Brendan O’Connor, high profile writer for the Sunday Independent, biggest selling Sunday newspaper in Ireland, writes today that there is “no use cursing the day we mounted the property ladder“.
I would like to highlight the fact that just because he’s high profile doesn’t mean I think he’s any good (I think he’s not) or that because the Sindo is the biggest selling Sunday newspaper that I think that’s any good either (I think it’s not).
According to various heartbroken and delusional vested interests, property values in Ireland dropped something between 29 and 41% or so over the last year or two. This you’ll recall was not supposed to happen because the fundamentals were sound, there was a lack of property, we would have a soft landing. We now have 12% unemployment and there is more than a years’ supply of property in pretty much every property market in the country and properties are taking 7-9 months to sell, very few make it to sold status without dropping their asking price at some stage. In July 2007 in an effort to talk up the market, Brendan O’Connor stated that the smart ballsy guys were buying up property in the period when prices had dropped ever so slightly. They’ve dropped quite a lot since.
You’d like to think that Brendan has finally faced reality and I suppose, in a way, he’s facing some of it. But there are still gems of utter…wrongheadedness in there.
Indeed, the fact that so many of Ireland’s risk-takers and visionaries focused on property was probably to the detriment of the development of other areas of the economy.
My emphasis. In the run up to the property crash, 24% of the economic output of this country came from residential construction. 40% of new builds in 2006 were sold to investors. There is no probably about this. It destroyed huge parts of the economy by diverting people into construction as an industry and capital into property which is now proving difficult to extract an income. And the risk-takers and visionaries weren’t there because they were risk-takers and visionaries. Anyone who bought into property as an investment after about 2003 was only a visionary if they got out immediately. Anyone who bought into property as an investment after about 2004 was jumping on a bandwagon that was seen as risk-free. We are not talking about risk-takers and visionaries here. But the syphoning off of a lot of our productive population into a non-productive section of the economy – you can’t export houses and they don’t earn for the country and they are based largely on debt – was hugely detrimental to the economy – it has led directly to
- the increase in unemployment in all related sectors
- the behaviour of the banks has left Irish banks in a perilous state. They overlent because there was a huge appetite for property speculation and they all assumed someone else would carry the can.
- the Irish tax payer is carrying the can in the way of NAMA and a near unlimited banking guarantee, cuts in spending and other related hassle
- the cost of property drove the cost of living through the roof and destroyed our international competitiveness.
So, Brendan, there ain’t no probably about it. It is a certainty and sadly for you, it was all too foreseeable. If you didn’t, then strike yourself off the smart list. Most people knew it couldn’t go on; they counted on not being the ones left standing when the music stopped. You can’t actually predict that.
Maybe it’s time to start loving our houses as homes, to realise that, unfortunately for some, the home might be a lifetime commitment.
For the last 9 years as people told me to buy anything to get myself on the ladder I pointed out that a quarter of a million euro was a lot of money and I wasn’t going to ship up money I didn’t have on houses or apartments I didn’t like. People should attach more importance to the utility value of homes – and if they did, they wouldn’t need this advice – because if they hadn’t been so gung-ho on making a killing, they wouldn’t now be taking a killing. This is 20-20 vision hindsight and again, all too visible to smart people.
This is a difficult one for us to get our heads around. Irish people’s relationship with property, characterised by the property ladder philosophy, has tended to involve a form of social climbing.
The ladder mentality is a recent phenomena, Brendan, pretty much developed to get people to buy property they did not want under the illusion it would help them to buy property they did want 3 or 4 years later. Speak for yourself with this drivel. I never bought into this ladder nonsense and a lot of people I know only bought into it because people like you were writing drivel about property. The sort of drivel you’re now decrying. While giving you credit for recognising you “might” have been wrong, you were supposed to be intelligent enough to see this. A lot of people did. Why were they not being paid by the SIndo to explaint his? You could say sorry, dammit.
The new reality is that house prices are not going to “recover” to previous levels in the near future.
We know. And the economy needs to ensure that they do not.
The new reality is that house prices in Dublin have fallen nearly 50 per cent in real terms since 2006, according to Sherry Fitzgerald.
In fact, it’s hard to say because no one is really comparing volume trade either. It could be much worse in some areas.
This period has been characterised by two things — historically low interest rates and wild lending by the banks. The wild lending has come to an end and the low interest rates will before the end of the year.
We had the historically low interest rates most of the time from 2002. The rises from them were the start of prices coming down, something anyone with nothing to hide could have told you. The wild lending has come to an end because the banks have been caught swimming without their clothes on. And Alan Greenspan should not get any praise for his low interest rates post 2001. They never needed to go that low.
Add to this imminent property taxes an d the outlook does not look good for property prices. If property prices couldn’t thrive while the banks were throwing out money with minimal interest rates, they’re certainly not going to double in the absence of those two spurs.
Property prices did thrive and big time – that’s how we got up to the absolutely stupid, stupid property prices that we had in 2006. It wasn’t based on salary multiples of 3x and 7 % interest rates. Do you really not have a clue what you’re talking about here?
And that’s what they would need to do to get us back to to pre-crash prices. Even the 7-10 per cent growth in property prices for 2010 predicted by Bloxhams on Friday, if it were to happen, would claw back only a fraction of the value people have lost.
No, dude, sorry. Not only do we need to do that to get us back to pre-crash prices, we need double incomes paying them as well which with growing unemployment is not going to happen. Bloxhams price prediction should be seen in the context of the types of property that might sell.
House prices would need to double to “recover” back to what they were. And we all accept that the days of property prices doubling in a few years are gone. So basically, anyone who bought in the last few years is operating with what you might call a legacy cost base, a mortgage that does not reflect the current value of their property or maybe even what they currently earn.
Brendan, it didn’t ever represent the current value of what they earned. People got mortgages of 8 times their salary during the bubble. Do you really think that was sustainable?
The Government needs to get rid of stamp duty on residential property. They should do it for a year and then they should probably do it for another year.
Brendan, I have argued for many years that stamp duty should be flatrated and not value based. But be careful what you ask for because frankly the government are looking at an annual residential property task which you might not want – I know I don’t and I don’t even own property - either.
The banks need to start lending in a reasonable fashion and they need to create mortgage products that reflect the new legacy-cost-base nature of home ownership.
The banks are still lending too much. Reasonable fashion means 25 year term, a salary multiple that is manageable to pay back in that time. They don’t need to mess around so much. You might also add that the Financial Regulator and the Central Bank could start doing their jobs a bit more effectively in terms of watching the banks. Because the Central Bank could have limited the impact on this by simply forcing the banks to increase the deposits they hold with the lender of last resort and the Financial Regulator could have blocked 100% mortgages and wildly increasing salary multiples and mortgage terms.
They need to create longer-term mortgages and perhaps even mortgages that would allow people in negative equity to move out of properties they currently own and into homes in which they will live long term.
There are still mortgage terms of 40 years available. How much longer do you want, Brendan? Fifty? Intergenerational?
Please. You may have recognised that the bubble is gone, but you don’t seem to have learned much about how we avoid it in the future.
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