Jill Kerby

This is a selection of my MoneyComments about property from 2008

STComment - Feb 3/08

ECONOMIST ‘MOUTHPIECES’ TALK UP THE MARKET

What is it they say about economists?  That they make weather forecasters look good?

The mortgage banks just cannot resist sending out their economist mouthpieces at every opportunity, and ideally when a microphone or TV camera is in the vicinity, to “reassure” the public that all will be well in the housing market. 

Last week it was IIB bank’s turn to tell the nation that once average house prices fall another 5% (for a grand total of 16% since the start of last year) the bottom will have been reached, the ‘soft landing’ achieved. 

Would anyone listen, let alone believe such a prediction if it was delivered by the bank’s mortgage boss, or the PR guy?  Of course not.  They’d dismiss it for what it is – marketing propaganda to drive a few more first time buyers down into the jaws of the mortgage monster out there with the sign around its neck that reads ‘negative equity’ if they also happen to be seeking a 100%, no money down, interest only loan. 

Luckily, prices and interest rates are still so high that such mortgages are only being bestowed upon bewildered, but ring-fenced civil servants.  Everyone else seems to be doing the sensible thing by ignoring the bank’s cheerleaders and waiting for prices to do what they inevitably do when a bust happens – revert to the mean, which in the case of domestic property, is when people can actually afford it again on an average income.

It isn’t just the banks that refuse to acknowledge the new reality: the building firm, McInerney Holdings plc, had just 594 private housing completions here in 2007 compared to 1,025 in 2006 and at the start of this year, has only 282 deposits on hand compared to 380 at the same point last year.

They too blame “negative sentiment and the tightening of credit” instead of just saying that their houses are too expensive and don’t offer good value. 

They even say, “This adjustment should provide a more stable housing market and should be advantageous to our business model.”

You really couldn’t make this stuff up.

Ends

[McInerney Holding was put into examinership in Oct 2010)

 

ST MoneyComment – Feb 17-08

THE PARTY IS WELL AND TRULY OVER

Do you feel rich?  A wealth survey from National Irish Bank says you should, given that the average Irish household has wealth and assets worth more than €650,000, and is symbolised by “the preponderance of expensive cars…exotic holidays and even the increasing ownership of private jets among the super-rich.”

The bulk of our wealth, once the super-rich and the super-poor are eliminated, is actually tied up in the value of our rather ordinary family homes, never the most liquid of assets at the best of times, and especially not during a falling market.

Even those homeowners who did tap into the rising value of their homes during the boom years and refinanced other debt, or extended their mortgages to buy yet more property, might now be regretting the degree of liquidity they did enjoy.

The end of any price bubble always delivers the same, cruel lesson:  that your house, shares, art, etc are only worth what the market says it’s worth. That and the fact that paper millionaires are never quite as impressive as the ones with solid bank balances and little or no debt.

Surveys like this – which purport to show that our collective household wealth is now over one trillion euro “for the first time ever” – are a subtle way for the banks to try and encourage us to keep spending and borrowing when our natural instinct, in the face of falling house and share prices and rising unemployment, is to buy less and save more.

Of course, things aren’t so bad in Europe or in Ireland that the ECB and state governments have to frantically incentivise us with rate cuts and tax rebates to keep us spending and speculating, as has happened in the US.  And thank goodness for that.

But someone needs to tell the banks that the decade-long party ended nearly a year ago; surveys that remind us what fun it can still be seem a bit pointless when most of the partygoers have already gone home to sober up.

 

STMoneyComment – March /08

TIGHTER CREDIT MEANS FALLING HOUSE PRICES

You have to have faith to be an investor, and I suppose that’s why so many people – from bankers to estate agents to ordinary punters – think that property prices, share and pension funds and even the cost of living will improve when the ECB lowers interest rates again.  

The faith part I understand.  If you give up hope, you are left with despair. It’s the expectation of lower interest rates soon that I don’t get, especially given that the ECB has a single mandate: to manage inflation and protect the euro. 

The problem with cutting interest rates to ‘stimulate’ the economy as the Americans are doing, is that it usually results in yet higher prices.

If you’ve hosted a big party (for the past decade) and everyone has pretty much drunk the place dry and are clearly now worse for wear, the responsible thing to do is to let them sober up. You don’t slap another bottle on the table and encourage them to keep partying.

As prospective home buyers have now discovered, tighter credit means prices fall back.  Eventually, the price of other assets return to price levels that people can genuinely afford again with their incomes, savings and affordable loans.   (That assumes, of course, that things haven’t got so out of hand that prices don’t stop falling – rather like happened in Japan’s great ‘deflation’ between 1990 and 2007.)

The post 2001 credit boom has been a disaster in the US and hasn’t been very good news in other overspending western countries either.  Price inflation, generated by the inflating of the credit supply, is now also being fuelled by the huge global demand for energy, food and other commodities and the falling value of the US dollar.

If America is in recession, and the lower interest rate campaign doesn’t work, then the next hope is that less US demand will let some of the air out of the commodities markets and bring down inflation there, and in Europe.

It looks like that might be what the ECB is also counting on by leaving our interest rates where they are for the moment.

I don’t have a crystal ball, so I don’t know if the Euro-bankers will cut rates this Spring, but I am wondering if perhaps someone in Frankfurt thinks that the battle against inflation needs to be won, and that the credit and stagflation trouble the Americans and Europeans to a lesser extent are experiencing – nil to low growth but rising prices - was caused because everyone deluded themselves for too long that wealth and prosperity could be created by reckless borrowing and spending, instead of by prudent saving and investing. 

Ends

 

STMoneyComment – May/08

DESPERATION SETTING IN AS LOWER RATES ANTICIPATED

You have to have faith to be an investor, and I suppose that’s why so many people – from bankers to estate agents to ordinary punters – think that property prices, share and pension funds and even the cost of living will improve when the ECB lowers interest rates again.  

The faith part I understand.  If you give up hope, you are left with despair. It’s the expectation of lower interest rates soon that I don’t get, especially given that the ECB has a single mandate: to manage inflation and protect the euro. 

The problem with cutting interest rates to ‘stimulate’ the economy as the Americans are doing, is that it usually results in yet higher prices.

If you’ve hosted a big party (for the past decade) and everyone has pretty much drunk the place dry and are clearly now worse for wear, the responsible thing to do is to let them sober up. You don’t slap another bottle on the table and encourage them to keep partying.

 As prospective home buyers have now discovered, tighter credit means prices fall back.  Eventually, the price of other assets return to price levels that people can genuinely afford again with their incomes, savings and affordable loans.   (That assumes, of course, that things haven’t got so out of hand that prices don’t stop falling – rather like happened in Japan’s great ‘deflation’ between 1990 and 2007.)

The post 2001 credit boom has been a disaster in the US and hasn’t been very good news in other overspending western countries either.  Price inflation, generated by the inflating of the credit supply, is now also being fuelled by the huge global demand for energy, food and other commodities and the falling value of the US dollar.

If America is in recession, and the lower interest rate campaign doesn’t work, then the next hope is that less US demand will let some of the air out of the commodities markets and bring down inflation there, and in Europe.

It looks like that might be what the ECB is also counting on by leaving our interest rates where they are for the moment.

I don’t have a crystal ball, so I don’t know if the Euro-bankers will cut rates this Spring, but I am wondering if perhaps someone in Frankfurt thinks that the battle against inflation needs to be won, and that the credit and stagflation trouble the Americans and Europeans to a lesser extent are experiencing – nil to low growth but rising prices - was caused because everyone deluded themselves for too long that wealth and prosperity could be created by reckless borrowing and spending, instead of by prudent saving and investing. 

 

ST MoneyCommenty – May 26/08

BANK EXECUTIVE WONDERS HOW IT ALL WENT WRONG

Whenever a Roman general or emperor was awarded a triumph for some great far-off victory, he was drawn through the streets of his grateful city on a golden chariot. Behind him a slave held a laurel wreath over his head; but the slave’s other task was to keep whispering in the emperor’s ear, “Remember that you are but a man…”

Chief executives like Brian Goggin of Bank of Ireland, when invited to triumphantly declare their annual results on national radio, really shouldn’t be let out of their offices without such a flunkey at their side.  Last year, after crowing about financial victory over the markets, he then predicted that Ireland’s employment growth, retail sales and government finances would all remain positive going into 2008.

Last week, interviewed again by the same reporter, but with a very different set of results, he insisted that the pace of the global economic slowdown in the last six months to March was “more pronounced than any of us expected.”

Really?  Is he saying that no one in the bank knew about the catastrophic build-up of trillions of dollars of bad debts and leveraged bonds, described as “financial weapons of mass destruction” by none other than Warren Buffett nearly five years ago?  Or that he had no idea that inflating the money supply after 2001 wasn’t just replacing one bubble – technology shares – with another one, property?

Given how Mr Goggin didn’t have a clue back in May 2007 that the house-that- debt-built could topple over so dramatically, he shouldn’t be too surprised if not everyone believes him when he says that “the basic fundamentals are strong” in Ireland.  If they are, then why aren’t house prices still going up?  Why are food and fuel prices here soaring and unemployment on the rise?  Why are tax returns short €655 million so far this year?

Bank of Ireland Private Banking thinks it’s time that we “return to equity markets” which it claims “may have hit the bottom of the cycle.” It even says there are signs the US dollar and economy is “bouncing” back.

Since clearly, no one who has any sense is whispering in Mr Goggins ear, the least he should do is listen to his customers.

They will only invest again when they’re pretty sure they won’t lose their money.  In the meantime they will reserve their biggest cheers for the banker who offers them the most competitive interest rates.

 

Tweet