CSO residential property indices for July 2011 published – declines continue with a dramatic decline in apartment prices

This morning has seen the publication of the fifth 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 July 2011. Here’s the summary showing the index at its peak, November 2009 (the NAMA valuation date), July 2010 (12 months ago), December 2010 (end of year, start of this year) and June 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 ofIrelandgroup), 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 in Ireland? 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, in Dublin at 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 €180,699 (peak €313,998)

In Dublin, would be €221,437 (peak €431,016)

Outside Dublin, would be €161,874 (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 matches the performance of the CSO indices.

What’s surprising about the latest release? After recording an increase of 0.3% in May 2011, houses inDublin declined by 2.4% in the month of June 2011 alone and have bucked the trend today by rising by 0.3% in July 2011 when all other categories declined. Nationally apartments fell by 3% in the month of July 2011.

Are prices still falling? Yes, though the 0.8% drop in July 2011 was less than the 2.1% decline in June 2011.

How far off the peak are we? Nationally 42.5%. Interestingly, as revealed here three months ago,Northern Ireland is some 44% from peak. Are forbearance 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? 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, 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 are now down 20.0% from November, 2009.  The latest results from the CSO bring the index to 855 (16.9%) meaning that NAMA will need see a blended average increase of 16.9% in its various property markets to break even at a gross profit level.

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Arrears and repossessions data for Q2, 2011 confirm dreadful state of Irish mortgages

This morning, the Financial Regulator Matthew Elderfield has finally released data on mortgage arrears, repossessions and restructured mortgages for the second quarter of 2011; the press release is here, the statistics are here. The data paints a disturbing picture of the deteriorating state of mortgage arrears. Total mortgages in arrears for more than 90 days are 55,763, up 12.4% or 6,154 from Q1, 2011 and up 53% or 19,325 from Q2, 2010, a year ago.

The total arrears are divided between those 90-180 days in arrears and those over 180 days in arrears. The latter category is widely considered to be so underwater that default of some sort is likely. The number of mortgages in arrears over 180 days rose to 40,040 in Q2, 2011, up 4,699 or 13.3% from Q1, 2011 and up 61.5% or 15,243 from Q2, 2010, a year ago.

Repossessions are also climbing are were 173 for the quarter, up from 140 in Q2, and up from the general average of less than 100 since records began.

You might be interested in the comparison between the condition and treatment of Irish and UK mortgages here on Saturday. There is a review of the previous quarter’s data, Q1 2011, here.

Analysis and comment here later today.

[The above table is taken from this Google docs spreadsheet which also shows a comparison of the condition and treatment of Irish and UK mortgages]

UPDATE: 29th August, 2011. Repossessions are up 73% year on year, this despite there being what is considered a moratorium on repossessions through the introduction of a new code on mortgage arrears.

Arrears are increasing, and increasing at a faster rate –illustrated here.

Oddly enough, the rate of increase is below that recorded at the start of 2010, which could indicate strategic default, that is, people deliberately going into arrears to take advantage of any imminent debt forgiveness program. Although that is a possibility, I think the rate of increase is more to do with cuts to income, be that employers cutting gross salaries, or cutting back overtime, or putting employees on short time. The overall unemployment rate remains elevated but has remained more or less flat in the past twelve months, though there is some evidence (eg through the quarterly national household survey) that emigration might be taking some of the strain. Borrowers might have been using savings/redundancy payments to service the mortgage and these are now exhausted. As a society that traditionally frowns on indebtedness and bad debts, it’s perhaps the case that opinions are changing as the reporting of the scale of indebtedness and difficulties with repaying debt, becomes so commonplace.

Despite the gloom and doom surrounding these figures today, it is still the case that the vast majority of mortgage payers are repaying their mortgages as agreed each month. As pointed out by Seamus Coffey on irisheconomy.ie, some €5bn of principal is expected to be repaid on €116bn of mortgages this year and perhaps a similar amount of interest. So the repayment of mortgage debt in Ireland has not stopped by any means, but there are very obvious difficulties.

Trends should depend on

(a) unemployment – currently at 14.3%, the recent trend is as follows

Most forecasters see a slight easing in the rate this year. For example Ulster Bank this morning indicated that the rate will average 14.1% for 2011 which would indicate an end of year rate of below 14%. However, the Government is set to reduce employment in the public sector as part of its €3.6bn – possibly more – budget adjustment in 2012. It may also cut capital programmes which results in further unemployment, particularly in the construction sector.

(b) house prices – currently 42.5% below peak, the trend is downwards. Most commentators had been predicting a bottoming of prices in 2012, but it is unclear when predictions are suggesting prices would rise again.

(c) disposable income – set to be reduced with new taxes (for example,the €100 property tax) and in all likelihood the reduction in income tax bands and the elimination of some tax reliefs. The outlook for inflation is not at all good which is surprising given the collapse in incomes and the fact that in Ireland, an apparently representative basket of goods and services is still 18% more expensive than the European average. Energy is set to rise by 15% in September 2011, and standard variable interest rates continue to trend upwards. Even food basics are increasing by 1.1% per annum, and inflation overall is presently running at nearly 3% per annum.

So will the rate of arrears rise? Difficult to say, but none of the underlying influences would appear to have a positive outlook in the short term.

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