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NAMA versus the Grim Reaper


feargach

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Dec 11, 2006
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At its foundation, NAMA's purpose was made crystal clear: its job is to restrict supply in the Irish market for homes. Minister Lenihan called it "preventing a fire sale", which is euphemistic but leaves the position fairly clear.

So far, NAMA has been successful in its goals. The property price register shows that people (not many people, but enough to matter) are nowadays paying huge prices for homes in so-so locations in a bankrupt, insolvent nation. The Irish obsession with getting mortgaged-up as quickly as possible regardless of prevailing economic conditions has clearly not entirely faded away. The founders of NAMA gambled that, by withholding Ireland's immense oversupply of boom-era properties from sale, you could have a small but enthusiastic market for houses at excessively high (from an objective point of view) prices.

Many people will raise their eyebrows at this, pointing out that prices today can often be 40% of the bubble peak in 2007. But the fact is, you can't measure things like that. The bubble began in 1996, and prices are still far, far above 1996 levels. And just in case you think 1996 is too low a bar, have a look at the economic data for 1996: falling unemployment, extremely healthy business creation stats, great confidence. Ireland today is miles behind 1996. It makes no sense for the housing market to still be above that level. But the free market is about as rational as a hippy who's swallowed 50 blotters of LSD.

So, short-term, NAMA's strategy is going to go on working. They already own most of Ireland's unoccupied houses, excepting holiday homes in areas far from economic centres of activity.

But long term? The challenge for NAMA is that house-owners are not immortal. They die every day. Assume that the majority of deaths are of people born around 1940, and eventually you get a steady trickle of houses not in NAMA ownership which they cannot prevent from coming to market.

Not only that, but NAMA's success creates an inflated housing price which those who inherit the house must pay as inheritance duties. For many inheritors, a combo of economic depression and opportunities abroad might motivate them to liquidate their overpriced asset in Ireland at the inflated price NAMA has created for them, then hightail it out of Ireland for a luxurious retirement abroad, where €200K will buy a much better lifestyle than Ireland can ever offer.

Presumably, NAMA have a game-plan for this eventuality. Perhaps they feel that Ireland's mania for property is strong enough to withstand the added supply from homeowners passing on. Or maybe, just maybe the reaper will finally bring Irish house prices into line with the rest of the economy.
 

Ribeye

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Jul 12, 2011
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26,306
No, the laws of economics don't apply to Ireland,

There is no such thing as the equilibrium price,

Nothing is building up, nothing,

Nothing,
 

Shpake

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very far above 1996 prices? have U accounted for inflation in the equation?
 

feargach

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very far above 1996 prices? have U accounted for inflation in the equation?
Like I said, even if they were exactly the same as 1996 prices, accounting for inflation, that would still be far too high.

1996 was a vastly better economic period than 2013, Ireland today is in a much worse position than in 1996. Cost of living's way up, economic activity is way down. Real unemployment is at 23%. By rights, houses should be a lot cheaper today than they were then.
 

PlanetBertie

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Feb 7, 2011
Messages
752
Nama's only success is to make those who run it, and a select few who caused it to be formed, to live in the manner that they were accustomed too. I have no proof, i just made it up, as does Alan Duke.
 

Malbekh

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Apr 30, 2009
Messages
3,032
NAMA will be an unmitigated disaster. It has all the ingredients required to ensure that it will fail. Think about this. First of all the people who actually run it are all refugees from the various governmental, political and financial departments who presided over our banking and budgetary crisis.

Then it puts their combined 'expertise' in charge of the largest property portfolio on planet earth.

Then it ensures that this vehicle of massive assets driven by vested interests is given carte blanche in its actions answerable to no-one, bar a governmental executive who have no interest in anything other than getting through their tenure with a few skid marks in their underpants and their retirement funds greatly enhanced.

The only other bodies that have sight or sound of the NAMA process, are the various financial auditors who conspired or turned a blind eye to financial misgivings during our house flipping years. They don't care what happens as long as they get the gig and pay the partners the bonuses they richly deserve.

When the bank guarantee scheme came about, sifting through the doom-mongers, certain cogent posters on this site instinctively knew it was going to be a disaster. The same posters voiced similar fears about NAMA.

Nevermind. I'm sure there's something good on TV tonight to keep us distracted.
 

feargach

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Dec 11, 2006
Messages
4,995
Nama's only success is to make those who run it, and a select few who caused it to be formed, to live in the manner that they were accustomed too. I have no proof, i just made it up, as does Alan Duke.
Credit where credit's due: NAMA have taken an obviously-worthless asset, the Irish housing stock, and inflated its value far beyond what prevailing circumstances would suggest. Real people are paying real money (inasmuch as any modern currency is real, that is) for an asset that is clearly far, far too expensive.

And they've done it in plain view of the world. Every bog-standard gaff in a shabby location in Ireland that sells for over 200K (250K for any non-prestige location in Dublin) is an immense success for NAMA. A salesman who takes what is plainly a turd and successfully polishes it up and sells it like it's a beautiful and rare antique deserves kudos.
 

feargach

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Dec 11, 2006
Messages
4,995
NAMA will be an unmitigated disaster. It has all the ingredients required to ensure that it will fail.
You may say that, and I might agree, but the fact that NAMA has managed to survive and keep prices inflated well into May 2013 is a genuine achievement. Postponing an inevitable disaster is in itself a partial success.
 

feargach

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One thing I'd like to find out is how many houses are left in estates (I mean wills, not housing developments) every year.

Is it 5000?
 

Shpake

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Like I said, even if they were exactly the same as 1996 prices, accounting for inflation, that would still be far too high.

1996 was a vastly better economic period than 2013, Ireland today is in a much worse position than in 1996. Cost of living's way up, economic activity is way down. Real unemployment is at 23%. By rights, houses should be a lot cheaper today than they were then.

I was sifting through the CSO data. Something I'm not good at. I was looking for the average industrial wage in 1996 and the average house price for that year... then compare it with the corresponding figures for 2013. But that would give a very rough indicator of how much further they have to fall. But 1996 Ireland we were all young and full of optimism. There were jobs going all around the country. Now it seems the rural housing and small country towns are feeling the pinch much worse than the big cities. Unemployment is 14% now instead of 4-5%.

Average house price 1996 divided by average industrial wage 1996 and compare this with corresponding figures from 2013 would be a rough indicator of how much further they have to fall.
Shpake
Mathematically and statistically challenged
 

feargach

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But 1996 Ireland we were all young and full of optimism.
Ah yes, the classic line from Point Break: "young, dumb and full of ... optimism"
 

Malbekh

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3,032
You may say that, and I might agree, but the fact that NAMA has managed to survive and keep prices inflated well into May 2013 is a genuine achievement. Postponing an inevitable disaster is in itself a partial success.
What NAMA has done so far is sell off all the easy stuff. Portfolios that are actually worth something, and most of that overseas. As it finds itself going through the mediocre portfolio and thence into the unsellable stuff, things get more fraught. Not to mention the fact that various vested interests with large pots of money are gathering for judicial challenges.

The whole basis for NAMA was that over a period of 10 years it would 'at worst' break even on the €30b or so it paid the banks - with our money - in assets sales, and at best, turn a modest profit. Does anybody think this is likely now? NAMA is hamstrung by its inability to sell portfolios off at a loss, which isn't an issue if the property market where its portfolio is, makes a return. But it won't.
 

Mad as Fish

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Joined
Dec 6, 2012
Messages
24,449
You may say that, and I might agree, but the fact that NAMA has managed to survive and keep prices inflated well into May 2013 is a genuine achievement. Postponing an inevitable disaster is in itself a partial success.
The desire to own a house and get mortgaged up to the hilt is not exclusive to Ireland by any means so let's not go thinking that other countries are in any better a situation, they aint.

Another point to consider is that Irish houses prices might have been historically 'too' low. Even in the boomiest of boomy times properties (away from Dublin) were fetching far less than equivalent properties in the UK, and they still are. If we sold our house tomorrow at 60% of the buying price there is still no way we could afford anything similar in the UK.
 

Shpake

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Joined
Oct 17, 2012
Messages
5,374
NAMA will be an unmitigated disaster. It has all the ingredients required to ensure that it will fail. Think about this. First of all the people who actually run it are all refugees from the various governmental, political and financial departments who presided over our banking and budgetary crisis.

Then it puts their combined 'expertise' in charge of the largest property portfolio on planet earth.

Then it ensures that this vehicle of massive assets driven by vested interests is given carte blanche in its actions answerable to no-one, bar a governmental executive who have no interest in anything other than getting through their tenure with a few skid marks in their underpants and their retirement funds greatly enhanced.

The only other bodies that have sight or sound of the NAMA process, are the various financial auditors who conspired or turned a blind eye to financial misgivings during our house flipping years. They don't care what happens as long as they get the gig and pay the partners the bonuses they richly deserve.

When the bank guarantee scheme came about, sifting through the doom-mongers, certain cogent posters on this site instinctively knew it was going to be a disaster. The same posters voiced similar fears about NAMA.

Nevermind. I'm sure there's something good on TV tonight to keep us distracted.
"Never read economic/business articles before you go to bed at night" .... Eddie Hobbes.
Maybe the wisest words to come out of the great recession.
Some words of comfort: I think spoken by Alfred Marshall 100 years back. You shouldn't be appalled at the losses and price falls due the the recession/depression. The damage has already been caused by the widescale misallocation of resources. Or words to that effect.
Semi D ghost estate in Leitrim or Longford anyone? Only two hours one-way commute to work (at least) and two hours back... but it would be grand to retire to. Or even just for the weekend holiday home. Of course they are going cheap but that is part of the recovery.
Nama's purpose was to prevent a fire sale which would have (and might still) floor the banks and maybe very many people who own a house.
Well the economy should hurry up and rectify itself... six years muddling through and we have had war threats from the Arab Spring, Euro Crisis, Nuclear threat from Kim Yung Bum, and now China and Japan shouting at one another and next the UK wants out of Europe.
Don't read this sort of thing last thing at night.
 

Dublin 4

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Feb 6, 2011
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12,993
The PPR & Tracker sites have prices falling everywhere & around only 1300/1400 sales p.m.

Nama are selling at a loss with their own oversupply of 3,250.

More important is the state of the Banks, Croke Pk 3, EZ Crisis etc.

Slowing down the inevitable - who gives a fk...
 

Shpake

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Oct 17, 2012
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5,374
What NAMA has done so far is sell off all the easy stuff. Portfolios that are actually worth something, and most of that overseas. As it finds itself going through the mediocre portfolio and thence into the unsellable stuff, things get more fraught. Not to mention the fact that various vested interests with large pots of money are gathering for judicial challenges.

The whole basis for NAMA was that over a period of 10 years it would 'at worst' break even on the €30b or so it paid the banks - with our money - in assets sales, and at best, turn a modest profit. Does anybody think this is likely now? NAMA is hamstrung by its inability to sell portfolios off at a loss, which isn't an issue if the property market where its portfolio is, makes a return. But it won't.
Another yardstick would be how would the 30 Bn invested in Nama compare with 30 Bn invested in German Bunds or US treasuries... or even S&P tracker funds. Total return. capital + interest coupons etc.
but I'd say FG FF and house owners would be relieved if it achieves its objective of rescuing the banks preventing house prices from reaching fire sale prices and then not losing too much over it's ten years.
 
M

MrFunkyZombaloo

I was sifting through the CSO data. Something I'm not good at. I was looking for the average industrial wage in 1996 and the average house price for that year... then compare it with the corresponding figures for 2013. But that would give a very rough indicator of how much further they have to fall. But 1996 Ireland we were all young and full of optimism. There were jobs going all around the country. Now it seems the rural housing and small country towns are feeling the pinch much worse than the big cities. Unemployment is 14% now instead of 4-5%.

Average house price 1996 divided by average industrial wage 1996 and compare this with corresponding figures from 2013 would be a rough indicator of how much further they have to fall.
Shpake
Mathematically and statistically challenged
Average pay in 1996 was just shy of €19,000 with the average house price at €75,000.

Average pay in 2012 was just north of €36,000 with the average house price at €171,000.


Sources:

House Price Index 1996 - 2011


Average pay 1996

Average pay 2012

Property Prices in Ireland 2012
 

Malbekh

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Joined
Apr 30, 2009
Messages
3,032
Another yardstick would be how would the 30 Bn invested in Nama compare with 30 Bn invested in German Bunds or US treasuries... or even S&P tracker funds. Total return. capital + interest coupons etc.
but I'd say FG FF and house owners would be relieved if it achieves its objective of rescuing the banks preventing house prices from reaching fire sale prices and then not losing too much over it's ten years.
Well, you'd have to take into account that NAMA was also intended to free the banks from their property debts so they could start lending again. That worked well, didn't it? If the banks are unable and incapable, still, to deal with their domestic and business debts, they're hardly liked to have done anything on their developer debt either at this stage, would they?

So if NAMA hadn't been created, we would be looking at a direct bailout of the banks instead, possibly from the EFSF, or at worst, something similar that has occurred with the Spanish banks. As always, the Irish solution is to run away from the problem and not look it in the face.
 

Shpake

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Oct 17, 2012
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@FunkyZ

So based on those figures roughly
1996 house price = 3.94x av industrial wage
2012 house price = 4.75x av industrial wage

Lots of room to quibble... eyeballing the property reg graph
Irish Property Price Register ::: Graphs
it seems that average for 2012 was more 200,000 but median price would tally more with your figures
Then maybe average disposable income would be a better metric. Lot less of that this time round.
 

Dublin 4

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Feb 6, 2011
Messages
12,993
1996 was the beginning of the False Boom - Pre Good Friday Agreement.

Now its Repossession Judges, Croke Pk 3, Water Charges, Prop Tax, Renewed Super Emigration, Super Unemployment, Currency Crisis, Nama, Bank Bailouts, Sov Bailouts, Global Downturn, Wipeout Sov Debt, Oversupply etc, etc...
 
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