Ireland Facing House Price Collapse?

[n2doc]

Via Tyler Cowen, Ireland is not nearly done with its mortgage crisis. Another tsunami is headed for the Emerald Isle:

In the last year, America has seen a rising number of "strategic defaults". People choose to stop repaying their mortgages, realising they can live rent-free in their house for several years before eviction, and then rent a better house for less than the interest on their current mortgage. The prospect of being sued by banks is not credible - the State of Florida allows banks full recourse to the assets of delinquent borrowers just like here, but it has the highest default rate in the US - because there is no point pursuing someone who has no assets.

If one family defaults on its mortgage, they are pariahs: if 200,000 default they are a powerful political constituency. There is no shame in admitting that you too were mauled by the Celtic Tiger after being conned into taking out an unaffordable mortgage, when everyone around you is admitting the same.

The gathering mortgage crisis puts Ireland on the cusp of a social conflict on the scale of the Land War, but with one crucial difference. Whereas the Land War faced tenant farmers against a relative handful of mostly foreign landlords, the looming Mortgage War will pit recent house buyers against the majority of families who feel they worked hard and made sacrifices to pay off their mortgages, or else decided not to buy during the bubble, and who think those with mortgages should be made to pay them off. Any relief to struggling mortgage-holders will come not out of bank profits - there is no longer any such thing - but from the pockets of other taxpayers.

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.

more

http://www.theatlantic.com/business/archive/2010/11/ireland-facing-house-price-collapse/66242/

Probably coming here, too. Then the rich can buy up everything cheap and turn around and rent it back to us, forever!

[hedgehog]

1. I'd be curious to know how much housing/land prices were driven up in Ireland

by Euro-trash buying week-end houses.

[Drale]

2. Ireland's economy is 1000 times worst than ours is

they are in a genuine depression.

[Viking12]

3. Yet the Wingnuts continue to claim we should adopt their corporate incomce tax structure...

because it is sooooo good for their economy.

[muriel_volestrangler]

4. Worth pointing out the main author is Professor of Economics at University College Dublin

That is, the author of the Irish Times piece, not The Atlantic blog pointing to it.

http://www.irishtimes.com/newspaper/opinion/2010/1108/1224282865400.html

So he's not just anybody making a few guesses; he's probably as knowledgeable as anyone about the crisis, given the information that is public.