I see RTE are doing a Prime Time special tonight on negative equity. In the preview, an economist reckons it is the biggest problem facing the country. But is it really that big a deal?
The way I see it, there are different categories of negative equity.
First group, people that are planning on staying their home for a long time and are able to make their repayments. No problem here and if they are on tracker have lower repayments compared to 2 years ago.
Second group, people that bought before the peak and want to move at some stage. If they have being paying off the capital and continue to do so, they should reach the point in the near future where what they owe is less than value of house (assuming no more major drop in house prices).
Third group, people that bought at the peak and want to move. This is the group that I feel sorry for. I have friends that bought one bed apartments and now are at the stage where want to start family but can't move to a house for many years. But if this group is in minority is it not something that has to lived with?
1. These mortgage repayments is effectively money going out of the economy. Consider that instead of using this money to buy goods and services, it is being given to banks.
Neither of these groups is large enough to justify a blanket "silver bullet" solution to the supposed 'problem' of negative equity.
If we had solvent banks, then this might be correct.No, this is not correct. Money paid to banks in repayments is not a net loss to the economy. It is not the case that the money, once with the banks, is destroyed. While banks are not lending out as much as they had been, i.e. credit contraction, this is a good, not a bad thing.
It's the scale of the negative equity that's important. If I get a loan for €100 for an item, that then decreases to a value of €50, then this doesn't really matter too much in the whole scheme of things. If I've spent €500k and the value is only €250k, then there is a problem. This problem is magnified when thousands of people are in the same position.Neither of these two points is directly related to negaive equity. Negative equity does not increase the cost of the existing debt.
Why cant someone who has to move or separated people rent out their property and rent somewhere cheaper themselves? Maybe some could move back in with their parents too? Or some could rent out a room to ease the debt?
Neither of these groups is large enough to justify a blanket "silver bullet" solution to the supposed 'problem' of negative equity.
Yes, the banks are insolvent, but this doesn't change the fact that paying off debt is benefitial to the economy, and does not result in a loss to the economy.If we had solvent banks, then this might be correct.
I have my doubts that banks actually do create wealth, even when they are solvent.
Yes, negative equity is a tangible problem and a large problem for individuals, but not for society or the economy as a whole. I also agree with the OP, that the number of people that actually "need" to move and are in negative equity is rather small.Economically and socially, negative equity is more than just a 'supposed' problem. It is a real and tangible problem, and a massive one at that, for many people, for society and the economy at large.
Of course it will work, in time mortgages will be reduced and negative equity as well. It may take 5 years, 10 years, who knows. The simplest solution is to increase mortgage payments. Might sound tough, but it's the only fair solution.The 'let-them-all-swing' brigade thinks the problem of negative equity will go away if we ignore it for long enough. It won't.
I don't know of anybody who is proposing a blanket silver bullet solution for all..
Matt Cooper.
1. These mortgage repayments is effectively money going out of the economy. Consider that instead of using this money to buy goods and services, it is being given to banks.
People are still unprepared to take responsibility for their own decisions.
Could we look to the past and the intense financial problems Irish people and people all over Europe - have had over the years? In times of difficulty people were prepared to do what it took to deal with their problems, they cut their cloth to suit. So for example (researching family history thanks to the recent online census) many, many people, inlcuding my grandparents who I had previously understood were regarded as prosperous - took in paying guests to make ends meet. They certainly didn't have holidays - not even in Ireland let alone abroad but they saved for their children and their children's education. Have we experienced anything to compare with Germany after WW2?
On the radio during the week I heard a woman explain how badly off she was - so impoverished that, while she could afford a 2 week holiday abroad with her kids she would be really stretched when it came to back to school expenses. The interviewer sympathised instead of asking why she wasn't saving the holiday money.
. Calm is needed. If you bought 3 years ago expecting to exit now with profit you were STUPID sorry
I couldn't agree with you more!!!!
People's expectations of what they are 'entitled' to is so far removed from reality it is unreal. I heard the same radio interview, and couldn't believe what I was hearing. It's time for people to get real and wake up to the changed tune of the music.
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