Irish Property Market chat II - read mod note post #1 before posting

DataDude · 08-09-2023 10:09pm

https://www.boards.ie/discussion/comment/121087428#Comment_121087428

It’s definitely a weird Irish issue that should be addressed, I agree. But I think these days only around 3-5% of mortgages are in long term arrears? And only around 50% of homes have a mortgage. So in the current market only 1-2% of homes are in long term arrears.

Over 40% of first time buyers each year have a gift attached to their purchase. So if you’re buying right now, I’d say it’s fairly safe to assume competition against those receiving gifts are your bigger concern.

hometruths · 09-09-2023 9:43am

https://www.boards.ie/discussion/comment/121087572#Comment_121087572

It's about 3% of outstanding PDH mortgages in long term arrears with a value of about €5bn, totalling just short of 30,000 houses

That's the headline figure, and like so much other stuff, that's the figure used to dismiss this as nothing to see here. But further consideration paints a different picture.

The reason that these days it's only about 3% is not because the majority of mortgage holders have got on top of their arrears, it's because the majority of the arrears have been restructured.

On top of the 3%/€5bn there are just over 60,000 mortgage accounts categorised as restructured. This is a further 9% of total outstanding mortgages.

So we have about 90,000 properties with outstanding mortgage balances of around €15bn clogging up the market. That's having a massive distorting effect.

In any other market these properties would have turned over providing liquidity and supply in the second hand market. In Ireland they are locked in, as whether you're in arrears or restructured, you're not going to sell anytime soon as that results in the day of reckoning.

So if you're buying right now, and you're outbid on 22 Acacia Avenue by somebody who was slipped 50k from their parents, sure it might appear a safe assumption that you're biggest concern is some peoples parents are richer than yours. The reality is the bigger concern is the fact number 20 and 24 are not paying their mortgage.

The advantage and impact of that parental gift is magnified in a market with no liquidity. And the reason there is no liquidity is because of the €15bn elephant in the room.

We're complaining about the unfairness of prudent people who have earned and accumulated capital sharing it with their own children, and simultaneously ignoring the unfairness of people have borrowed capital and now expect other people's children to pay it back.

As you say, it is a weirdly Irish issue!

https://www.centralbank.ie/statistics/data-and-analysis/credit-and-banking-statistics/mortgage-arrears

DataDude · 09-09-2023 10:23am

https://www.boards.ie/discussion/comment/121088440#Comment_121088440

Interesting point on the restructured mortgages, but if they are restructured and classified as no longer in arrears, that means they’ve agreed a new payment plan with the lender and are adhering to that new payment plan?

I don’t think I’d be supportive of booting those people out once they’re meeting terms of their new obligations? I know sometimes courts can enforce these but assume usually they’re mutually agreed with the bank and they will get paid (eventually), even if it’s upon death.

You also have the issue of, ok great 20,000 homes released (less than 6 months supply?) in a one off. But these people then join some housing list or HAP. I’d be fully supportive of it but I don’t think it would be game changing anymore with the massive fall in long term arrears lately.

hometruths · 09-09-2023 11:33am

https://www.boards.ie/discussion/comment/121088537#Comment_121088537

Not all are meeting their restructured repayments either, but it less clear how many. Restructured covers a range of options - extended life of mortgage, interest only, warehousing etc, all the way up to and including debt write off.

There are many 1000s of people who took out a mortgage of eg 500k and stopped paying it a year later for a few years, and then renegotiated warehousing or even write offs of 250k of that.

A write off is essentially a gift of 250k from the taxpayer. Warehousing is essentially a 250k interest free loan from the taxpayer.

There is almost 14 billion of this capital sloshing around in the housing market. Is that more or less fair than the parental gift?

All of this forbearance has an upward pressure on prices, just as if there was no forbearance there would be a downward pressure on prices.

The old we can't do 20k in one go chestnut is shortsighted as well.

In an ideal world we'd have worked through those 90k houses bit by bit over the past decade. This would have ensured a plentiful supply on sale and rental market at lower prices, and not resulted in some housing list emergency.

The fact we didn't do that, and now the option is a tsunami of repossessions, is the only valid argument to keep the whole forbearance fiasco going.

But it has huge unintended consequences which are being compounded every year, and those paying the highest price for these consequences are FTBs irrespective of whether or not they have a parental gift.

DataDude · 09-09-2023 12:46pm

https://www.boards.ie/discussion/comment/121088736#Comment_121088736

Agree with your principles but completely disagree with almost all your conclusions here:

Whilst some restructured loans may continue to non-performing, many are as people have come out of negative equity. If a restructured loan went into arrears again, I see no reason why they wouldn’t show up as such in stats. In either case, it’s a massive exaggeration to say all restructured loans are ‘up for grabs’ as repossessions.

The banks (taxpayers in your words) have inadvertently benefitted hugely from the inability to evict as by having their hands tied, they’ve seen their distressed assets massively increase in value instead of being firesaled in 2010

There was certainly a time where the inability to repossess stopped prices falling further in 09-15. Some FTBs then would have gotten a better deal for sure. With employment at all time highs and property prices at all time highs. Egregious cases of long term default are not material enough any more to move the market. That is backed up by the arrears data.

In terms of pure fairness. I see something as unfair if it exists purely to advantage one cohort over another through mechanisms which they have no control. On that pure definition. Irelands approach to repossession is equally ‘favourable’ for all. Gifting specifically disadvantages those from poorer backgrounds (on top of all the other disadvantages they are born with through no fault of their own). So on a pure fairness scale, yes this is a bigger issue.

hometruths · 09-09-2023 1:04pm

https://www.boards.ie/discussion/comment/121088943#Comment_121088943

In the vast majority of cases the banks (taxpayers) have already taken the hit on these loans/properties. Sure they were not repossessed and firesaled crystallising losses for the banks, but the entire non performing loan books were firesaled to Cerberus etc thus crystallising the losses. Yes the security held on the performing loan books has increased in value, but that was the only benefit. The banks were painted into a corner and the only way out was the vulture funds.

I take your point that Ireland's approach to repossession is equally favourable to all. Exactly why it is such a big problem. Every Tom, Dick and Harry can essentially stop paying their mortgage without fear of repossession, and this inevitably gives rise to some of the most damaging unintended consequences.

On the bigger picture of what is or should be of greatest concern to FTBs, and indeed all participants in our property market, I'll put it another way.

So people with rich parents find it easier to buy a house than people with rich parents. It was ever thus, and that I suspect is true of every property market in the world. Whether one agrees or disagrees with that, i think most would regard it as totally normal.

Being able to stay in your house even if you don't pay your mortgage for ten years most would be regard as totally abnormal.

We have so many abnormalities in our property market, I often wonder why people get so concerned with the consequences of what is normal, whilst happily accepting the consequences of what is totally abnormal.

timmyntc · 09-09-2023 2:54pm

The issue of failure to repossess only impacts mortgage rates, we all pay higher rates in ireland to compensate.

It doesn't affect the sales market as those people who don't pay would need housed regardless so its a zero sum game.

DataDude · 09-09-2023 5:51pm

https://www.boards.ie/discussion/comment/121088973#Comment_121088973

You won’t find many who disagree that we should address the inability to repossess in Ireland. Certainly not me.

Where we disagree is the current impact of it on 2023 dynamics. You’re taking a major problem and market dynamic of 10 years ago and assuming it applies today. The number of people strategically/egregiously defaulting on their mortgage when property prices are at record highs and we are beyond full employment would naturally be relatively low and the data supports this. The ones left are likely very high value properties from 2009. The number of new entrants since 2013 would be a tiny proportion.

Many people restructured during the difficult times, have come out the far side and are now servicing their new loan agreement. Hats off to them, I don’t see them as potential houses to be repossessed despite them forever being classified as ‘restructured’ loans…unless they go back into long term arrears again in which case I would support eviction.

This issue should still be 100% addressed but it would be purely so we don’t repeat the same mistakes when the next crash inevitably arrives. It would be a drop in the ocean of the current supply/demand imbalance.

hometruths · 09-09-2023 6:32pm

https://www.boards.ie/discussion/comment/121089365#Comment_121089365

I guess that would hold true if all of the non performing mortgages are on average houses occupied by 2.75 people on an average wage. But that seems unlikely.

Viscount Aggro · 09-09-2023 6:36pm

https://www.boards.ie/discussion/comment/121081900#Comment_121081900

Who wants to live in Clay Farm... not me.

Either its a view of a noisy substation, or the local dump.

hometruths · 09-09-2023 6:52pm

https://www.boards.ie/discussion/comment/121090001#Comment_121090001

IMO the failure to deal with major problem and market dynamic of 10 years ago is seriously impacting the market dynamic of 2023.

As we've discussed before one the biggest problems in current market is the lack of turnover of existing stock. It clogs everything up, and because there is nothing to buy those who ordinarily might trade up/down/sideways just stay put. And the more people who just stay put compound the problem, and it gets worse and worse over time.

I don't think there's any disagreement that this dynamic is happening in the market today and is having a huge impact on the supply of second hand stock.

The root cause of todays problem goes back 10 years and is compounded every year.

In a normal market a big part of that turnover supply is from people who, for whatever reason, can no longer afford the mortgage on their current house, and have to downsize.

In Ireland during the last crash these people stopped paying and stayed in the house. The net result of that is that we have approx 90k houses that are effectively totally removed from the game of musical chairs. They are stuck. They have no choice but to stay put.

And obviously this has the knock on effect that makes it harder for other people to move, so they stay put and so on and so forth.

The stock of second homes for sale is at record lows, and has been for some time. The turnover of existing stock has been half of the long term average for about a decade.

If the above is incorrect as a major factor in this, then what is the most likely explanation for these record lows?

timmyntc · 09-09-2023 7:19pm

https://www.boards.ie/discussion/comment/121090182#Comment_121090182

The record lows are due to close to a decade of not building houses due to prices being perceived as "too low". Ironically if those in mortgage arrears had been repossessed and resold, prices would have been even lower in the post crash era, and it would have taken even longer for new house building to start up again.

We have a housing shortage - we need more houses built or vacant dwellings renovated. Houses that are occupied already be they rental, mortgage or mortgage arrears are of no use to solving this crisis, either from a social perspective or a market one.

hometruths · 09-09-2023 8:13pm

https://www.boards.ie/discussion/comment/121090250#Comment_121090250

It often seems like the answer to every ill is simply more new builds, but this is quite a stretch.

I must admit to struggling to understand how the very low % of existing stock changing hands can be explained by a lack of new builds.

Can you talk me through the logic?

DataDude · 09-09-2023 8:15pm

https://www.boards.ie/discussion/comment/121090182#Comment_121090182

You’ve said 90k multiple times now. It’s a gross exaggeration of the issue. Restructured loans are indeed captured in the arrears data as I expected and cannot be added to arrears like you are doing.

https://www.centralbank.ie/statistics/statistical-publications/behind-the-data/understanding-long-term-mortgage-arrears-in-ireland#:~:text=Long%2Dterm%20arrears%20are%20defined,720%20days%20(two%20years).

This detailed data clearly shows that almost everyone under 2 years in arrears is making payments and engaging with their lenders (c.99%). Is the issue really with people who’ve hit hard times and are working to catch up on payments and engaging with their bank to do so? Or is it the blatant cases of no mortgage payments for years and no intention to do so that we all have issue with? I assume it’s the latter. This study identifies 2 years as the point at which accounts are significantly more likely to be no longer engaging.

There are 27k cases over two years in arrears in this study. Of those 27k cases, only 33% have made no payment in the previous 6 months, 9000 loans. The number of cases that could have been legitimately chased for eviction back in 2020 between 9k and 27k

These figures are from 2020, from which time overall arrears have dropped a further 25%. So between 7k and and 20k.

You’ve massively overestimated the current issue by many multiples unless you want to start chasing genuine cases who have a chance to make good if appropriate arrangements are put in place for them. You would get close to no support for chasing those people.

hometruths · 09-09-2023 8:59pm

https://www.boards.ie/discussion/comment/121090456#Comment_121090456

Maybe I could have been clearer - I am talking about the legacy impact of these 90k on today's market.

I'm saying the fact that these accounts were not dealt with in a normal fashion as per the terms of the mortgage contract is a huge contributor to the problems in today's market.

I'm not saying that these people should be repoed if they are meeting the terms of their restructuring. The mistake is they were offered the restructuring in the first place, but that is in the past.

The fact remains that these properties, which would ordinarily have been the most reliable source of turnover supply, have now been removed completely as potential pool of turnover supply.

I get that not everybody agrees with the idea that they should have been repoed in the first place rather than restructured, that's a slightly different debate.

The point I am trying to make is it is important to realise how big an impact not repoing them is having on today's market.

Sure you can look at today's figures and say that is all totally fine, we don't have a problem with arrears, nothing to see here, but for a slightly different perspective take at look at the link below which describes what was actually happening at the height of the problem and consider whether or not this has had a lasting impact.

For a flavour:

In the last few years, a staggering number of Irish homeowners have simply stopped making mortgage payments. The Irish central bank says that at the end of December 2012, 11.9% of Ireland’s mortgages were late by more than 90 days, up from September’s 11.5%.

And the truth is probably even worse. The chart above, which was produced by Deutsche Bank using Moody’s data, pegs the percentage of Irish mortgages that are three months late somewhere closer to 16% in September. S&P analysts argue that 25% of Ireland’s home loans are in some kind of trouble, either behind on payments, or in foreclosure, or in forbearance, which is when the bank just isn’t collecting payments. (We’ll get to why later.)

Why? To be sure, things are tough in Ireland. The recession has driven unemployment from less than 5% at the end of 2007 to more than 14%. Incomes have crumbled.

But Greece is in an even worse economic crunch. Unemployment is at 27%. The economy has shrunk by 25% since the end of 2007. Newly impoverished people are turning to firewood because they can’t afford heating oil. And even so, the amount of Greek mortgages in late-stage arrears was only 5.1% in November, according to Fitch Ratings.

As with so many things, we're quite the outlier. In fact Ireland is the ony country in the world that managed to see mortgage arrears rising whilst the employment rate was also rising. Normally those two things are inversely correlated.

And it is important that at least there is a threat of repossession for the 27k who are still in arrears over two years (in other countries you wouldn't get to two years in arrears as you'd already be repoed) or else the same thing will happen all over again then the next time there is even a whiff of a downturn, and the problem is compounded further and further.

.

https://qz.com/50615/welcome-to-ireland-where-house-payments-are-optional-apparently

timmyntc · 10-09-2023 6:51am

https://www.boards.ie/discussion/comment/121090446#Comment_121090446

The game of musical chairs in housing only works so long as there is sufficient stock to allow people to sell, buy, move.

Once stock levels fall below a certain threshold the secondary market stops functioning. The solution is more property "injected" into the market, I.e through new builds. It is not unlike the role of QE in markets in this regard, QE injects liquidity to keep things turning over and changing hands. People sitting on cash is bad for economy, hence QE. People sitting on proeprty is bad for housing market, hence more new builds.

hometruths · 10-09-2023 8:20am

https://www.boards.ie/discussion/comment/121091444#Comment_121091444

The turnover of existing stock has been at record lows for more than a decade. See GeoDirectory report 2014:

If the root cause of low turnover today is lack of new build supply, what was the cause of it 2013/4 when nobody was saying we needed new build supply?

Dav010 · 10-09-2023 9:06am

https://www.boards.ie/discussion/comment/121091516#Comment_121091516

Having just gone through a recession during which values plummeted, I can think of three reasons off the top of my head, lack of confidence in both the housing and job market, many of those who bought houses prior to 2007 were in negative equity, and banks may not have been enthusiastic lenders.

hometruths · 10-09-2023 9:20am

https://www.boards.ie/discussion/comment/121091598#Comment_121091598

Yep, I'd agree with all that. So when the problem started it was nothing to do with lack of new build supply. The bit I am struggling with is when and how the low turnover rate began to be caused by a lack of new build supply.

Dav010 · 10-09-2023 9:29am

https://www.boards.ie/discussion/comment/121091624#Comment_121091624

Lack of supply may be one of the headline contributing factors today, but there were other important factors in 2014. Our country has changed considerably in the last 10 years, increases in population and high paying job mean the the surplus of homes available at the end of the recession are a distant memory.

hometruths · 10-09-2023 9:35am

https://www.boards.ie/discussion/comment/121091638#Comment_121091638

I get that a lot of changes have happened in both the economy and population since 2014, it's totally different now.

But one of the things that remains the same is that the % of second hand houses changing hands is at a very low rate compared to the long term averages.

What is the explanation for that? Of course it is because there is a lack of second hand houses being placed on the market, but why is that?

Dav010 · 10-09-2023 9:52am

https://www.boards.ie/discussion/comment/121091652#Comment_121091652

Maybe it’s because there aren’t enough houses in the market for current owners to move in to.

hometruths · 10-09-2023 10:43am

https://www.boards.ie/discussion/comment/121091688#Comment_121091688

Yes, exactly, but that's just a different way of saying "it is because there is a lack of second hand houses being placed on the market".

It's a catch 22. We need to reverse that trend somehow, and we can only do it by addressing the causes of the problem.

Blaming the low % of second houses changing hands on a lack of new builds is simply sticking our heads in the sand.

ionapaul · 12-09-2023 11:41am

https://www.boards.ie/discussion/comment/121090131#Comment_121090131

That's a bit unfair on poor old Clay Farm! :) I don't live there, but not far off, up the road in Stepaside, and walk along the side of the Clay Farm development very often on their Greenway to the Luas. There is no view of a dump; the old dump there was covered over years ago and is now simply rolling green hills and soon-to-be public parks. There is a recycling park further down the Ballyogan Road alright, that you can't see from Clay Farm I wager. The substation is noisy for sure, but I bet any of those homes close enough to see or hear it would grow accustomed to it very quickly. The 'eco park' within Clay Farm is really, really nice, something that would be exceptional in other large-scale developments and many times nicer than the boring square playing greens within old-school housing estates.

Someone mentioned the biggest drawback by far of Clay Farm; the other side of the Ballyogan Road and all that comes with a large concentration of council housing. But the development is not grim, not by a long shot. I'd be far more worried about Cherrywood, but you know what; I drove with my family to the new Tully Park and Playground there on Friday for the first time, and it is the nicest playground I've seen in Ireland! The kids growing up within a walk of there are so lucky!

The Green Luas means that the likes of Clay Farm and Cherrywood are actually better connected to the city centre than many, many established areas within the M50, and that's the primary reason for the homes' popularity. I definitely think a new home in Clay Farm offers great relative value to most 2nd hand homes in places like Rathfarnham, Churchtown, Terenure, Ballinteer.