Ireland

Graemsay

Graemsay

Another Irish story. This time it comes from Monty Munford's blog.

One friend told me confidentially about his posh hose. He had bought at the height of the Celtic Tiger, a million Euro mortgage costing him six grand a month. By his estimates the value had plunged not by the official figure of 45%, but closer to 70%.

Furthermore, and incredibly, he hadn't paid that mortgage for three years, that's 36 x 6,000 Euros and he hadn't received a single letter from his bank questioning the arrears. Bonkers, and it appears that the Irish judiciary are refusing to rule in favour of banks against individuals because the judges consider them culpable for the whole sorry mess. Ergo nobody was paying their mortgages any more.

If that's the situation on the ground then I can't see the Irish property market recovering for a few years yet. Either there is going to have to be a wave of evictions and foreclosures, or some element of debt forgiveness, because if a large part of the population isn't paying their mortgages, they won't be in a position to move. Negative equity will see to that.

For those with a stronger grasp of international finance than me, there's a piece on FT Alphaville about Irish promissory notes.
 
And a companion piece from David McWilliams:

The next phase of the Irish economy’s story won’t be the recovery but the mass default phase and it will imply the banks will need yet more capital. When that capital is unforthcoming, we will have another bank crisis.

The banks don’t have the capital necessary to foreclose on thousands of defaulters. If they foreclosed now, they’d simply go bust. However, by not actively foreclosing they will just go bust passively, slowly, zombie-like.
 
Graemsay said:
And a companion piece from David McWilliams:

The next phase of the Irish economy’s story won’t be the recovery but the mass default phase and it will imply the banks will need yet more capital. When that capital is unforthcoming, we will have another bank crisis.

The banks don’t have the capital necessary to foreclose on thousands of defaulters. If they foreclosed now, they’d simply go bust. However, by not actively foreclosing they will just go bust passively, slowly, zombie-like.
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which is why there is more QE coming from the bundesbank and why gold and silver is going higher.
 
Aaron Sice said:
which is why there is more QE coming from the bundesbank and why gold and silver is going higher.
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Yep. The bankers and politicians of Europe will kick the can down the road just a little bit further, in order to buy enough time to claim a few more Irish assets before the inevitable collapse/debt jubilee/revolution/war.
 
Player

I find this bit disturbing:

The U.S. has $60 trillion in unfunded liabilities. At the peak, in 2007, the total of U.S. mortgages was $15 trillion

More disturbing than a Quentin Tarantino film...
 
A chart from Economonitor showing the trajectory of the Irish property bubble, amongst others.

price_rent3.jpg
 
Graemsay said:
If that's the situation on the ground then I can't see the Irish property market recovering for a few years yet. Either there is going to have to be a wave of evictions and foreclosures, or some element of debt forgiveness, because if a large part of the population isn't paying their mortgages, they won't be in a position to move. Negative equity will see to that.
Click to expand...

This still has a while to play out and it will take much more than a decade or two let alone years. At present it is estimated that around 15% of mortgages are in negative equity (this is speculative as there is no reliable reporting).

Of these, many are on 'tracker' mortgages which are basically 0.5-1.5% above the ECB cash rate which is at present 1%. The banks wholesale funding costs are 2-3% above the ECB rate and hence are hemorrhaging on these loans (of course which are no longer available). People are trapped in negative equity but wont move as they will be forced off their trackers. Geezus if I was a first home borrower going to suffer I would be doing my darnedest to make sure the bank who lent me 100% in an overheated marketplace with little care for assessing my financial capability in the first place felt my pain also.

The extent of the price drop is really still unknown as people cant buy because it is so difficult to get a loan. There is no such thing as a property investment loan in Ireland today. Its a viscious cycle and the poor average taxpayer in Ireland is paying for the failure of politicians to govern and regulate for the people. People do need to be responsible for their decisions, but governments are also meant to protect the people they govern, not promote the interests of the bankers they are in bed with.

How is it that in a small country like Ireland had amongst the highest paid politicians in the entire world pre-GFC. The IRISH are now being taxed to hell, real wage growth is falling and the economy has undergone a profound structural shift in their terms of trade as they never really produced anything tangible to fall back on. Banks reckless lending. Corruption ever present. Due planning process virtually non-existent. The national government had to force local authorities to reduce the development potential (or lack there of) of vast tracks of land. I didn't even know "Dezoning" existed before this.

The notion of debt forgiveness is much talked about and the politicians keep talking about the great moral hazard. Its a pity that they had no morals in the first place to keep the banks in check. Its very sad now to see Ireland returning to the days of its greatest export being its people.

Whatever your political views, I can assure you that I have a lot more faith in our leaders (on both sides) than many of our counterparts around the so called 'western world'.
 
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evand said:
That's only because the Australian ratio was at high levels in 2003. It was a bubble already then, that still hasn't deflated.
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Can you think of any other bubble, ever, property or otherwise, where the price/income ratio peaked, stayed there for a decade, and then crashed?

Or do you think Australia has some new kind of property bubble... one that exhibits characteristics never seen before?
 
Shadow said:
Can you think of any other bubble, ever, property or otherwise, where the price/income ratio peaked, stayed there for a decade, and then crashed?

Or do you think Australia has some new kind of property bubble... one that exhibits characteristics never seen before?
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I would have thought it quite possible to keep a bubble inflated, even for a decade with the right stimulus and intervention, not to mention resources.

Of course, once those resources start to run dry, and politics demand a surplus, well, then I guess we would see whats happening now, house prices falling!
 
MrCrumbpacker said:
I would have thought it quite possible to keep a bubble inflated, even for a decade with the right stimulus and intervention, not to mention resources.
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Can you think of any other bubble that was kept inflated for a decade using stimulus/intervention etc?

Or is the Australian 'bubble' unique?

MrCrumbpacker said:
Of course, once those resources start to run dry, and politics demand a surplus, well, then I guess we would see whats happening now, house prices falling!
Click to expand...

House prices fall, nationally or in individual cities, every few years. It's normal behaviour... just part of the cycle.
 
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