I dont believe the 25% price increase in the last year amounts to a bubble I think it represents a bounce off the bottom of the market which had overshot. As others have already said, for a bubble to exist, an abundant supply of credit is needed and this is not the current situation.
I'm a frequent reader of this forum but only just registered now to ask a question on the above that has been troubling me.
We keep hearing that for a bubble to exist cheap and easy credit must exist and because the banks aren't lending at high levels ergo we are not in a bubble.
But surely the level of arrears in the mortage is a form of cheap and easy credit? I am not talking about borrowers who are month or two behind but more those in longer term arrears, the only section of arrears which appears to be growing:
Longer-term arrears continued to increase, however, as the number of accounts in arrears over 360 days reached 60,995 at end-June, equivalent to 8 per cent of the total stock of PDH mortgage accounts. All of this increase was driven by accounts in arrears of over 720 days, which rose by 1,752 and now constitute 29.4 per cent of all accounts in arrears, and 70.3 per cent of arrears outstanding.
Source: Central Bank Statistics on Mortgage Arrears Q2 2014 (Can't post links but google it)
That means collectively those who have not paid mortgage in two years + are effectively availing of nearly €750m of not only cheap but free credit!
And those figures only refer to PDH mortgages, not BTL!
If you are two years behind in your mortgage the chances are you can't afford the mortgage and consequently you cant afford the house you live in. Those houses should be on the market and easing supply and prices.
In my opinion this bubble is driven by a supply problem, but the supply problem is driven by abundant credit, albeit in an inverse fashion, but ultimately the bubble is driven by credit. Just because the banks are not issuing new loans it does not mean there is no credit in the property market.
Can you follow my logic? Have I got all this wrong? I'm a bit confused every time I hear the no credit - no bubble argument.
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