Gavinsblog - Lenihan and his "floor in the market"

[netron]

interesting blogpost over here:

Gavin's Blog “A floor in the market”

The red line represents where prices might have gone had there been no bubble (tracking inflation largely?). The green lines represent our two bubbles. The orange line represents the most recent ESRI data I could find, representing where house prices are right now. Mr Lenihan thinks this line is the floor. It’s not.

The floor is likely close to the black horizontal line I’ve drawn, where the price declines continue for another 2 or 3 years, eventually meeting up with where prices would have gone had there been no bubble at all.

[carlovian]

FF and Lenihan are obsessed with high house prices.

It never occurs to them that low prices may be good for the economy and would solve many of our competitive issues.

[seabhac siulach]

interesting blogpost over here:

Gavin's Blog “A floor in the market”

Not defending Lenihan for a second, but would that extrapolated trend of house prices from 1994/95 (the red arrow) not have to be slightly angled upward to take account of the fact that there was a marked upturn in the economy from that point on? I mean, from 1995 until 2001, there was a real increase in the GDP of the country, that was not based on housing alone, but mainly on exports. I do not accept we are at the bottom of the downturn in house prices yet but I would say an average value of, say, 175,000-200,000 euro might be more realistic than the extrapolated red arrow values considering that wages did rise significantly between 1995 and now, based on real growth in the economy. In a normal quickly growing economy, without a housing boom, would house prices not increase more quickly than the trend (and the previous trend was when Ireland was in perpetual recessionary times) due simply to the fact that people were earning more? To use that red arrow extrapolation would be to deny that there was a substantial increase in salaries/GDP from 1995 on.
Of course, I could be wrong...

[Watcher1]

That is very interesting on a number of fronts.

Firstly, Lenihans comments on the floor and, reading between the ****************************************, he is intent on creating a floor. We all know the floor is a long way off if there were to be no interferance. Why he wants a floor could be for any number of reasons. Why he should not set a floor above its natural state should be for a number of reasons but most importantly because he is a Minister and his job should be to make decisions based on the common good and to enhance the life styles and standards of living for the people of Ireland (perfect world and all that so no jibes please). Anyway, having low house prices would be very good for this country in the long run.

According to Gavin, the floor should be around 100K or something like that. I dont think that will happen unless the banks introduce some pretty radical (in todays climate and property mindset) mortgage regulations. To most sane people here it would not be radical, just sensible, and I have said it on other threads, but the banks should only be allowed hand out mortgage along the lines of what they did 20 years ago - two and a half times salary, no more than 20 year repayment period, minimum of 10% deposit.

Anyway, back to reality. Lenny is going to snatch defeat from the jaws of victory here and tamper inappropriately with the market again. Lets just hope the fall out will not be as bad as the last time....sorry, this time.

[mr_anderson]

And just as prices overshoot on the way up, they undershoot on the way down.

[Gimpanzee]

interesting blogpost over here:

Gavin's Blog “A floor in the market”

And people complain about the supposedly amateurism way that Government get their figures. This chart is a complete joke. As argument against Nama go, it is about the stupidest thing I have seen. Nothing short of a waste of bandwidth

[Watcher1]

Not defending Lenihan for a second, but would that extrapolated trend of house prices from 1994/95 (the red arrow) not have to be slightly angled upward to take account of the fact that there was a marked upturn in the economy from that point on? I mean, from 1995 until 2001, there was a real increase in the GDP of the country, that was not based on housing alone, but mainly on exports. I do not accept we are at the bottom of the downturn in house prices yet but I would say an average value of, say, 175,000-200,000 euro might be more realistic than the extrapolated red arrow values considering that wages did rise significantly between 1995 and now, based on real growth in the economy. In a normal quickly growing economy, without a housing boom, would house prices not increase more quickly than the trend (and the previous trend was when Ireland was in perpetual recessionary times) due simply to the fact that people were earning more? To use that red arrow extrapolation would be to deny that there was a substantial increase in salaries/GDP from 1995 on.
Of course, I could be wrong...

Not sure I'd agree with you. In saner (more sane??) times, banks only gave two and a half times salary for a mortgage of 90% LTV. So, if the average salary in Ireland is (and correct me if I am wrong) around 38K, then the price of an average house should be 95K + 9.5K(10% deposit) so house price is 104.5K (I'm no mathematician so please forgive me if I am wrong, but you get my line of thought here).

[Squire Allworthy]

All you need to know about artifical floors in markets is that someone is paying more than they should and someone is selling above market value. It is that simple.

I was wondering at what date in the future the orange and red lines cross because in a simplistic sort of way it neatly shows the extent of potential costs. Say it were 10 years. buy an asset now at 1,000,000 sell it then at 1,000,000 so the cost is roughly the interest on 1 million over that period.

[libertarian-right]

He is assuming that when Lenihan puts a "floor" on the market that people will have the purchasing power at these levels. I dont think so, with interest rates to rise, a deficit to be tackled with tax increases/pay cuts and spending cuts for the near future, I think Lenihan is making a huge mistake...that the taxpayer will bear the brunt of anyway.

[politicaldonations]

It's FF dogma that property prices must remain high. Remember Clowen saying 2 years ago that he wouldnt make some move affecting housing market as many people in Ireland didnt want to see their houseprice fall more, he said something like "its in no ones interest". Does he not realise that unless you are a proeprty investor the paper price of your house is largely irrelvant , and static low prices are good s when you go to trade up the difference between your house and a larger more expensive house is smaller than in a rapidly rising market. When property price are low their funders and supporters lose out and them and their cronies cant make money in land deals,auctioneering,brown envelopes etc etc