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A real what-if for a scenario where house prices really fall hard.


feargach

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By and large, I'm for NAMA and the state-rescued banks taking their entire store of houses and apartments and saying "everything must go!". I hate it that a literal arm of the state (NAMA) and a de facto arm of the same state are deliberately and openly preventing a totally-needed commodity from finding its real price where demand equals supply. We don't need to go over for the millionth time why it's unjust that houses still have a floor of €150,000 even though there's hardly a sinner buying at that price.

But we should look at the other side of the equation. What happens if house prices fall? We've already seen that it would put lots of people who currently imagine they're not in negative equity slap-bang into NE.

But there is another outcome to a house-price fall that has occurred to me: insurance policies failing to work as desired. Most mortgages are sold with life insurance AFAIK. I'll admit I don't know how this insurance pans out if the mortgage-holder dies.

But I suspect that if a major house-price fall happens, there will be a new crisis. We can be fairly sure that if prices fall precipitously, life insurers will see a major collapse in new premium income. Lots of people (either foreign or domestic) will be buying houses outright, thus no reason to bother with life insurance. And the sums that people are insuring for will be much smaller, among those who do mortgage up. It looks to me as if we'd have another major recapitalisation on our hands, and insurers will find themselves forced to bid premia up to the sky, forcing companies right out of business.

This is all speculation on my part, but I really do think that a rapid fall in house prices to their real level could bring on some genuinely thorny problems. That's not to say I'd rule it out, I'd just like us to examine the scenario more carefully. My worry is that we've maybe painted ourselves into a corner where allowing house prices to fall would cause vastly more problems than it solves.
 


Dublin 4

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Were you just reading my Nama thread? :shock:
 

seabhcan

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Prices only fall if people buy. If there's stuff on the market but no-one is buying, then prices - as measured - are static. There's a bit of Zen in this.

Right now, there are plenty of houses on the market but prices are only falling slowly because no one is buying. No one is buying because the quality of the housing stock on the market is very bad. Most houses for sale in Dublin are ex-granny places where the kids and grandkids don't want to live - meaning they need extensive renovation. Very few houses for sale are livable day one.

So what kind of stock does NAMA have? Mostly mouldy half-finished houses and flats in the middle of no where that no one wants to live in. Stuff that has stood empty and unheated since 2007. Some have broken windows.

No one whats to buy that for any price. If it goes on the market, it sits there at a fixed price.
 

feargach

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So what kind of stock does NAMA have? Mostly mouldy half-finished houses and flats in the middle of no where that no one wants to live in. Stuff that has stood empty and unheated since 2007. Some have broken windows.

No one whats to buy that for any price. If it goes on the market, it sits there at a fixed price.
Oh really?

I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
 

seabhcan

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Oh really?

I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
I don't think announcing this on p.ie amounts to a formal bid. Try harder.

5€ wouldn't cover the cost to Nama of the legals of the sale.
 

Mossy Heneberry

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I don't think announcing this on p.ie amounts to a formal bid. Try harder.

5€ wouldn't cover the cost to Nama of the legals of the sale.
You're evading the point he was making, which is correct.

Are you all for NAMA putting a price floor on property?
 

SPN

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The banks lent €40 Billion in new mortgages in 2006.

The banks lent €2.6 Billion in new mortgages in 2012.


The price of a property is totally dependent on the lending policies and lending ability of the banks (except for those few people who can pay cash).

Throw a load more houses on the market in a firesale without enabling the banks to lend at an appropriate level and you will wipe out the banks - or force the taxpayer to put in yet more capital.

It's a lose:lose situation.
 

Magror14

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Oh really?

I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
Just because you are there to offer them €5.00 does not mean that is the price. If the property can never sell then maybe the price of the property is the site value less demolition and clean up costs which might be a lot more than €5.00.
 

feargach

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I don't think announcing this on p.ie amounts to a formal bid. Try harder.
5€ wouldn't cover the cost to Nama of the legals of the sale.
Point being, you're avoiding the issue. Those houses have a buyer provided the sale price falls to the level where the market clears.

NAMA can request that the government rewrite the laws so that the houses can be sold at a negligible cost to the buyer and seller.

In fact, I'd like you to outline to me the "legals" you claim to know about. NAMA was able to legally take possession of the houses without much fuss. Why wouldn't it be able to surrender possession in exchange for money with a similarly low amount of fuss?
 

seabhcan

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Point being, you're avoiding the issue. Those houses have a buyer provided the sale price falls to the level where the market clears.

NAMA can request that the government rewrite the laws so that the houses can be sold at a negligible cost to the buyer and seller.

In fact, I'd like you to outline to me the "legals" you claim to know about. NAMA was able to legally take possession of the houses without much fuss. Why wouldn't it be able to surrender possession in exchange for money with a similarly low amount of fuss?
If 'fuss' means legal costs, NAMA had a lot of fuss. About €200,000,000 a year if I remember correctly.
 

Watcher2

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Oh really?

I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
Now you're just being an idiot.
 

Dan_Murphy

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Now you're just being an idiot.
No he is not.

Everything has a price, everything. If the government are claiming that some houses just will not sell then they are charging too much, it is that simple.
 

feargach

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The banks lent €40 Billion in new mortgages in 2006.

The banks lent €2.6 Billion in new mortgages in 2012.


The price of a property is totally dependent on the lending policies and lending ability of the banks (except for those few people who can pay cash).

Throw a load more houses on the market in a firesale without enabling the banks to lend at an appropriate level and you will wipe out the banks - or force the taxpayer to put in yet more capital.
It's a lose:lose situation.
So you're saying that overpriced houses are a national priority that have to be maintained for the common good?

(By "overpriced houses" I mean houses that the owner will neither allow to be available for rent, nor dispose of to the highest bidder.)

Do you see how this is wildly unjust?

We are radically manipulating the price of a vital commodity upwards, allowing a lucky minority to pocket the reward, while everyone else suffers.

The only way I could put up with this is if there was a 90% tax on the beneficiaries of this largesse. It's outrageous that Dublin rents can rise while this travesty continues, and the landlords get to pocket the rise without paying more than a tiny pittance in taxes for their state-sponsored money tree.
 

Ribeye

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Now you're just being an idiot.
No he's not,

I could sell every single property on NAMA's books in 6 months,

Every single one of them,

As could any market trader from Moore St,
 

feargach

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If 'fuss' means legal costs, NAMA had a lot of fuss. About €200,000,000 a year if I remember correctly.
Weren't those challenges taken by developers, which NAMA won and the developers lost?

How are those relevant to the supposed legal costs of selling those houses?

Last I heard, prices for conveyancing had fallen heavily owing to lack of demand.
 

Dan_Murphy

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I reckon that whether or not it affects insurers ultimately depends on what people spend their extra income on and the possibly of insurers moving into that market.

Fast cars, new gadgets, holidays can all have insurance of some sort, possibly not the revenue earners that life is but its something.

Overall I wouldn't be too worried about insurance companies myself.
 

Ribeye

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Just watching the repeat of TWIP,

Sherlock trying to reassure Irish depositors is hilarious:)
 

Lempo

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But we should look at the other side of the equation. What happens if house prices fall? We've already seen that it would put lots of people who currently imagine they're not in negative equity slap-bang into NE.
What happened in Finland in early 90s was that those who could afford to serve their loans got to keep their houses and those who couldn't lost theirs and the house prices fell a plenty and those who at that point had money got to buy them very cheaply. Personal insolvency legislation introduced in 1993 stated that those applicable got to keep their houses if they could serve the capital of their house loan.

If the house prices don't fall... I don't see anyone agreeing to pay the current asking price (bubble price?) for a house if everyone expects the prices to fall sharply. The crisis won't go away until people are willing (and capable!) to buy. The banks probably won't agree to loan anyone the money needed to buy a house in the price they're themselves asking for the houses.*

* I am vaguely aware that there has been not much reposessions and therefore it's not the banks trying to sell them. But if they were, I mean. Are the btw just waiting how long people will keep paying for mortgages they never can expect to have fully paid?
 
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