Generation Game- David McWilliam's take on Irish economy

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Its hard to believe that any situation that might involve a tightening of bank lending policies, an increase in taxes (to compensate for lost tax revenue on construction activity and property transactions) and increased unemployment among ex-construction workers, would not impact seriously on the majority of people in the country.
 
Afuera said:
It won't affect the majority of people but more than just investors can be affected. If I bought a home for 300k and now it's only worth 200k, it doesn't really matter what price the house I want to trade up to is, since I probably won't be able to afford it anyway.
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But that is down to interest rates, not due to a fall in house prices. People are saying oh my god the price of my house has dropped by 5% and could drop by 20% but then ask these people what they are worried about and they start talking as if their home is some kind of investment fund. Their plans of sitting back on their backsides and not working for a living have been demolished.
 
David McWilliams has been harping on with this since at least 1999. I first heard him on the radio saying that if house prices continued to rise that a 1 bed apartment in Dublin could cost IR£250K and that is ridiculous. Well it happened and ever since he has been saying the same thing.

I used to be a big fan of his until I saw a review on amazon.com of his book The Pope's Children, its basically a rip off of a book written by David Brooks in 2000 "Bobos in Paradise --The New Upper Class And How They Got There"

To paraphrase from amazon.com:
HiCos = The Bobos -- Bourgeois Bohemians (from Brooks's book)
DIY Declan = Patio Man;
DIY Declan goes to Woodie = Patio Man goes to Home Depot

Brooks found that so many blue delivery bags containing the New York Times lay on suburban lawns that the bags were visible from outer space. McWilliams decides that, along with the Great Wall of China, Christmas decorations in Celbridge gardens are the only things that can be seen with the naked eye from space.

For Brooks, lifestyle magazines like Conde Nast Traveler are the new pornography. For McWilliams, The Irish Times Thursday supplement is 'property porn'.

Brooks has an Achieveatron, while McWilliams invents an Attainometer.

Brooks's book was published in 2000, McWilliams published his book in 2005.

If McWilliams ever has an original thought I think it will die of lonliness. He has to make a living I suppose.
 
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Moggy said:
But that is down to interest rates, not due to a fall in house prices. People are saying oh my god the price of my house has dropped by 5% and could drop by 20% but then ask these people what they are worried about and they start talking as if their home is some kind of investment fund.

People who are looking to upgrade will have trouble selling their homes at inflated prices, so drop your price and make sure you get an equally significant drop in the price of your new home, if you can't then don't buy it and look elsewhere...whats the problem?
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It still matters so lets take and example. FTB buys an apartment in Dublin City for €350k and wants to trade up to a house currently valued at €450k at a later stage. Takes out a 100% mortgage for €350k. Prices fall to €300k and €400k respectively. Sells apartment for €300k and now wants to buy the house which has reduced to €400k. He now needs to get an extra €100k from the bank to fund the purchase. But what bank is going to give him a €450k (€350k + €100k) mortgage to buy a house worth €400k
 
Thomas22 said:
...He now needs to get an extra €100k from the bank to fund the purchase. But what bank is going to give him a €450k (€350k + €100k) mortgage to buy a house worth €400k
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Exactly, this is whole point people are completely missing, and it's such an obvious one.

To comment on the programme last night, I thought one point he made rang very true... 'Our economy has grown on the back of buying and selling our houses to each other with other peoples money...'. How true he is. It is such a false economy we have it's unbelievable how people think we can survive if workers, corporates and investors leave this country.
 
Thomas22 said:
It still matters so lets take and example. FTB buys an apartment in Dublin City for €350k and wants to trade up to a house currently valued at €450k at a later stage. Takes out a 100% mortgage for €350k. Prices fall to €300k and €400k respectively. Sells apartment for €300k and now wants to buy the house which has reduced to €400k. He now needs to get an extra €100k from the bank to fund the purchase. But what bank is going to give him a €450k (€350k + €100k) mortgage to buy a house worth €400k
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I'm not saying its easy but in that case he needs to get a price for the second house that makes sense for him, the house for €450 should drop by more than €50k if we are talking percentage drops.

Apt drops by 10% - its now worth €315
House drops by 10% - its now worth €405

He now only needs €90K where as before the drop he needed €100K.
 
I think you're missing the point here. The bank will only loan to value €405. He has €315 in cash. He owes the bank €350. So he has to come up with €35k by himself. The only way you have a chance of trading while in negative equity is down.
 
Moggy said:
I'm not saying its easy but in that case he needs to get a price for the second house that makes sense for him, the house for €450 should drop by more than €50k if we are talking percentage drops.

Apt drops by 10% - its now worth €315
House drops by 10% - its now worth €405

He now only needs €90K where as before the drop he needed €100K.
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The scenario still stands.
What banks is going to give him a mortgage for €440k on a house worth €405k
 
Moggy said:
I'm not saying its easy but in that case he needs to get a price for the second house that makes sense for him, the house for €450 should drop by more than €50k if we are talking percentage drops.

Apt drops by 10% - its now worth €315
House drops by 10% - its now worth €405

He now only needs €90K where as before the drop he needed €100K.
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Yes, but this ignores the possibility that this scenario will also see the valuations of banks' security decreasing (due to falling property prices), and average take-home incomes also decreasing (due to higher personal taxes).

In such a scenario, it would be hard to see the banks being willing to lend more money to someone who is already in negative equity.
 
There was a program on RTE a few months ago with a similar message, that we are all doomed basically. Why are these washed up economists so hell bent on talking us into a recession ? to sell their books maybe...
 
I think this thread only goes to prove McWilliams right in some of his points, namely, that most people refuse to believe that they will be affected and that the economy can withstand a downturn (inc. Bertie and the rest of the clowns!).

The simple fact is that if everything drops in value (shares, property, cars, etc...) then we are all left with assets that are worth less than what we are paying for them. In other words we all go further in debt. I'm not saying it's all doom and gloom scenario, but for those who refuse to believe they can be affected this could be disastrous.
 
samfarrell said:
There was a program on RTE a few months ago with a similar message, that we are all doomed basically. Why are these washed up economists so hell bent on talking us into a recession ? to sell their books maybe...
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In fairness though, the main (only?) reason Ireland boomed was because of cheap credit. It meant we could all buy houses, and we wanted them yesterday. So construction soared. What other sector grew at such a rate. What else happened over the last 10 years that you believe is strong enough to sustain the present economic climate? Even the 'healthy' financial sector we enjoyed is showing signs of slowing, with large multi-nationals pulling out of the IFSC. What do you think will happen if construction dries up to early-nineties levels. What else has this country got to sustain such high levels of consumer spending/debt?
 
samfarrell said:
There was a program on RTE a few months ago with a similar message, that we are all doomed basically. Why are these washed up economists so hell bent on talking us into a recession ? to sell their books maybe...
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Its ok, Bertie and the EA and bank economists will talk the economy back up into another boom for us, no need to worry. :)
 
shanegl said:
Its ok, Bertie and the EA and bank economists will talk the economy back up into another boom for us, no need to worry. :)
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thats a useful comment
but seriously if we are so doomed should we all leave the country and turn out the lights now?
 
shanegl said:
I think you're missing the point here. The bank will only loan to value €405. He has €315 in cash. He owes the bank €350. So he has to come up with €35k by himself. The only way you have a chance of trading while in negative equity is down.
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If he cannot afford to come up with €35K or the bank feel he cannot afford the repayments on an increase in his mortgage of €35K then yes, he'll be stuck. But in this scenario he cannot afford to upgrade to that house even before the drop in house prices. What you are saying is that he is not allowed to buy house he cannot afford, whereas before he could buy a house he cannot afford......isn't this the problem in the first place? My point is, if you want to upgrade to something you can afford you should do it, whether house prices have dropped or not, there is no difference.
 
Moggy said:
If he cannot afford to come up with €35K or the bank feel he cannot afford the repayments on an increase in his mortgage of €35K then yes, he'll be stuck. But in this scenario he cannot afford to upgrade to that house even before the drop in house prices. What you are saying is that he is not allowed to buy house he cannot afford, whereas before he could buy a house he cannot afford......isn't this the problem in the first place? My point is, if you want to upgrade to something you can afford you should do it, whether house prices have dropped or not, there is no difference.
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But there are 2 issues as to whether a bank will loan him the money.
1. Can he afford the repayments.
2. Is the property good security for the loan(i.e. property value greater than mortgage.
He may be able to get around point 1 but if property prices fall as given in the example than he still won't get the loan
 
ButtermilkJa said:
In fairness though, the main (only?) reason Ireland boomed was because of cheap credit. It meant we could all buy houses, and we wanted them yesterday. So construction soared. What other sector grew at such a rate. What else happened over the last 10 years that you believe is strong enough to sustain the present economic climate? Even the 'healthy' financial sector we enjoyed is showing signs of slowing, with large multi-nationals pulling out of the IFSC. What do you think will happen if construction dries up to early-nineties levels. What else has this country got to sustain such high levels of consumer spending/debt?
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People are going to actually have to work for a living. It's awful isn't it.
 
Read somewhere that McWilliams got paid €1m for this book, so don't suppose he's too worried in any case!!!!!
 
Thomas22 said:
It still matters so lets take and example. FTB buys an apartment in Dublin City for €350k and wants to trade up to a house currently valued at €450k at a later stage. Takes out a 100% mortgage for €350k. Prices fall to €300k and €400k respectively. Sells apartment for €300k and now wants to buy the house which has reduced to €400k.
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Legally how can the FTB sell the apartment for 300k when the apartment itself is security for a 350k loan unless the FTB can come up with the balance owed?
 
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