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Thread: A real what-if for a scenario where house prices really fall hard.

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    Default A real what-if for a scenario where house prices really fall hard.

    By and large, I'm for NAMA and the state-rescued banks taking their entire store of houses and apartments and saying "everything must go!". I hate it that a literal arm of the state (NAMA) and a de facto arm of the same state are deliberately and openly preventing a totally-needed commodity from finding its real price where demand equals supply. We don't need to go over for the millionth time why it's unjust that houses still have a floor of €150,000 even though there's hardly a sinner buying at that price.

    But we should look at the other side of the equation. What happens if house prices fall? We've already seen that it would put lots of people who currently imagine they're not in negative equity slap-bang into NE.

    But there is another outcome to a house-price fall that has occurred to me: insurance policies failing to work as desired. Most mortgages are sold with life insurance AFAIK. I'll admit I don't know how this insurance pans out if the mortgage-holder dies.

    But I suspect that if a major house-price fall happens, there will be a new crisis. We can be fairly sure that if prices fall precipitously, life insurers will see a major collapse in new premium income. Lots of people (either foreign or domestic) will be buying houses outright, thus no reason to bother with life insurance. And the sums that people are insuring for will be much smaller, among those who do mortgage up. It looks to me as if we'd have another major recapitalisation on our hands, and insurers will find themselves forced to bid premia up to the sky, forcing companies right out of business.

    This is all speculation on my part, but I really do think that a rapid fall in house prices to their real level could bring on some genuinely thorny problems. That's not to say I'd rule it out, I'd just like us to examine the scenario more carefully. My worry is that we've maybe painted ourselves into a corner where allowing house prices to fall would cause vastly more problems than it solves.
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    Politics.ie Member Dublin 4's Avatar
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    Were you just reading my Nama thread?

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    Politics.ie Member seabhcan's Avatar
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    Prices only fall if people buy. If there's stuff on the market but no-one is buying, then prices - as measured - are static. There's a bit of Zen in this.

    Right now, there are plenty of houses on the market but prices are only falling slowly because no one is buying. No one is buying because the quality of the housing stock on the market is very bad. Most houses for sale in Dublin are ex-granny places where the kids and grandkids don't want to live - meaning they need extensive renovation. Very few houses for sale are livable day one.

    So what kind of stock does NAMA have? Mostly mouldy half-finished houses and flats in the middle of no where that no one wants to live in. Stuff that has stood empty and unheated since 2007. Some have broken windows.

    No one whats to buy that for any price. If it goes on the market, it sits there at a fixed price.

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    Quote Originally Posted by seabhcan View Post

    So what kind of stock does NAMA have? Mostly mouldy half-finished houses and flats in the middle of no where that no one wants to live in. Stuff that has stood empty and unheated since 2007. Some have broken windows.

    No one whats to buy that for any price. If it goes on the market, it sits there at a fixed price.
    Oh really?

    I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

    I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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    Politics.ie Member seabhcan's Avatar
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    Quote Originally Posted by feargach View Post
    Oh really?

    I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

    I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
    I don't think announcing this on p.ie amounts to a formal bid. Try harder.

    5€ wouldn't cover the cost to Nama of the legals of the sale.

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    Quote Originally Posted by seabhcan View Post
    I don't think announcing this on p.ie amounts to a formal bid. Try harder.

    5€ wouldn't cover the cost to Nama of the legals of the sale.
    You're evading the point he was making, which is correct.

    Are you all for NAMA putting a price floor on property?
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    The banks lent €40 Billion in new mortgages in 2006.

    The banks lent €2.6 Billion in new mortgages in 2012.


    The price of a property is totally dependent on the lending policies and lending ability of the banks (except for those few people who can pay cash).

    Throw a load more houses on the market in a firesale without enabling the banks to lend at an appropriate level and you will wipe out the banks - or force the taxpayer to put in yet more capital.

    It's a lose:lose situation.
    "Always do right. This will gratify some people and astonish the rest." Mark Twain

    “When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.” Napoléon Bonaparte

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    Politics.ie Member Magror14's Avatar
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    Quote Originally Posted by feargach View Post
    Oh really?

    I hereby offer NAMA €5 for each of those houses it claims it is unable to sell.

    I've just given the lie to your comment that "No one whats to buy that for any price". €5 is a price. If somebody outbids me, by all means give it to him. Otherwise, give it to me.
    Just because you are there to offer them €5.00 does not mean that is the price. If the property can never sell then maybe the price of the property is the site value less demolition and clean up costs which might be a lot more than €5.00.

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    Politics.ie Member seabhcan's Avatar
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    Quote Originally Posted by Mossy Heneberry View Post
    You're evading the point he was making, which is correct.

    Are you all for NAMA putting a price floor on property?
    If I owned a property of zero value I wouldn't sell it for 5€. What would be the point? It would cost more than €5 to sell it, meaning I'd be better off not selling.

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    Quote Originally Posted by seabhcan View Post
    I don't think announcing this on p.ie amounts to a formal bid. Try harder.
    5€ wouldn't cover the cost to Nama of the legals of the sale.
    Point being, you're avoiding the issue. Those houses have a buyer provided the sale price falls to the level where the market clears.

    NAMA can request that the government rewrite the laws so that the houses can be sold at a negligible cost to the buyer and seller.

    In fact, I'd like you to outline to me the "legals" you claim to know about. NAMA was able to legally take possession of the houses without much fuss. Why wouldn't it be able to surrender possession in exchange for money with a similarly low amount of fuss?
    When you see the words "Mises" or "Hayek" in someone's post, just ask yourself: do I really want to ban paper money and go back to gold?

    You have to pity the kind of people who buy into conspiracy theories. I find the following to be the saddest words on the internet: "Re: connection between Bilderberg puppet lady gaga and viral outbreak in ukraine "

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