This morning has seen the publication of the eighth CSO residential property price indices for Ireland. 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 October 2011. Here’s the summary showing the indices at their peak (various months in 2007 depending on type of property and location), the NAMA valuation date (November 2009), a year ago (October 2010), December 2010 (end of last year, start of this year), last months (September 2011) and October 2011.
Now that the Permanent TSB/ESRI has abandoned its quarterly house price index, the CSO’s isIreland’s premier index for mortgage-based transactions. It analyses mortgage transactions at eight financial institutions : 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 doesn’t produce average prices. The former PTSB/ESRI index did, and claimed the average price of a property nationally hit the peak in February 2007 at €313,998, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €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 these would be the average prices today:
Nationally, €171,315 (peak €313,998 Feb 2007)
In Dublin, €202,209 (peak €431,016 Apr 2007)
Outside Dublin, €156,673 (peak €267,987 Jan 2007)
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 correlates with the performance of the CSO indices.
What’s surprising about the latest release? The rate of decline in property prices shows no sign of easing. Dublin price declines continue to outstrip those in the rest of the country – Dublin apartments are down over 60% from peak, Dublin houses over 50% yet non-Dublin property is down just over 40%.
Are prices still falling? Yes, and the 2.2% month decline nationally in October 2011 is greater than the 1.5% decline in September 2011 and the 1.6% decline in August 2011.
How far off the peak are we? Nationally 45.4%% (46% in real terms as inflation has hardly changed since 2007). Interestingly, as revealed here, Northern Ireland is some 44% from peak in nominal terms and 52% off peak in real terms. 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 at all? 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 [house price projections in Ireland are contentious for obvious reasons and the following is understood to be a comprehensive list of projections but please 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 24.2% from November, 2009. The latest results from the CSO bring the index to 831 (20.4%) meaning that NAMA will need see a blended average increase of 20.4% in its various property markets to break even at a gross profit level.
The CSO index is a monthly residential property price index. Ireland does not yet have a publicly available register of actual sale prices, but legislation to give effect to such a register is presently before the Oireachtas – read the latest on the House Price Register here. There are three other residential price surveys, based on advertised asking prices or agent valuations – for the latest see here. Lastly the Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end and not hedonically analysed.
NAMA Wine Lake 
I could see how the ‘baseline’ & ‘adverse’ could grab the headlines at the time, not to mention the amount of re-capitalisation hogging the media interest. The phrase ‘potential ability to remediate’ on Pg 24/5 always struck me as THE stand out item in the report…i.e. the entire thing was a guess by some wig on what could be legally enforced or not as the case may be….
Asset Quality Review
As noted in the methodology and results section, BlackRock and its subcontractors conducted in-depth assessments of loan portfolios by reviewing and re-underwriting loan files and, in some cases, work-out capacity. By examining and reviewing loan files, a more accurate assessment of the value of the underlying collateral was possible, enabling a refinement of loan loss assessment assumptions. For example, the banks existing risk assessment and rating of a given loan were benchmarked to ensure a calibration of internal ratings to an (external) assessor scale. The loan file reviews focused on large loans and impaired assets. The number of files sampled varied across portfolios and banks and was sufficiently large to allow BlackRock to elicit qualitative and quantitative findings that were subsequently incorporated into their loan loss assessments. In the case of SME and corporate loans, BlackRock reassessed banks’ gradings based on conclusions from re-underwritten loans. Additionally, BlackRock led a legal assessment of collateral enforcement issues in Irish domestic lending by the banks. This effort was carried out by two Ireland-based law firms. The work primarily consisted of gathering security-related information (including procedures and experiences) and legal documentation from the banks and summarising findings on potential legal issues related to security enforcement, especially those that could inform the BlackRock loan loss assessments. Among the many issues highlighted by the legal review were findings around undertakings, receiver rights, form mortgages, and missing documents. BlackRock generally considers that the majority of the security enforcement issues highlighted should not have any material adverse impact on their loan losses. However the impact of a minority of identified issues could not be assessed within the scope and timeframe of the review. BlackRock’s conclusions are based on a number of factors, including the banks’ past and potential ability to remediate many of the enforceability issues.
And all this for 30,000,000 ….
THE €30 million in fees being paid to consultants by the Central Bank for the stress tests on the banks will cover the analysis of loan losses at Anglo Irish Bank and Irish Nationwide Building Society.
http://www.irishtimes.com/newspaper/finance/2011/0510/1224296602187.html
Good insightful analysis. One pedantic point that gets my blood boiling however – in your answer to “How much further will prices drop?” you mention the dreaded words “the general consensus”. Surely the mania of the property bubble (and indeed every historic asset bubble) should definitively confirm that a “general consensus” is utterly utterly meaningless.
I completely agree with the view that prices will continue to decline and that you are referring to a consensus of economic analysts rather than Joe Public – but I still don’t like hearing the term.
@fjt, point taken, but I do try to stress that no-one has a crystal ball and that despite “the general consensus”, prices may rise and indeed I can see one not improbable scenario where prices could rise substantially – if the ECB floods Europe with euros to lift indebted countries out of their stagnation which will boost inflation. If inflation rises by 10% pa then even house prices might stabilise and increase!
We are in a deflationary spiral that will not correct until there is liquidity in the market.
Heading for a cash only market, there is no base. The BOSI auctions are the most accurate guide to the bottom, but as cash dries up even that support gives way.
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There are five key indicators which in large part dictate the health and future of the residential market: (1) the balance of new supply and demand, (2) mortgage market accessibility, (3) the cost of debt, (4) household income growth and (5) the performance of the Irish economy. All except (3) are pointing downwards and the cost of money is irrelevant because it just is not available – so not one indicator is pointing to a price increase.