This morning has seen the publication of the sixth CSO residential property price indices forIreland. The inaugural series was published by the CSO on 13th May 2011 and covered the period from January 2005 to March 2011. This morning’s release covers the month of August 2011. Here’s the summary showing the index at its peak, November 2009 (the NAMA valuation date), August 2010 (12 months ago), December 2010 (end of year, start of this year) and August 2011.
Now that the Permanent TSB/ESRI has abandoned its quarterly house price index, the CSO isIreland’s premier index for mortgage-based transactions. Mortgage transactions at eight financial institutions are analysed : Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank ofIrelandgroup), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The index is hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The index is an average of three-month rolling transactions.
As for the key questions:
How much does property now cost in Ireland? The CSO deliberately doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, inDublin in April 2007 at €431,016 and outsideDublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then these would be the average prices today:
Nationally, €177,812 (peak €313,998)
In Dublin, €213,104 (peak €431,016)
Outside Dublin, €161,468 (peak €267,987)
I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series as represented by its historical indices closely matches the performance of the CSO indices.
What’s surprising about the latest release? Although the monthly decrease of 1.8% is elevated, we have had similar declines in recent months. What is astonishing is that Dublin prices overall declined by 3.8% in just one month, with apartments down an almost incredible 6% in just one month. Outside Dublin prices declined by just 0.3% in August 2011, which is modest and tends to contradict an expectation that the pace of falls outside Dublin would pick up to match the already-steep declines in Dublin.
Are prices still falling? Yes, and the 1.6% drop in August 2011 was more than the 0.8% decline in July 2011.
How far off the peak are we? Nationally 43.4%% (also 43.4% in real terms as inflation has hardly changed since 2007). Interestingly, as revealed here,Northern Ireland is some 45% from peak in nominal terms and 52% off peak in real terms. Are forbearance by mortgage lenders, a draconian bankruptcy regime and NAMA’s (in)actions distorting the market? Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?
How much further will prices drop? Indeed, will prices continue to drop at all? Who knows, I would say the general consensus is that prices will continue to drop. Whilst not lending itself to the format of analysis in the table below, both Anglo chairman Alan Dukes and Danske-bank unit, National Irish Bank have both indicated declines in the immediate future. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please drop me a line if you think there are any omissions].
What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. Residential prices are now down 21.3% from November, 2009. The latest results from the CSO bring the index to 853 (17.3%) meaning that NAMA will need see a blended average increase of 17.3% in its various property markets to break even at a gross profit level.
Could be that the Dublin market is slightly more liquid than the rest of the country, sales realise price falls, fewer sales outside of Dublin. I’m quite surprised you are surprised NML that prices are falling so rapidly, what would you expect in an economy with no credit and a stock of property in reserve (both NAMA and fututre repossessions)?
@Richard, lack of credit and an overhang have both been with us for some time, so the surprise is that in August 2011, Dublin apartments recorded their steepest decline since the CSO started keeping records.
Thanks NWL, got your name abbreviated properly this time. Again maybe the much lauded uptick in sales is precipitating the price falls? Thus crystalising the falls that inevitably will equal if not surpass the 67% price decreases observed in the Allsop auction?
@NWL
Can you please indicate where in the CBIs March PCAR report did they estimate a peak to trough decline of 55% in the base case scenario and 59% in the adverse case. Perhaps I missed it but from memory they estimated price falls for 2011 and 2012 but I don’t recall them indicating where the peak was in their index within the document. Perhaps you could point me to where the numbers above were published.
@YoB, the Bank published the scenarios a couple of weeks before the report.
http://www.financialregulator.ie/press-area/press-releases%5CPages%5CInformationNote-CentralBankPublishesCapitalAssessmentMacroEconomicScenario.aspx
Why on earth cannot the information be drawn from the revenue. Surely if anyone has the facts on what was paid they have.
Or is this more of where Peter is denied info that Paul holds and for no good reason.
@Vincent, there are a couple of reasons why the info can’t presently come from the Revenue – data protection of personal information and also the Revenue doesn’t capture the same level of detail about a property as mortgage companies eg number of bedrooms.
That first is simply a line in the finance bill, and they could leave the owners name out of the equation anyway. That owner and occupier are virtually tautological matters nothing. There is absolutely nothing in the Constitution that protects the owner from having his/her/its name published. That they aren’t at teh moment is simply a continuation from conventions under the Government of Ireland Acts and could be considered habit and nothing more. The latter, who cares how many rooms. What’s needed is a price NAILED to an address. The exact address like in the UK. Then and only then will we have anything approaching a guide that deserves the name.
@Vincent, aah I see you’re talking about what is being called the House Price Database which is given legislative effect by the Property Services (Regulation) Bill which I believe is due to go to committee stage in the Oireachtas at the end of October 2011. And if the powers that be, mostly Minister for Justice, Equality and Defence Alan Shatter and Taoiseach Kenny display support for the bill, then there is no reason why we can’t have some figures along the lines you suggest by Christmas 2011. You can find all the latest on the House Price Database at the dedicated page here
http://namawinelake.wordpress.com/about/house-price-database/
@ Vincent & NWL The Revenue indeed have a database of all property transactions going back a fair number of years. The information is searchable, if you were a Revenue official based on a person’s name or a specific address, or even PPS no. The information comes from forms ST 21 completed by solicitors, who are obliged to send it in for every property transaction.
It is linked into the Revenue’s audit risk programme. You could for example get a list of all of the transactions, sales and purchases by a particular individual, or search all the transactions by street during a certain time period.
There were a lot of minor glitches with the information capture when I used it for screening audit cases, however the information is there. I was using it up to about 18 months ago and you needed a reasonably good knowledge of the system and other Revenue databases to piece together the actual position. For example a person giving the mammy’s address on Griffith Ave, Dn 3/9 buying a house in Drogheda
I can’t see the Revenue being in a position to make a clean searchable database available without spending a fair amount of money and allocating a lot of staff time, neither of which are in plentiful supply there at present.
What about adding in all the auction sales that are predominately cash, what would the percentage of falls be then?
@Cookie, given that there have been approximately 5,000 mortgages issued for residential property purchase in the first half of 2011, according to the Irish Banking Federation, taking 300 auction sales (which include commercial, sites, blocks of flats) would not be statistically significant in my view.
What is the totle of the Fitch report in which you quote figures above?
@PO, I didn’t obtain the Fitch report (which I don’t think is available without subscription) but based its inclusion in the above table on the reporting by the Irish Examiner
http://www.examiner.ie/business/house-prices-could-fall-by-67-from-peak-164058.html#.TkYiHr3gMnA.twitter
@nwl “The hedonic method is the prevalent statistical process for the measurement of residential price change” pg18
‘The monthly S&P/Case-Shiller Home Price Indices use the “repeat sales method” of
index calculation – an approach that is widely recognized as the premier methodology for
indexing housing prices – which uses data on properties that have sold at least twice, in
order to capture the true appreciated value of each specific sales unit.’
http://www2.standardandpoors.com/spf/pdf/index/SP_CS_Home_Price_Indices_Methodology_Web.pdf
http://en.wikipedia.org/wiki/Case%E2%80%93Shiller_index
@nwl ‘The combination of these factors means that the matching process that
would typically be used to calculate a standard or typical price index cannot be used in the case of houses and apartments’ CSO pg 18 really ????
Rather sweeping statement from CSO perhaps they are not familiar with the Case-Shiller Index which does exactly that and is the most widely accepted housing index in the US !!
@NWL
Thanks for the link but forgive me this does not suggest that peak to trough declines of the order you have suggested. As indicated the CBI estimate falls in 2011 and 2012 but there is no indication from the index on page 58 of the March document what the peak in their index they are using actually is.
This is not an academic argument. The extent of the negative equity has a disporportionate effect on mortgage default rates i.e. the larger the negative equity the higher the probability of a default. Therefore the CBIs estimate of likely PTT falls is pretty crucial if the PCAR document conclusions are to be believed.
@YoB, I understand that the CBI used what was regarded as the premier house price index at the time the stress testing was being done in Jan-Mar 2011, and that index was the Permanent TSB/ESRI index. Of course it has now been supplanted by the CSO index but there is a strong correlation between the two. This blog post might help.
http://namawinelake.wordpress.com/2011/03/18/has-the-governor-of-the-central-bank-given-home-buyers-the-green-light-to-demand-a-30-discount/
I don’t like indices that jump around too much – e.g. Dublin apartment prices. It might be that sample sizes are too small and the cso aren’t adjusting for outliers. It looks like the monthly (and unpublished – they only publish a 3mth moving average,right?) May-11 data may have been unusually high and explains a good portion of the 6% fall.
A half-assed (HA) backing in to the 3mth MA dublin apartment index to try figure out the monthly values could show:
HA index HA monthly change
January 61.6 -1.8
Feb. 64.6 3
March 58 -6.6
April 58.3 0.3
May 64 5.7
June 55.3 -8.7
July 55 -0.3
August 53.5 -1.5
(I’m not suggesting these are actuals, just trying to show possible monthly volatility and that you keep to keep an eye on the month falling off as much as the new month added).
This is very bad news for NAMA, not to mention mortgagors (how much longer before the “jingle mail” from them hits the banks in greater quantities).
NAMA has a brief to sell an average of over €400 million of property loans per month for the next 27 months. It is difficult to put this into context, but with turnover in Ireland at practically zero, little liquidity and no bank funding, it is a daunting task – a formidable challenge, for people with limited experience. With prices falling, the task becomes impossible. It is preposterous to believe that buyers can be found when the expectation is that prices will fall further and the deflationary spiral will continue.
I just don’t get that nobody in NAMA or in the DoF gets it – Even after all we have been through, they still don’t grasp the measures that are needed to fix the economy in general and the housing problem in particular. Because without fixing the residential lending issue, they will never fix the economy.
@WSTT. NAMA has indeed a daunting task over the next 27 months to December 2013 to meet its self-imposed target of repaying 25% of its bonds (€7.5bn approx). But NAMA says, or more importantly the IMF says, that NAMA has already made a good start with nearly €5bn of approved disposals. The NAMA CEO indicated two weeks ago that €3.9bn had been “realised in cash” which goes some way to explaining why NAMA has been able to repay €1.25bn of its bonds so far together with €299m seed capital and loans from the DoF, approved €900m for additional advances of which about half has been handed over and to have a €1bn remaining cash balance.
So perhaps NAMA only needs an additional €2.5bn of disposals in the next 27 months, still a challenge at €100m per month with the presumed low-lying fruit having already been refinanced or disposed of.
US studies indicate that negative equity levels in Ireland have reached a point where borrowers should start to ‘walk away’ but there may be ‘emotional’ or historic behavioral reasons to want to hold onto the ‘field’
‘After distinguishing between defaults induced by job losses and other income shocks from those induced purely by negative equity, we find that the median borrower does not strategically default until equity falls to -62 percent of their home’s value’
‘Our estimates show that about 80 percent of defaults in our sample are the result of income shocks combined with negative equity. However, when equity falls below -50 percent, half of the defaults are driven purely by negative equity.’
http://www.federalreserve.gov/pubs/feds/2010/201035/201035pap.pdf
@John, for valid comparisons, wouldn’t foreclosure and bankruptcy procedures need to be similar. Stategically defaulting on a non-recourse mortgage or facing 12 months of bankruptcy presumably is less of a deterrent than our draconian 5-12 year bankruptrcy process.
Yes but one of the more interesting findings was notwithstanding BK and non-recourse provisions..
“A 2010 national housing survey conducted by Fannie Mae suggests that nearly 9 in 10 Americans do not believe “it is OK for people to stop making payments if they are underwater on their mortgages.”
@nwl you can default on a mortgage without having to file BK one quick change that could easily be made in Ireland would be to excluded debt associated with principal private residence from BK proceedings and make it all non-recourse within acceptable limits to prevent gaming the system.
“borrowers who walk away from their mortgage may face severe legal liabilities, depending on the state and year. Florida and Nevada allow lenders to sue for a deficiency judgment against borrowers if the foreclosure sale does not cover the remaining loan balance and lenders’ foreclosure costs”
“In contrast, some states have non-recourse laws(i.e. lenders cannot obtain a deficiency judgment), including Arizona and California. In California, home purchase mortgages for a principle residence are non-recourse, while in
Arizona, home purchase mortgages are non-recourse if the property is on less than 2.5 acres and is a single one- or two- family dwelling”
I don’t see a huge difference if the Irish govt. can decide on behalf of the taxpayer to provide a state guarantee that benefits bank bondholders and is introducing retroactive UORR legislation why they cant also move the goalposts regarding personal debt on reasonable private residences.
It allows people to move forward without having to file BK. instead of being trapped and freezing the market.
Many benefits including better underwriting by banks/lenders going forward.
@NWL, “The NAMA CEO indicated two weeks ago that €3.9bn had been “realised in cash”….”
This is where all the red warning lights start to flash “spin” or “weasel words” at me. I can honestly say that logic and even anecdotal evidence gives the lie to this. The only real sales that it has made is in the UK, mainly London. It can’t be surplus rent from the cash sweep of its borrowers rental income. That in itself would not account for such a large amount. So where does it come from? If it is from sales, why do they not say so clearly? The answer, I believe, is that it’s not from sales. It’s just smoke and mirrors, designed to be opaque – a bit like the developers’ agreements. This is where NAMA’s much flaunted PR fails it.
@WSTT, oh I wouldn’t accept the €3.9bn at face value but NAMA’s generation of cash (as evidenced by repayment of bonds. seed capital, advances to debtors, operating expenses and cash balance) seems to indicate €3bn+ of cash receipts. I count 19 NAMA disposals but because NAMA does not provide information on disposals, this is going to be a subset and perhaps a very small subset
http://namawinelake.wordpress.com/nama-property-for-sale/
How many loans have been refinanced out of NAMA? Difficult to say though I note NAMA has been talking about 850 debtors since late last year, and that hasn’t dropped to 840, or indeed changed at all.
@NWL, I meant to say … “not all from sales”.
@NWL. To the best of my knowledge, no loan portfolios at all, and very few loans, have been refinanced out of NAMA at this point.
I think that NAMA is struggling with how it might cope with this politically and in a “transparent” manner. The NAMA executives are paranoid about being accused of allowing their borrowers to refinance at a level that is lower than the par value of their loans. Hence, stagnation.
Most new investors don’t want the loanbooks without some “boots on the ground” with the long knowledge of the portfolio. Hence, more stagnation while NAMA scratches its head and figures out how it will deal with that situation politically.
Meanwhile in Ireland nothing moves out from the belly of NAMA and values continue to fall, making it even harder for NAMA to sell at a profit.
They must “Thank God” every day for London.
@NWL
“How much further will prices drop? Indeed, will prices continue to drop at all? ”
If you take your figues above showing that the largest drop in prices was in Dublin (per above) and consider that unemployment in Dublin (now at 12.1%) has fallen in the latest CSO returns and is by far the lowest in the State (now at 14.3%), then the logical conclusion is that prices will continue to fall outside Dublin.
In Dublin a falling unemployment rate and falling house prices does not give much grounds for optimism.
http://www.cso.ie/releasespublications/documents/labour_market/2011/qnhs_q22011.pdf
See table 6B re regional unemployment.
@NWL, “….. there have been approximately 5,000 mortgages issued for residential property purchase in the first half of 2011, according to the Irish Banking Federation.”
Maybe it’s just my natural cynicism, but were there really 5,000 NEW mortgages issued for residential property purchase in Q1-Q2 2011? Or…. could it possibly include refinancings?
@WSTT, according to the Irish Banking Federation which claims to represent more than 95% of Irish mortgage lenders, there were 2,800 loans to First Time Buyers, 1,800 to other purchasers of homes for owner-occupation and 300 to Buy-to-Let investors in Q1-Q2, 2011. In addition there were more than 1,800 re-mortgages and top-ups. So as depressed as the Irish market is, yes I think there were indeed 5,000 mortgage purchases during Q1-Q2, 2011.
http://namawinelake.wordpress.com/2011/08/16/irish-residential-mortgage-lending-experiences-usual-bounce-in-q2-up-8-on-historically-low-q1/
Assume if they amend adjust or restructure no requirement to register new terms just a letter on file ?
not sure on the source but some capital out there according to this…….
‘Ulster Bank recently funded an apartment block in Ringsend, a suburb of Dublin, whose previous owner was going bankrupt. The 210-unit apartment complex charges an average of EU $1,300 ($1,782 USD) per month. That comes out to a total monthly rent revenue of EU $3,275,000 ($4,483,147.50 USD).’
http://argussoftware.com/en/news/Article.aspx?newsArticleID=800598291
@John, interesting link but I wonder how accurate it is. Set aside the error of mixing up annual and monthly rent (€273,000) but it claims that the unquoted purchase price equates to a 6-9% net yield based seemingly on all 210 units being 100% rented and I don’t think a 6% yield is exactly terrific.
Presumably the property is the Gasworks complex.
http://www.irishtimes.com/newspaper/commercialproperty/2011/0622/1224299367520.html
I wonder who the buyer is and what the final purchase price was.
agreed would not be first read in the morning its more like a clipping service but widely distributed as Argus is the preeminent valuation/modelling software in RE-interesting if ulster provider seller financing or as wstt calls it ‘staple’