Monday, January 28, 2008

Many more home owners at debts door in Ireland

The Irish housing market after a decade of boom, has been stuttering for over a year now. I just know where I live in Ashbourne, many houses have been on sale for months. The first crack in the market came when Michael McDowell promised in October 2006 that if the Progressive Democrats were re-elected to Government they would reform the stamp duty regime. That was for many people, including myself a good reason to put house buying on hold. As a first time buyer, the prospect of buying without stamp duty and saving €1,000s was very attractive. So almost overnight a market that had been on fire, cooled considerably.

The most recent housing statistics from the Department of the Environment show the amazing decline from 35,000 loan approvals for houses in the second quarter of 2006 to just over 20,000 in the third quarter of 2007. In response to pressure the Government did eventually abolish stamp duty for first time buyers in June 2007 to stimulate the market, but by then the full extent of the American sub-prime crisis became known. And even further reform in Budget 2008 has failed to have the desired effect.

As you can see from this US TV report by CBS, the housing market there is going through a tumultuous time. Of course we have to be concerned about the impact of the sub-prime crisis on the global economy, but I think we also need to be concerned about the thousands of home owners and families who have lost or will lose their homes.

And while it is not as bad here, the number of foreclosures and repossessions is rising as reported in the Irish Independent today, trebling in number since 2004. As reported here, some consumers who were given loans by sub-prime mortgage providers are given very little chance to work their way out of difficulty and are loaded with charges and fees that make repossession the most likely outcome. While sub-prime lenders will now be regulated by the Financial Regulator from Friday next, that would appear to be too late for those who took out mortgages before then. Will the lessons of this disaster be learned, hard to say, but I hope so.

The market is still very slow given that many house hunters in my view believe that house prices are over valued and are waiting for them to fall further. The prices in some areas did come down, I took a chance and bought a house last autumn, the final price I paid was down about 30k. However given how bad the market is, I am surprised that prices have not come down a lot more.

When they do, there is a ready market there as reported last week when a builder slashed the prices for new houses in North Dublin and most of them we bought within hours. The Construction Industry Federation are very quick to lecture the Government on what needs to be done to stimulate the market, however if their members who have made zillions in the last decade were willing to cut prices to reflect the reality in the market, first time buyers may start to buy again. And for me the most important part would be that house prices would become affordable again for many people currently shut out. I have sympathies for private sellers in the second hand house market who are holding on for the best price given that many of them would be in a negative equity situation if they reduced the asking price too much. But the builders and property developer could afford to reduce prices and take some of the pain, but I won't be holding my breath.

Unless prices fall and perhaps interest rates come down significantly I think the housing market will continue to stagnate for all long time, which is bad for those trying to get on the property ladder, bad for those dependent on the housing sector for their employment and income and of course bad for the Government coffers and economy.