"First-time buyers have been hit and hit hard by the credit crunch, and so far our Government has done nothing to help them or intervene in the market," said Labour's finance spokeswoman Joan Burton.
"Cowen himself killed the property market stone dead by failing to act on stamp duty in December 2006 and now he and his Government are on auto-pilot," said Labour's deputy leader.
For mortgage holders, the news of house-price collapses means they are waking up this morning in negative equity. People are carrying mortgages on properties worth less than their borrowings, but many of those are in for the long haul and will survive the current crisis.
But at the extreme end of the collapsed housing sector is the increasing number of repossession orders being made to the High Court by financial institutions.
Last week alone saw a number of leading financial institutions, such as AIB and Bank of Ireland, take their place on the list beside the sub-prime lenders seeking to repossess properties from payment defaulters. Sub-prime lenders, which provide loans and mortgages to those with chequered credit histories, filled the lists at the courts last week. Two lenders -- Start mortgages and GE Capital -- accounted for most of the cases.
Worryingly, the number of possession applications this year remains at the same high level of 2007, which had jumped 50 per cent on 2006, showing the drastic impact of what happens when things go wrong.
Despite the claim by the Financial Regulator Pat Neary that relying on repossessions is the "final option", Dermot O'Leary of Goodbody Stockbrokers said that there was no doubt that throughout this year, consumers would see house repossessions increase. "They are the byproduct of a slowdown, and while they have been at a historic low, there is no doubt we will see the number of housing repossessions rise as the slowdown takes hold," he said.
In the face of the increasing number of banks taking back properties, the need now arises for establishing a State- backed mortgage relief fund beyond the current system set in place by the Department of Social Welfare.
Such a fund to help those remain in their homes is surely more humane than booting people out on the street. Two factors will continue to keep the house market depressed throughout this year and into 2009.
Firstly, credit is far less available than it was 12 or 24 months ago. Banks across the board have tightened up on their lending criteria, with the aforementioned death of 100 per cent mortgages.
Borrowers seeking mortgages have had to resort to saving deposits, forcing many to sit by and watch house prices tumble without being able to do anything about it.
Secondly, the ECB is now highly unlikely to reduce interest rates in 2008, despite previous indications that such a drop might happen. That means the squeeze on already stretched mortgage holders is not about to subside until sometime next year.
The Sindo
Saturday, May 31, 2008
Through the floor
AS HOUSE prices in America continue their rapid descent, market-watchers are having to cast back ever further for gloomy comparisons. The latest S&P/Case-Shiller national house-price index, published this week, showed a slump of 14.1% in the year to the first quarter, the worst since the index began 20 years ago. Now Robert Shiller, an economist at Yale University and co-inventor of the index, has compiled a version that stretches back over a century. This shows that the latest fall in nominal prices is already much bigger than the 10.5% drop in 1932, the worst point of the Depression. And things are even worse than they look. In the deflationary 1930s house prices declined less in real terms. Today inflation is running at a brisk pace, so property prices have fallen by a staggering 18% in real terms over the past year.
The Economist
Up to 40,000 Irish first-time house buyers face negative equity
Up to 40,000 Irish first-time house buyers who bought properties with 100 per cent no deposit mortgages will face an average paper loss of €18,200 each, if house prices fall 10 per cent this year, according to research by Davy Stockbrokers.
Davy says in its weekly market comment report that a 10 per cent drop in house prices would lead to negative equity – where a mortgage loan is higher than the value of a property – to the value of €728 million, or 0.5 per cent of residential mortgages.
It is forecasting a 12 per cent decline in house prices this year but said first-time buyer house prices were falling at a faster rate.
A 10 per cent drop in house prices would leave 40,000 first-time buyers in negative equity by the end of this year, Davy said.
In 2006, 36 per cent of mortgages to first-time buyers were 100 per cent home loans, while 69 per cent had a loan-to-value (LTV) ratio of more than 90 per cent.
Davy said a fall in house prices ranging from 5 to 15 per cent would leave between 22,000 and 55,000 first-time buyers in negative equity.
Davy analyst Stephen Lyons, said falling house prices and rising negative equity had personal rather than financial consequences. “If a person’s job is lost, that would be a big concern but unemployment is not on the same par as in the UK in the early 1990s when there was negative equity.”
Lyons said first-time buyers might change their plans to sell so as to avoid making a loss. “I don’t think anyone will want to realise the loss. I think people will sit and hold on to their property, and hope that the capital appreciation will come back so those who had intended to stay in a property for three to four years will probably stay for longer,” he said.
Finfacts.ie
Davy says in its weekly market comment report that a 10 per cent drop in house prices would lead to negative equity – where a mortgage loan is higher than the value of a property – to the value of €728 million, or 0.5 per cent of residential mortgages.
It is forecasting a 12 per cent decline in house prices this year but said first-time buyer house prices were falling at a faster rate.
A 10 per cent drop in house prices would leave 40,000 first-time buyers in negative equity by the end of this year, Davy said.
In 2006, 36 per cent of mortgages to first-time buyers were 100 per cent home loans, while 69 per cent had a loan-to-value (LTV) ratio of more than 90 per cent.
Davy said a fall in house prices ranging from 5 to 15 per cent would leave between 22,000 and 55,000 first-time buyers in negative equity.
Davy analyst Stephen Lyons, said falling house prices and rising negative equity had personal rather than financial consequences. “If a person’s job is lost, that would be a big concern but unemployment is not on the same par as in the UK in the early 1990s when there was negative equity.”
Lyons said first-time buyers might change their plans to sell so as to avoid making a loss. “I don’t think anyone will want to realise the loss. I think people will sit and hold on to their property, and hope that the capital appreciation will come back so those who had intended to stay in a property for three to four years will probably stay for longer,” he said.
Finfacts.ie
Saturday, May 24, 2008
Fall in US house prices heralds problems for all
Worriers are spoilt for choice at present. But there is probably nothing investors should worry about more than the future for US house prices. This applies even for those who live nowhere near the US.
The US housing market is wildly out of whack, with a huge overhang of 4.55m unsold houses. Data on Friday showed this backlog at a record level, which would take more than 11 months to clear if sold at a normal pace.
The median house price, according to government figures, is down 8 per cent from a year ago. The S&P Case-Shiller index, based on 20 large cities, suggests the problem is worse than this, with prices down 15 per cent in nominal terms since the peak in 2006.
There are various ways in which the market could return into balance. But what is most important is how prices adjust.
This may seem debatable. After all, lower prices should mean that more people can afford their own home. Another way to bring the market into balance, a slowdown in construction, would have nasty economic consequences of its own.
But prices are more important. This is firstly because of their impact on the economy. There is a debate over what economists call the “wealth effect” – the tendency of homeowners to spend more when they feel wealthier due to their extra wealth on paper. But when prices were going up, this effect looked substantial.
The dramatic rise in real house prices coincided with an epic collapse in US savings, as shown in the graphic. It reached the point where the savings rate became negative, so that Americans spent more than they earned.
It follows that the risk of a negative wealth effect is now quite severe. Consumer confidence surveys, showing sharp falls in recent months, confirm this.
The Financial Times
Sunday, May 11, 2008
ACCA boss suggests government should form state bankruptcy body
The government should set up a high-level group to deal with the rise in bankruptcies caused by the global credit crunch, according to the head of one of country’s largest accountancy bodies.
Brendan Foster,the newpresident of ACCA Ireland, said the current shortage of bank finance was leading to a significant increase in personal debt for individuals who had provided personal guarantees on loans. Foster said many of these people had counted on the market ‘‘going the right way’’, andwere now facing major financial difficulties.
‘‘Many of these individuals will face financial ruin when the dust settles and the banks pursue these personal obligations.
‘‘The consequence is judgments and loss of credit worthiness or worse, bankruptcy,” said Foster, a founding partner of FosterMcAteer accountants.
Speaking after his election to the post of ACCA president this weekend, Foster said that, while the government was proposing radical changes to corporate insolvency, there were no provisions or proposals to deal with personal debt.
He said the government should set up a review group made up of representatives of the business community and financial institutions, to consider practical means of dealing with this issue.
‘‘Unlike in Britain, there is no practical solution available to assist individuals to deal with these situations.
The Sunday Business Post
Brendan Foster,the newpresident of ACCA Ireland, said the current shortage of bank finance was leading to a significant increase in personal debt for individuals who had provided personal guarantees on loans. Foster said many of these people had counted on the market ‘‘going the right way’’, andwere now facing major financial difficulties.
‘‘Many of these individuals will face financial ruin when the dust settles and the banks pursue these personal obligations.
‘‘The consequence is judgments and loss of credit worthiness or worse, bankruptcy,” said Foster, a founding partner of FosterMcAteer accountants.
Speaking after his election to the post of ACCA president this weekend, Foster said that, while the government was proposing radical changes to corporate insolvency, there were no provisions or proposals to deal with personal debt.
He said the government should set up a review group made up of representatives of the business community and financial institutions, to consider practical means of dealing with this issue.
‘‘Unlike in Britain, there is no practical solution available to assist individuals to deal with these situations.
The Sunday Business Post
Sunday, May 4, 2008
Friday, May 2, 2008
Irish national average house prices fell 8.9% in year to March 2008
Irish national average house prices fell by a further 0.7% in March according to the latest edition of the permanent tsb / ESRI House Price Index. This follows a similar reductions [0.8%] in February and [0.7%] in January. This continues to indicate some easing in the rate of reduction compared to the final quarter of last year, when the monthly average price change was -1.3% [October], -1.1% [November] and -1.5% [December].
In the first three months of 2008 average national prices fell by 2.2%.
This compares to a fall in prices of 3.9% in the last quarter of 2007. Measuring the rate of growth in the 12 months (year on year) to March, average national prices were down by 8.9%. This compares to a decline of 8.8% recorded in the 12 months to February.
The average price paid for a house nationally in March 2008 was €281,643. This compares to €287,887 in December 2007.
The index does not take account of volume/activity in the market which is significantly down, as reflected in stamp duty receipts and mortgage approvals.
Methodology
Dermot O'Leary, Chief Economist of Goodbody Stockbrokers,commented last November that the data are reflective of prices at the mortgage payment stage of the house-buying process. This can be some 3-4 months after a sales price is agreed, and, in a slower market, this lag could get extended further. Therefore, there is a significant lag between market prices and the official house price data. Secondly, the type of properties in the ptsb database may be concentrated towards the lower price range in the market.While recognising the fact that the ptsb data takes account of the different characteristics of the house, the average price in the country is well below the estimates contained in the dataset from the Department of the Environment. Finally, price incentives, which have become common for new scheme developments, would not get reflected in the data.
Commenting on the results, Niall O’Grady, General Manager Marketing, permanent tsb bank said: "This result in March confirms the continuing softening in both house prices and transactions numbers across the spectrum as the market moves to more realistic levels of affordability. The data also clearly shows that sellers who are targeting first time buyers have adjusted their prices very significantly in an attempt to reignite demand.”
FinFacts
In the first three months of 2008 average national prices fell by 2.2%.
This compares to a fall in prices of 3.9% in the last quarter of 2007. Measuring the rate of growth in the 12 months (year on year) to March, average national prices were down by 8.9%. This compares to a decline of 8.8% recorded in the 12 months to February.
The average price paid for a house nationally in March 2008 was €281,643. This compares to €287,887 in December 2007.
The index does not take account of volume/activity in the market which is significantly down, as reflected in stamp duty receipts and mortgage approvals.
Methodology
Dermot O'Leary, Chief Economist of Goodbody Stockbrokers,commented last November that the data are reflective of prices at the mortgage payment stage of the house-buying process. This can be some 3-4 months after a sales price is agreed, and, in a slower market, this lag could get extended further. Therefore, there is a significant lag between market prices and the official house price data. Secondly, the type of properties in the ptsb database may be concentrated towards the lower price range in the market.While recognising the fact that the ptsb data takes account of the different characteristics of the house, the average price in the country is well below the estimates contained in the dataset from the Department of the Environment. Finally, price incentives, which have become common for new scheme developments, would not get reflected in the data.
Commenting on the results, Niall O’Grady, General Manager Marketing, permanent tsb bank said: "This result in March confirms the continuing softening in both house prices and transactions numbers across the spectrum as the market moves to more realistic levels of affordability. The data also clearly shows that sellers who are targeting first time buyers have adjusted their prices very significantly in an attempt to reignite demand.”
FinFacts
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