There’s quite a lot I can’t figure out about Ireland these days. Perhaps I’m spending too much time in Spain.
For example, why is the government so preoccupied with protecting the level of house prices when most of the people trying to sell are buy to let investors and property developers? Why are major banks cutting mortgage lending by 80% while average house prices have only fallen 20-30%?
It’s a big problem in Ireland that people don’t seem to see foreclosures and fire sales as a necessary evil to stimulate demand and reduce supply. There is simply no way to recover quickly without it.
It reminds of of how the French always seem to sympathise with business owners rather than consumers.
Let me give you an example of how a more ruthless banking system can help stimulate a devastated property market. The property bubble in Orlando, Florida started in late 2006, and the banks were absolutely ruthless with people who got caught out - mostly investors and developers, but yes, ordinary people too.
The numbers of foreclosures increased dramatically, and the asking prices for them just kept falling and falling, first by 20%, then 40%, and eventually, in early 2009, by 70-75% from peak levels. Initially, the supply rocketed and demand fell off a cliff.
Without a doubt, a weaker banking and political system or a stronger lobbying group would have put a stop to it. Didn’t happen like that though. You keep dropping prices, you get rid of the rot in the system, and eventually, guess what? People will start buying again.
Let’s compare Orlando housing activity in April 2009 with April 2008
- House prices have fallen 37%
- 48% more homes were sold
- 50% of all homes sold were distressed priced or bank owned
- Properties are selling 15% quicker
- There is 20% less inventory than a year ago
Source: Orlando Realtors Association
In an ideal world of course, we would politely request points 2, 4 and 5 above. But I can’t see that happening somehow.
All comments welcome.
Kind Regards
Colin Murphy
Director
