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Negative Equity in the Irish Housing Market: Estimates Using Loan Level Data

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  • Duffy, David
  • O'Hanlon, Niall

Abstract

The sharp decline in house prices since 2007 has led to the emergence of widespread negative equity in Ireland. For a large sample of borrowers in negative equity the paper provides details on the characteristics of the borrowers and their mortgages by analysing loans taken out to purchase a primary residence in the period 2005 to 2012. The emergence of negative equity is not just about price drops. Loan characteristics such as the loan-to-value ratio and the length of the mortgage term also have a role to play. The analysis finds the situation in Ireland to be much more severe than that being experienced in other housing market downturns at present, with 64 per cent of borrowers from the period 2005-2012 in negative equity. Analysis by age gives rise to concern, with the majority of those in negative equity aged under 40 years. Traditionally, this is the age group most active in the housing market. The paper also points to the large wealth loss, in the order of ?43 billion, experienced by Irish households as a result of the fall in prices. With only moderate house price growth expected in the years ahead there is a generation of mortgage borrowers whose housing market experience will have been overwhelmingly negative and who will remain in negative equity for some time.

Suggested Citation

  • Duffy, David & O'Hanlon, Niall, 2013. "Negative Equity in the Irish Housing Market: Estimates Using Loan Level Data," Papers WP463, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp463
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    References listed on IDEAS

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    1. Christopher Foote & Kristopher Gerardi & Lorenz Goette & Paul Willen, 2010. "Reducing Foreclosures: No Easy Answers," NBER Chapters,in: NBER Macroeconomics Annual 2009, Volume 24, pages 89-138 National Bureau of Economic Research, Inc.
    2. Addison-Smyth, Diarmaid & McQuinn, Kieran & O'Reilly, Gerard, 2009. "Modelling Credit in the Irish Mortgage Market," The Economic and Social Review, Economic and Social Studies, vol. 40(4), pages 371-392.
    3. Luci Ellis, 2008. "How many in negative equity? The role of mortgage contract characteristics," BIS Quarterly Review, Bank for International Settlements, December.
    4. Schulhofer-Wohl, Sam, 2012. "Negative equity does not reduce homeowners’ mobility," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Feb, pages 1-17.
    5. Kennedy, Gerard & McIndoe-Calder, Tara, 2012. "The Irish Mortgage Market: Stylised Facts, Negative Equity and Arrears," Quarterly Bulletin Articles, Central Bank of Ireland, pages 85-108, February.
    6. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1179-1207, December.
    7. Ferreira, Fernando & Gyourko, Joseph & Tracy, Joseph, 2010. "Housing busts and household mobility," Journal of Urban Economics, Elsevier, vol. 68(1), pages 34-45, July.
    8. Henley, Andrew, 1998. "Residential Mobility, Housing Equity and the Labour Market," Economic Journal, Royal Economic Society, vol. 108(447), pages 414-427, March.
    9. Luci Ellis, 2010. "The Housing Meltdown: Why Did It Happen in the United States?," International Real Estate Review, Asian Real Estate Society, vol. 13(3), pages 351-394.
    10. Andra C. Ghent & Marianna Kudlyak, 2011. "Recourse and Residential Mortgage Default: Evidence from US States 1," Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 3139-3186.
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    1. repec:esr:wpaper:rn2013/1/4 is not listed on IDEAS
    2. Rock, Sarah & Ahern, Aoife & Caulfield, Brian, 2016. "The economic boom, bust and transport inequity in suburban Dublin, Ireland," Research in Transportation Economics, Elsevier, vol. 57(C), pages 32-43.
    3. Gerlach, Petra & Merola, Rossana, 2013. "Consumption and Credit Constraints: A Model and Evidence for Ireland," Papers WP471, Economic and Social Research Institute (ESRI).
    4. FitzGerald, John & Kearney, Ide & Bergin, Adele & Conefrey, Thomas & Duffy, David & Timoney, Kevin & Znuderl, Nusa, 2013. "Medium-Term Review: 2013-2020, No. 12," Forecasting Report, Economic and Social Research Institute (ESRI), number MTR12, April.
    5. Gerlach, Petra, 2013. "Younger and Older Households in the Crisis," Research Notes RN2013/1/4, Economic and Social Research Institute (ESRI).

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