The Irish Independent reports that new government figures say house prices were nine per cent higher in the first three months of the year than the corresponding period in 2006.
Despite the slowdown in the market in the last few months, the Department of the Environment showed that the average new home cost €320,969 by the end of the first quarter.
Although the Government has now abolished stamp duty for first-time buyers, most observers claim the market remains "depressed". Last month, the Economic and Social Research Institute predicted at drop of 3pc in prices by the end of this year.
The department figures show the number of mortgage applications being approved has fallen by one-fifth in the same period this year.
The figures - which are compiled from banking figures which show the size of mortgages drawn down - suggest that despite fewer people borrowing, the available houses rose in value in the first three months of the year.
They show:
* Loan approvals fell by 22pc in volume with 24,598 sanctioned by the banks in the first quarter, a reduction in value of 16.4pc to €6.4bn.
* The average price nationally for a new home in the same period was €320,969 - an increase of 9pc, and the price for a second-hand home was €379,874 (up 9pc).
* In Dublin, a new home cost €417,800 (up 7pc) and a second-hand house or apartment cost €516,211 (up 9.1pc).
The Department also said that 20,818 new homes were completed between January and March, of which one-third were in the Greater Dublin Area.
Some 4,386 were built in Dublin, with 6,217 completed in Dublin, Meath, Wicklow and Kildare.
Indicative figures to the end of June reveal that 38,978 homes were completed, and while there were indications of the expected slowdown in house construction, some 1,600 units a week are still beingcompleted.
A total of 16,913 new homes were started in the first three months, of which 5,587 were in the Greater Dublin Area, a decrease of 7.8pc on last year's figures.
By the end of June, work on 31,600 units had begun, a decrease of 22pc on last year's number.
Housing Minister Batt O'Keeffe said the figures showed the housing market was becoming more "sustainable" and that the building industry would continue to provide sufficient homes.
On the provision of social and affordable housing, 487 units were provided under a range of schemes, one-third of them in Dublin.
Developers handed over 444 units as part of their obligations under the Planning and Development Act, which requires up to 20pc of homes in a new estate to be made available to people on lower incomes.
This is an increase of 26pc on 2006.
And 1,453 social houses (up 61pc) were built,earmarked for people on local authority waitinglists.
The department said that local authority completions and acquisitions rose by 62pc so far this year, and 11,360 social housing units were under construction.
The Irish Independent also reports that the US dollar hit a 15-year low against a basket of major currencies yesterday as traders speculated that woes in the US credit market will prompt the Federal Reserve to cut interest rates.
The dollar index briefly dipped below the psychologically key 80-mark before recovering as traders shuffled positions ahead of a Fed policy meeting this week. The Fed is expected to keep rates on hold at 5.25pc today.
But some are looking for the US central bank to acknowledge growing risks to economic growth stemming from problems in the credit markets, raising the chances of a rate cut in coming months.
That would mark a change from recent meetings, where the Fed has emphasised inflationary pressures as the predominant risk to its scenario for the economy.
If the Fed sticks to this view, the dollar may gain some respite from the big sell-off that has also dragged it to record lows against the euro in recent weeks.
"Markets will be looking for validation for the notion that the Fed is moving closer to easing policy in response to the latest woes in the credit market, leaving room for disappointment if the Fed instead sticks to its recent script," Daniel Katzive, strategist at UBS, wrote in a note to clients.
Rallied
The euro was up 0.1pc at $1.3785, just over half a cent below a record high touched last month.
The dollar was little changed on the day against the Japanese currency at 118.04 yen, while it rallied against sterling. Sterling was down half a per cent on the day at $2.0295.
Traders said a technical break in the euro/sterling cross helped weigh on sterling. The dollar index, a gauge of the greenback's value against six major currencies, slipped as low as 79.957 - a level last seen in September 1992 - but later recovered to 80.214, slightly higher on the day.
However, some traders said the worst was not over for the dollar.
"There is still a general feeling that the dollar has to move lower," said John McCarthy, director of foreign exchange trading at ING Capital Markets.
"The euro looks particularly perky and when it rises above $1.3860, I think we'll see another round of dollar selling," said McCarthy.
Highlighting the severity of a rout in US credit markets, the co-president of Bear Stearns, Warren Spector, resigned over the weekend after the collapse of two mortgage funds managed by the company.
The Irish Times reports that small firms body Isme has warned that the Government needs to take urgent action on the growing black economy before legitimate businesses are forced to close.
The illegal or so-called black economy is worth an estimated €16 billion annually, or up to 11 per cent of gross national product, according to Isme.
Isme chief executive Mark Fielding says that equates to €3.2 billion in lost taxes each year which could wipe out the current exchequer revenue shortfall and also fund infrastructure projects.
The organisation believes the number of businesses choosing to operate illegitimately will continue to rise due to the high costs of doing business, high rates of VAT and low rates of detection.
The problem is particularly bad in the construction industry, childcare and private security, according to Isme's research.
"The level of black or unobserved economic activities depends on the incentives and opportunities to cheat," said Mr Fielding. "It is vital therefore that the Government accurately monitor and police these rogue businesses and reduce the incentives to take business underground, by reviewing tax rates and the increase in public utility costs, by deregulating the labour market and cutting red tape."
"It is no coincidence that countries with a relatively low tax wedge and the least regulations have the smallest black economies," he added.
Isme has called for regulatory impact assessments of all new business regulations as well as improved enforcement of laws relating to the black economy. It is also seeking a review of the current tax regime and how it influences individuals and companies to enter the black economy.
Mr Fielding called for the Revenue, the Department of Justice and the Garda to clamp down on racketeering immediately.
The Irish Times also reports that drug firm Azur, the investment vehicle of former Elan executive Séamus Mulligan, has been valued at €125 million after raising €35 million from investors in a private placement of shares in the business.
The money raised was denominated in US dollars ($48 million) and it brings to more than $100 million the amount of equity raised by the firm since its formation in mid-2005. The identity of the investors was not disclosed but the new shares issued represent 28 per cent of Azur's share capital.
Now building a presence in the US market, Azur specialises in the sale and distribution of strong drug products that are nearing the end of their patents and pipeline products.
"The offering provides us with the cash resources to acquire further products and pipeline assets," Mr Mulligan said of the fund-raising. Arranged through Davy Stockbrokers, the placement follows Azur's acquisition a month ago of anti-psychotic drug FazaClo in a deal worth up to $54 million.
"We are pleased to announce the successful completion of our offering and the closing of the acquisition of FazaClo. The offering leaves us with strong cash resources after funding the acquisition," Mr Mulligan said.
The business was making good progress, he said. "We have established a full commercial infrastructure in the United States with growing revenues and 90 sales representatives covering CNS [ central nervous system] and urology/women's health."
The FazaClo deal with Nasdaq-listed Avanir Pharmaceuticals is Azur's third acquisition since it first raised money through Davy in 2005.
The value of its three deals stands at more than €68 million. The acquisition of FazaClo, which is used to treat severely-ill schizophrenic patients, almost doubles the number of Azur's staff to 140 people. The product brings annual revenues of $25 million into Azur.
Prior to the deal, Azur expected revenues this year of $20 million. Azur paid $42 million to Avanir at the close of the transaction and is liable for another $10 million in contingent payments based on regulatory milestones during 2009.
Azur will also pay up to $2 million in future royalties based on 3 per cent of annual net product revenues for FazaClo in the US in excess of $17 million.
In February, Azur spent more than €20 million on the buy-out of the privately-held US firm Pharmelle, of Phoenix, Arizona. That company sells urology and female health products.
In January 2006, the firm spent $11 million on the acquisition of a product called Gastrocrom, for the treatment of a gastro-intestinal disorder known as mastocytosis, from US group UCB Pharma Inc. Azur does not engage in research and development, although another firm linked to Mr Mulligan, Circ Pharma, does
Mr Mulligan worked for 20 years with Elan until 2004, most recently as executive vice-president business and corporate development. In the latter part of his career with Elan he led a restructuring process which saw the group realise more than $2 billion on the disposal of 40 assets over 18 months.
The Irish Examiner reports that
concern about a sharp slowdown in the Irish property market is set to grow after new Government figures show a huge decline in the number and value of housing loans approved and paid out in the first three months of 2007.
Combined with other reports that have warned about a downturn in construction activity and the likelihood of a further interest rate hike, it appears uncertainty will continue to cloud the Irish economy.
Housing statistics published by the Department of Environment show that there was a 24.5% reduction in the number of housing loans paid out in the first quarter of 2007.
A total of 21,181 mortgages were drawn down during the period compared with more than 28,000 loans paid out in the last quarter of 2006.
The value of mortgages also fell dramatically over the corresponding period — down 31.5% to a little more than €4.8 billion. The value of all mortgages paid out in the previous three months was more than €7bn.
A similar gloomy picture emerges from the latest data on housing loans granted between January and March 2007. Although almost 24,600 loans were approved during the period, representing a 7% increase over the preceding quarter, the value of such mortgages fell by 8% to €6.4bn.
A year-on-year comparison shows that the number of approved loans fell by 22%.
The decline suggests that the era of soaring house prices is firmly at an end.
The fall-off in mortgage activity also appears likely to continue following indications by European Central Bank president Jean Claude Trichet last week that interest rates are set to rise again next month.
Another 0.25% rise in interest rates would see rates peak at 4.25% for the first time since 2001.
Goodbody stockbrokers also announced last week that it had revised its housing output estimates downwards for the second time this year amid continuing unease about the economy’s dependence on the construction sector.
Fears have also been raised by the news that 12 construction-related firms have gone into liquidation in the past fortnight, while a receiver was appointed to the company behind a big housing development in Co Kilkenny last week.
Housing Minister Batt O’Keeffe remained upbeat about the health of the property market, although he admitted there were indications that there was some easing in housing activity.
“The housing market is evolving to a more balanced and sustainable growth pattern, particularly with regard to house prices and mortgage lending,” said Mr O’Keeffe.
The Financial Times reports that Germany’s national railway operator is steeling itself for its toughest industrial action for 15 years after members of a rebel engine drivers’ union voted overwhelmingly on Monday in favour of open-ended strike action.
Deutsche Bahn says it has rejected an ultimatum by the GDL union for the company to come up with a new pay offer by Tuesday night. The union wants a 31 per cent rise for its 13,000 members.
Germany now appears poised for its worst transport chaos since the last nationwide strike in 1992. The GDL said it would begin its strike on Thursday by hitting freight traffic.
The soon-to-be privatised operator said a full-scale labour dispute involving passenger trains would cost it more than €10m ($13.8m, £6.8m) a day and put the daily cost for the German economy at €500m. Economists, meanwhile, worry that a generous settlement could fuel wage inflation.
“People are cancelling their trips from Wednesday onwards. The strike has not even started and we are already facing costs in the region of €1m a day,” said a DB executive who asked not to be named.
“The employer has chosen confrontation and is deluging us with lawsuits,” Manfred Schell, the union’s chairman, told reporters after unveiling the ballot result, showing 95.8 per cent of members backing a strike. “It is turning against its own employees.” Mr Schell said the GDL was likely to begin its strike with targeted stoppages concentrating on freight transport.
By breaking ranks with DB’s two leading unions – which last month secured a 4.5 per cent pay rise from January and a one-off €600 payment for this year – and adopting an unusually aggressive stance, the GDL is rewriting the rules of wage negotiations at large German companies.
However, DB is optimistic that it can withstand an all-out strike because of the GDL’s small size.
The company insisted on Monday that it would not grant GDL members a separate wage deal. While business, passenger associations and the government have called for talks to resume, the company has been honing a legal and logistical battle plan.
Executives said DB would make full use of Germany’s complex labour legislation. This could include various measures to declare strikes illegal – for instance, in areas where the union has omitted to cancel old local wage agreements.
On the logistical side, the company aims to have 80 per cent of long-distance and half of regional trains running. DB has also begun refresher courses for former drivers and licence-holders who currently have desk jobs. About 40 per cent of drivers, and only 13,000 out of DB’s 240,000 employees, are GDL members.
The FT also reports that the rate of business start-ups across the UK has decreased since Labour came to power in 1997, despite a raft of “entrepreneurship” schemes, according to a report on Monday.
The University of Sheffield’s Management School used official labour-market figures to calculate the number of new businesses created per thousand people, and found that the number fell from 3.2 to 3 between 1997 and 2004.
Robert Huggins, the report’s co-author, blamed increases in public-sector spending for discouraging private-sector initiative.
“Individuals weigh up the risks and rewards associated with wage employment and business ownership,” he said. “With increased levels of public-sector employment available, individuals may be less inclined to take entrepreneurial risks and choose relatively secure wage employment.”
Mr Huggins also blamed the government’s dismantling of the Training and Enterprise Council network just as local branches had begun to foster growth. “It was scandalous,” he said. “The government has never really had a clear policy [to support start-ups] since.”
The report added that most of the government’s many schemes to foster entrepreneurship – such as teaching it as a school subject – are too long term. It said tax cuts would be a better way to raise the number of business start-ups.
There has been no shortage of government initiatives aiming at kindling a more entrepreneurial culture in Britain.
Gordon Brown, who championed UK entrepreneurship when he was chancellor, even replaced the Department of Trade and Industry with the Department for Business Enterprise and Regulatory Reform as one of his first acts as premier.
The government has tended to focus on the total number of businesses in the UK, which has increased by about 600,000 to 4.3m since 2000. Survival rates are also much higher than a decade ago, with 92 per cent of VAT-registered firms still registered after a year, and 71 per cent after three years.
The New York Times reports that the day-to-day financial dealings of Oneida Limited, the dinnerware and flatware maker, are typically about as far removed from the mortgage loan business as they can be.
Yet, like the proverbial flapping of a butterfly’s wings that sets off a storm thousands of miles away, the turmoil in the home mortgage market this summer directly affected the fortunes of the company, based in upstate New York, when it was forced to withdraw a planned offering of $120 million in high-yield bonds to investors as the credit markets froze up seemingly overnight.
If the deal had been offered just a month earlier, said Andrew G. Church, Oneida’s chief financial officer, the company would have had no trouble raising the money. “But it happened so quickly,” he said. “We’ve never seen anything as quick as this.”
The sudden change in the financial atmosphere is emerging as the toughest test yet for Ben S. Bernanke as chairman of the Federal Reserve. While the Fed is not expected to alter short-term interest rates at its monetary policy meeting today, Mr. Bernanke is being pressed by many on Wall Street to emulate his predecessor Alan Greenspan and quickly open the door to a future rate cut. But others argue that he should resist any easing and let the market sort out the winners and losers rather than help bail out troubled borrowers and lenders.
On any given day, investor attention and headlines this summer have focused on the wild gyrations in the stock market or the free fall in the riskier parts of the mortgage bond market, which has led to the demise of numerous home lenders and a few hedge funds.
Yesterday was no different as Wall Street had another roller coaster day and the Dow Jones industrial average erased Friday’s losses with a nearly 287-point gain to close the session at 13,468.78.
But behind all the volatility what has been happening in recent weeks is the virtual seizing up of nearly the entire spectrum of the credit markets — from mortgage-related securities to high-yield bonds and even European corporate debt.
“The liquidity in the credit markets was abysmal,” said William H. Gross, chief investment officer of the bond management firm Pacific Investment Management Company, known as Pimco. “On Friday afternoon, the brokers were unwilling to make markets in almost anything that didn’t have a Treasury or agency sticker attached to it. That’s pretty bad.”
The trading-in-a-vacuum phenomenon is only the latest evidence of how the days of easy, cheap money for corporations and individuals alike have disappeared. The ripple effect is being felt by nearly everyone.
Home buyers are paying more for mortgages. Mortgage lenders are closing shop as large banks turn off the spigot of money to them. Large and small corporations are also paying more to borrow — if they can find anyone willing to lend them cash. The same goes for flashy private equity firms, which have curbed their deal making and forced their bankers to scramble to drum up loan packages for buyouts already in the works.
In this bond market rout, debt instruments have had billions of dollars of value wiped out in just a few weeks. By some estimates, the high-yield market alone has lost nearly $50 billion in value since early June. Others say losses in the less easily traded mortgage- and asset-backed securities markets could easily run in the hundreds of billions of dollars.
Paradoxically, the turmoil in the credit markets comes against the backdrop of relatively decent advances in economic growth and fairly robust corporate profit growth. The default rates on corporate debt remain well below average levels for the past decade.
“Either this is the start of something really bad and we are heading toward a recession,” said Joseph M. Balestrino, fixed-income market strategist at Federated Investors, “or it is an emotional reaction and creating a lot of opportunity in a lot of asset classes.”
In Washington, the Bush administration is cautioning that the recent volatility in bond and stock markets is no cause for alarm because of the underlying strength of the American economy and because recent market declines should be thought of as an adjustment to past lending excesses.
“We have the strongest global economy I’ve seen in my business lifetime,” Treasury Secretary Henry M. Paulson Jr. said in Beijing last week. “We have a healthy economy in the U.S. So what is going on in my judgment is a reassessment of risk.”
The Treasury chief has sounded that upbeat note since the beginning of the recent market turmoil. But the administration may try to go further in soothing investors nerves tomorrow, when President Bush visits the Treasury Department for a long-scheduled annual meeting on the economy.
Whatever the future holds, many say what is leading this debt meltdown is the recognition that credit in recent years had simply become too cheap and too accessible for far too many individuals, hedge funds, private equity firms and corporations.
Indeed, many are convinced that the fallout in the mortgage market will continue as billions of dollars in mortgages reset to higher rates, starting this fall.
Home borrowers are likely to have fewer options as many lenders continue to struggle. Yesterday , American Home Mortgage, once the nation’s 10th-largest lender, declared bankruptcy, while two other lenders suspended making new loans to consumers.
As for Wall Street, questions are rising about the billions of dollars in loans numerous banks and brokerage firms have guaranteed to buyout firms to complete planned acquisitions of companies.
When investors steered clear of the $12 billion in loans that banks were trying to sell to finance the buyout of Chrysler, the banks and brokerage firms wound up putting that debt on their books. By some estimates, financial institutions have committed themselves to issuing $200 billion to $300 billion in financing to allow buyouts already in the pipeline to go through.
Major financial institutions like and JPMorgan Chase, which were among the biggest lenders to private equity firms, have enormous balance sheets to help them weather the storm. But smaller investment banks may be seriously thrown off course; already, according to insiders, they are becoming more careful about deploying capital elsewhere.
“There’s a big problem right now with unsold financing for leveraged buyout commitments that the brokerage firms have to work off and that is discouraging them from actively providing liquidity into the high-yield market,” said Marty Fridson, publisher of Leverage World, a research service that focuses on high-yield debt.
The gap between prices for high-yield corporate debt and Treasury securities in early June traded at a historic low, suggesting that investors saw little more risk in owning the debt issued by companies with blotchy credit histories than in government-issued debt. In a matter of weeks, that spread has more than doubled.
“We knew it would have to reprice to reality,” said Jack Malvey, chief global fixed-income strategist with Lehman Brothers. “But we’ve moved from reality to high anxiety.”
That fear of taking on further risk has translated into fewer bonds being offered into the market.
High-yield bond offerings fell off a cliff last month. In July, only $2.4 billion in junk bonds were issued, a steep decline from the $22.4 billion that came to market in June, according to Thomson Financial.
High-quality bonds issued by companies with sterling credit have not been immune to the rout either. Investment-grade bond issues fell to $30.4 billion in July — the lowest monthly total in five years — from $109 billion in June, according to Thomson.
For all the turmoil, some are confident that the credit market door will not stay shut for long. Despite withdrawing a $215 million bond sale late last month, Silverton Casino Lounge said it hoped to return to the markets very soon.
“We’ll wait for a better time,” Silverton’s president, Craig Cavileer, said. “We anticipate this is more of a short-lived sentiment.”
The NYT also reports that Germany, which last week became the first European country to be infected by the woes in the American mortgage market, suffered another blow on Monday when an asset management firm in Frankfurt closed a fund to temporarily halt withdrawals by rattled investors.
The management firm, Frankfurt-Trust, said the withdrawals from the fund, FT ABS-Plus, reflected jitters about the subprime lending market in the United States, even though the fund had only minor exposure to that market.
Investors have become nervous in recent weeks as worries about credit problems that started in subprime mortgages in the United States have spread to Europe and Asia. The stock markets have swung wildly of late, reflecting uncertainty about the outlook for the market and the risks to the economy.
“We had to close the fund because we got a lot of demands from people to get their money out,” Rainer Gogel, the fund’s manager, said. “We did it because we wanted to protect the investors.”
Mr. Gogel said he did not know when the fund, which is currently worth 160 million euros ($219 million), would reopen. He suggested that the market turbulence might persist for a while. “We had excesses in the market,” he said. “All those excesses are being dealt with at once.”
Last week, a German bank, IKB Deutsche Industriebank, roiled the markets when it disclosed deteriorating subprime investments. A government-backed group agreed to bail out the bank, providing 3.5 billion euros ($4.8 billion) to cover IKB’s potential losses on its $24 billion investment in the market.
Two other asset-backed securities funds with exposure to subprime mortgages in the United States — run by Union Investment and HSBC Investments Deutschland — were closed last week.
Since then, German officials, central bankers and the heads of private banks have appealed for calm. Some have pointed out that the mortgage mayhem in the United States need not destabilize European markets, especially at a time when Europe’s economies are showing considerable vigor.
Investors need to keep their “sang-froid,” Jean-Claude Trichet, the president of the European Central Bank, said on Thursday.
Yet fund managers and credit analysts said they feared more unpleasant disclosures from German banks and mutual funds, several of which appear to have been enthusiastic gamblers in this risky market.
“It’s a bit like discovering Easter eggs,” said Boris Boehm, a money manager at Nordinvest in Hamburg. “There are a lot of eggs hidden around here. You’ll be hearing more and more about these problems.”
To be sure, several of Germany’s largest financial institutions have played down their exposure to the subprime market. Deutsche Bank even profited from the chaos by selling mortgage loans with derivatives contracts that appreciated as the United States housing market slumped.
Commerzbank said its exposure to the subprime market accounted for a tiny fraction of its balance sheet, as did three of Germany’s largest insurers: Allianz, Munich Re and Hannover Re.
The problems, analysts said, are likely to crop up in smaller, less well-known institutions, like IKB, which until last week operated in comparative obscurity as a lender to midsize, privately owned German companies.
“The general impression was that they were quite a conservative bank,” said Simon Adamson, a banking analyst at CreditSights, a research firm in London. “The mistake they made was they thought they were safe investing in high-grade paper. They didn’t reckon on the huge difference between the view of the ratings agencies and the value in the market.”
Mr. Adamson said he would not be surprised to see more IKBs: banks that, because they have little experience in these markets, rely heavily on credit-rating agencies. Fund managers are also vulnerable, he said, because the banks packaged and sold subprime investments to them.
Investor confidence in Europe is being further eroded by the fact that the bad news is coming out in dribs and drabs.
“The big problem is the lack of disclosure,” Mr. Adamson said. “Since it’s hard to be sure of anything, the market quite understandably fears the worst. It is going hunting for banks with exposure and losses.”
The uncertainty took a toll on European stock markets. Shares in London and Paris slumped on Monday, although Frankfurt’s DAX index eked out a slight increase.
Paradoxically, some of the best performers were banks that had been shadowed by credit fears. Shares of Natixis, a French bank, rose 6 percent, rebounding from a 10 percent decline on Friday, after it said the subprime market would have only a limited impact on its results.
IKB’s shares jumped 11 percent, following steep losses, after the bank played down a report that its losses from subprime investments could exceed the $4.8 billion rescue fund.
