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 Post subject: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 3:54 pm 
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Old Time Landlord

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Posts: 374
Hi guys,

Spent a bit of time trying to work out what proportion of homes are worth less now than they were when they were bought, and the related question of how many homes are in negative equity.

A first stab is up here: http://ronanlyons.wordpress.com/2009/05 ... ve-equity/
If there had to be "three key points", I'd say:
  • Homes now are at March 2005 values - or July 2004, if asking prices are 10% above closing prices
  • About 725,000, or 40% of homes are worth less now than when they were bought
  • About 340,000, or 20% of homes are in negative equity

This is very much a first stab at this, and once it's "in a good place" can be updated relatively easily, so all comments, questions and suggested improvements to get it to that "good place" welcome.

My first conundrum is how to take out from those figures the number of 're-sales', i.e. people who've bought since July 2004 but who got out again (and more than likely back in again), i.e. remove whatever double-counting is going on in there. Any thoughts?

R

PS. By way of comparison, negative equity in Northern Ireland was estimated last month at 5% (http://www.irishtimes.com/newspaper/fin ... 74294.html), so this would mean we're a lot worse off down South, if both figures were accurate.


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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:01 pm 
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it "feels" about right, considering the buying binge of 2005/2006/2007

a lot might be investment properties though and not PPRs.

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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:01 pm 
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Two considerations:
- repayments on mortgage (somewhat diminished by the populatity of interest only mortgages) - net small increase in equity on original LTV?
- home equity withdrawal... big one this, IMO. Either to pay off other debts or to invest in BTLs/holiday homes. I'm sure I read that about a third of the mortgage market was refinance (with equity withdrawal) or straight equity withdrawal. Bit decrease in equity on original LTV?

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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:03 pm 
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The Northern bubble was (1) delayed relative to Ireland and (2) saw price rises skewed much more heavily to the final couple of years. Consequently there was a shorter period of time during which NI purchasers would have ended up in NE, which supports your guesstimate that the situation down South should be much worse.


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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:06 pm 
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Careful now Ronan: "It is irresponsible to suggest that the ‘negative equity’ scenario that occurred in the late 1980’s in the UK could occur in Ireland" - Marie Hunt, Director of Research, CB Richard Ellis - Press Release 17/Apr/2007

(cheers to mambo)

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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:11 pm 
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Duke of Westminster wrote:
Careful now Ronan: "It is irresponsible to suggest that the ‘negative equity’ scenario that occurred in the late 1980’s in the UK could occur in Ireland" - Marie Hunt, Director of Research, CB Richard Ellis - Press Release 17/Apr/2007

:lol:
We got hit with that in August 2006 also when we said the market was cooling. "Don't be talking down the market!"


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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:19 pm 
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Duke of Westminster wrote:
Careful now Ronan: "It is irresponsible to suggest that the ‘negative equity’ scenario that occurred in the late 1980’s in the UK could occur in Ireland" - Marie Hunt, Director of Research, CB Richard Ellis - Press Release 17/Apr/2007

(cheers to mambo)


Ah, good old Marie, I set a lot of store by her comment in the SBP last week saying rents are"likely to stay very static over the next year. I don't see them dropping"

Think it's time for a new crystal ball....


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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:23 pm 
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Bit high that .

precise numbers require more data , eg

1. How many were IO mortgages where no principle was paid off
2. How many were 30-40 year jobbies where not enough principle has been paid off

KBC said the average LTV was 76% in Ireland where it was 50% in Belgium , last November although they chased not strictly prime business and I am not sure if that was based on November 2008 Valuations .....or November 2006 valuations when the mortage was taken out .

Also STB property fell less than FTB , see http://www.finfacts.com/biz10/ReconstructingIreland.pdf p29 , flats vs houses i suppose and better areas

AND

The IMF has some commentary from around the peak :)

http://www.imf.org/external/pubs/ft/rei ... ng/ch2.pdf ....especially the graph on page 24 ....just for you dude :)


AND topups and remortgage affecting 10s of 1000s

Finally

We have about 1.6m occupied homes of which 300k odd are rented so thats 1.3m owned .

But only 570000 ( IIRC ) get Mortgage Tax relief so most homes are owned outright and 20% of owned properties is 260k while 20% of all occupied properties is 320,000 and 20% of all properties including empties is ...emm ...umm 20% of 1.9m which is 380,000 .

10% are in Negative Equity for sure but I do not want to hurt my head with modelling any more .

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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 4:52 pm 
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Posts: 374
2Pack wrote:
10% are in Negative Equity for sure but I do not want to hurt my head with modelling any more .

That's some good linking/thinking/calculating, 2Pack!
Will have to go, sit down, turn off lights for a while, then come back out with a calculator and take all those 20%s in and go from there!

Have based the figures at my blog on DOEHLG stats on loans (based on IBF figures, I think), with separate calculations for FTBs and non-FTBs, so hopefully that'll go some way towards what you're saying.

Liked the IMF graph for its blunt honesty. Probably makes the extra 10% discount very likely, particularly in this climate.

It's now on irisheconomy.ie also, here: http://www.irisheconomy.ie/index.php/20 ... n-ireland/ , so here's hoping for a wealth of suggestions and improvements... and data.


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 Post subject: Re: 20% of properties in negative equity?
PostPosted: Fri May 01, 2009 9:32 pm 
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The graph on page 24 of the IMF report shows that valuations ( hence asking prices relative to clearance prices ) became more accurate over time in the UK and only got out of whack in the VERY severe but short lived correction of 1975 where the market was 'saved' by rampant inflation . We are in a dip like that now . Pricing and valuing is out of whack ..and asking certainly is .

In other words UK EAs got steadily better at clearing the market using pricing over time . They handled the 1991-95 dip with aplomb .

I think that would be a profitable line of enquiry for you because you have a lot of the raw data , certainly the definitive resource outside of Dublin City .

A really big question at present is the asking - settlement dichotomy because doe / revenue release nothing useful to my mind . This is inexcusable and as you know I have gone on about it before .

If the public have no confidence in asking prices they will not settle at anywhere near them and therefore there is no market .

If the banks have no confidence in pricing they will not release funds .

It does not explain everything but it is worthy of looking at in the interests of all stakeholders and in order to restore functionality and liquidity again .

NegEq sort of follows from that examination...at least to my mind . You can invite me to present your next Q Rep if you want , I promise not to use any bad language :D

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