Tomorrow sees the launch of a much needed house price index by the Central Statistics Office (CSO). It is particularly welcome since the other leading actual price indicator, the Permanent TSB/ESRI quarterly index has not been published since 18th January, 2011 and its delay in publishing the quarter one index is particularly curious – the index has come in for some criticism on here because PTSB now has a very small share of the Irish mortgage market and the index excludes cash transactions. The index launched by the CSO tomorrow will also exclude cash transactions but at least it will be based on the eight main mortgage lenders in the State (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 CSO says that it will also provide an indication of the total value of all property transactions (cash plus mortgage), presumably sourced from the Revenue (the tax authorities that collect stamp duty on property transactions and who keep records also of exempt property transactions). There will be an update here tomorrow when the actual index is unveiled. The index was announced on 28th April, 2011 and there is some background information here.
Going forward, the index may become the most cited index because it will be monthly, will be issued shortly after the reporting period, will cover most mortgage transactions and by providing information on the full market (cash + mortgage transactions) we should get a better sense of how prices are changing. Given that we have had an almighty boom and bust, price discovery is needed now more than ever.
What the index will not provide will be prices – we WON’T find out what the average price of a house or apartment is; we’ll just see how prices have changed since 2005 so the index might start at 100.0 in 2005 and might be 70.0 today. The index will help us understand how prices have moved.
Whilst tomorrow’s new index is to be welcomed, it is no substitute for the House Price Register – the latest on which is that the Property Services (Regulation) Bill which will give legislative effect to the Register was restored by the Oireachtas on 25th March 2011 but appears not to have been debated or worked on since.
UPDATE: 13th May, 2011. The new index has been launched by the CSO. The press release is here and the index itself is here. You can create your own reporting using the CSO’s Database Direct facility here.
So, the key results:
What was unexpected? The decline of 39.5% from peak and the very high proportion of mortgage transactions in the market overall – 94% in 2009 meaning only 6% were for cash only – though it should be stressed the latest figures are 17 months old.
What does this mean for NAMA? NAMA has said that its experience of valuing the loans it had acquired was that residential prices had dropped by an average of 50% in November, 2009. The significance of November, 2009 is that this is the date by reference to which NAMA valued the property underpinning the loans it acquired. So even if it was acquiring a loan in August 2010 for example, it was still valuing the loan by reference to November 2009. It is not clear how statistically sound NAMA’s statement is, and it should also be remembered that it is in NAMA’s interest for declines to have bottomed out. This morning’s indices from the CSO indicate that prices nationally have fallen 15.9% from November, 2009. The estimate on here is that 67% of NAMA’s property is in Ireland and that 20% of this property is residential so when combined with the falls in commercial property in Ireland and property in the UK, this morning’s index would seem to indicate that NAMA needs to see a 12.9% blended average rebound in prices just to break even by reference to the prices paid for the loans.
How does the CSO’s index compare with other sources (figures shown in brackets are the latest available decline from peak, DAFT.ie and Myhome.ie peak and current figures are asking, the others are actual, the NAMA figure is apparently at 30th November 2009 and the Allsop/Space figure is my personal assessment and my apologies for including the Department of the Environment Heritage and Local Government because its statistics are unsound):
(1) PTSB/ESRI – National (38.9%),Dublin (44.9%), Non-Dublin (34.9%)
(2) DoEHLG – New (30.5%), Secondhand (28%)
(3) DAFT.ie – National (43.3%)
(4) Myhome.ie – National (37.3%)Dublin (43.5%)
(5) Sherry Fitzgerald –Dublin (55.8%), Non-Dublin (51.1%)
(6) NAMA – National (50%)
(7) Allsop/Space auction – National (60%)
(8) Standard and Poor’s – National (33%)
What about the future? Who knows? The economy is apparently growing though at a very modest rate, we have done a lot of work with stabilising the banks and getting our deficit in order, our exports have performed very well in the past year, we’re more competitive and much of the world is growing again. Against that, the market seems to think there is more to be done with the banks and our national debt outlook is challenging. On the property front, there is a lack of credit, oversupply with evidence that supply is now being released to the market, dwindling population, increasing interest rates, a potential repossession crisis. To stick the colours to the mast on here, the view is that there will be a 70% drop from peak (actual prices), that we are down 60% from peak, that prices will decline 17% from prices today so that the total decline is 70% and that we will reach a bottom in 2013. And with a valuer’s hat on, let me tell you that this should be taken with a giant pinch of salt because there are so many factors to consider and there are also the “unknown unknowns” and there is also human nature, a good example of which was the market for property priced at 10 times annual income. Here’s what other sources have said (you should read the comments in the attached spreadsheet to see the source and caveats)
Lastly the next release will be “early June” 2011.
NAMA Wine Lake 
Sad to say I am actually kind of excited to see what decline (greater or less than 38% from the peak) the new index will tell us.
As a side, the Irish Statistical Society are holding a seminer/discussion on this om Thursday next – must remember to go.
Every Dog on the street Know’s that price’s have declined by greater than 50%. It will be interesting to see if this new Index reflect’s this.
There is a reality, if they react quickly, that could be created of getting rid of that psychological niggle of the ‘off peak’ by X-percent. Where people think they have lost hugely. If they had a ‘real’ price then they could get used to the notion, for at the moment no one knows where the hell they are.
What’s really striking is the consistency between the new index and the earlier PTSB/ESRI figures.
I think you’re stretching it to think that we are really 60% down from ‘actual prices’ -maybe you seeing things too much from a Dublin perspective. Does the new index, or the old measure suffer from any asking price distortion?
@KOR, you are right that there was indeed consistency between the CSO and (old) PTSB/ESRI index. Interestingly in November 2009 – the date chosen by NAMA by reference to which it valued loans – PTSB said we were 29% off peak and the CSO say 28%. The NAMA chairman Frank Daly told the Licensed Vintners Association just a few weeks back that NAMA’s experience was that were 50% off in November 2009. Of course NAMA will see cash and mortgage transactions and both the other indices are mortgage only but we know from this morning’s release that mortgage transactions comprised 94% of all transactions in 2009.
As regards my assessment, it is subjective, not at all scientific and should be taken with a dollop of salt. It is backed up by Sherry Fitzgerald’s surveys and remember they base theirs on their network of estate agents and they are real actual prices though the cynics might say they are not independently verified. My assessment is, I think, in line with the results of the Allsop/Space auction.
“Does the new index, or the old measure suffer from any asking price distortion?” No, the PTSB/ESRI and CSO index are actual prices in mortgage-based transactions.
Why would you put such weight on what Sherry Fitz say?
I don’t think you can so easily brush aside the findings in the new index. They are presumably factual. Unless you try to argue that cash transactions are now in such a majority that we can’t rely on even a large set of the mortgage transactions.
Saying your opinion is subjective, and also referring to Allsop (80 properties), is lame.
@KOR, Sherry Fitzgerald’s house price series is the only one (a) based on actual prices (b) hedonic in the sense that it compares price changes to similar properties and (c) includes cash and mortgage transactions. DAFT.ie and Myhome.ie is (b) and (c) but not (a). DoEHLG is (a) but not (b) and (c). PTSB is (a) and (b). The CSO series is (a) and (b).
My view is that cash transactions are significant. However as late as 2009, cash transactions comprised only 6% of the market so maybe I am wrong. My feeling is that cash transactions as a proportion of overall transactions has increased but since we don’t even have Revenue figures for 2010 yet which might show the split, it remains subjective.
The Allsop/Space auction indeed only sold 80 properties and in 2009 we know that 19,000 properties changed hands. I would guess that is down substantially in 2010 and today but it is still probably in the 1000s so the point you make about treating Allsop/Space’s auction results with caution is well-made. That said, their auction was transparent and sold a cross section of property.
[…] The CSO have released a new house price index (press release here and data here). Analysis by Namawinelake here. […]
I was previously skeptical of the PTSB figures as they are writing so few mortgages at this point, but now I think we have to accept the CSO figures as the ‘facts.’
It is a crucial point, because if we only 40% down in a process towards 60-70%, then we still have a 33% to 50% fall yet to come.
Someone said to me during the week that house prices have fallen, but they haven’t crashed yet. Who knows, but I’m fed up listening to the self serving arguments of those in the property industry (did you say you are a valuer?), and NAMA has now begun this too.
@KOR
Please don’t jump on NWL. He is a “good egg” and IMHO objective, detached and independent in his thinking (in so far that it is possible to be so). I suspect that he has lots of hats aside from valuer. He has said previously that he is an accountant but I think that he may also has some legal training. Many insiders would love to know who s/he is but I suspect that outsiders (like me) have much more to gain by not knowing.
@KOR, I think you’re right to question any pronouncements on Irish property and I’d partly accept your criticism. I would be more concerned if the post had omitted any current index from the analysis or if any notable forecast was omitted from the schedule.
The CSO is the possibly the best we have now – Sherry Fitzgerald’s index is really its only rival for actual prices. But the CSO excludes cash transactions and a few mortgage providers like Ulster Bank (the post above shows the 8 banks and building societies which contribute to the index). We don’t have current information on the proportion of the market represented by cash-only transactions; the latest, for the year 2009, as revealed for the first time in the CSO’s report yesterday, was that only 6% was cash then. And although we all want to get a nice clean figure for how the market is doing, in truth there are lots of assumptions that necessarily need to be made to build an index. The CSO don’t have any magic solutions to perfectly measure sales prices over time. The best they might do is look at the property details captured by the mortgage company, and try to figure out what is happening to similar sized homes in similar locations – it’s imprecise and difficult, property is not a standard commodity and buyers/sellers are not uniform. However the CSO is a competent and independent organisation and is examining a very large volume of data. Sherry Fitzgerald’s series examines both cash and mortgage transactions but only from their network of agents, and I’m not aware of their figures or methods being independently audited.
So the CSO index is a great advance, and I don’t think the PTSB/ESRI quarterly index will be missed. It will be interesting to see how the other current sources of information react to the introduction of the CSO index but unless the CSO can address concerns about the current impact of cash transactions in particular, I think you will still get views that price drops are more (or possibly less) than suggested by the CSO’s index.
We all know we need the House Price Register so that we can get better price discovery.
Fair enough….apologies, I did go too far.
[…] the CSO launched a new index for Irish house prices, known as the RPPI (see here and NWL here). The index has been introduced to comply with European requirements from 2010 and offers the […]
[…] excluding Dublin regions. The release has been noted and covered by the great Irish Economy and Namawinelake blogs. I want to briefly look at some of the statistical properties of this series in more […]
This may have covered before but why is the Revenue not providing data from the land registry?
Don’t they have all the data on house prices? I can understand there may be a delay in the data where property is not registered immediately but delays are true of all sources.
This land registry includes all sales, cash and mortgage. I think the cash element is going to be increasingly important as investors see opportunities to get a decent rent yield.
Anyone got any thoughts on why this reliable source is not used?
@Paddy, it’s a good question. I understand the answer is that neither Revenue (stamping) or the PRA (registration) capture detail on the property characteristics.
We’d all love to have a nice clean figure for property price changes but in practice, short of a House Price Register, then there will be some imprecision as you group properties or locations together. Even two semi-detached houses on the same street might have different values because of refurbishment, extension, gardens. If you think about it, it is very difficult indeed to compare prices. I think the CSO has done a decent job from what I understand it has done. However we desperately need the House Price Register.
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