Monday, Jul 03, 2006

Beginning of end or just beginning of summer?

Irish Independent: End of road for soaring property market

After so many false starts is this really the begging of the end?

Posted by Bo @ 11:09 AM (504 views)
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9 Comments

1. Bubbles. . . . said...

The end is nighe..Nothing goes up forever and ever there will be some correction to the market because of the sheer income multiples needed to be a consumer in the housing market.
Everyone supports the fact that houses will always go up...They said this in the 80's...and in 89 just before the bottom fell out...
Banks dont want to admit anything but their bad debts are rising! Lending criteria is tighteneing and unemployment levels are rising...its just a matter of when will people face reality, cant keep heads in the clouds forever...Its not if there is going to be a HPC its when??.....

Monday, July 3, 2006 12:26PM Report Comment
 

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3. tyrellcorporation said...

The annoying thing is that the banks are making record profits so will undoubtedly be able to absorb huge levels of bad debt before they really start to panic and tighten their belts. They are still falling over themselves to lend.

Monday, July 3, 2006 12:47PM Report Comment
 

4. inbreda said...

I disagree Tyrell. They CAN absorb big losses, but they WON'T.

In recent history, they've been able to lend massive amounts of money to absolutely anyone and bad debts were still low. When people start defaulting, they COULD absorb the loss, but as they are chasing big profits they won't. If it becomes obvious that lending to someone will turn into a loss they will not lend. Someone who was safe before, is not necessarily safe now. Someone with equity before does not necessarily have equity any more. House prices haven't risen significantly over the last year +, and that fact alone is likely to lead to a tightening of credit and increased bad debts.

Monday, July 3, 2006 12:52PM Report Comment
 

5. tyrellcorporation said...

Surely there is a trade-off for the banks though and an optimal tipping point is reached when the profits to be made from lending are being cancelled out by debt defaults. I reckon we are still miles away from this situation...

Monday, July 3, 2006 02:03PM Report Comment
 

6. inbreda said...

That's my point- the banks aren't going to wait until they are making zero profit before they tighten credit.

They cannot afford to report huge bad debts to the City, and they can't do anything about money already lent, which puts disproportionate pressure on funds that they lend in the future to be excessively free of bad debt. Given the huge pressure so many people are under - and they can't bail themselves out by borrowing against house value - there will have to be massive belt tightning

Monday, July 3, 2006 03:13PM Report Comment
 

7. Ticktock said...

"they can't do anything about money already lent"

Credit/loan dirivitives enable the banks to sell on the risk of the debts already on their books to other investors. This is why volume growth is so important to them, because of the explosion of demand in the dirivitives markets. The 'collateral' damage done via this irrisponsible practice means a great deal less to the Banks shareholders than does the size of the annual dividend payment.

They learned lessons from the Banking 'problems' faced in Japan over the last decade, and much of the bad debt has either been sold on, or at the very least hedged.

Monday, July 3, 2006 05:39PM Report Comment
 

8. inbreda said...

Very true Ticktock.

But the demand can wane or the price change, and will if the proportion of bad debt increases. Same result.

Monday, July 3, 2006 06:42PM Report Comment
 

9. Miniftse said...

I think you need a lot of debt before it becomes unpayable (not uncomfortable), I'm not sure banks have overlent as a business. If they lend someone on 20k a year a 100k, at an interest rate of 6% the individual can manage to repay 6k a year. The bank has a 2k a year income stream from that person for the next 50-70 years (assuming they can borrow at 4%).

Tuesday, July 4, 2006 04:23PM Report Comment
 

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