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.
NAMA Wine Lake 
The government should really hire you to do their analysis. Although sometimes I wonder if they purposefully try to hide the real figures.
Interesting to compare your average prices with the “hopeful” numbers that the Irish Independent uses this morning.
Your Dublin average: Euro 194k
Indo Dublin average: Euro 150k. (http://goo.gl/mRyS3)
Only another 25% to go before the Indo thinks prices are reasonable.
Of course, you can buy a 3-bed house for 150k in Finglas or Coolock. Nothing against those areas, but I doubt that they’d be regarded as “average” in most senses.
I don’t know anything about Finglas or Coolock, but you can currently buy houses for €120k in Kilkee, Co. Clare. Personally, I think McWilliams is right and house prices will hit bottom within 18 months.
Personally, I think they’ll hit bottom sometime in May, at the start of summer and three months after all those civil servants retiring next month have gotten their lump sums. Expect to see a up-tick in new car sales too.
Barring an international catastrophe of course.
@OMF, according to the latest DAFT sales report for Q4,2011 the average asking price for a home in county Clare is €160,876. What that works out as after negotiation, who knows but I would have said the average would work out north of €120k.
Click to access Daft-House-Price-Report-Q4-2011.pdf
By the way, I agree with you that with 4,000 seeking retirement in Jan/Feb 2012 that there might indeed be cash around with lump sums – €50k a pop would give you €200m of mostly disposable wealth.
But would you stick it into an asset which is dropping 1.5%+ per month?
That’s still less than the sum of two lump sums for a nurse/teacher/Guard couple.
@OMF, indeed and basic economics should tell us that if there is a tsunami of money (remember the SSIAs which totalled €14bn being redeemed in 2006/7) coming into the economy, it should serve to push up prices. But even if the 4,000 get €100k each that’s €400m and even if that was 100% spent on property which costs an average of €165k today then that’s 2,500 homes. That wouldn’t be insignificant but it’s not going to swamp the market either.
@ OMF,
McWilliam’s Graph is dodgy. Being a Maths Freak, I’m sure you’ve noticed he uses two scales. Japan goes down to 30 and Ireland goes down to 55. Plot on the same scale and Ireland’s line would be a lot higher. Secondly, Ireland doesn’t peak until year 2 whereas Japan’s line always declines. To get a like for like, he should drop the 1st year from the Irish series.
Personally, I’d say well need to clear the back log of ‘awaiting foreclosure’ stock to be dealt with to reach a bottom. There should probably be a minimum 4k foreclosure stock per annum at present. (Which is probably more than the number of sales in 2011. make of that what you will.)
So the average fall in 2011 was 13.2% and actually higher than tha average fall in 2010 of 13.1%.
Wowzers.
@Rob, not with you – the average fall nationally in 2011 was 16.7% as shown above.
@namawinelake
16.7% is the difference between December 2010 and December 2011.
13.2% is the difference between 2010’s average and 2011’s average.
(i.e. adding up all the indexes for the the 12 months of 2010 and dividing by 12 and then seeing how it compares to 2011’s equivalent etc etc)
Or table 1, page 2 of the report.
NWL I told you so a year ago and I’ll tell you again.Property prices will not reach the bottom until the average national price of a 3 bed semi is 2.5 times the average national industrial wage which is not the €36,000 quoted on today’s indo but around €33,000. So the national average price of a 3 bed semi comes out at €83,000 approx and therefore a fall of 50% on current prices (€165K approx) can be expected before the bottom is reached.A drop of 73.5% from peak.However if credit particularly, continues to be in short supply then you can expect the Irish market to really flop to a figure approaching the dreaded 90%.
@SPO, you have indeed referred to the 2.5 times average wages but from recollection your basis for that claim is limited to three transactions over a period of half a century in which you were personally involved. That doesn’t undermine your claim, but you’d have to admit it’s pretty limited evidence.
In the UK today where house prices are more or less flat, the average home costs GBP 164k and this is from the Nationwide Building Society’s quarterly report for Q4,2011
Click to access Q4_2011.pdf
In the UK the long-term average ratio to income is 4.1 and is presently 5.5 I’m not aware of long term averages for Ireland but I’d expect it to be similar. The UK did reach a low of 3 after the property crash at the start of the 1990s. Our crash is worse, so who knows? I’d agree that the average price today of €165k in Ireland nationally today looks high compared to an average wage of just over €30,000.
There is a very interesting blogpost on the IrelandAfterNAMA blog today which examines the results of a global affordability study but there are doubts about the source of the information. The report concludes that Cork, Dublin and Limerick are still moderate affordable unaffordable whilst Galway/Waterford are affordable. But as I say there are doubts about the source of the data used.
http://irelandafternama.wordpress.com/2012/01/23/housing-affordability-in-ireland/
Price for a new 3 Bedroom Semi in Chapolizon back in 1991 was 58k Punts (roughly 70k in Euro). That was in far better times than now. Part of the reality of residential property values is the element of current economic conditions. In a prosperous job bearing economy, house prices may expect to be “healthy”.
Given that Ireland is now “Broke Deluxe”, it is fair to assume that we will see considerably further decline in residential property value’s.
I did speak with an Estate Agent this morning who when asked how business was replied ” It is picking up”. Though, what else would he say.
I immediately though he must mean, ” Picking up the pieces”!
[…] to slide Review of negative-equity mortgages postponed Prices continued to decline last month Residential property prices still plummeting Landlords in trouble get very little sympathy Prices almost back to normal affordability […]
NWL. Yes I was personally involved first of all in 1959 I assisted my father who bought a 3 bed semi for 2.5 times his annual wages.Then in 1965 I bought a similar 3 bed for 2.5 times my wages and again in 1973 and1996 for 2.5 times my annual wages(all principal residences) and finally in 2006 for 9 times my wages so you see for a period of 37 years the ratio stood at approximately 2.5 times the annual industrial wage until 2006 when it became 9/10 times.It was only from 1996 that it all got out of hand.Banks started lending with money they borrowed from Europe(that we are all now paying back for them)Developers brainwashed us into “getting on the property ladder” and the Govt. had a nice earner from stamp duty and 100% loans accelerated this.This is why I can see a return to pre 1996 property prices.Just look at Foo Fighters example above of a 3 bed in Chaperizod for €70K in 1991,but of course this was not the national average which in that year was I would say about €55 – €60K.So there is plenty of examples around to demonstrate the history of the unnatural spiral in property prices in Ireland and to think it happened because of a relatively small cotterie of persons.
@spo, I recall some years back using a Gaussian distribution curve to plot the mean ratio of the Irish residential price to earnings over the period from 1960 through the 1990s. The mean band (using one standard deviation) fell between 3.5 and 4.5 times average earnings.
So what are the principal drivers of house prices; Demand, Availability of Funds, and Interest rates. Demand is pretty flat at the moment given market sentiment and the state of the economy – Availability of Funds is also more or less at an all time low, given curtailment of mortgage lending, – Interest rates are low, but most banks are using a 4% sensitisation in establishing repayment capacity.
As we have no idea how long it will take to reverse the above market forces it is impossible currently to assess where prices could go in the short term. The bottom of tyhe market is not the issue, the medium term sustainability of prices is more relevant.
44B Well like it or not as David McWilliams recently said a bottom will most certainly be reached at some stage but of course no one knows when.I am simply predicting(and not forcing it on anybody) that the bottom will be reached when a 3 bed semi (national average) can be purchased for 2.5 times the average industrial wage like it was for 37 years from 1959 through to 1996.So on the face of it we are now at 2000 levels(says expert Marian Finnegan) and we only have 4 more years of reduction to 1996 levels but this could be reached within 12 months I believe in the current economic circumstances.We are given to understand that a correction of some €12billion is still required over the next 3 years before the books are balanced(and by george the upcoming fiscal compact treaty will ensure that we do)So how do you think this will affect consumers buying power in the absence of growth in the economy and remember there is a downward pressure in Europe for exports at present(excepting food)This, coupled with President Obama’s State of the Union address last night where he said he would introduce a tax incentive to encourage American Companies overseas to relocate back home.Could this result in some of our best American companies leaving Ireland and the unemployment it is likely to leave in its wake.
Perhaps our salvation lies in what a european economist once told me about 40 years ago which was that Ireland could be the “Garden of Europe”.Supplying Europe with much more of its food requirements.This trend is I believe currently gaining momentum.
WSTT. Interesting.You say you plotted it from 1960 through the 90’s. Could you possibly do it from say 1960 to 2007 and see what it produces……please.
From what I can see on the ground, house prices at the cheaper/good quality end in places like Monkstown and Blackrock have been stable for at least a year already.
And even though I am absolutely confident that the CSO indices will continue their fall for some time yet, the turnaround in confidence in the financial markets, and the fall in yields on Irish government bonds, is a surprise that may yet be reflected in property prices, at least for certain areas.
@KOR
It’s all about liquidity.
@spo You’re kidding? I’ve been out of the residential market, except for the UK, for over a decade. It was too overheated. (That’s stating the obvious, in hindsight!)
@ NWL,
This doesn’t quite belong here (couldn’t find the Gasworks post), but might be of interest:
“A SWISS COMPANY supported by Israeli investors is believed to have acquired the long vacant Grand Canal Square Hotel in the south Dublin docklands.
KPMG receivers have refused to confirm the sale of the 169-bedroom hotel and the adjoining 84 apartments. The selling price is likely to be in the region of €30 million – a figure that falls well short of the debts on the development which are understood to be about €90 million.”
http://www.irishtimes.com/newspaper/commercialproperty/2012/0125/1224310701863.html
Looks like they the middle and upper end will continue to decline and we will all live in Zoeland of little boxes in the sky if Ronan Lyons has his way with a crazy residential site value tax proposal.
http://smarttaxes.org/report/
All I want to say is good riddance to Ireland, me and my girlfriend are finally leaving this dump of a country. We Irish deserve everything we get for sitting on our backsides and allowing the government to dictate to us over Nama, while they still look after themselves, the wealthy and the bankers. If this was France or anywhere else they’d all be lynched. No way am I raising my kids to pay the debts of those who still live in luxury. Remember to tell your children when they have the misfortune to be older living in Ireland, that we allowed it to happen and as usual did nothing about it!
JS Pity to hear you are giving up.I do however believe that with Angela Merkel’s steady hand at the tiller of Europe(Fiscal Compact- to stop ourselves from repeating the excesses of the boom) that we will find salvation and the country will recover but only if we stop ACTING like the USA.We only have 4.58m population with around 1.8 m at work and we are acting like as if we had the resources of the US.
We don’t need a Presidency and we cannot afford it.The Taoiseach could perform this function(he is almost doing it anyway with his foreign investment trips)We don’t need a Senate and we cannot afford it either.Neither do we need County and Town Councils.4 Provincial Councils would suffice with each town having a Town Commissioner,a town Engineer and a clerical assistant.64 TD’s instead of 166 would provide sufficient representation 2 per county with 4 extra for Dublin 3 extra for Cork and 2 extra for Limerick and Galway and say 1 extra for Sligo.We are not back in the 20’s and 30’s we have very efficient communications now with mobile phones,internet e mail etc.Efficiency has ramped up greatly over the past 30-40 years and its much easier to supervise and manage work and activities than it was years ago.It might not be a bad idea either to reduce corporation tax to 8% for the next 10 years just to encourage Foreign Direct Investment.We should concentrate our population in industry type activity going forward(to coin a phrase)