No, this is not a reference to Richard Quirke’s plans for an 800-acre gaming wonderland in Tipperary but instead examines a US state where the negative equity rate is 70% and foreclosures (repossessions) are running at 180,000 per year (that’s over 15% of their total housing). The US produces pretty good statistics and you can find the latest negative equity position at First Active CoreLogic and the latest foreclosure information at realtytrac.com which was the source for the RTE news story this week. Nevada is top of the league when it comes to negative equity but Arizona and Florida aren’t far behind at nearly 50%. Ireland would presently appear to have 150-200,000 mortgages in negative equity and that figure is set to rise to an estimated 300,000 if property falls 45% from peak. So how does Ireland compare with our cousins in America.
It is nigh impossible to do perfect comparisons between different jurisdictions and property/loan markets but the outstanding feature of the comparison is that Nevada has 360 times the number of repossessions per annum compared with Ireland.
In some US states, mortgages are non-recourse loans which means that the lender can only pursue you for the house and nothing more. Nevada is not one such state. The same as Ireland.
Nevada had a giant boom in property prices between 2000-2006 fuelled by cheap credit and lending conditions. Their average prices grew by 15% per annum – not too far off the 12% per annum rises here.
The average house price comes from zillow.com because they provide actual data by month in an easy to manipulate manner. Other sources indicate higher present house prices so take the price with some caution. However, since the “drop from peak” and “2000-2006 annual compound growth figures” are based on data from the same source they should be sound.
Could it happen here? Take a look at realtytrac.com where they say that have 1.5m repossessed properties for sale across the whole of the USA. Take a look at the advertisements and it soon becomes very real. Our collapse in prices is not as great as theirs but the outlook for our prices is not great with very few commentators predicting a short term recovery. Our unemployment rate is very similar to the high rate of unemployment in Nevada. Apparently 30,000 mortgages have been restructured here (generally taken to mean to be placed on interest only for a period of time) and a further 30,000 are officially impaired to some extent. Our bankruptcy laws are more draconian than those in the US and the cost, burden and effect of bankruptcy here is more severe and lasts longer. However I see no reason why we might not be in for a tsunami of repossessions that would dwarf the 500-or so annually now being effected. Let us hope that is not the case.
I leave you with some new terms that may need to be imported into the Irish property lexicon:
REO : real estate owned, this is where a bank repossesses a property and after it does not sell at auction (where the reserve is set at the amount owing to the bank), it is returned to the bank who may sell it by private treaty, normally through a single estate agent.
Short sale: where the borrower agrees with the bank to sell a property which has negative equity. The borrower and bank agree a price. If the price achieved is less than the borrower owes, the bank may seek the difference (in some US states the bank writes the amount off). Short sales have the advantage of selling a home without the blight of it being seen to be distressed and may achieve a better price. For the bank they avoid bankruptcy, debt collection costs and reputational issues.
UPDATE: 16th May, 2010, The New York Times has an article on how one property promoter is trying to turn the tide in Las Vegas. An interesting piece which echoes some aspects of what is going on here. It’s too cold here for cockroaches but I have heard builders slag off competing vacant houses as rat-infested. Get to the last sentence of the article and perhaps that reflects more the reality of Nevada real estate today.
NAMA Wine Lake 
[…] If another 18% comes off existing property values that would bring us to over 45% off peak and according to NCB Stockbrokers that would mean that 300,000 of the 800,000 mortgages would be in negative equity with average negative equity of over €50,000. Ireland presently has precious little repossessions (<500 per annum). Is there a tipping point when that drip would become a torrent (cf Nevada, 2.7m population, -56% from peak property values, 70% negative equity and 180,000 annual f… […]
[…] UPDATE: 13th November, 2010. The Independent’s Personal Finance Editor Charlie Weston writes on this subject today. Whilst apparently ignoring those in receipt of mortgage assistance he reports that the likely figure is 70,000 mortgages being in trouble as he claims that those which have been restructured amount to 45,000 (not 60,000 as estimated above using Charlie’s own reporting and estimates earlier in the year) and that some 15,000 of these 45,000 are included in the banks’ own statistics on arrears.” “The figure for those who are struggling to repay their mortgage is 70,000 tops. Where Morgan Kelly got his figures, I don’t know,” a [n unidentified] spokesman for the Irish Banking Federation said, insisting that there had been no attempt to massage the figures.” Elsewhere in the article Charlie tells us that it is 70,000 people that are having difficulty – well that claim is definitely wrong as the average household in the State has 2.75 souls so 70,000 mortgages in difficulty would imply 192,500 people are in difficulty – the entire population of Cork, not Galway. I still tend to think Morgan Kelly’s 100,000 is closer to the reality – if the arrears are growing at 4,000 per quarter then to mid Q4 of 2010 that would imply 43,000 in arrears formally plus 45,000 on Charlie’s numbers (on what basis would a restructured mortgage that was complying with its terms be in arrears?) plus some part of mortgage assistance homes estimated by the Taoiseach in October at 16,700. Regardless though whether it’s 70,000 or 100,000 mortgages it is still a major issue and I regard the situation at present to be a denial of the realities – compare Ireland with Nevada and you’ll see what I mean. […]
How about….In a short sale if the shortfall is treated like income and the seller is liable to pay this, then the short sale doesn’t look like a freebie, or a ‘strategic’ loss.
This is important, because I would guess the biggest factor that will determine the existence of short sales or other rescue vehicles in Ireland will be public sentiment.
Even a broke and internationally supported population is not necessarily going to allow something that is seen as frogiveness, not in Ireland anyway.
So, tax the shortfall as income, and let the seller work out a mutli year payment plan. Not very Irish, but maybe a win-win.
someone else is seeing the parallels:
http://krugman.blogs.nytimes.com/2010/12/29/ireland-nevada/
[…] Viva Las Vegas – a comparison between Ireland and the US state of Nevada’s housing markets, negative […]