ESRI is saying there is no housing bubble

With reference to ESRI says rapid rise in house prices does not signal new bubble by Eoin Burke-Kennedy 22 June 2017 in the Irish Times.

The Economic and Social Research Institute, ESRI, is stating that even though the housing prices and rents are rising rapidly this does not necessarily mean a new housing bubble. The official house construction may be overestimating the housing activity, according to the ESRI.

ESRI’s latest economic commentary included a section saying that even though new credit is growing in the residential market and small companies, a good credit risk assessment is still in place and seems to provide no risk.

ESRI still believes the housing prices and rent will be rising from the growing imbalance between supply and demand. The predicted the long-run housing demand to increase from 25,000 to 30,000-35,000.

The government supposedly overestimated the level of supply which may have overstated the true level of construction activity. Government estimating the housing supply at 15,000 in 2016 and ESRI at 12,700.

There is a lot of speculations of another housing bubble coming about. …

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How Do American Mortgages Work? Part 5: Fannie Mae and Freddie Mac

The main goal of Fannie Mae and Freddie Mac is to give the national mortgage market some liquidity. They purchase the loans from the mortgage firms (only under strict standards with size, credit score, and underwriting). For the next step, they package up the loans into Mortgage-backed securities, which they guarantee the payments on the securities to the investors even if a mortgage defaults.

These standards led to a more reliable ad sustainable mortgage products with longer terms and fixed-rate mortgages. On top of that investors knew that even if a mortgage defaults in their invested security, Fannie and Freddie will supplement the payments to them. Which made mortgage securities seem like a safe and sustainable investment.

Fannie Mae was created in 1938 in part of the New Deal Legislation to help with the housing crisis during the Great Depression. The goal was to buy all the FHA-insured loans to help recover the lenders’ money supply. It was originally apart of the Federal Housing Administration (FHA).

Freddie Mac was established in 1970 to keep the supply of money moving for …

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Independent.ie mention Irish Mortgage Brokers

We were mentioned in the Independent today in a story relating to the Central Bank, it hinged upon the fact that they had a ‘whistleblower’ line for people wanting to report financial wrongdoing and it wasn’t operating correctly which means they couldn’t take a call.

The story quoted us as follows: Compliance officer with Irish Mortgage Brokers Karl Deeter said it was not good enough that the whistleblower phone line was not being answered and emails not getting a response.

“Imagine if you called 999 to report a crime and no one answered. What would you think of our police service?” he said. A Central Bank spokesman claimed the problem had been rectified after the situation was raised with it by the Irish Independent.

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The mortgage crisis

We were asked to speak at the Fianna Fail ard fheis in a panel on the mortgage crisis, our contribution was as an independent opinion on the topic, we were there with other independent experts to give context to the crisis which was a focus in the event. We would stress that in the arena of financial advice that politics doesn’t come into it and that while members of our firm exercise their right to vote, we don’t align ourselves with any particular party.

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Bond Bubble Looming, where does it end?

We have been talking about this for a while (28/01/09, 11/03/09, 23/04/09), it was a popular topic on this blog in 2009 but well covered and for that reason we have not revisited it much, but the alignment of the stars warrants a look at the symptoms of the disease because now they are ever more present than before. At this point we can see a clearer path; which is still leading to a bond bust destination.

It has also becoming a mainstream topic, recently it showed up in an article titled ‘Currency, the weapon of choice in a world of lower demand‘.

If something can’t happen it won’t, and what can’t happen is a world in which we see century bonds (bonds with 100yr terms) becoming commonplace, they will probably be (as is the benefit with all hindsight) the poster-boy of the …

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After the crisis: A new financial structure

This is a speech given by Paul McCully of PIMCO at the annual Minksy Conference, it is a long one but well worth reading

Start:

Thank you very much. It is an absolute pleasure and honor to be here. I gave the keynote a couple years ago and it was my first time to be at the Minsky Conference. I feel that I’m part of a church, and it’s a good church in that we’re on the right side of history. And it’s absolutely wonderful to be attending services with you again.

I want to open up with a little story that should make everybody in the room feel particularly good, and then we’ll get into discussing economics. Harry Markowitz has been a friend of mine for about a decade. I became friends with Harry through two channels. Number one, Rob Arnott of Research Affiliates has an Advisory Panel of famous academics, such as Harry and Jack Treynor, that he gets together every year. I’m frequently invited to speak. We spend two or three days over a weekend together. I’ve …

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Failed regulation in the Irish market

There are three broad benefits to regulation of a financial system.

Firstly, avoidance of negative externalities, often the societal costs of these outweighs the private cost and prevention is possible when a regulator is function well and doing their job correctly. They do this by preventing excesses, by promoting conservative risk management in the financial sector and helping to maintain confidence by ensuring (for instance) that a liquidity shortfall in one institution doesn’t spill over into others (i.e. avoiding multiple bank runs which take down well functioning solvent banks in their wake) resulting in a widespread credit crunch.

Secondly, to set solvency and reserve requirements for banks, at times there are significant asymmetries in information within the consumer/institution relationship, or worse still, information gaps (where both institution and consumer don’t have full information – as happened in the sub-prime loan market in the USA), when nobody can determine the quality and reliability of a financial product a strong regulatory environment will ensure that banks are in a position in which they can …

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Yale economists discuss the financial crisis

Yale hosted a panel discussion with Yale Faculty on the National Financial Crisis, to discuss developments since the February 25, 2009 panel discussion. Panelists included John Geanakoplos (James Tobin Professor of Economics) and Robert Shiller (Arthur M. Okun Professor of Economics). The discussion was moderated by Yale University President Richard Levin (Frederick William Beinecke Professor of Economics).

This talk is a ‘must see’ in terms of viewing, Robert Schiller is not only a professor of economics but also the author of several popular books (the subprime solution and irrational exuberance) and the namesake to one part of the world known Case-Schiller index.

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