This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for August 2012. Here’s the summary showing the indices
- at their peak (various months in 2007 depending on type of property and location)
- the NAMA valuation date (November 2009)
- 12 months ago (August 2011)
- the start of this year (end December 2011)
- last month (July 2012)
- this month (August 2012)
The CSO’s indices are Ireland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank of Ireland group), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are 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 indices are averages of three-month rolling transactions.
Cash transactions: Unfortunately, this month the CSO has still not published information on the overall size of the residential property market, nor the cash/mortgage split. It had been hoped that it would be available in September 2012. It is understood that the CSO has started to receive data from the Revenue Commissioners which shows all individual residential property transactions, but the data is still being validated and tested. Why is this information so important? Because at present, the CSO analyses mortgage-based transactions only, and cash-based transactions may be of a different nature, with the perception being that they will value property at a lower level than mortgage-based transactions. Personally I am skeptical because if, as some commentators suggest, residential property prices are in fact down 60% nationally from peak, then this would indicate the cash-based component has fallen by dramatically more than the mortgage-based component. In fact if cash comprises 50% of the market, and the average decline is 60% and the mortgage-based component is down just 50%, this indicates the cash-based component is down a staggering 70% which seems unlikely – what mortgage company valuer will value a property at 50% from peak, if he knows that there are significant numbers of cash transactions at 70% from peak?
Separately we are now expecting the Property Regulatory Services Authority will introduce the new House Price Database by the end of this week “at the latest”. In Northern Ireland, in August 2012 they introduced a residential property price index based on all 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, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI prices as sound and comparable to prices captured by the CSO series, then these would be the average prices today:
Nationally, €156,879 (last month €156,157, peak €313,998)
In Dublin, €183,622 (last month €184,584, peak €431,016)
Outside Dublin, €144,189 (last month €142,316, 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 correlates with the performance of the CSO indices.
What’s surprising about the latest release? Prices nationally have risen strongly in the month by 0.5% which is the largest monthly % increase since 2007 – yes there have been a few flat months, but this is the third month after May and July 2012, since the boom that prices have actually increased. The increase however was mostly outside Dublin – Dublin houses fell by 0.7% in the month though Dublin apartments rose by 1.3% in the month, overall Dublin property fell by 0.5%.
Are prices still falling? No, prices are up 0.5% nationally after an increase of 0.2% in July and a decline of 1.1% in June, an increase of 0.2% in May following a decline of 1.1% in April 2012, it was flat in March 2012 which followed a 2.2% decline in February 2012, 1.9% monthly decline in January 2012, 1.7% decline in December 2011, 1.5% decline in November 2011, 2.2% decline in October 2011, 1.5% decline in September 2011 and 1.6% decline in August 2011.
How far off the peak are we? Nationally 50.0% (52.6% in real terms as we have had inflation of just 5.5% between February 2007 and July 2012). Interestingly, as revealed here, Northern Ireland is some 53% from peak in nominal terms and 59.5% off peak in real terms. Are forbearance measures 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. 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 in Ireland are now down 30.6% from November, 2009. The latest results from the CSO bring the index to 802 (24.7%) meaning that NAMA will need see a blended average increase of 24.5% in its various property markets to break even at a gross profit level.
The CSO index is a monthly residential property price index calculated from mortgage-based transactions. The long-awaited House Price Database is expected in the next few days. Speaking on RTE Radio “This Week” programme on 2nd September 2012, the Property Services Regulatory Authority CEO Tom Lynch said “at the very latest we will see it at the end of this month”. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here). In addition Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end to which the transactions relate, and which is not hedonically analysed – it is next to useless. The “super” junior minister at the Department, Jan O’Sullivan said last week in response to a parliamentary question from the Sinn Fein finance spokesperson Pearse Doherty on this series “the average house price series dates back to the 1970s and is the longest extant Irish house price data series. The series provides a simple average of prices with a breakdown between the main urban areas. Unlike the Central Statistics Office’s Residential Property Price Index the series is not mix-adjusted to take account of the different types of property sold. While there is a minor marginal cost to the Department in producing this series it is considered that, taking into account the historical continuity that it represents, it is worthwhile to maintain the series”