Walking away from mortgages will be Irish emigrants' revenge

Posted on Thursday, May 20, 2010 at 12:38 PM

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A couple of recent reports here say the fall in house prices is declining. That's the good news. House prices are still falling, but at least they're not going down as fast as they were.

I know American house prices have also declined, but nationally the price of the average American house is down about 20% from the peak. Here prices are down about 50% and we have another 10% decline to go - at least. {Ireland's experience matches that of Las Vegas, which is appropriate given the way the government and the banks kept doubling down time after time til the bubble finally burst.}

In the area where I live I've seen two "SOLD" signs recently and those are the first in quite a while. That had me believing that maybe we were really near the bottom and that things might get better.

HOWEVER, this past week I came across another report, this one aimed at investors in residential property. The report focuses on Dublin, Cork & Galway so it's not a full national picture, but still the headline figures are chilling. Houses are still overvalued by somewhere between 37% and 43%! That would mean that a house worth €500,000 in 2007 will eventually fall in value to around €150,000*.

Already approximately 40% of Ireland's homeowners are in negative equity. How many more will end up there if houses are still 40% overvalued? It doesn't bear thinking about, although looking away probably won't make it go away.

What does this mean for Ireland's future? It means a generation or more of Irish people are trapped. They can't move to a bigger house as their family expands and they can't move to another part of the country if there is a job there for them. Trapped.

Unlike in America, Irish homeowners can't just walk away from their mortgage. Bankruptcy laws are different and the bank can (& will) pursue you for the loan even if you've handed back the keys. The only way someone can walk away from a mortgage is to walk away from Ireland, which I suspect many will eventually end up doing.

At least that will make a change. In the past, official Ireland was all too relieved when the potentially discontented, underemployed young people left for opportunities abroad. This time, at least, they'll take their free college educations and leave behind a big hole in our already devastated banking system.

For the first time departing emigrants will be able to stick their fingers in the eyes of those whose policies drove them away.

*I'm willing to believe I'm misreading or misunderstanding these reports. If I am please let me know.

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TheYank | May 28, 2010, 09:48 AM EDT

DennisQ

These days banks are making a big chunk of change on fees. The decline of the cash society has been a boon to banks.

The banks that are shooting themselves in the foot are already bust (kept afloat by govt money) thanks to their resistance to the idea that a bank should lend prudently. However, what you say about bankruptcy and those borrowers who can not afford to pay back their mortgages is true.

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DennisQ | May 28, 2010, 07:54 AM EDT

The banks are shooting themselves in the foot. Banks exist to lend money; that's the only way they make money themselves. If they insist that home buyers can't get out from underneath a mortgage they can't afford anymore, it will depress lending. If this no bankruptcy policy is government-directed, they're not helping Ireland recover. Bankruptcy is a necessary part of credit management.

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FastEddy | May 21, 2010, 11:09 PM EDT

Oh pleeeeeaaaseeee go on strike! Please ... Please ... then us gringos can buy up your foreclosures cheaper, and take your jobs (back). Please?

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jacersisityourself | May 21, 2010, 03:53 PM EDT

I agree w/ Yank – Irish house prices have still some way to fall before the reality of value sets in. It’s a business I know not a little about and advised my sons not to buy during the boom when they wanted to because they were scared prices were going to rocket higher and higher still. In their cases, time has told. Ironically, now that house prices are falling and they are in the market, they can’t get a loan. No money around for mortgages, ya see. Let the price fall continue for them.

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TheYank | May 21, 2010, 12:51 PM EDT

Ernesider

You'll have to wait a little longer. The €500K house is only down to €250 at the moment. Give it another 12 months, I guess.

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TheYank | May 21, 2010, 12:50 PM EDT

Also, I only came across this late last night. Says Americans walking away from mortgages may be more urban myth than truth.

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TheYank | May 21, 2010, 12:41 PM EDT

Porickseantuny

Interesting. It's been a while since I lived in America. I had assumed that those deficiency judgments were long gone. I'm almost happy to know they're not.

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Ernesider | May 21, 2010, 12:22 PM EDT

... how do I purchase one of these around 150,000 euros homes? The formerly 500,000 valued ones. I like you to write more on this as as you say the report was limited and something tells me nationally it may be worse or better now that I changed me name and can go back.

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Porickseantuny | May 21, 2010, 11:44 AM EDT

In most states the banks can seek a deficiency judgment when the foreclosure provides less than the mortgage. Whether they seek the additional sums from someone who can't pay a mortgage is a management decision.

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Bridgetftmyers | May 21, 2010, 11:39 AM EDT

Well at least they leave with a good education . We can't same the same for Americans !!!!!

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nygalwaygirl | May 20, 2010, 01:03 PM EDT

Ya, I actually heard a journalist on the radio advocating this path for people over their heads in debt - she said, emigrate, change your name and come back again in a couple of decades. I'd suspect people will be doing just that.

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