Re: Why bailing out housing market is a very bad idea
I moved back to Ireland in mid 2001, after being abroad for 11 years and was hesitating about buying a house. I distinctly remember David McWilliams saying on the radio at the time that houses were now overpriced, it might not be the best time to buy, and that at some stage there would have to be a correction. Then came 9/11 and in it's immediate aftermath and uncertainty there were price falls and I bought my house at 8% lower than a neigbour who had bought in June 2001.
Then interest rates fell to nothing, the VI's went into overdrive with the spinning (take a bow estate agents, newspapers, builders/developers, banks,Austin, Dan, Bertie, etc), the banks went crazy with the 100% mortgages and the liar loans, and what resulted can only be described as mass hysteria, where there was a massive transfer of wealth to the VI's and the government, all funded by 30-35 loans taken out by the gullible financially illiterate young people of Ireland.
This pyramid scheme continued until the people at the bottom simply could not afford to get on the ladder, even with 100% loans, credit union loans, parental loans, rent a room, friends buying house together, etc. (only then did the SI start it's stamp duty campaign, as if this was the sole cause of all the problems). And so the pyramid collapses.
1) I know D McW said there was a problem in 2001, 7 years ago. Can anyone back up claims that he said this 15 or 12 years ago.
2) Prices are nearly back to 2004 levels and will fall further. McWilliams was right day one, he couldn't predict that the mania would last so long. Inflation adjusted prices could easily fall to 2001 levels if not further. This isn't a case of "he had to be right sometime", he was right, full stop. He knew the real fundamentals were out of whack, while Dan, Austin, Bertie etc. continually maintained the false illusion of the fabled soft landing. (funny how none of the bulls mention that these days)
3) Government finances are shot due almost entirely to the decline in construction. They keep telling us the real economy is fine. On that basis, this state's short term budget surplus's have been funded, not by manufacturing/services profits, but by the long term borrowings of young people - way to go Bertie, Biffo, etc, you must be very proud.
4) As for helping out the execrable "risk takers", I wouldn't put it beyond FF, but there won't be anything in the kitty to fund this.
The sad thing is there will never be accountability for this mess. The politicians have the fig leaves of the global credit crunch and rising oil prices to hide behind. I place the majority of blame with the govt. Their role in society should be to protect people from the excesses of unchecked capitalism, instead of which they actively colluded with the VI's for the short term benefit it brought them.
The bottom line is that house prices are way too expensive due to the nauseating greed of the "risk takers". We don't need a recovery in the market, we need prices to come down to a sensible sustainable level, where houses are for living in and not a commodity. People are now realising this, and prices will continue to fall, and maybe even overshoot at the bottom, helped by the massive oversupply out there. This will cause a huge amount of hardship for a lot of people, which is unavoidable, however it should save the next few generations from becoming debt slaves to the banks for 35 years for a shoebox in the middle of nowhere.
We have gotten ourselves into an awful situation, payback is going to be a b itch.