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Archive for January 24th, 2012

“If the Taoiseach’s Government knew Ango Irish Bank was insolvent and he asked the Irish taxpayer to bail it out and to pay the cost we are now paying for it, that was and is economic treason. I stand over that.” Eamon Gilmore speaking in the Dail in January 2011

Unfortunately Eamon Gilmore’s position has shifted over the past 12 months. What was “treason” in January 2011 – Eamon accused Brian Cowen of what “was and is economic treason” – has undergone a 180-degree about-turn and is now the preferred and adopted position of the Government in which Eamon’s party is a vital coalition partner, in which Eamon is Tanaiste (deputy prime minister) and which has a grandly-titled “Economic Management Council” consisting of Eamon, Minister Noonan, Minister Howlin and An Taoiseach Enda Kenny.

Tomorrow on 25th January, 2012 Anglo – a bank that is insolvent save for IOUs signed by former Minister for Finance, the late Brian Lenihan and accompanied by some murky “letters of comfort”, none of which was brought before the Oireachtas, the parliament of the country, for oversight – will pay €1,250m of our money to bondholders who are unsecured (that is, they don’t have any charge over any specific asset in Anglo) and unguaranteed (that is, not benefiting from the September 2008 guarantee that has expired).  Anglo is a defunct bank, that doesn’t take deposits – having sold the majority of its deposits to AIB last year, retaining only modest sums that are connected with legacy loans – or advance new lending. It exists to wind down and work out its legacy loans which were not transferred to NAMA and its bonds are now, according to Minister Noonan, “what has become speculative investment”.

Now Eamon might have been able to dismiss the infamous “it’s Frankfurt’s way or Labour’s way” as pre-election “chapel gate rhetoric” but surely he would accept that he is, by his own measure, a traitor to Ireland and its people; or if not that, a rank hypocrite. Of course, the Dail’s “Salient Rulings from the Chair” forbid one deputy from referring to another deputy as a “hypocrite” – there’s no such ban on “traitor” or “treason” though.

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This morning has seen the publication of the CSO residential property price indices for Ireland for December 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), annual (December 2010), last month (November 2011) and December 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.

Cash transactions: there is increasing concern that although the CSO captures data from the mortgage market, it omits cash transactions. The latest figures from the Revenue Commissioners are for 2009 which show that just 6% of transactions (by volume) were in cash. Last week, estate agents DNG claimed that cash made up one third of the market. At the start of January 2012, Sherry FitzGerald said that 29% of its registered buyers were cash buyers, and mortgage expert Karl Deeter said on here that “what Mark Fitzgerald [of Sherry FitzGerald] said at the AIB meeting in December (we were at the same table) is that 30% of purchases were cash – I’d take that as being completions unless this is a case of crossed wires”. In addition, the Sunday Independent reported the former acting CEO of the Irish Auctioneers and Valuers Institute saying that “I would say a quarter of deals at present are being done in cash”. The Allsop Space auctions won’t be representative of the general market but the latest analysis from it says that almost three quarters of its auction transactions were in cash. The CSO expects to have monthly data from the Revenue Commissioners from mid-2012 and it expects that it may subsequently be able to show the market size with its monthly release of the residential index. The perception is that cash transactions will be at keener prices than mortgage transactions because the buyer can move quickly and doesn’t need credit. If that perception is correct then the CSO may be understating – and potentially, understating substantially – the decline in prices.

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, inDublin in April 2007 at €431,016 and outsideDublin 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, €165,781 (peak €313,998)

In Dublin, €194,918 (peak €431,016)

Outside Dublin, €152,511 (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 correlates with the performance of the CSO indices.

What’s surprising about the latest release? Apartment prices inDublin were up 1.3% in the month (compared with an astonishing 4.7% increase last month though still down 15.6% in the past 12 months).Dublin house prices fell by 19.9% last year which is an even greater fall thanDublin apartments. Price drops outsideDublin continue to be more modest.

 Are prices still falling? Yes, and the 1.7% monthly decline nationally in December 2011 is up from the 1.5% decline in November  2011 but in the same range as the 2.2% decline in October 2011, the 1.5% decline in September 2011 and the 1.6% decline in August 2011.

How far off the peak are we? Nationally 47.2% (49.1% in real terms as inflation has increased by 3.7% between February 2007 and December 2011). Interestingly, as revealed here,Northern Ireland is some 44% from peak in nominal terms and 52% off peak in real terms. Are forbearance measures 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 26.6% from November, 2009.  The latest results from the CSO bring the index to 831 (20.3%) meaning that NAMA will need see a blended average increase of 20.3% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index. Irelanddoes not yet have a publicly available register of actual sale prices, but one is expected in mid-2012 following the passing of legislation last year – 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, it is next to useless.

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