Why (the state) bailing out housing market is a bad idea..mcwilliams indo article

Re: Why bailing out housing market is a very bad idea

I'm afraid we'll have to agree to disagree on whether property investment is a good investment at present.

No, we are in aggreement that it is certainly a pretty stupid investment now. But this will change as more people enter the rental market and the stock of houses avalible decreases. especially in the Dublin area this will have to mean increased rents, which will do two things tempt people abck into the buying market or temps investors into the market to take advantage of a reluctance of others to buy.
 
Re: Why bailing out housing market is a very bad idea


I work for an investment bank. I would love for the governement to come to in and get the credit markets going again. Do I think they should? Absolutely not. Recipie for disaster. The world has been operating in a credit bubble for decades. Now the bill has been delivered and it is time to pay. There is no bail out, there is no easy solution and there is going to be alot of pain all over the world. Do not underestimate how bad things are still going to get. We are no where near through the current so called credit crisis.
 
Re: Why bailing out housing market is a very bad idea

Banks will still lend, however they are finally becoming more prudent in how much they lend and who they will lend to. People who want to borrow responsibly will still be accomodated.


+1

exactly - Bank lending is only at present reaching what is normality i.e. no 100% mortgages - having to have a substantial deposit and interest rates which are "normal" as opposed to the historically low ones we had which did not suit our economic cycle thus infating the bubble even further. Bank lending and ease of credit was TOO loose
 
Re: Why bailing out housing market is a very bad idea

I moved back to Ireland in mid 2001, after being abroad for 11 years and was hesitating about buying a house. I distinctly remember David McWilliams saying on the radio at the time that houses were now overpriced, it might not be the best time to buy, and that at some stage there would have to be a correction. Then came 9/11 and in it's immediate aftermath and uncertainty there were price falls and I bought my house at 8% lower than a neigbour who had bought in June 2001.

Then interest rates fell to nothing, the VI's went into overdrive with the spinning (take a bow estate agents, newspapers, builders/developers, banks,Austin, Dan, Bertie, etc), the banks went crazy with the 100% mortgages and the liar loans, and what resulted can only be described as mass hysteria, where there was a massive transfer of wealth to the VI's and the government, all funded by 30-35 loans taken out by the gullible financially illiterate young people of Ireland.

This pyramid scheme continued until the people at the bottom simply could not afford to get on the ladder, even with 100% loans, credit union loans, parental loans, rent a room, friends buying house together, etc. (only then did the SI start it's stamp duty campaign, as if this was the sole cause of all the problems). And so the pyramid collapses.

1) I know D McW said there was a problem in 2001, 7 years ago. Can anyone back up claims that he said this 15 or 12 years ago.
2) Prices are nearly back to 2004 levels and will fall further. McWilliams was right day one, he couldn't predict that the mania would last so long. Inflation adjusted prices could easily fall to 2001 levels if not further. This isn't a case of "he had to be right sometime", he was right, full stop. He knew the real fundamentals were out of whack, while Dan, Austin, Bertie etc. continually maintained the false illusion of the fabled soft landing. (funny how none of the bulls mention that these days)
3) Government finances are shot due almost entirely to the decline in construction. They keep telling us the real economy is fine. On that basis, this state's short term budget surplus's have been funded, not by manufacturing/services profits, but by the long term borrowings of young people - way to go Bertie, Biffo, etc, you must be very proud.
4) As for helping out the execrable "risk takers", I wouldn't put it beyond FF, but there won't be anything in the kitty to fund this.

The sad thing is there will never be accountability for this mess. The politicians have the fig leaves of the global credit crunch and rising oil prices to hide behind. I place the majority of blame with the govt. Their role in society should be to protect people from the excesses of unchecked capitalism, instead of which they actively colluded with the VI's for the short term benefit it brought them.

The bottom line is that house prices are way too expensive due to the nauseating greed of the "risk takers". We don't need a recovery in the market, we need prices to come down to a sensible sustainable level, where houses are for living in and not a commodity. People are now realising this, and prices will continue to fall, and maybe even overshoot at the bottom, helped by the massive oversupply out there. This will cause a huge amount of hardship for a lot of people, which is unavoidable, however it should save the next few generations from becoming debt slaves to the banks for 35 years for a shoebox in the middle of nowhere.

We have gotten ourselves into an awful situation, payback is going to be a b itch.
 
Re: Why bailing out housing market is a very bad idea


Just be grateful that the bubble burst before 125% mortgages came into fashion like in the UK!!
 
Re: Why bailing out housing market is a very bad idea


rents will have to increase by 1.5 times before it will tempt people back into buying



http://www.daft.ie/searchrental.daft?search=1&s[cc_id]=ct1&s[search_type]=rental&s[a_id]=ga1&s[furn]=&s[refreshmap]=1&limit=10&search_type=rental&id=597445



http://www.daft.ie/searchsale.daft?search=1&s[cc_id]=ct1&s[search_type]=sale&s[a_id]=ga1&s[furn]=&s[refreshmap]=1&limit=10&search_type=sale&id=389513



2,300 per month to rent , 3,100 to buy, go figure
 
Re: Why bailing out housing market is a very bad idea


He said it long before Gaybo left office I remember it well it must have been 10 years ago minimum
 
Re: Why bailing out housing market is a very bad idea


Not sure I get your two examples above
 
Re: Why bailing out housing market is a very bad idea

I4)
The bottom line is that house prices are way too expensive due to the nauseating greed of the "risk takers". We have gotten ourselves into an awful situation, payback is going to be a b itch.

Excellent post not. If house prices are expencive everyone shoulders the balme
 
Re: Why bailing out housing market is a very bad idea

I moved back to Ireland in mid 2001, ....etc.

A wonderful piece of honest and open writing written by what could be described as a vested interest having purchased before the massive boom yet is still able to speak honestly about the market and the mess that has been created. Well done tkc, an excellent post
 
Re: Why bailing out housing market is a very bad idea

He said it long before Gaybo left office I remember it well it must have been 10 years ago minimum

Gaybo left in 1999 which is 9 years ago now. I'd be interested if anyone could specifically remember a year when DMcW offered an opinion and what he said.

The Bacon reports came out in 1998 and 1999 so there were major concerns even back then about house prices. We could potentially get back to those inflation adjusted levels if we have a Japanese style meltdown. People have no problem with prices going up several hundred per cent, but cannot envisage a 50% or 70% fall.

I suppose my point on McWilliams and the bear economists would be that they said there would be a correction at some stage because prices were out of whack, and that they're saying now the correction could be massive because the mania went on for much longer than they thought possible.
The bull economists maintained right to the end that due to strong "fundamentals" the worst case scenario was a soft landing where prices would level off and increase at the rate of inflation. They then modified this to be flat prices for a while followed by increases in line wth inflation. Now they're saying that there would always have been a correction (using that as a way to diss McW), but that it won't last long.

I know which economist has the most credibility in my eyes.

Ironically having said that, if McW advocated not buying in 98/99 that would probably not have been a wise move. I reckon he saw a crash coming within three years or so, he didn't foresee the mania going on this long.
 
Re: Why bailing out housing market is a very bad idea

Excellent post not. If house prices are expencive everyone shoulders the balme
I'm laughing out loud at your posts. You really are one of those smart ballsy guys aren't you? What a hero
 
Re: Why bailing out housing market is a very bad idea


It's all very well and brave to say that "prices must come down" if you don't have a house or you bought one years ago. Not so good if you are a poor young couple who scraped together some money to buy an investment property as a nest egg in the last few years based on the advice of the experts. If it seems there will be negative growth in property crash - and yes, I still do believe it can be avoided and we can pull back form the brink if the media row back on the negative talk and this nation pulls together and helps each other - then perhaps these experts should be made to account for themselves in front of a tribunal. However, that does not mean praising those such as McWilliams who were unrealistically negative about the property market for years and years. And I still think we should avoid overly negative comments that might frighten the horses. We need some balance here, folks. I for one will vote for whichever political party puts those at danger of negative equity first in their election manifesto. I can see it as an issue that the PDs could make a comeback on.
 
Re: Why bailing out housing market is a very bad idea


But I don't think the property crash should be avoided. I think it is the best thing for the country and under no circumstances should the government use tax players money to do anything about it.

The simple fact is that house prices are way way over valued in this country and no amount of sticking our heads in the sand pretending it is only media negativity coverage that is causing them to fall. Average house prices are 10 times average salaries! In the UK and USA it is around 5 and think they have a property bubble.

For this country to become competitive again house prices need to fall by another 30-40%.
 
Re: Why bailing out housing market is a very bad idea

Ill be sure not to follow your advice anyway Charlie Macck. A comeback on the cards for the PD's and house prices to follow suit?? Are you having a laugh?

How can I have sympathy for a young couple taking on a second mortgage on an investment property as a nest egg? Should I stand outside Paddy powers handing out bail outs to people losing their money that way? What about somebody who bought shares in bank stocks last year? Should we bail them out aswell? What about a refund for lotto players who didnt get any numbers up in last nights lotto draws? Like the old saying 'one woman is enough for any man' I apply the same principle to housing 'one house is enough for any person' The 34% of property purchased in 2007 was purely investment properties bought on the back of greed and the quick buck. Like the pyramid scheme before the level of entrants on the bottom rung ran out and the next level are left counting the cost of their greed.

A lot more transparency and honesty about the state of the housing market in Ireland would be to the benefit of all (except the vi's) rather than a push for the cementing over of the ever increasing cracks.
 
Re: Why bailing out housing market is a very bad idea

I'm laughing out loud at your posts. You really are one of those smart ballsy guys aren't you? What a hero

I take you are being ironic. I was simply making the point that the blame for the property bubble should not be shouldered on property developers alone. Eveyone wanted a piece of the pie, we are in fact all to blame. Because most of us benifited from the rise in house prices. It made millionnaires out of people with modest homes in Dundrum Templeogue and allowed people from Cabra etc to sell up and move out to navan with a nice 100gs sittign in the bank. Now its payback time, so lets not blame the big bad guys in the property business. They did what speculators will do and good luck to them.
 
Re: Why bailing out housing market is a very bad idea


Good economists do not just predict house prices. They look at all the fundementals in the economy and make judgements about future trends (among other things obviously). McWilliams got the medium term completly wrong. Ten years ago if you followed his advice and rented, think about how absolutly sickened you would be today. He was always going to be eventually right as most economics have boom bust cycles to on extent or another.
 
Re: Why bailing out housing market is a very bad idea


DMcW said house prices were over inflated in 1999/2000 and they have continued to be inflated and still are today. This does not mean he was wrong in the medium term, it just means that the Irish public didn't listen and prices were let run wild.

The question is, should we have listened to him then and not let the market grow to such an unsustainable level?
My feeling is, if the irish public had of listened to him at any point in the last 10 years, we'd be in a better situation than we are now.
 
Re: Why bailing out housing market is a very bad idea


House prices were undervalued in 1999 in Ireland in comparison to Europe. McWilliams got it wrong and house prices shot up. end of story.

He is full of hyperbol. Yes now he can say he was right, but then it does not take an economic genious to look around and see what happening and say prices are going to fall.
 
Re: Why bailing out housing market is a very bad idea

House prices were low in Ireland compared to europe, not undervalued. House prices were low because wages were low.

Look at Bulgaria - are you going to tell me that house prices in Sofia are undervalued because they are not similar to those in Dublin?