The Luck of the Irish

It's getting worse.  Here is one bit:

The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.

However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.

While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.

That is from Morgan Kelly — read the whole thing.

Comments

Can someone explain why this isn't happening in Australia? Is it really a combination of resources income and early bank regulation, or is it we are going to have a housing collapse, just not for a little bit?

What aren't Australian house prices dropping given they were seriously artificially inflated by things like First Home Owner's Grant and negative gearing?

But, but, but, what about hyperinflation? :(

Being in europe I certainly don't see prices plunging; UK? Forget. Central Europe? Nope. Australia? Nothing. Everybody is speaking of falling prices and there are none.
I would say that the Central Banks are actually very good in averting falling prices. I fear the inflation kicks in in the moment everybody will speak about deflation. Too many people start talking about it...

We are going to need a name for it. I'm thinking that the point where all the information embedded in prices collapses on the perceived value of the fiat currency itself could be known as "dinflation."

Why isn't it happening in Australia, as well as Ireland?
Well for a start, Australian banks will generally charge about 7ish percent interest on mortages, and will give out about 6ish percent on term deposits. And, ignoring capital gains, the rental returns are about 5ish percent.
Not to mention that variable rate mortages are quite popular and bankrupty is quite onerous.

While I don't doubt the ECB would do this, how will a wave of foreclosures help them get their money back if they'll lose more in the price collapse?

7ish percent interest on mortages, and will give out about 6ish percent on term deposits. And, ignoring capital gains, the rental returns are about 5ish percent.- Factory

Rental returns are more like 2-3% as far as I know. Demand for rentals even in well located areas is dropping as the number of international students drops.

I suspect there's a lot of sales in badly located areas, but it's still nothing like a collapse, just a slow in price growth.

Property taxes are a big chunk of the NSW state government income so it is possible there will be problems in various states but not so much the Feds.

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