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IMF and negative equity

  • 14-07-2010 09:03PM
    #1
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭


    From the RTE site
    RTE wrote:
    The IMF has also urged NAMA to begin selling off its portfolios quickly and aggressively, in order to return the property market to normal conditions in the shortest possible time.

    The Washington-based fund has repeated its call for the Government to consider a narrowly targetted support mechanism for heavily indebted homeowners to limit the economic and social fallout from the financial crisis.

    It says the banks, bolstered by State capital, could absorb the initial costs, and could use the social welfare system to identify eligible beneficiaries.

    It says the process of reducing the economic stress on homeowners would be helped by having what it calls an overdue shift to a more efficient and balances personal insolvency regime. This could allow for a swifter and less costly alternative to the current bankruptcy laws.

    What does this mean in English?


«1

Comments

  • #2
    Scarab80
    Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    Tim Robbins wrote: »
    From the RTE site

    What does this mean in English?

    They are advocating a very limited debt forgiveness scheme for people in negative equity with no future expectation of being able to meet their loan commitments.


  • #3
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    Tim Robbins wrote: »
    From the RTE site



    What does this mean in English?

    How the fcuk can the property market return to "normal conditions" if the Gov dump property onto the market now, aggressively, and at record lows.......surely this would drive down prices further, putting more homeowners into negative equity, making it impossible for them to move house and further killing off what weak demand there is?


  • #4
    noodler
    Registered Users, Registered Users 2 Posts: 27,238 ✭✭✭✭noodler


    Two things to me

    1) They fear the Government holding onto the NAMA assets for too long and then trying to dispose of them all in a small time frame (all in year 10 as an extreme example).

    With so much property on the markets at the moment though, it is hard to see how NAMA could force a sale of its assets at a price that would breakeven. They;d have to wait a couple of years at the very least (even thats assuming a price increase somwhere down the line).

    2) The bit on mortgage arrears is cryptic to me. Do they mean outright debt forgiveness? Which would probably be very difficult politically.

    The bit about the banks "absorbing the initial losses" makes me think that is what they mean as opposed to say, interest only payments, extending the loan length and other "non-debt forgiveness" options.

    Of course, maybe they simpy mean that the banks could absorb giving mortgageholders interest only loans etc.


  • #5
    Welease
    Registered Users, Registered Users 2 Posts: 3,834 ✭✭✭Welease


    Tim Robbins wrote: »
    From the RTE site



    What does this mean in English?

    I've have a few vino's :) and I'm not into economics but here's my translation ..

    "The IMF has also urged NAMA to begin selling off its portfolios quickly and aggressively, in order to return the property market to normal conditions in the shortest possible time."

    The hoarding of property distorts the free market value of property (like diamonds).. Start selling the properties to allow buyers choose from the full available market stock.. and real prices will follow.

    "The Washington-based fund has repeated its call for the Government to consider a narrowly targetted support mechanism for heavily indebted homeowners to limit the economic and social fallout from the financial crisis."

    Those who are in massive neg. equity will need some formal support... but it should not be widened to those suffer minor difficulties.

    "It says the banks, bolstered by State capital, could absorb the initial costs, and could use the social welfare system to identify eligible beneficiaries."

    As per plan above, the cost should be borne by the lenders with help from the government.

    "It says the process of reducing the economic stress on homeowners would be helped by having what it calls an overdue shift to a more efficient and balances personal insolvency regime. This could allow for a swifter and less costly"

    As was discussed earlier, the bankrupty laws in Ireland are draconian ... 12 years here (and it costs you money to be declared bankrupt) vs maybe 1 year in the UK etc..

    It does seem pretty self explanatory, but maybe my alcohol induced state made me misread you original post, apologies if so..


  • #6
    Stheno
    Moderators, Business & Finance Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 51,690 Mod ✭✭✭✭Stheno


    Tim Robbins wrote: »
    From the RTE site



    What does this mean in English?

    Basically imo, the IMF is saying that if Nama firesales as much of the property on it's books as it can, then any inflationary bubble that is currently in the property market as a result of that property currently been held back from sale at vastly discounted prices, then the property market should reach some realistic level here more quickly than if not.

    As for the second bit, they are saying that the current bankruptcy laws for personal bankruptcy need to change.

    Edited to add: Essesntially what Welease said :)


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  • #7
    danbohan
    Closed Accounts Posts: 1,914 ✭✭✭danbohan


    Inquitus wrote: »
    How the fcuk can the property market return to "normal conditions" if the Gov dump property onto the market now, aggressively, and at record lows.......surely this would drive down prices further, putting more homeowners into negative equity, making it impossible for them to move house and further killing off what weak demand there is?
    nama the banks and govt are combining to keep the market from freefalling to where it should be , its unsubstainble , good to see imf start to point that out they should be a lot more forcefull in their inputs here .


  • #8
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    danbohan wrote: »
    nama the banks and govt are combining to keep the market from freefalling to where it should be , its unsubstainble , good to see imf start to point that out they should be a lot more forcefull in their inputs here .

    Indeed, but trapping the vast majority of homeowners in negative equity will also distort the market hugely by removing most of the demand.


  • #9
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    It would also crystalise for the State far larger losses than invisioned far sooner, which given the precarious state of our finances can't be a good thing.


  • #10
    Stheno
    Moderators, Business & Finance Moderators, Science, Health & Environment Moderators, Society & Culture Moderators Posts: 51,690 Mod ✭✭✭✭Stheno


    Inquitus wrote: »
    Indeed, but trapping the vast majority of homeowners in negative equity will also distort the market hugely by removing most of the demand.

    Are they possibly referring to this in the last paragraph of the OP's post, by intimating that while now one cannot "hand back the keys" a solution would be to change those laws?


  • #11
    noodler
    Registered Users, Registered Users 2 Posts: 27,238 ✭✭✭✭noodler


    Inquitus wrote: »
    It would also crystalise for the State far larger losses than invisioned far sooner, which given the precarious state of our finances can't be a good thing.

    I worry this all leads to an increase in the timespan of the Nama plan in order to ensure the properties are "disposed of" over a decent spread of time.


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  • #12
    Welease
    Registered Users, Registered Users 2 Posts: 3,834 ✭✭✭Welease


    noodler wrote: »
    I worry this all leads to an increase in the timespan of the Nama plan in order to ensure the properties are "disposed of" over a decent spread of time.

    Which kinda inflates the property prices, which is what they were complaining about


  • #13
    noodler
    Registered Users, Registered Users 2 Posts: 27,238 ✭✭✭✭noodler


    Welease wrote: »
    Which kinda inflates the property prices, which is what they were complaining about

    I would argue less so in a 20 year plan than a 10 year plan.

    So the Government would be faced with selling off assets too soon if it completely followed the IMF advice.

    I think, possibly, if the Government is to start selling assets in the near to medium term they will opt for the 33% which are not located in ROI.

    Markets elsewhere obviously aren't as depressed and surely have a better prospect of return in the future. It wouldn't address the IMF's concerns at all though but I find it hard to see how the foreign assets won't be the first to go.


  • #14
    Welease
    Registered Users, Registered Users 2 Posts: 3,834 ✭✭✭Welease


    noodler wrote: »
    I would argue less so in a 20 year plan than a 10 year plan.

    So the Government would be faced with selling off assets too soon if it completely followed the IMF advice.

    I think, possibly, if the Government is to start selling assets in the near to medium term they will opt for the 33% which are not located in ROI.

    Markets elsewhere obviously aren't as depressed and surely have a better prospect of return in the future. It wouldn't address the IMF's concerns at all though but I find it hard to see how the foreign assets won't be the first to go.

    It's a balance between what the IMF would like to see and what's best for the government, which in the case of NAMA means us :)

    Real market value of property will only come from releasing the properties.. which is great for the buyer (us) but it's a firesale which is bad for the government (err us).. holding onto to the properties is bad for the buyers (err umm us) but good for... you get the point :)

    They are kinda damned if they do, damned if they don't depending on your particular circumstance :)


  • #15
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Inquitus wrote: »
    Indeed, but trapping the vast majority of homeowners in negative equity will also distort the market hugely by removing most of the demand.
    The vast majority of homeowners won't be trapped in negative equity. A large proportion of mortgage holders may be, but that's a different thing.

    In other words, most people who, in the normal course of events, are capable of buying a house won't be in negative equity. Some of them won't even own any property yet, and so are immune to changes in property values.

    But clearly the minority of people who have taken out large mortgages in recent years are stuffed, in any scenario.
    Inquitus wrote: »
    It would also crystalise for the State far larger losses than invisioned far sooner, which given the precarious state of our finances can't be a good thing.
    The counter argument is that attempting to hold property prices up frustrates economic recovery. Ultimately, property is only worth what people can pay for it. A sharp fall in property prices could be a necessary stimulant; people could work for less, and they'd need to pay less to be housed.


  • #16
    Welease
    Registered Users, Registered Users 2 Posts: 3,834 ✭✭✭Welease


    Nemi wrote: »
    The vast majority of homeowners won't be trapped in negative equity. A large proportion of mortgage holders may be, but that's a different thing.

    In other words, most people who, in the normal course of events, are capable of buying a house won't be in negative equity. Some of them won't even own any property yet, and so are immune to changes in property values.

    Just to give some recent analysis... and it is alarming for those caught up in the problem..


    "HALF of the country’s homeowners will soon owe more on their mortgage than their house is worth."
    http://www.examiner.ie/ireland/300000-home-owners-facing-negative-equity-118289.html


  • #17
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Welease wrote: »
    Just to give some recent analysis... and it is alarming for those caught up in the problem..


    "HALF of the country’s homeowners will soon owe more on their mortgage than their house is worth."
    http://www.examiner.ie/ireland/300000-home-owners-facing-negative-equity-118289.html
    Undoubtedly it is alarming for people caught up in the problem, although clearly they have no immediate difficulty if they can continue to service their mortgage. In other words, being in negative equity is not the same as being in arrears in a mortgage. A person in positive equity who is unable to get a job, and hence is unable to keep up debt repayments, is in a far worse situation. I've a fear that the two issues tend to be mangled up in people's minds.

    Thanks for linking the Examiner article. However, the headline of that article seems to be quite misleading.

    There are about 1.5 million households in Ireland. So if, as predicted, 300,000 or 350,000 fall into negative equity, then three quarters of households will actually not be in negative equity.

    Also, just messing with the figures in that article, it would look like most households have no mortgage at all. So they won't be in negative equity, even if houses start changing hands for the price of a pint.

    And that's just looking at households. Many of those households will have adult members who are potential property buyers.

    So I think we can see that its actually very feasible to get a liquid property market moving again, once prices fall to a reasonable level.


  • #18
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    Nemi wrote: »
    So I think we can see that its actually very feasible to get a liquid property market moving again, once prices fall to a reasonable level.

    It's actually not, aside from the stock of poorly built and poorly located houses left over from the boom, very few people are going to sell their houses at the bottom of the market and crystalise negative equity, and people who have little or no mortgage are also not going to sell at the bottom of the market.


  • #19
    Scarab80
    Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    Inquitus wrote: »
    It's actually not, aside from the stock of poorly built and poorly located houses left over from the boom, very few people are going to sell their houses at the bottom of the market and crystalise negative equity, and people who have little or no mortgage are also not going to sell at the bottom of the market.

    It depends on your reason for selling. If you are selling to move to another house it makes no difference as the price of the house you are buying will be reduced as well. That is if the banks increase the ability to transfer your negative equity to a new property, which I think they will have to do.

    If you've got an investment property or want to sell in order to rent then you might be more inclined to hold onto it.


  • #20
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    Scarab80 wrote: »
    It depends on your reason for selling. If you are selling to move to another house it makes no difference as the price of the house you are buying will be reduced as well. That is if the banks increase the ability to transfer your negative equity to a new property, which I think they will have to do.

    If you've got an investment property or want to sell in order to rent then you might be more inclined to hold onto it.

    At this time no mechanism in the state exists for people to trade up even if they can afford it while encumbered with negative equity. This may change, granted......


  • #21
    Welease
    Registered Users, Registered Users 2 Posts: 3,834 ✭✭✭Welease


    Nemi wrote: »
    Undoubtedly it is alarming for people caught up in the problem, although clearly they have no immediate difficulty if they can continue to service their mortgage. In other words, being in negative equity is not the same as being in arrears in a mortgage. A person in positive equity who is unable to get a job, and hence is unable to keep up debt repayments, is in a far worse situation. I've a fear that the two issues tend to be mangled up in people's minds.

    Thanks for linking the Examiner article. However, the headline of that article seems to be quite misleading.

    There are about 1.5 million households in Ireland. So if, as predicted, 300,000 or 350,000 fall into negative equity, then three quarters of households will actually not be in negative equity.

    Also, just messing with the figures in that article, it would look like most households have no mortgage at all. So they won't be in negative equity, even if houses start changing hands for the price of a pint.

    And that's just looking at households. Many of those households will have adult members who are potential property buyers.

    So I think we can see that its actually very feasible to get a liquid property market moving again, once prices fall to a reasonable level.


    I think there is massaging for figures on both sides.. True (for me at least (and you)) those figures don't seem to add up, or at least the sensationalist headline doesn't), but on the other hand lets not dismiss the picture..

    imho (interested in your opinion btw!) the majority of those with paid off mortgages are people like my parents.. people who have lived in that house for 40 odd years and have no intention of moving..

    The market however involves the other people who are looking to move/first time buyers etc.. and a large (very large) percentage of the potentially active market is either dormant or forced dormant (by neg eqty)..

    That in itself is a worry...


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  • #22
    Scarab80
    Registered Users, Registered Users 2 Posts: 802 ✭✭✭Scarab80


    Inquitus wrote: »
    At this time no mechanism in the state exists for people to trade up even if they can afford it while encumbered with negative equity. This may change, granted......

    Banks don't offer a specific negative equity product, however they can decide on a case by case basis to allow a transfer of negative equity. There needs to be a specific product created and available to all. It would help people who want to trade down to reduce their mortgage payments or to help people with the means to trade up to have a property which reflects their changing needs.


  • #23
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Inquitus wrote: »
    It's actually not, aside from the stock of poorly built and poorly located houses left over from the boom, very few people are going to sell their houses at the bottom of the market and crystalise negative equity, and people who have little or no mortgage are also not going to sell at the bottom of the market.
    I agree that most people in serious negative equity are unlikely to sell. But, as I've pointed out, that's only predicted to impact on one quarter of present households, and doesn't impact on the formation of new households in any way.

    The only think that will impact on the formation of new households is if we keep property prices and other costs too high, to the extent that it prevents new entrants to the labour market from finding work.

    I disagree that people with little or no mortgage won't sell. Once price expectations are realistic, and people accept that bubble prices will not be repeated, they will most certainly trade up and down, according to their needs.

    Also, the existing housing stock will most certainly move, once it is priced realistically. I mean, I'd regard €70,000 as too much for an apartment in Mullingar. Yet, there is movement in the market at that price.


  • #24
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    The housing market is fecked in many ways:

    People who may wish to buy a property are put off by what they perceive, probably correctly, as prices that are too high.

    People who wish/need to sell have a bottom line price at what they require to clear their mortgage and/or require to move to their new property.

    The Banks don't wish to lend money given the state of their balance sheets, and have set more realistic requirements on mortgages....though one could argue after the years of excess they have perhaps gone slightly too far the other way, this is restricting demand as many people who could perhaps buy a house are refused mortgages.

    Continuing economic and job uncertainty puts people off putting their feet on the property ladder, and for good reason.

    Negative Equity makes it impossible to trade up unless banks introduce the mechanisms to do so.

    NAMA is, as people rightly point out above, artificially holding prices above their true market value, though I would argue only anyone with absolutely no choice would sell a house right now at the actual market value.

    It's almost a perfect property storm, and there is certainly no end in sight.


  • #25
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Welease wrote: »
    I think there is massaging for figures on both sides.. True (for me at least (and you)) those figures don't seem to add up, or at least the sensationalist headline doesn't), but on the other hand lets not dismiss the picture..
    Well, I'd prefer if we let the facts speak to us. What they seem to say is that a significant minority will experience negative equity.
    Welease wrote: »
    imho (interested in your opinion btw!) the majority of those with paid off mortgages are people like my parents.. people who have lived in that house for 40 odd years and have no intention of moving..
    I'd expect some of them are people with no intention of moving. Yet, also consider that in the past the typical term of a mortgage was twenty years. So if you bought in your twenties in the 1980s, you'd be in your forties now with a house and no mortgage. And, I'd suggest, you'd be right in the frame to move if the price was right. So I wouldn't dismiss this as a source of demand.

    On the supply side, about 30,000 people shuffle off this mortal coil every year. Clearly, they are not all single occupants of their own home. But I take it you agree that every year a block of housing inevitably becomes vacant, and available for sale. Negative equity is not going to be a barrier to the sale of granny's house. And that's not to mention the overhang of vacant property.
    Welease wrote: »
    The market however involves the other people who are looking to move/first time buyers etc.. and a large (very large) percentage of the potentially active market is either dormant or forced dormant (by neg eqty)..

    That in itself is a worry...
    Lets assume the bulk of new builds (aka the overhang) are aimed at first time buyers. How is a first time buyer held back by negative equity?


  • #26
    ninty9er
    Registered Users, Registered Users 2 Posts: 9,366 ✭✭✭ninty9er


    Welease wrote: »
    Just to give some recent analysis... and it is alarming for those caught up in the problem..


    "HALF of the country’s homeowners will soon owe more on their mortgage than their house is worth."
    http://www.examiner.ie/ireland/300000-home-owners-facing-negative-equity-118289.html
    Didn't the most recent statistics show that there are only mortgages out on 40% of homes. That is that 60% of homes are owned outright. So that would mean that the majority of homes would have to be worth less than nothing for that article header to stand up.
    Inquitus wrote: »
    It's actually not, aside from the stock of poorly built and poorly located houses left over from the boom, very few people are going to sell their houses at the bottom of the market and crystalise negative equity, and people who have little or no mortgage are also not going to sell at the bottom of the market.
    Problem there is that the bottom of the market is about 60% away if the IMF plan is implemented. You'd be looking at a 3 bed apartment in South County Dublin for €140k if there was an asset firesale. It might cost €450k at the top and may be asking €250k at the moment.

    Figures not exact or anything, but more of a representation.


  • #27
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    ninty9er wrote: »
    Problem there is that the bottom of the market is about 60% away if the IMF plan is implemented. You'd be looking at a 3 bed apartment in South County Dublin for €140k if there was an asset firesale. It might cost €450k at the top and may be asking €250k at the moment.

    Figures not exact or anything, but more of a representation.

    I totally agree, a fire sale of the NAMA portfolio would bring about massive further drops in property value.


  • #28
    Welease
    Registered Users, Registered Users 2 Posts: 3,834 ✭✭✭Welease


    Nemi wrote: »
    Well, I'd prefer if we let the facts speak to us. What they seem to say is that a significant minority will experience negative equity.I'd expect some of them are people with no intention of moving. Yet, also consider that in the past the typical term of a mortgage was twenty years. So if you bought in your twenties in the 1980s, you'd be in your forties now with a house and no mortgage. And, I'd suggest, you'd be right in the frame to move if the price was right. So I wouldn't dismiss this as a source of demand.

    On the supply side, about 30,000 people shuffle off this mortal coil every year. Clearly, they are not all single occupants of their own home. But I take it you agree that every year a block of housing inevitably becomes vacant, and available for sale. Negative equity is not going to be a barrier to the sale of granny's house. And that's not to mention the overhang of vacant property.Lets assume the bulk of new builds (aka the overhang) are aimed at first time buyers. How is a first time buyer held back by negative equity?

    You seem to be focussed on neg equity being the single source of the problem/discussion.. noone has said it was..

    It's a problem for those who have it.. because at present they cannot move easily in order to revert to a free market price..
    In conjunction the hoarding of property distorts the normal market value of property hence their comment on NAMA..

    The tread was about the IMF's opinion, and neg eqty was one part which they mentioned but not the sole part...

    And the Op asked for clarification on what they meant.. nothing more :)


  • #29
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Inquitus wrote: »
    People who wish/need to sell have a bottom line price at what they require to clear their mortgage and/or require to move to their new property.
    But you seem to be leaving out of the equation the large amount of vacant property. Much of that may be poorly located - I'm not sure that anyone has really identified where the vacant stuff is (and the work done by NUIM and UCD on this is contradictory). Yet, certainly, that stuff will shift at some (low) price. I think that's all the IMF are really saying - get it over with, so that we can get back to normal. There's absolutely no point in kidding ourselves that a one bed apartment in Offaly is worth €110k. So just get it over with.
    Inquitus wrote: »
    one could argue after the years of excess they have perhaps gone slightly too far the other way, this is restricting demand as many people who could perhaps buy a house are refused mortgages.
    Well, presumably this reflects the expectation of banks that property prices still have a way to fall.
    Inquitus wrote: »
    NAMA is, as people rightly point out above, artificially holding prices above their true market value, though I would argue only anyone with absolutely no choice would sell a house right now at the actual market value.
    Although, logically, people should sell right now, as the only reasonable expectation is that prices will fall by even more in the future.

    That said, clearly moving house involves disruption, particular for families, so its not just a financial decision.


  • #30
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    Nemi,

    The banks lending is artificially crippled by the fact they themselves are crippled.

    If you have a 300k mortgage on a house worth 200k now, even if it's going to fall a further 50k in the next couple of years, you are better off hanging on to it than selling it, crystalising the loss and paying a mortgage on nothing once you sell it imo.

    Sure, sell off the ****ty NAMA portfolio at rock bottom prices, but that won't return the property market to a normal state, far from it, for all the reasons mentioned above, it will just crystalise massive losses for the state and exacerbate our issues in that regard.


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  • #31
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Welease wrote: »
    You seem to be focussed on neg equity being the single source of the problem/discussion.. noone has said it was..
    Just being fair to myself, I think that comments like this
    Inquitus wrote: »
    Indeed, but trapping the vast majority of homeowners in negative equity will also distort the market hugely by removing most of the demand.
    most certainly were suggesting that negative equity was key to the issue. So I see myself as mostly reacting to that, and demonstrating that this is not the case.

    While, at the same time, accepting that a significant number of people will be excluded from the market because of negative equity.
    Welease wrote: »
    The tread was about the IMF's opinion, and neg eqty was one part which they mentioned but not the sole part...

    And the Op asked for clarification on what they meant.. nothing more :)
    Absolutely, and clearly the IMF are of the view that the sooner we drop prices to move the overhang, the better. Their concern about negative equity seems limited to situations where people are both in negative equity and unable to repay their mortgage. The issue there, as I understand it, is that Irish insolvency law puts your life on hold for a much longer period than is normal in other European countries.


  • #32
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Inquitus wrote: »
    The banks lending is artificially crippled by the fact they themselves are crippled.
    That's true, yet the lending criteria facing mortgage holders do not seem unreasonable.
    Inquitus wrote: »
    If you have a 300k mortgage on a house worth 200k now, even if it's going to fall a further 50k in the next couple of years, you are better off hanging on to it than selling it, crystalising the loss and paying a mortgage on nothing once you sell it imo.
    I was thinking more of folk who weren't in negative equity.

    Consider another scenario. If I have a 200k mortgage on a property currently worth 200k, but which I expect will be worth 150k next year. I'm going to cost myself 50k if I don't sell now.

    (Its actually the same loss as in your example - but I know there's that issue of mortgage terms typically preventing folk in negative equity from selling. In other words, the person with 100k negative equity in your example may not be legally able to sell to avoid being in 150k negative equity in the near future).
    Inquitus wrote: »
    Sure, sell off the ****ty NAMA portfolio at rock bottom prices, but that won't return the property market to a normal state, far from it, for all the reasons mentioned above, it will just crystalise massive losses for the state and exacerbate our issues in that regard.
    I don't actually recall 'all the reasons above'. And crystalising losses is only a problem if you expected those losses would be less at some future date. I think the point IMF are getting at is that the losses will just get worse the longer this goes on.

    If that means apartments in Mullingar will change hands at €70k, or less, then so be it. That most definitely will be a normal market.

    Bear in mind, the abnormal market was what we had during the bubble.


  • #33
    Inquitus
    Registered Users, Registered Users 2 Posts: 13,764 ✭✭✭✭Inquitus


    Nemi wrote: »
    Bear in mind, the abnormal market was what we had during the bubble.

    Indeed, and now we have an even more abnormal market:

    Very limited lending.

    20-30% of homes/home owners currently in negative equity and locked out of the market, a statistic which is only going to get worse.

    A glut of **** properties in **** locations poisoning the nations, and the nations banks, balance sheets.

    Massive economic and job uncertainty.

    Massive property value uncertainty due to an untried and artificial nature of NAMA.

    I agree we were in an abnormal property state, but we have lurched to an even more unstable basis for now, and the IMFs proposed actions offer no guarantees of improving that. The property market is inextricably linked to the economy and saddling the nation with more debt by dumping the NAMA portfolio is certainly going to require further and harsher budgetary adjustments in the areas of spending and taxation, which will further feed into the property issue.


  • #34
    Nemi
    Closed Accounts Posts: 334 ✭✭Nemi


    Inquitus wrote: »
    Indeed, and now we have an even more abnormal market:

    Very limited lending.
    I don't agree that the market is currently even more abnormal. There is nothing abnormal about banks only being willing to lend to the future expected value of the property.
    Inquitus wrote: »
    20-30% of homes/home owners currently in negative equity and locked out of the market, a statistic which is only going to get worse.
    Check the post above, which I think covers this point. In particular, first time buyers are not exposed to falls in property values; they can only gain from them. How's about that as a headline for the Examiner? "0% of First Time Buyers in negative equity'.
    Inquitus wrote: »
    The property market is inextricably linked to the economy and saddling the nation with more debt by dumping the NAMA portfolio is certainly going to require further and harsher budgetary adjustments in the areas of spending and taxation, which will further feed into the property issue.
    But, hang on, its the act of dragging the process out that adds to our debts, not the recognition of our losses.

    I don't expect, for example, that the overhang of commercial property will be filled for a rent that will cover the debts incurred in its construction. The sooner we accept that reality, the sooner we'll stop accumulating further debt in an attempt to postpone the inevitable.

    So, I think, sound advice from the IMF. I hope NAMA are listening.


  • #35
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    noodler wrote: »
    2) The bit on mortgage arrears is cryptic to me. Do they mean outright debt forgiveness?
    Outright debt forgiveness is ridiculous. All the posers who bought 800K gafs in the boom get them for free!!!

    I think they should do something like made it legal that people in negative equity can transfer their debt onto new mortgages so that they can move or can legally extend the length of their loan. But they should also make it legal that people in these situations can't hide money or assests or transfer monies to family members to avoid paying debts.

    Don't forget the government already provides TRS. The more interest you pay the more TRS you get.


  • #36
    noodler
    Registered Users, Registered Users 2 Posts: 27,238 ✭✭✭✭noodler


    Tim Robbins wrote: »
    Outright debt forgiveness is ridiculous. All the posers who bought 800K gafs in the boom get them for free!!!

    I think they should do something like made it legal that people in negative equity can transfer their debt onto new mortgages so that they can move or can legally extend the length of their loan. But they should also make it legal that people in these situations can't hide money or assests or transfer monies to family members to avoid paying debts.

    Don't forget the government already provides TRS. The more interest you pay the more TRS you get.

    Hey, its not my idea!


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  • #37
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    noodler wrote: »
    Hey, its not my idea!

    Ha Ha! It's all your fault noodler!


  • #38
    gurramok
    Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Inquitus wrote: »
    I agree we were in an abnormal property state, but we have lurched to an even more unstable basis for now, and the IMFs proposed actions offer no guarantees of improving that. The property market is inextricably linked to the economy and saddling the nation with more debt by dumping the NAMA portfolio is certainly going to require further and harsher budgetary adjustments in the areas of spending and taxation, which will further feed into the property issue.

    Well, potential FTB's like me will not buy as the prices are still way too high and there is no value for money. Its either do the firesale to return the market back to a functional one and entice the likes of me to buy OR keep dragging it out for a longer space of time.

    Basically get over the pain now or draw it out over a number of years, which is the best option?


  • #39
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    gurramok wrote: »
    Well, potential FTB's like me will not buy as the prices are still way too high and there is no value for money. Its either do the firesale to return the market back to a functional one and entice the likes of me to buy OR keep dragging it out for a longer space of time.

    Basically get over the pain now or draw it out over a number of years, which is the best option?
    If a FTB is on 45K a year and has a 20K deposit, they could buy somewhere for 200K that was 330K in the peak of the boom.

    That sounds like good value to me.

    After 5 years they'd have more equity than they'd have from renting and I would suspect the 200K property would be worth 220K.


  • #40
    gurramok
    Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Tim Robbins wrote: »
    If a FTB is on 45K a year and has a 20K deposit, they could buy somewhere for 200K that was 330K in the peak of the boom.

    That sounds like good value to me.

    After 5 years they'd have more equity than they'd have from renting and I would suspect the 200K property would be worth 220K.

    Yeh and whats available for 200k? A tiny apt in the cities or a country house away from the cities. No thanks.


  • #41
    ei.sdraob
    Closed Accounts Posts: 9,376 ✭✭✭ei.sdraob


    people as i pointed out in a thread before with a reference to a central bank report

    quarter of mortgages (30-35billion) were taking by people for BTL (buy to let) purposes

    these people deserve to get burned since they took a risk and speculated/invested in property

    alot of the other people who took on mortgages were indirectly speculating that their house will go up in price and they can "move up the ladder"

    these people should not get a cent of assistance


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  • #42
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    gurramok wrote: »
    Yeh and whats available for 200k? A tiny apt in the cities or a country house away from the cities. No thanks.
    You'd get a large one bed in somewhere like Smithfield or Docklands if you're a towny and decent 2 bed if you went out a bit to Santry, Donabate etc.

    Something you'd be paying 900 a month on rent for.

    After 5 years paying 900 rent, you'd have 50K rent paid and gone.

    After 5 years of paying a morgage of 900 quid a month, I'd guess you'd have paid at least 25K off a mortgage. The other 25K on interest.

    So say in 5 years time the place is still only worth 200K, you're 25K up in one instance and 50K down in the other.

    It's for these reasons, I can't see the entry levels properties falling much further.


  • #43
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    ei.sdraob wrote: »
    people as i pointed out in a thread before with a reference to a central bank report

    quarter of mortgages (30-35billion) were taking by people for BTL (buy to let) purposes

    these people deserve to get burned since they took a risk and speculated/invested in property

    alot of the other people who took on mortgages were indirectly speculating that their house will go up in price and they can "move up the ladder"

    these people should not get a cent of assistance
    I agree. Speaking as someone who lost 100K. What's is the point of me busting my balls to get back to positive equity if it made more sense to sit on my hole and wait to be bailed out.

    The government already provide TRS. The only thing the government should do is to create a legal framework to deal with the grey areas for people who don't pay or need to renegotiate their mortgage terms which is different to getting a bailout.


  • #44
    Sleepy
    Registered Users, Registered Users 2 Posts: 24,488 ✭✭✭✭Sleepy


    Inquitus wrote: »
    20-30% of homes/home owners currently in negative equity and locked out of the market, a statistic which is only going to get worse.
    I honestly don't see why this is such a bad thing.

    Why should thousands of potential first time buyers be kept out of the market because many of those in negative equity are still in denial about the true value of their properties / extent of their losses?

    Until all available supply is released onto the market, there can be no discerning of the true market value of property in this country.

    The condition and location of the overhang is irrelevant. If it's priced correctly, it will sell. That may mean that someone picks up a 4 bed house in Longford for 40k whilst the builder takes an unmerciful shafting on the deal but if that's all the market will pay for that property, that's all it's worth.


  • #45
    ei.sdraob
    Closed Accounts Posts: 9,376 ✭✭✭ei.sdraob


    Tim Robbins wrote: »
    I agree. Speaking as someone who lost 100K. What's is the point of me busting my balls to get back to positive equity if it made more sense to sit on my hole and wait to be bailed out.

    The government already provide TRS. The only thing the government should do is to create a legal framework to deal with the grey areas for people who don't pay or need to renegotiate their mortgage terms which is different to getting a bailout.

    As i mentioned in the parallel thread

    I have no problem with people speculating on houses, casinos, horses, stocks
    thats their choice

    I do have a huge problem with:

    1. government encouraging speculation (example Tax breaks on property) since it distorts the market

    2. people who failed in their "investment" expecting to be bailed out for their mistake, and as pointed out a whole quarter of mortgages given out in last decade were pure and simple "investments" in the buy to let field
    not to mention theres already all sorts of "relief" for mortgage holders
    bad enough the banks put a gun against our heads and are holding us ransom


    what is needed is reform in personal bankruptcy laws (going forward)

    and the banks to accommodate (interest only, changing terms) the people they already lent to and who can show they are in real difficulty
    tho:
    * banks are already doing this more or less
    * there could be legal issues about changing the contract, im not a lawyer


    finally i dont understand why people who are still in work (87% of workforce) are making noise about negative equity
    * if you can afford to pay your mortgage then do so, what the hell where you thinking when you were buying "prices can only go up?"
    * apparently prices will go back up 10% in 10 years :D from the autumn 2009 level ;) just sit tight

    and yes i am a home owner, and no i dont have debt and yes i did buy/build very recently


  • #46
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    Sleepy wrote: »
    I honestly don't see why this is such a bad thing.

    Why should thousands of potential first time buyers be kept out of the market because many of those in negative equity are still in denial about the true value of their properties / extent of their losses?

    Until all available supply is released onto the market, there can be no discerning of the true market value of property in this country.

    The condition and location of the overhang is irrelevant. If it's priced correctly, it will sell. That may mean that someone picks up a 4 bed house in Longford for 40k whilst the builder takes an unmerciful shafting on the deal but if that's all the market will pay for that property, that's all it's worth.
    It's not that simple. Supply of property is always controlled by government.
    When prices are increasing too fast, supply should increase. When prices are decreasing too fast, supply needs to be decreased.

    It's a bit like Keynesian economics for interest rates. When an economy is growing too fast, government needs to increase interest rates. When an economy is growing too slow or recessing, government needs to decrease interest rates.

    In fairness to FF, they are following this logic. I agree massive mistakes have been made particular on how banks were lending.


  • #47
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    ei.sdraob wrote: »
    As i mentioned in the parallel thread
    ...
    We are in complete agreement. It would appear.


  • #48
    gurramok
    Closed Accounts Posts: 13,992 ✭✭✭✭gurramok


    Tim Robbins wrote: »
    You'd get a large one bed in somewhere like Smithfield or Docklands if you're a towny and decent 2 bed if you went out a bit to Santry, Donabate etc.

    Something you'd be paying 900 a month on rent for.

    After 5 years paying 900 rent, you'd have 50K rent paid and gone.

    After 5 years of paying a morgage of 900 quid a month, I'd guess you'd have paid at least 25K off a mortgage. The other 25K on interest.

    So say in 5 years time the place is still only worth 200K, you're 25K up in one instance and 50K down in the other.

    It's for these reasons, I can't see the entry levels properties falling much further.

    There are hardly any decent sized 1beds in the Docklands at that 200k price. 1beds are really for single people as couples will not buy them due to space and the prospect of having a kid issues as they could be stuck there.

    Have you also forgotten the outrageous mgt fees on apts?

    Still no value in my book.


  • #49
    Sleepy
    Registered Users, Registered Users 2 Posts: 24,488 ✭✭✭✭Sleepy


    Tim Robbins wrote: »
    It's not that simple. Supply of property is always controlled by government.
    When prices are increasing too fast, supply should increase. When prices are decreasing too fast, supply needs to be decreased.
    We had a situation where rents were rising sharply in Dublin a little over a decade ago. People started developing more properties to capitalise on this and rents normalised. Oh wait, that's not what happened: the government interfered in the market offering tax breaks for property developers and created super-normal profits in the property building and sales industries which led to the wage/price spiral that led us to the position we're in now..

    I don't see a 'too fast' in the operation of the market. When prices are rising, supply will rise and vice versa. This is how the uninterfered with market works and whilst people take small hits around the over-shoots of supply and demand when the market moves, they take far worse hits when we try to manipulate the market.


  • #50
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    gurramok wrote: »
    There are hardly any decent sized 1beds in the Docklands at that 200k price. 1beds are really for single people as couples will not buy them due to space and the prospect of having a kid issues as they could be stuck there.

    Have you also forgotten the outrageous mgt fees on apts?

    Still no value in my book.

    What do you think is a reasonable price for:

    1. One bed in Docklands?
    2. One bed in Smithfield?

    And please give you reason why?

    I have given you my reason for 200K.


  • #51
    Tim Robbins
    Registered Users, Registered Users 2 Posts: 9,026 ✭✭✭Tim Robbins


    Sleepy wrote: »
    We had a situation where rents were rising sharply in Dublin a little over a decade ago. People started developing more properties to capitalise on this and rents normalised. Oh wait, that's not what happened: the government interfered in the market offering tax breaks for property developers and created super-normal profits in the property building and sales industries which led to the wage/price spiral that led us to the position we're in now..
    Some of the tax incentives were a good idea. The majority of the inner city was a complete kip when I grew up.

    At the sametime, only a fool would say mistakes were also made. The thing is to try to get a bit of objectivity.
    This is how the uninterfered with market works and whilst people take small hits around the over-shoots of supply and demand when the market moves, they take far worse hits when we try to manipulate the market.

    Every single property market in the world is interfered with.


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