Follow @PoliticsIE
 
 
 
Page 1 of 14 1234511 ... LastLast
Results 1 to 10 of 138

Thread: Morgan Kelly: "Property market approaching critical poi

  1. #1
    Politics.ie Newbie
    Join Date
    Apr 2007
    Posts
    32
    Mentioned
    0 Post(s)

    Default Morgan Kelly: "Property market approaching critical poi

    Morgan Kelly - the economist who 12 months ago predicted the sharp downturn in the residential property market (and was pooh poohed and criticised by FF and the various vested interests - builders, auctioneers and the banks and their so called mouthpiece 'economists') has written another article for the Irish Times.

    http://www.ireland.com/newspaper/opinio ... 95499.html

    The economy may be about to enter a period of prolonged recession, writes Morgan Kelly , the economist who predicted the property slump

    Writing in this newspaper a year ago, I suggested that, in the light of past property booms abroad, Irish house prices were at risk of falls of around 50 per cent in real terms. At the time I imagined, again based on what had happened elsewhere, that selling prices would stabilise at their peak values for a year or two, and then fall slowly by a few per cent a year for up to a decade.

    My forecast has turned out to be wildly optimistic. In the past year Irish house prices appear to have fallen by around 10 to 15 per cent. While still short of the 20 per cent fall in Finland in 1991, this is on a par with the largest falls experienced during the Dutch and Swedish collapses.

    However, the Irish property market is giving signs of approaching a critical point where vague individual anxieties coalesce into a general panic and prices collapse. Should a collapse occur in 2008, it is most likely to start among heavily-indebted builders, many of whom have not sold a house in over a year, coming under pressure from banks to liquidate their large amounts of unsold inventory.

    What has made the Irish house price boom different from any other (apart from the concurrent boom in Spain) is that it has occurred alongside a building boom. In most economies, the housing stock is overwhelmingly second-hand houses whose owners are reluctant to accept price cuts. When a downturn occurs, most people refuse to sell and the market effectively dries up for a few years until prices rise again. In Ireland, by contrast, the supply of houses has expanded rapidly: at the peak of the boom in 2006 we built almost 90,000 units, or one for every 16 households. This fell to around 70,000 last year and, ominously, a large proportion of these failed to sell.

    This raises the question of why, given the number of unsold houses, builders are planning to build another 50,000 or so units this year? Once we know the answer to this question, we are in a position to understand why Irish house prices are now at risk of sudden and large falls.

    To start, we need to remember that, because of delays in the planning process, this new building represents projects undertaken by developers in the very different climate of two years ago. There are now two distinct groups of developers.

    The first group own land, typically have vivid memories of how their fathers and uncles went bankrupt in the 1980s, and have all stopped residential construction. The second group, who are by no means the smallest developers, have borrowed heavily to buy land and have no choice but to keep on building.

    If you are a builder who borrowed 20 million in 2006 from a bank and some mezzanine investors to buy land for 100 houses and have just received planning permission, you have no option but to go ahead and use your remaining 11 million credit line to build the houses and hope for the best. However, at some stage this loan will have to be repaid, at least in part, and the only way to do this is by selling houses at whatever price you can get.

    For their part, banks are now in the position of throwing good money after bad: having lent money for land which has depreciated in value, they are lending more money to build on it in the hope that they can recoup their losses, or at least delay the inevitable change in value that may leave some of them with solvency problems of their own.

    However, with the recent bankruptcy of McEnaney Construction, banks have sent a definite signal to developers that their patience and liquidity are finite. Despite their understandable reluctance to initiate a downward price spiral, in the next few months increasing numbers of developers will be forced to follow the lead of Capel Construction and cut prices by 20 per cent and more.

    However, just as expectations of price rises were self-fulfilling, so now are price falls. Buyers know that the longer they delay the less they will pay, and have the added fear of negative equity to keep them out of the market.

    It is appearing increasingly unlikely that builders will be able to move their inventory at any price that can remotely cover their borrowings, making a wave of bankruptcies inevitable.

    The houses built by a bankrupt developer become the property of the lending bank, which would typically auction them off, in one or more lots, to other developers.

    However, for these developers to be able to bid, they need loans from banks. With Irish banks already having sunk 100 billion into property development, and needing to conserve liquidity as the international financial system moves towards a major solvency crisis, such loans may not be forthcoming. It is not hard to imagine a scenario where tens of thousands of new units built by bankrupt developers are sold for a fraction of their construction cost or simply boarded up, leaving most existing apartments and commuter-belt houses effectively valueless.

    Any collapse at the bottom end of the market will roll upwards to reduce second-hand prices sharply, while the presence of large number of families who cannot move house because they have negative equity will ensure that the second-hand housing market remains frozen for a very long time.

    With rising unemployment, falling tax revenues, and sharp falls in stock prices, it is becoming evident that the problems of the Irish economy run a good deal deeper than a few overpriced houses.

    The building boom of the last eight years has deeply distorted the economy, leaving us with worrying numbers of mis-skilled workers, heavily indebted households, unaffordable Government programmes, and over-extended banks.

    Most importantly, as the Irish economy moved from one driven by exports to one based on selling houses, its international competitiveness has fallen sharply.

    While the word competitiveness had vanished from our national vocabulary, the examples of Germany, Italy and Portugal are there to show how a domestic boom with falling competitiveness tends to be followed by prolonged recession.

    Morgan Kelly is professor of economics at UCD

    2008 The Irish Times

  2. #2

    Default

    Its been waiting to happen for a long time, the money flow has been turned off due to the credit crunch, when the money flows again it wont be coming near Ireland, there are much better places to invest.

    Its now a timing issue, people need to realise that things are bad, only then we can start to implement a recovery plan. This pretending that all is fine and its just a blip will just prolong the agony. I've seen this cycle before during the .com bubble and whats happening right now is almost a carbon copy.

  3. #3
    Politics.ie Member TheBear's Avatar
    Join Date
    May 2004
    Location
    Dublin
    Posts
    234
    Mentioned
    0 Post(s)

    Default

    <Mod>Moved to the Economy forum.</Mod>
    Heavy words are so lightly thrown.

  4. #4
    Politics.ie Member needle_too's Avatar
    Join Date
    Aug 2007
    Posts
    924
    Mentioned
    0 Post(s)

    Default

    Irish property is royally screwed and will remain so for a generation.

  5. #5
    Politics.ie Member
    Join Date
    Apr 2007
    Posts
    911
    Mentioned
    0 Post(s)

    Default

    What Morgan Kelly is predicting is quite dire but unlike a year ago when his (far less pessimistic) forecasts were aired, nobody will now be lining up to pan him as a loony.
    Least of all our fool of a Taoiseach who allowed this horror scenario to develop and actively encouraged evrybody to become property speculators and who up to six months ago was telling people who even questioned our boom status to go top themselves.

    Whether the worst of what he predicts comes to pass, we will ahve to see but anyone who doubts that his rationale for predicting it is not sound is a hopeless misguided optimist.

  6. #6

    Default

    Quote Originally Posted by Anorakphobia
    What Morgan Kelly is predicting is quite dire but unlike a year ago when his (far less pessimistic) forecasts were aired, nobody will now be lining up to pan him as a loony.
    Least of all our fool of a Taoiseach who allowed this horror scenario to develop and actively encouraged evrybody to become property speculators and who up to six months ago was telling people who even questioned our boom status to go top themselves.

    Whether the worst of what he predicts comes to pass, we will ahve to see but anyone who doubts that his rationale for predicting it is not sound is a hopeless misguided optimist.

    saldy if property goes south then we are goosed, we have no other industry here.

  7. #7
    Politics.ie Member
    Join Date
    Jan 2005
    Posts
    280
    Mentioned
    0 Post(s)

    Default

    I was at my barber's today. He generally has a good feel for what is happening around and about.

    Over the last 5-10 years, young adult males have been able to pick and choose construction jobs in Co. Leitrim and Roscommon.

    He says that 3 to 4 men per week are now telling him that they've been laid off by builders and can't find other work. He said this has happened only over the last 3 months.

    The other big employer in our town is the Bank of America Call Centre, which employs 1,200 people. Previously they found it very difficult to find staff, but now, they're rejecting hundreds of CVs every month. Most of these are from tradesmen.

    I don't think I've ever been less optimistic about the Irish economy.
    The only way to change the world is to win elections.

  8. #8
    Politics.ie Member rockofcashel's Avatar
    Join Date
    Jan 2005
    Location
    Ireland
    Posts
    7,955
    Mentioned
    0 Post(s)

    Default

    Quote Originally Posted by qtman
    I was at my barber's today. He generally has a good feel for what is happening around and about.

    Over the last 5-10 years, young adult males have been able to pick and choose construction jobs in Co. Leitrim and Roscommon.

    He says that 3 to 4 men per week are now telling him that they've been laid off by builders and can't find other work. He said this has happened only over the last 3 months.

    The other big employer in our town is the Bank of America Call Centre, which employs 1,200 people. Previously they found it very difficult to find staff, but now, they're rejecting hundreds of CVs every month. Most of these are from tradesmen.

    I don't think I've ever been less optimistic about the Irish economy.
    And qt man.. I'm not having a go at you or the Greens .. but watch over the next year and half, how local FF councillors on the ground begin to insinuate that the slowdown only started "when dem Greens got into power" and the only way to reverse it all is "give FF a majority"

    And you know what.. a huge chunk of people will swallow it
    1,197 people agree with me.. how many agree with you ?

  9. #9
    Politics.ie Member
    Join Date
    Dec 2004
    Posts
    12,595
    Mentioned
    0 Post(s)

    Default

    People like Morgan Kelly and David McWilliams are to be commended, in my book.
    Yes, I know the quote, 'economists have predicted 14 of the last 4 recessions' and that they've essentially been saying the same thing for 5 years, and were bound to be right at somestage.

    But at least they were saying it. At least they were being honest. They identified a property bubble, they called it for what it was.
    Contrast that with the legions of vested interests, banks, developers, construction, insurance companies, solicitors, investment vehicles and yes the Govt, who never once gave any advice that wasn't skewed to their advantage.
    You listen to thes people- property will never fall. Keep building, keep investing, keep buying.

    These people, along with those responsible for packaging and selling sub-prime, should be first against the wall.

  10. #10

    Default

    Quote Originally Posted by rockofcashel
    Quote Originally Posted by qtman
    I was at my barber's today. He generally has a good feel for what is happening around and about.

    Over the last 5-10 years, young adult males have been able to pick and choose construction jobs in Co. Leitrim and Roscommon.

    He says that 3 to 4 men per week are now telling him that they've been laid off by builders and can't find other work. He said this has happened only over the last 3 months.

    The other big employer in our town is the Bank of America Call Centre, which employs 1,200 people. Previously they found it very difficult to find staff, but now, they're rejecting hundreds of CVs every month. Most of these are from tradesmen.

    I don't think I've ever been less optimistic about the Irish economy.
    And qt man.. I'm not having a go at you or the Greens .. but watch over the next year and half, how local FF councillors on the ground begin to insinuate that the slowdown only started "when dem Greens got into power" and the only way to reverse it all is "give FF a majority"

    And you know what.. a huge chunk of people will swallow it

    just like FF did to SF on the ground during the last election, i know for a fact they went around certain areas telling blatent lies about SF.

Page 1 of 14 1234511 ... LastLast

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •