the foobar zone

Like most of the rest of the country, I'm going to admit to having some pretty serious levels of scorn for the housing economics pundits - ok, so it's shooting fish in a barrel. I know.  But listening to all this trash on the airwaves about a slowdown here, and deterioration in market conditions there just makes my eyes roll. 

It's not a slowdown, or a deterioration or any other euphemism. It's collapse: complete and total collapse.

To get an idea of just how bad things actually are, the Central Bank of Ireland released its October '08 monthly statistics report a couple of days ago. This received a very small amount of coverage in the news: small mention on talk radio and on radio news, but nothing at all on TV.  The broadsheets each had their articles on the topic, but mostly buried among piles of other bad news about this or that.

The gist of it was that the value of all residential mortgages outstanding in October 2008 had risen by €26 million over the figure for September 2008. The equivalent figure for 2007 was €1.2 billion. Uh, oh!  Looks bad.

Let's do a little maths.  The Central Bank's stats go back for two years, providing the means to do some comparison in section A2.2 of their monthly report.   Using the interest rate figures on the ECB archive, I did up a rough and ready table:

Figures given are in millions; mortgage capital repayments based on an estimated average of 18 years term; bad debts are ignored; etc.  In other words, this is a finger-in-the-air estimate. However it indicates that there was only €437 million issued in new mortgages for October 2008, compared with €1.5 billion in Oct 2007 and €2.3 billion in Oct 2006.  That's a drop of about 71% in one year or 80% in two years.

So that's the drop in residential housing sales for last month: about 70% down on the same time last year.  Anecdotally, this figure looks about right according to people who are trying to buy or sell in this market.

What does it all mean?  For the realty industry, they are going to see a 70% revenue drop for October, assuming mainly commission based sales - and no business can survive that sort of thing for more than short periods.  If people aren't buying, that means developers aren't selling, which means significantly more pressure on the banking system in terms of bad loans, while on the other hand, the banks aren't developing any significant new and presumably safer business, now that they appear to have realised that lending large quantities of money to people who are clearly going to have payment difficulties in tougher economic times.  Worse still, because there is much less money being injected into the irish economy from the banks, this means that there's going to be much less money in circulation in the economy. And all of this is going to have a trickle-through effect on the government finances.  The residential construction and sales industry is an important part of the Government's coffers, and the Government has just issued a budget based on figures to September 2008. Next year's budget deficit is going to be brutal.

No wonder the media didn't want to pick up on it.