Generation Game- David McWilliam's take on Irish economy

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MelF said:
Read somewhere that McWilliams got paid €1m for this book, so don't suppose he's too worried in any case!!!!!
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Exactly as I mentioned - he's doing this to sell books....... this is free advertising for David mcWilliams!
 
Sorry Moggy, my last post didn't go into enough detail. I'll try and explain it better so you can see the problem that falling prices in houses presents to trader uppers.

Original Price
Starter House: 300k
Tradeup House: 400k

Originally, if the owner of the Starter House wants to trade up to the Tradeup House they will need to take on a mortgage that is 100k more than their current one. Their wages would dictate whether this is possible or not.


After Crash Price (-20%)
Starter House: 240k
Tradeup House: 320k

Now the owner of the starter house has a mortgage for 300k on a property that they can only sell for 240k. Unless they have 60k saved up, they will be unable to take a mortgage out to buy the Tradeup House. The bank will only be able to give them as a maximum a 100% mortgage for 320k, while they will infact need 60k + 320k. Even if they have a wage to afford the Tradeup House, their savings will dictate whether they are able to make the move or not.

Hopefully this clears up what I was trying to say earlier.
 
demoivre said:
Legally how can the FTB sell the apartment for 300k when the apartment itself is security for a 350k loan unless the FTB can come up with the balance owed?
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Exactly. Unless the FTB has enough savings they will not be able to trade up.
 

I do understand what you are saying. But let me argue my point a bit more because I don't think people understand what I am trying to say.

1. He needs a 380K mortgage, previously he needed a 400K mortgage.

2. 380K works out at about 120% of 320K. I've heard of 120% mortgages, or are they a myth? In reality even with negative equity he is actually saving money due to the fact that is mortgage is less than 400K.

I agree though if the banks do not give him a mortgage in the first place then he's not going to get that upgrade.
 
If he cannot afford to come up with €35K or the bank feel he cannot afford the repayments on an increase in his mortgage of €35K then yes
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I've heard of 120% mortgages, or are they a myth?
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Its not a case of whether he can afford the increase, the bank simply won't lend you more money than the house the mortgage is secured on is worth. The only option is to have a large wad of cash lying around to pay the rest of the mortgage off. e.g. clear the negative equity. And how many people could do that?
 
samfarrell said:
thats a useful comment
but seriously if we are so doomed should we all leave the country and turn out the lights now?
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About as useful as claiming that we can be talked into a recession.

In answer to your other point, the prudent thing to do in the face of possible economic hard times is to tighten your belts and start saving while the times are still good. some upskilling wouldn't go amiss either to basically make yourself more employable.
 
 
Apparently, in future episodes he will be proposing some solutions that will rescue the situation. From the interviews he gave yesterday these seem to include;

Leaving the The European Monetary Union to regain control over our interest rates.

Offering passports/entry visas to the Irish diaspora. I can't see how this is going to help in great way but i'm sure the explanation will be meandering and laboured like every point he makes in his programmes.
 
have a read of this if you are inclined to follow mcwilliams advice

[broken link removed]

please note that this article was written in 2001
 
the best one I've heard in ages, origin the US subprime market, is the "Ninja" mortgage which was given to borrowers with no income and no assets (other than presumably the property they were purchasing).

Now apart from renting rooms in your home to copious numbers of your ethnic minority of choice (3 to a bed stuff), how in name of God did that lender expect to get paid?

Is it any wonder things go bad when that recklessness occurs (and I'm presuming it was an isolated incident).
 


I'd accuse you of plagiarism (a la McWilliams) but its good to see someone in agreement, and sure the points are commonsense
 
 
I think Ireland has lost the point. Small houses and apartments are for people with small earnings not for first time buyers. How many peopl grew up in a house where they shared a room with a sibling.

We seem to have gone so far with our capitalisim that we are reverting into some warped form of socialism where someone without a formal qualifications who shows houses to prospective buyers expects to live in the same housing estate as solicitors and doctors.

When the couple with one child can't afford the four bed house and full time child care they turn to the state expecting a socialist handout in the way of stamp duty exemptions and subsidised creches.

Instead of a big house in Kentstown and running two cars why would they not buy a two bed house or apartment in Dublin.

A starter home is for people getting on the property ladder. A small one or two bed house should suffice for the vast majority. If there careers pick up and they start earning more then they can trade up. If not then they should either start working harder, up skill or start decorating, because they are going nowhere.

If you need McWilliams to tell you that property is over valued and current prices cannot be sustained then welcome back from Mars, I hope you had a good trip.

If you went into a shop to buy bread and auld mister brennan had put his price up to a tenner while the three boys at johnston Mooney and O'Brien were still charging a euro why would you buy the over priced bread. Unless of course the guy infront of you in queue bought brennans then sure you would have to have it.

Why, then, would a first time buyer purchase a property now. Rent or staying at home are the alternatives. Whether a crash or a correction is in the offing anyone who gets stuck in negative equity and expect to trade up is a lunatic. Thge evidence suggests that the buyers have deserted the market and only the lunatic fringe are left.
 
command said:
I think Ireland has lost the point. Small houses and apartments are for people with small earnings not for first time buyers. How many peoplE grew up in a house where they shared a room with a sibling.
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I don't really get you - first time buyers tend to be lower earners than they will be so in the future so in many cases FTB are low earners. . Also apartments are not built for long term homes as far as i can see.
While I do understand your logic i think you should understand that anyone with a degree and a bit of drive can get an LLB these days. We would lose our entrepreneurs if they did not believe in this "warped form of socialism" and that would be a sad thing.
 
FTB are usually low earners because they get on the property ladder as early as possible. If it is a case that they are low earniner then when the mob demanded that stamp duty be abolished for all FTB why was it not pointed out that FTB don't earn enough to be able to spend more than €300k on a house long term.

Its the expectation gap between a society that works hard and a society that assumes that all boats rise at the same rate.

I take your point that anyone can get a LLB, but not everyone does. Anyone can get an auctioneering license as well. My point is that conventional logic would say that unless you work for it you will never get out of your FTB starter house.

Too many people in Ireland have assumed that once you have done the whole FTB buyer thing you will be able to move to a bigger house by right.

For the last few years the banks and society have been able to encourage this "90% aspiration, 10% perspiration lifestyle" through low interest rates and rising house prices. Now that the banks are becoming a little more conservative in what they consider applicants can afford to repay those FTBers who traded up too early are the ones left vunerable.

Apartments serve as suitable long term homes in other countries so why can't they serve the same purpose here.
 
FTB main objective is to move out of home and get independence. for many they are in their late twenties and not earning too much but with help from parents and family and their own savings they can buy their own place rather than rent. Why pay someone elses mortgage when you can be paying your own mortgage?

command said:
Too many people in Ireland have assumed that once you have done the whole FTB buyer thing you will be able to move to a bigger house by right.
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As a FTB, I don't agree. Alot of people are optimistic and hope that their careers will go well and they will be able to get a higher mortgage, others plan on moving further from the city. There is also a large proportion that buy their first home on their own, obviously meeting someone else in the same situation enables you to sell both apartments and upgrade to a 3 bedroom house.

command said:
Apartments serve as suitable long term homes in other countries so why can't they serve the same purpose here.
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Quite simply, the bedrooms are too small. Most box rooms are suitable to put a cot and a baby in, but thats it. Once your child grows up you will be in trouble. Also you can forget about having more than one child, how will that leave society in generations to come?
 
Moggy,

Its not long ago since I was a first tiem buyer as well. Thankfully my carreer has improved and I have moved house.

Why should a first time buyer take money form their parents and strectch themselves to the point where they are over paying for a property to the extent that they are now.

Even the most omtimistic don't expect to see price rises in the near future. There is a common expectation that a softening and maybe a small fall in prices is on the way. The there are the McWilliam's brigage who are running around like chicken licken telling us the sky is falling in.

Is a first time buyer not better off renting for a year ot two while the property market dusts itself down. I think I would rather pay someone elses mortgage for a year than hand some other person €50k for them to fund their retirement because I paid above the realistic value for my first property.

Everyone is optimistic about their future and we all expect to be earning more next year than this year. Thsi is no reason to telescope you future homebuying into an immediate trasaction.

"Quite simply, the bedrooms are too small. Most box rooms are suitable to put a cot and a baby in, but thats it. Once your child grows up you will be in trouble. Also you can forget about having more than one child, how will that leave society in generations to come?"

Going back to my original post, previous generation of Irish people were brought up in a house with no spare rooon, box room or not.

As a FTB buyer then let me ask you how independent would you feel if you fall into negative equity in a period of rising interest rates and falling demand for houses where you are forced to sell the property and then move back in with your parents, the same parents who's savings as well as your own have been lost in the falling property market. Or would you prefer a two bed apartment that you can afford to keep.
 
Just on David McWilliams and his prognostications:

I came back from abroad in early 2001. I have a distinct memory of listening to McWilliams on the radio that summer saying that:
1) House prices were overvalued, there was a house price bubble and that it would inevitably burst. He said he didn't know when, nobody could see into the future, but the sooner the better in his opinion.
2) He also said that his tentative advice to people would be to consider not buying, but to wait a while and rent.

At the time he couldn't foresee the combined effects of 9/11 and subsequent low interest rates, a compliant and compromised developer friendly government, ridiculous banking practices, the level of hype, lies and hysteria driven by the vested interests, and not forgetting peoples greed, panic etc. The upshot has been a prolonging and enlarging of the bubble that was already there.

The impact of this on his two main points to my mind are:
1) In the next 3 or 4 years the jury will be in with a definitive verdict. Because of what happened post summer 2001 the crash could be of biblical proportions.
2) He was probably wrong here, because he never thought the bubble would get as big as it has. Even if there is a major crash, it is unlikely that house prices will go below 2001 levels plus the rent anyone who has waited has paid out in the meantime, even with the time value of money (but they could!).

In summary, if the property crash is Japan like in its size, McWilliams will have been proven broadly correct as far back as 2001.

None of this excuses the glibness of his programme, the stupid generic labels, and dramatised scenes. If anything they hinder the message he's trying to get across.

Personally, I bought in early 2002. The house I bought was 7% lower than a similiar one that sold in Summer 2001. I thought that the bubble had already burst!
 
I fall under the "my wages have increased" category, so moving back to my parents because of interest rates is not going to happen. I am not in a minority, I speak for just about everone in my circles when I say our wages have brought us out of the danger zone. To be honest when I applied for a mortgage they took into account what is happening today, you didn't need McWilliams to tell you interest rates were going to increase. As for negative equity, if I get hit by that I will have to stay put and ride the storm....lifes a biotch.
 
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