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Archive for June 7th, 2011

This afternoon in the Dail, Minister for Finance Michael Noonan was on his feet responding to questions from the Opposition. It seems that on a conservative basis we are fully funded “to the second half of 2013” which Fianna Fail’s Michael McGrath pointed out was from 1st July 2013, and Sinn Fein’s Pearse Doherty pointed out that a bailout would not be left to the last moment, and would be needed to be put in place in advance of the “second half of 2013”.

The best Minister Noonan could say was that it was too early to tell at this stage when or if an additional bailout would be needed. Minister Noonan stressed that if more benign economic conditions pertained, we might not need a bailout at all. However it would seem that Taoiseach Kenny’s “we are absolutely funded under all circumstances” no longer holds.

Minister Noonan indicated that if the markets made funding available below the interest rate charged in the bailout from the IMF/EU (a blended average of 5.8%) then the State would return to the market. And by implication, if this rate was not available, we would seek a second bailout, though he didn’t say that.

With respect to the campaign to seek a reduction in the EU bailout (the IMF has a fixed rate which will not change), Minister Noonan seemed to be effectively signalling an abandonment of the campaign. Agreement to a reduction in the interest rate requires unanimity at EU level and the Minister indicated that France and to a lesser degree, Germany required a quid pro quo with a change to Ireland’s corporation tax arrangements. Minister Noonan said that this French requirement is rejected by Ireland “point-blank” and that given the growth in exports from Ireland, it would be silly for us to contemplate any such change.

Minister Noonan said that, in any event, any reduction in interest rate would only apply to future draw-downs from the EU (and remember up to the end of May 2011, we had received €14.987bn from the EU according to the May Exchequer Statement). Minister Noonan said that Portugal had received a 0.6% discount on Ireland’s rate and Greece had received approximately 1% but that might be taken away in the next month! Minister Noonan estimated the benefit of a 0.6% reduction would be €148m to Ireland and if we secured a 1% reduction it would be worth €200m. It was plainly not worth pursuing this reduction if it jeopardised our corporation tax.

With the decision not to burn senior bondholders at Anglo or INBS (or indeed Bank of Ireland or AIB or Irish Life or EBS), with the claim from Enda Kenny that we would not seek an extension of time to repay debt and with what appeared to be an effective abandonment of our campaign to secure an interest rate reduction, it seems to me at least, that the renegotiation of the bailout terms has come to an end. Marks out of 10 for trying? Difficult to say, I get the impression that the interest rate strand was vigorously pursued. As for the burning of seniors or the extension of time for repayment? Difficult to say. Marks out of 10 for results? Zero.

And lastly Minister Noonan said he expected new policy initiatives from the EU for dealing with Greece by 20th June. He didn’t specify what initiatives though the betting is that it will be something akin to the Vienna Initiative in 2009 whereby private bondholders accept a roll-over of debt in return for better terms (higher interest rate, collateral, preferential debtor status).

UPDATE: 9th June, 2011. The transcript of the Q&A involving Minister Noonan is now available here (pages 7 onwards are the relevant parts and page 9 is the most relevant).  Minister Noonan said the following with respect to Greece “if we got what Greece is supposed to have got but may not retain next month” which seems to confirm that Greece’s 1% interest rate concession wrangled from the EU in March 2011 may be reversed.

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This morning has seen the publication of the second 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 April 2011. Here’s the summary showing the index at its peak, November 2009 (the NAMA valuation date), April 2010 (12 months ago), December 2010 (end of year, start of this year) and March 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 of Ireland group), 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 inIreland? The CSO deliberately don’t produce average prices. The former PTSB/ESRI index did and claimed the average price of a property nationally at peak in February 2007 was €313,998, inDublinat peak in April 2007 was €431,016 and outside Dublin at peak in January 2007 was €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 the average today nationally would be €188,158, in Dublin would be €225,923 and outside Dublin would be €170,612. 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 indices closes matches the performance of the CSO indices.

What’s surprising about the latest release? Apartments in Dublin are down 52.7% from peak and have fallen most in the last month as well.  Houses outside Dublin still continue to show the smallest decline from peak at 36.3%.

Are prices still falling? Yes at 1% in the past month, 5.4% since the start of 2011 and 12.2% since April 2010.Dublin houses are falling at the slowest rate of 0.4% in the past month, but all categories continue to show declines.

How far off the peak are we? Nationally 40.1%%. Interestingly, as revealed here last month, Northern Ireland is some 44% from peak. Is forbearance by mortgage lenders, a draconian bankruptcy regime and NAMA 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? 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.

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. The latest results from the CSO bring the index to 885 (12.9%) meaning that NAMA will need see a blended average increase of 12.9% in its various property markets to break even at a gross profit level.

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