July’s fall in activity continued into August, with an almost blanket ban on new finance being operated by the banks.
Unlike other months, the number of offers has finally collapsed. Although viewings are marginally up, the rate of offer is half what it was last month.
Continuing uncertainty over the Govt. plans for NAMA, uncertainty over Govt. plans for the banking sector, even uncertainty over the continuation of the Govt. itself has all fed the fear and confusion that is stalking the property market at present.
Banks that are looking for the taxpayer to bail them out are putting increasing pressure on their clients who have encountered difficulty, with new account managers being appointed to deal with small businesses that have cash-flow difficulties. Of course, as we can see with Liam Carroll and others, the larger debts are being cared for sympathetically until they are “sold” to NAMA and the problem becomes ours!
One of the immutable laws of the Universe is that “For every action, there is a reaction.” Today, if further proof were needed, we witness again the folly of the Governments plan to saddle the tax-payer with the toxic liabilities of the banks and developers through the NAMA vehicle. Bank shares have been rising steadily over the last few weeks and jumped by up to 10% today. This article shows that post-NAMA, others value our banks as being cheap. However, this is predicated on NAMA taking the toxic liabilities off the bank balance sheets at more than value...and dumping them on us!
When will this lot wake up? Cowen is asleep and unable or unwilling to deal with the crisis in the country’s finances. He seems to be in thrall to the Union lobby. Lenihan is a barrister, yet is planning to construct the largest property investment company in the world...leveraging the entire country against the debt! Coughlan...well the less said the better. Unfortunately, the alternatives are asleep as well. Instead of forsaking their 2 month holiday and asking for a recall of the Dail, Kenny and Gilmore prefer to “rest for the struggle ahead.” Well here’s some news boys, the struggle has been going on for the rest of us since early 2008!
As a committed member of a democracy, I am concerned that the lack of leadership from anybody other than the bearded Union leaders will drive us towards social anarchy. Perhaps we do need a benign dictator to get us through the next few years. Without this, we may end up with a not-too benign version!
Following a fairly upbeat end to June, I am afraid to say that the momentum has not been maintained.
Like the current weather, just as things look to be getting better, they take a turn for the worse.
Any notion that finance was becoming more available seems to have been a temporary blip.
It is now harder to get finance for a property purchase than to get water in the middle of the Sahara.
It is hard to see how anything is going to sort the current situation.
NAMA will not work in my opinion.
Whatever “discount” the Govt. applies to the distressed loans will need to be made up in a cash injection in any event.
So we, the taxpayer, will end up paying full price for these “toxic assets”, which are really “toxic liabilities”!(See this article re same!)
That however, is a whole different blog-post.
This lack of finance has caused a number of Sale Agreed transactions to fall through.
It has also put a virtual halt to new viewers. Very few buyers are being approved for mortgage, so we are limited to the pool of potential buyers that have secured loan approval already.
This is a rapidly diminishing pool, as many approved 2 months ago are not being re-approved when reviewed and quite a few bought in June.
This is reflected in the figures. Both viewings and offers are down on those of June.
Year on year, viewings are near half of July 2008, although offers are slightly above 2008 figures, emphasising the focused approach taken by the current crop of value-seeking bidders.
July 2008:Viewings 94Offers 24
July 2009:Viewings 50Offers 26
Prices are way down on last year. At least 10% year on year and up to 20% since peak.
Plenty of people want to buy at these reduced prices. They see low interest rates. They are paying up to €10,000 a year in dead-money rent. Through no fault of their own, they are unable to get finance due to the current state of the banks.
Meanwhile, the Government is on holidays. The country is sinking further into the mire. The fundamental problems of the economy have not been addressed. We are being asked to pour up to €90 billion into the banks to support their errors over the past years. I have said before, let them fail! Set up a State bank and channel the money into that. The Civil Service cannot do a worse job than the current lot of bankers. Somehow, I don’t think a Cowen lead Fianna Fail have the stomach for that. Change is needed.
House prices are at their lowest for 5-6 years, while interest rates are lower than seen since the foundation of the State! Despite innumerable adverts, running almost all day, proclaiming that the “banks are open for business”, it is almost impossible to secure finance on anything. Since the start of the year, it has not been possible for those wishing to trade-up to get finance. Now, even first-time buyers cannot get approval. Banks used to give 3-6 month approval letters to prospective home-buyers. Where they can now get approval for a much-reduced amount, it runs for only one month. This is totally impractical. If you get approval at the start of the month and look at homes in that first week, it would be very unusual for you to reach agreement on the purchase of a property within two weeks. It will take at least a further two weeks for the solicitors to look at and approve a contract before it will be presented to you for signing. The month is up before you sign the contract. You then have to go back to seek approval again. This can take 2-4 weeks. If it comes through for you! In the meantime, the vendor has assumed that you cannot proceed. Your friends have gone from congratulating you on your intending purchase to planting seeds of doubt in your mind about the house, its location, the price etc. You end up thinking that this is all way too much hassle and you do not proceed. Which is what the bank really wants. While politically, they are supposed to be “open for business” they do not want to do business at all. Homebuyers get this message. They are human. They do not want to suffer rejection. So they drop out of the buying process. Just as they are doing now. Young purchasers are passing up on the chance to buy substantially reduced homes, at substantially reduced interest rates and instead, continue to pay rent to fund a landlords mortgage. Because the banks are not open for business.
All around us, Nature is bursting out. Leaves are appearing from buds as Spring makes it mark. Although many dispute the months of Spring, arguing for February, March and April, over March, April and May and vice versa, I do not think that the seasons are confined to a strict Calendar. They take it as it comes.
In the US, Obama says they are seeing the first “green shoots” of a recovery in the economy. We are in the midst of what economists are calling the toughest recession to hit any country since the Great Depression(I kid you not!), but, unbelievable as it may seem to us from these depths, the housing market in the States has bottomed out and by all accounts, is actually recovering! Prices there are not rising, but homes are selling faster, with more competition for the better homes. The reasons for this are many, but one is that vendors have realised that to sell a house, it has to be marked down to about 60% of its peak value... or less. Banks there are keener to lend to home buyers. They see it as a method of spreading the risk. They can have one big loan with a builder/developer, who cannot service it due to lack of buyers with finance. Or, they can give mortgages to buyers, who are more likely to be able to service the debt, even if a small proportion of them fail!
Of course, the position regarding defaulting on loans in the States is different to here. There, you can hand the keys back to the bank and other than a black mark against your credit rating that is the end of the matter. There, the loan is non-recourse, guaranteed only by the property against which it is held. Here, if your home is repossessed, the bank will sell it for what they can, but the balance of the debt will live with you as long as you do not pay it off.
It seems contradictory therefore, that now that the manure has hit the fan, the banks are looking for assistance from the Government (i.e. us taxpayers) in an effort to write down their debt, make it non-recourse. That same courtesy will not be afforded to the unfortunates who lose a job and cannot service their mortgage. Bad enough we had to guarantee all deposits, now they want us to buy all the bad debt from them! No mention of paying back all the bonuses that were paid out while amassing all that bad debt.
Historically, Ireland followed America’s lead. Whatever happened there usually happened here a few years later. This time, we followed their descent into the mire within weeks. If the housing market continues to improve Stateside, does anyone really think that things will improve here in the short-term? Not without freeing up of credit, which our Government and banks between them have not addressed...at all. Not without total reform of the banking system. Maybe some of them have to fail? Not without some at the top of that system being held responsible for their negligence and greed. Not without some new thinking about this country and economy. Maybe, not without a change of Government?
Local elections take place on the 5th of June. This is not a time for apathy. Usually local elections have little effect on the national arena. This time might be different. Things are on a knife-edge. The smallest thing could have huge implications. What do you want for this country? Think about it. Ask questions when you are canvassed. Then whatever your view, vote! This time, it might matter. We need to ensure that the people remain in control of the situation. Not some cabal of faceless bankers, bureaucrats and politicians. This is too serious. With deference to the season, “Hope springs eternal.”
As we are now talking in trillions, (of US debt), many people do not have a perspective on the potential €90billion exposure to dodgy property loans, or the €450billion in exposure of the Bank Guarantee that this Government has gotten us all into.
Just so you know, there is an enormous difference between millions and billions.
To put it in time terms:
A million seconds is about 10 days. A billion seconds is over 30 years!
I have read a lot of good and bad press regarding NAMA, the asset management agency being set up by the Government to buy the development-fuelled debt from the banks. David McWilliams has a great post on the subject.
I am not sure that it is a good idea for the country to take on a potential €90billion exposure at this time, on top of the multi-billion debt that we already have.
A primary law of nature is "cause and effect." What consequences have there been for the bankers who made the crazy lending decisions and the civil servants who allowed those decisions that got us into this mess?
Exactly...none.
They are still in jobs, still drawing down bonuses, or have retired "gracefully" with huge handouts. There has not been any major reprimand or action taken against them.
Those of us in the private sector are experiencing a severe recession. Lay-offs, reduced working hours, lower wages and cut-backs in all perks are the norm for the vast majority of us. Civil servants have the pension levy, but to date, a guaranteed job and pension. Bankers have not had to pay a pension levy and still appear to have a guaranteed job and pension.
As David McWilliams asks, "Who is running the country?"
We have watched this week as the Irish Government bail-out of the banks, through a Guarantee Scheme, led to a rebound in the Irish Stock Market.
We really don't know what is going to happen next. Will the government bail-out work in the longer term? What will happen if it does? What will happen if it doesn't? Will the tax-payer have to take a large hit? Will a bank fail? No one knows for sure what will happen.
People asked me all week how this will affect the local housing market. At this point I don't know. Anyone who says they do know is just guessing. I think that if the plan works and credit is freed up a bit, then more houses will sell. No-one expects house prices to rise on account of it though!
