreba

PokeHerKing wrote: »

Believe me nothing I've said contradicts general economic knowledge. I didn't even realise it would be a contraversial opinion on here. But I'm happy to discuss it while leaving insults aside.

As I've said banks make their profit by lending. It is never going to be a banks policy not to lend. There was plenty of houses bought with lending right through the crash. I myself bought at the tail end of it.

Public opinion drives lending. During the mid 00s the Irish public wanted to borrow money and buy property. The banks facilitated it.

When the world economy crashed Ireland's inflated property bubble burst and public sentiment along with house prices went through the floor. The drop off in lending is merely a reflection of the drop off in borrowing.

It's not as completely black and white as that but it's more that, than anything else.

My apologizes, but I think you're lost on basics. Banks need equity to lend, they can't simply lend indefinitely.
Here's some pretty simple explanation of why banks can't keep lending when low on capital and assets prices decrease. Do some googling and you'll surely find a better one.

When a bank creates a new loan, with an associated new deposit, the bank’s balance sheet size increases, and the proportion of the balance sheet that is made up of equity (shareholders’ funds, as opposed to customer deposits, which are debt, not equity) decreases. If the bank lends so much that its equity slice approaches zero – as happened in some banks prior to the financial crisis – even a very small fall in asset prices is enough to render it insolvent. Regulatory capital requirements are intended to ensure that banks never reach such a fragile position.

Forbes.com

Interested Observer

Bob24 wrote: »

Let’s say our civil servant is in 75k, has been saving for a few years and had a 50k deposit. Spouse in similar situation.

They take their 10% pay cut.

Will that get a mortgage? Absolutely yes.

If they're not first time buyers then they're not going very far with that deposit, but more to the point how many civil servants are on 75k?

BBFAN

This thread is just turning into a back and forth.

"There's' going to be a crash", "no there isn't". It was much more interesting and well informed last year.

Bob24

Interested Observer wrote: »

If they're not first time buyers then they're not going very far with that deposit, but more to the point how many civil servants are on 75k?

That’s not really my point. I was just pointing senior civil servants as an exemple category of people who’d be fine during a recession and be able to get a mortgage, which explain why lending figures during the past recension were not as flat as some people believe. There are others, including a good proportion of professional workers (I was mentioning IT as an exemple of industry I personally know where a high ratio of my circle of friends/colleagues in the age of buying a first home did so during the recession).

Btw on civil servant wages, here is the salary scale: https://www.forsa.ie/about-forsa/divisions/civil-service/civil-service-pay-scales/

Bob24

The_Conductor wrote: »

In an environment where they can't foreclose on loans, and personal bankruptcy law is pushing all the risk back on lenders- Irish lending institutions can only hope to keep their margins sufficient to cushion any delinquent borrowers. Our levels of delinquency are far above international norms- which is why despite our remarkably high interest rates- international lenders quite simply can't tolerate the risk associated with operating in Ireland.

We need reform of our lending institutions- and the ability to foreclose in a timely manner.

Amen.

But having said that no chance of that reform materialising. The topic is a political minefield that no politician would even dare to talk about.

tobsey

zreba wrote: »

Even if they bring them down to near 0%, how much of a price drop can banks sustain before going under water again?

The minimum deposits of 20% add a safety zone of 20% for banks, but FTBs only need 10% deposit. A price drop by 30%-40% and nearly no mortgage withdrawn in the last 3-4 years would be safe.

Considering the above, in my view, banks wouldn't get into big trouble on house price correction of 20%, but 30%+ could cause trouble and decreased lending (up to a halt).

30-40% drop happened once ever. We still haven’t reached the prices that were the case before that drop. There is no reasonable basis to predict that prices will drop by that percentage again. When the last crash happened we had the dual problem of Irish banks being over extended and a global recession. The changes in the central bank rules mean that both of those can’t happen again. If there’s a global recession, Irish banks are in a better shape than last time. If the Irish economy struggles, the same thing can be said.

It’s not unreasonable to predict that property prices will drop over the medium term, but to predict that they’ll drop by 30-40% has no supporting evidence whatsoever.

tobsey

Bob24 wrote: »

That’s not really my point. I was just pointing senior civil servants as an exemple category of people who’d be fine during a recession and be able to get a mortgage, which explain why lending figures during the past recension were not as flat as some people believe. There are others, including a good proportion of professional workers (I was mentioning IT as an exemple of industry I personally know where a high ratio of my circle of friends/colleagues in the age of buying a first home did so during the recession).

Btw on civil servant wages, here is the salary scale: https://www.forsa.ie/about-forsa/divisions/civil-service/civil-service-pay-scales/

The number of civil servants above AP is a tiny proportion of the overall number, and even more tiny compared to the overall workforce. You can’t use that group of people to make a generalisation because they are such a small sample size.

Bob24

tobsey wrote: »

The number of civil servants above AP is a tiny proportion of the overall number, and even more tiny compared to the overall workforce. You can’t use that group of people to make a generalisation because they are such a small sample size.

Hence why I didn't use them to make a generalisation and just used them as a specific example.

Interested Observer

Bob24 wrote: »

Hence why I didn't use them to make a generalisation and just used them as a specific example.

You seem hell bent on demonstrating SOME people would still get mortgages, we know this, it's obvious.

PokeHerKing

zreba wrote:

My apologizes, but I think you're lost on basics. Banks need equity to lend, they can't simply lend indefinitely. Here's some pretty simple explanation of why banks can't keep lending when low on capital and assets prices decrease. Do some googling and you'll surely find a better one.

Hmmm thanks for the lesson.

Anyway back to my original point, Irish banks continued to lend throughout the recession. This is an irrifutable fact.

Bluefoam

PokeHerKing wrote: »

zreba wrote:

My apologizes, but I think you're lost on basics. Banks need equity to lend, they can't simply lend indefinitely. Here's some pretty simple explanation of why banks can't keep lending when low on capital and assets prices decrease. Do some googling and you'll surely find a better one.

Hmmm thanks for the lesson.

Anyway back to my original point, Irish banks continued to lend throughout the recession. This is an irrifutable fact.

Well done. Banks did lend in the recession.... However, if someone is struggling to buy at current prices, to either save a large enough deposit, or to earn enough to meet the central banks criteria.... Then they are not the kind of person the bank will want to lend to in a pressurised situation like a recession... If a buyer is putting off buying their first home in order to save a few quid, and take advantage of a possible recession, then they have their priorities wrong. No one wants to get caught at the height of an upward price trend, but one thing is inevitable, prices over the long term will rise. They will drop in the short term occasionally, but the general trend is upwards.

zreba

PokeHerKing wrote: »

Hmmm thanks for the lesson.

Anyway back to my original point, Irish banks continued to lend throughout the recession. This is an irrifutable fact.

In large due to the bailout. A massive stream of equity dropped on banks by Irish taxpayer.