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.
NAMA Wine Lake 
Hi NWL
“peak” as a heading in two adjacent columns on the lower data table is confusing me a bit.
More importantly, driving today, I found myself saying aloud, “where the heck is everyone”?
This was on the freeway at lunchtime, scary.
How this relates to the data?
A house in Dublin might never again cost more than a comparable house in SF, NY, London or cities like that( I still can’t believe they ever did!). So, if the end is not in sight here, and it is not, then the end is not in sight for Dublin. Painful ‘so obvious you might miss it’ kind of truth, I’m afraid.
Recovery? not v shaped, not a u, or bumpy w…. think L.
@sfca,
““peak” as a heading in two adjacent columns on the lower data table is confusing me a bit.”
In the first inserted table above which has in fact two tables, the one at the bottom has two peak columns, the first is the date in which peak occurred (so for “National – all” the peak was in September 2007) and the second column is the CSO index value at that date (for “National – all” it was 130.5). Hope that clarifies the table. Will change the heading of the first column to “Peak Date” for September’s posting.
It is remarkable that in spite of evidence over a 37 year period -from 1959 to 1996- the National average cost of a 3 bed semi was approximately 2.5 times the National Average Industrial Wage and yet no one seems to agree that prices will return to this level before the “bottom “is reached.If €311,000 is taken as the National Average price of a 3 bed semi at the peak in 2007 then the “bottom” will only be reached when such a property can be purchased for 2.5 times the current National Average Industrial Wage which is now reckoned to be €32,000 approx. i.e. €80,000.Some properties are being sold at this level and below through the new auction phenomena conducted by Allsop/Space.So it would only seem a matter of time before the predictions of Morgan Kelly and David McWilliams especially are realised.
@SPO May I refer you to a short book by Prof Elizabeth Warren, “The Two Income Trap (link below).
The expansion of the number of two income households was most marked in the 1994 – 2001 period. (Growth of married women participating actually slowed post tax equalisation.) This together with “financial innovation” were the main reasons for the increased level of borrowing.
Average household earnings are over €50,000 per annum, which is a more accurate basis for calculations, I think.However it still suggests prices will continue to fall for existing stock
Whatever about the disposal of existing stock, there is also a price floor for any new build.
http://www.bookdepository.co.uk/Two-Income-Trap-Elizabeth-Warren/9780465090907
@spo: It is a very simplistic approach to just factor in the multiple of the average industrial wage. Have you considered the effect of the difference in interest rates – then and now? Or even relevant international comparisons related to industrial wages? We are a changed society.
Niall: You have hit the nail on the head- the two income household -a charter for increasing prices!Just imagine going into a Car Salesroom and the Salesman increasing the price of the car because you are a 2 income household and can therefore bear the cost.This is precisely what happened with the property boom.Easy money was seen to be made because of the 2 income family,driving prices higher as wages increased to meet the extra cost of the mortgage etc.Lending institutions should have been prohibited by law from (a)lending more than 75% of their deposit base(not 160%) and (b) when they did lend, the maximum loan obtainable should have been 2.5 times the main earners income only, with a 25% deposit mandatory by law.Any transgression by lenders from this principle should be punishable on a similar level to treason as what was allowed to happen to the economy in this country was in effect treasonable.
WSTT: Yes it is a simplistic approach and should always have been such an approach as the complex approach seems to have landed us into staggering debt.We are indeed a changed society and we a’int seen nothing yet! Note the next 3/4 budgets.
@ SPO I still suggest you use your credit/debit card to buy Prof. Warren’s book. Also here is a link to a lecture she gave some years ago, http://www.youtube.com/watch?v=akVL7QY0S8A . While not completely relevant to a European audience, it still raises many relevant issues
Dermot O’Leary of Goodbody’s also produced a very good report on the housing market before the bursting of the bubble.
He produced lots of relevant information which all pointed towards serious trouble, such as length of mortgages going to an average of 37 years (i.e. most mortgages were for 40 years) . Because of his employers he did not spell it out in black & white but reading the report could lead one to only conclusion.