“December’s decrease in both the Dublin and national indices produced by the CSO is unfortunate news. For Dublin, it is absurd and totally out of line with what is happening on the ground. The declines are due to how the index is constructed. It is based on mortgage drawdowns and totally ignores cash buyers who account for 45% of all sales nationally and an even higher percentage in Dublin. Obviously this has to skew the results.” Aoife Brennan, Head of Research at Lisney
Well, the release of the December Irish residential property indices by the Central Statistics Office this morning has certainly thrown the cat amongst the pigeons. After an impressive monthly increase of 2.7% in Dublin in November 2012 which formed the basis for a good many “recovery” headlines, we have a 1.7% decline in December 2012. Lisney, one of the country’s main estate agents and part of the Cushman Wakefield global family, issued a statement in which it described the results for Dublin as “absurd”. The CSO indices exclude cash sales which Lisney convincingly claims represents 45% nationally and even more in Dublin, and Lisney claims this has to skew the results.
But I wonder.
If an estate agent sells no 1 Acacia Avenue for €250,000 to a mortgage buyer and no 2 to cash buyer for €220,000, what will no 3 Acacia Avenue which is identical sell for? If it’s a mortgage buyer, then the bank or building society will require a valuation, and given the estate agent knows the two sale values of nos 1 and 2, how will they value no 3 for the mortgage provider? And of course with the new Property Price Register, estate agents no longer have a monopoly of all market prices, cash and mortgage -we can all hazard a guess, though it will still generally be estate agents who are familiar with the details of property sold. But the point is that cash shouldn’t skew the market very much because mortgage companies must adjust their own valuations in light of all transactions – cash and mortgage.
It might be that December 2012 was just a blip, and the CSO does indeed warn against reading too much into any one month’s figures. All Dublin estate agents appear to be suggesting a firming up of prices in Dublin – they may be dismissed by some as scoundrels who have skin in the game and need stable or rising prices to drive transactions. But maybe we should see what the CSO index and the Daft.ie index tell us over a number of months.
Lisney seems to be in no doubt and is emphatic about the outlook for Dublin “Despite what the CSO indices are showing, we believe that the improved level of activity in 2012 has fed through into rising prices, particularly in the prime city areas. In 2013, we are of the view that prices in Dublin and other city areas will increase further and it will be the cash buyers who drive this.”
Standard EA fare, really. If the CSO agrees with them, they talk it up. If it disagrees with them, they run it down. I was actually expecting a bump in December due to the end of MIS, however perhaps that was too tight a deadline for most and that bump was really seen in November only.
“In 2013, we are of the view that prices in Dublin and other city areas will increase further and it will be the cash buyers who drive this”
Right. Because that’s what drives most housing markets. The endless supply of cash buyers.
Sorry, for “MIS” read “MIR”
NWL Your example of the Acacia Avenue sales indicates clearly that houses sold for cash are invariably cheaper than prices achieved using a mortgage.This is also demonstrated in the Allsop auctions.No doubt cash is king and those fortunate to have it can call the tune on property prices.As previously blogged it is felt that if Daft or some other bright spark could extrapolate the data from the Property Price Register which includes all transactions both cash and mortgage then and only then will we have a clear index of the true extent of the crash(albeit since 2010)which I predict (at this point)as being 60% from peak with further falls to follow(Fitch and Moodys) together with the shape of whats coming down the tracks in next 3 years budget wise.(each household down about €5000) before a levelling off.
The Lisney objections say it all – if cash buyers are providing the majority of the fuel for housing demand, then the demand for housing is inflated. Cash buyers are not a sustainable prop for property prices unless their supply of cash is sustainable. London and NY have a sustainable supply of cash buyers from non-national (eg oil rich) sources – apart from a tiny number of Irish ex-pats returning home, or statistically insignificant numbers like embassy workers, the source of cash for the majority of Irish cash rich buyers must be property boom money, with a few wealthy pensioners thrown in. So their utility curves are arguably different from mortgage holders, they may be more prone to taking a punt on a price, and most importantly their supply is finite. So when cash buyers dwindle (since there is no significant profits to be made in property speculation in this market) So if you’re looking for the long term “real” price trends for Irish property, mortgage buyers must surely be it. So CSO is accurate?
What exactly is the logic behind Cash Buyer headline figress?
When we say “Cash buyers account for 45% of all sales”, does this mean
A. 45% of all sales were cash-only, or
B. 45% of the total funding for sales came from case (and the other 55% from mortgages)
If the answer is B, then the level of transactions excluded by the CSO figures would be a lot less than the headline figures suggest, given that all mortgage-backed purchases will have varying levels of cash associated with them depending on the LTV
Forget ex-pats and embassy workers, anecdotal evidence from the US says that the supply of Chinese cash buyers of distressed homes is practically infinite, Have they shown up in Ireland in force yet?