This week sees a raft of statistics on asking prices of residential property in the State for the last three months of 2010 (DAFT.ie, Myhome.ie and Sherry Fitzgerald). By the end of January 2011, the only hedonic transaction price series (Permanent TSB/ESRI) will be published in respect of the last quarter – the PTSB now appears to control less than 5% of the mortgage market and the series excludes cash sales. And in July 2011, we will get average new and second-hand house prices for 2010 from the Department of the Environment, Housing and Local Government – this series is not hedonic and regards a €57m sale on Shrewsbury Road as one sale and a €50,000 sale in Ballyfermot and you get the average price by dividing €57.05m by 2! And whilst you could argue that an asking price index is valid because it compares apples with apples over different periods of time, you could also argue that in a bust property market, the difference between asking and settled prices will be greater than during a boom. Those of you looking out for the House Price Database promised in August 2010 by the outgoing Minister for Justice and Law Reform, Dermot Ahern, you’ll be disappointed by the fact that the Minister failed to introduce the necessary amendment to the Property Services (Regulation) Bill in the last Dail session – perhaps the Minister is more pre-occupied with how he will spend the estimated €308,000 he will receive in his first year after retiring as a TD.
So for what it’s worth, this is the summary of what each of the three just-published asking price series tells us – in summary the pace of decline picked up in Q4 2010.
Track is kept on here of pronouncements on future house prices and below is the latest position (no-one seems prepared to stick their heads above the parapets since October 2010). You can find the sources for the information in the comments available in the attached spreadsheet. You should note that these pronouncements can be predictions or projections (the difference? A projection is “if condition X comes about then prices will change by y%”).
And for the little it’s worth, the prediction on here is that prices will drop 5% in 2011 by reference to the very limited PTSB house price series. Again for the little it’s worth, the feeling here is that settled prices are down 50%+ whereas the PTSB say they’re down 36% from peak. The following will tend to depress prices
(a) Continuing difficulty in accessing credit for mortgages – 14,000 mortgages were approved in the first three quarters of 2010, down from nearly 80,000 in the same period in 2005. And remember our banks are required to undertake a massive “deleveraging” exercise in the next three years and stopping new lending will be in keeping with the plan.
(b) Increasing stamp duty to 1% for first time buyers and for property less than 125 m2
(c) NAMA’s plan to bring property on to the market at “teaser rates”
(d) Population which is stagnant and may even decline. Dublin’s population fell by 0.3% in the year to the end of April 2010. Net outward migration will offset natural population growth.
(e) Repossessions and foreclosures should increase this year and non-NAMA banks seem increasingly keen to dispose of property
(f) Flat or falling wage levels, higher taxes, anaemic economic growth, positive inflation
(g) An overhang in supply. Whether it’s 30,000 or 150,000, it’s substantial.
(h) Upward pressure on mortgage interest rates. Whilst ECB rates are unlikely to rise until 2012 (example of widespread opinion here) the fact remains that we are pumping EU/IMF money into the banks which is costing us 5.7-6% and the last major placing of debt by Bank of Ireland was at 5.9%. Deposit rates are at an elevated level in our banks. And our banks are under pressure to generate profits. All of this points to upwards pressure on variable mortgage rates.
The following will tend to boost prices
(a) Reducing stamp duty from 7/9% to 1% for movers
(b) A sharp decline in new home construction – in the first 10 months of 2010 (pg 11 of the December 2010 Department of Finance monthly review), a total of 11,974 dwellings were completed. The outlook for 2011 is for less construction.
(c) Wealth and income in some pockets of the economy – certain parts of our economy are doing well (and not just within the NAMA sphere of influence!).
UPDATE: 7th January, 2011. Again for the very little it’s worth, Paddy Power has issued its odds for house prices in 2011. A decline of 3-6% is odds on favourite at 6/4, followed by 6-9% at 2/1 and a decline of 9%+ at 3/1. Smaller declines and increases have higher odds and if you’re looking for a long shot they offer 12/1 at increases of 9% plus. The performance of the market is by reference to the now very limited PTSB house price series.
NAMA Wine Lake 
“The following will tend to depress prices”
(h) Rising (or threat of rising) interest rates ???
Hi Brian, agreed. I did include upward pressure on interest rates in a previous entry but figured that lack of availability of credit (deleveraging and funds shortage and continuing dim view of banks of risk) would overwhelm a 1% rise in variable rates. But agreed it is a factor.
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You should check out the poll in Today’s Irish Times (a newspaper with a long and continuing track record of talking up property prices). These polls are normally in a 55/45 or at the outside 60/40 distribution. However, at the time of writing, the question “Do you think Irish property prices have hit rock bottom yet?” has elicited a 25/75, distribution of Yes/No votes. It would appear that the general public is even gloomier than the banks.
Here’s a property anecdote for you. Rural property in mid west region. New construction, almost ostentatiously designed. Reasonable commute to nearest city. Boom price: ~ €450,000. Current status: Owner unwilling to sell for under €200,000; no takers.
There are people unable to sell 4 bedroom detached houses for €170,000 in some parts of the country. The issue is not stamp duty, or over supply, or wages. The issue is credit. The banks are simply not lending.
Here’s another unsubstantiated anecdote that was doing the rounds. Two young professionals—lawyers I think—with a combined income of over €100,000 and savings went looking for a €200,000 mortgage; couldn’t get one. I’ve half forgotten the facts on that one, but that was the gist of it.
The price of houses is determined by the availability of credit, and very little else. And right now Irish banks are giving credit to absolutely no-one. In the current climate the price of many houses is quite literally going to fall all the way down to where people pay for them in cash (probably somewhere in the €30,000~€50,000 level). I’m sure properly educated economists would scoff at such notions, but people can’t pay even €100,000 for a house if they can’t get a loan.
With all my dooming and glooming here though, I must make a declaration in this post: I’m young, qualified and unmortgaged. I know it’s cruel to the generations above me who have been trapped in the property-poorhouse, but I’m beginning to think that the total collapse of the housing market will be a major windfall for my generation. Assuming that is, that we are able to get any jobs in the country.