Great article by Karl Deeter on housing bubbles, shortages etc

He sums up the current status quo nicely

So we have mortgage arrears, which international observers such as the International Monetary Fund and others can only scratch their heads at. We have more loans in arrears than the Russian federation, with its population of more than 140 million, and more than Spain, where the population is nearly 10 times ours and unemployment is more than double our own. Yet we have virtually no repossessions.
This means incumbents remain perpetually incumbent, helping to repair banks’ and individuals’ balance sheets, while ensuring Nama’s property portfolio grows in value.
The losers in this are more diffuse and have no lobby group serving their interests. We see first-time buyers priced out. How is that fair, when someone living on the street they want to buy on is years in arrears and is allowed to stay put?

And then you then see a report like this today from the CB
http://www.independent.ie/business/...orts-on-mortgage-arrears-crisis-30484471.html
But just of half of those who are three months or more in arrears kept to the revised payment deal offered by their bank, the report says.
And one in 10 troubled mortgage holders made no repayments after their mortgage was restructured, the economic report, entitled ‘Mortgage Repayments After Permanent Modification’, found.

Meanwhile house prices are up 24% in the past 12 months in Dublin.....you have got to ask yourself how much longer can this fiasco go on.
 
I thought it was an excellent article but I did roll my eyes at the solution he offered. I can't imagine how anyone could think giving carte blanche for people to build on land they own would in any way improve the situation, or the quality of housing being offered. Or am I missing something fundamental?
 
I think he was talking about how to get around the past ills of land banking and megaprofits from rezoning.
 
as the value of the asset increases to the point where the banks will make their money back by repossessing and selling it, i think we will see more and more repossessions. It made no sense to crystallize a loss before. But now that property prices are rising, properties in arrears are becoming worth moving on.
 
as the value of the asset increases to the point where the banks will make their money back by repossessing and selling it, i think we will see more and more repossessions. It made no sense to crystallize a loss before. But now that property prices are rising, properties in arrears are becoming worth moving on.

Let's hope that happens!
 
Let's hope that happens!

Not clear if you mean repossessions or house price increases. The latter will be a disaster. Superficially -- and this is why the government loves it and are encouraging it -- it lifts people out of negative equity and improves the banks balance sheets. However, the price is increased mortgage and rental costs, sucking money out of the economy for unproductive purposes and damaging our competitiveness just when we should have a cheaper and more attractive labour force.

The crucial thing to remember (and how soon we have forgotten!) is that house price increases do not generate any new money in the economy. So anything that appears to be improving as a result is being paid for by someone else. Follow the money!
 
Repossessions. I agree that house price increases would be/are a disaster.
Then I agree with you, though I'm not convinced repossessions will happen. An article in todays IT, based on a CB report, suggests that a significant fraction of mortgages in arrears have defaulted a second time after being modified to supposedly make them sustainable. The number of repossessions and voluntary surrenders has increased but is still at a comparative trickle. I suspect the banks are still desperately trying to avoid crystallising losses.
 
Then I agree with you, though I'm not convinced repossessions will happen. An article in todays IT, based on a CB report, suggests that a significant fraction of mortgages in arrears have defaulted a second time after being modified to supposedly make them sustainable. The number of repossessions and voluntary surrenders has increased but is still at a comparative trickle. I suspect the banks are still desperately trying to avoid crystallising losses.

They can't do that forever.....or is social housing now a right of the middle classes as well
 
The solution is to swamp the market with supply. To do this we need to make the right to build on land you own implicit. Countries such as Germany, which have this in their constitution, have better outcomes. If a person wants to stop you building on your own land, then they should either buy it themselves or suffer the economic consequences of that decision some other way.

This is utter rubbish. Here is a far better analysis of housing in Germany: Most Germans don’t buy their homes, they rent. Here’s why.

There is only one way to stop or greatly reduce property bubbles and that is to stop encouraging people from buying property. And until there is a radical overhaul in housing policy the cycle will be repeated over and over again.
 
It certainly feels like there should be mass reposessions of investment properties that are in arrears in the Dublin area. Not sure about anything else.
 
There is only one way to stop or greatly reduce property bubbles and that is to stop encouraging people from buying property.

I would agree with you if rental yields were low, but they're not. Rents are high (in Dublin at least), prices are rocketing off the back of that and it has to be down to supply.
 
They can't do that forever.....or is social housing now a right of the middle classes as well
In Ireland, you better believe it!
Didn't we have a poster on this very site who famously suggested that an insolvent person should get to keep a house that befits their status?
 
I would agree with you if rental yields were low, but they're not. Rents are high (in Dublin at least), prices are rocketing off the back of that and it has to be down to supply.

And like I said there would have to be radical changes in housing policy if we want to avoid future bubbles. And until there is a willingness to do that there is little point comparing ourselves to the Germanic model.

About 18 months ago there was all the indications of a bubble starting to develop here in Switzerland and the government moved very quickly to put a stop to it:
- A deposit of 30% was required and this had to come from regular savings (not a gift from granny)
- 75% of the mortgage must be paid back by the time one reaches 60
- Pension funds can not be used as collateral
- Monthly repayments not to exceed 20% of monthly income
- Very limited tax relief
That put a stop to it.

Would an Irish government have the will to take such steps, would they have the support of the people??? I doubt it.

On the supply side pension funds over here are one of the major suppliers of rental accommodation. Most pensions here actually pay out pensions on a monthly basis rather than converting it to an annuity. So the need to have a large steady income stream and this is how they achieve it.
 
Would an Irish government have the will to take such steps, would they have the support of the people??? I doubt it.

I doubt it too. It would throw a spotlight on the amount that the government and local authorities claw in from every property purchase, even after the slashing of stamp duty a few years back. Bizarrely, judging by the catatonic reaction so far, our government seems to think they can stand back form the current fiasco and act as if rocketing property prices is nothing to do with them. (Again, this comes back to the fact that we bet the farm on exactly this scenario five years ago -- the government sees this as the plan coming to fruition).
 
- A deposit of 30% was required and this had to come from regular savings (not a gift from granny)
- 75% of the mortgage must be paid back by the time one reaches 60

Hi Jim

Is this summary of the Swiss system you did for us out of date now?

http://www.askaboutmoney.com/showthread.php?t=177537

I have been quoting it extensively that the Swiss banks lend up to 67% of the value of the property on an interest only basis indefinitely.

If a borrower requires 30% deposit, that means that they can borrow only 70%. If 75% must be repaid by age 60, that would mean that they can only lend 17.5% on an interest only basis, indefinitely.

Brendan
 
HI Brendan,

I've really been following this of late, but as I remember it, it is a temporary measure mainly aimed at the city of Geneva where things were starting to get out of hand a bit.

Jim2007
 
I would be very wary of using the Swiss market as a comparison to the Irish market. The Swiss market differs region to region and the banking system is completely different. There are many people still warning of a bubble in certain parts of Switzerland.
 
About 18 months ago there was all the indications of a bubble starting to develop here in Switzerland and the government moved very quickly to put a stop to it:
- A deposit of 30% was required and this had to come from regular savings (not a gift from granny)
- 75% of the mortgage must be paid back by the time one reaches 60
- Pension funds can not be used as collateral
- Monthly repayments not to exceed 20% of monthly income
- Very limited tax relief
That put a stop to it.

But...but....but, what about all the people who have no money but deserve to buy a house?
 
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