Why NAMA’s pronouncements on the property market should be treated with caution.

As yesterday’s indices from the Central Statistics Office show, Irish residential property continues to decline in value, and there have now been 53 months of consecutive drops (though on two occasions the index remained flat). The CSO says that, nationally, homes are down 49.3% from peak and that prices have now declined by 29.6% since the end of November 2009, the date chosen by NAMA to value the property underpinning the €74bn of loans it has acquired from the banks. All fine and understood. The CSO indices also show us that way back in November 2009, prices were already down 28.05% from peak – the peak was in September 2007 when the national index was 130.5, this had declined 28.05% to 93.9 at the end of November 2009.

NAMA, on the other hand, has in the past claimed that residential property was down 50% from peak in November 2009 and just a fortnight ago stated that residential property was now down 57% from peak. Or, in other words, property had dropped just 14% since November 2009 – 14% of 50 is 7. Or NAMA is saying that property has declined by one half the level claimed by the CSO since November 2009 – NAMA says 14%, the CSO says 30%. Here’s a summary comparing what NAMA say with the CSO index.

 

To justify the difference, NAMA might say that its valuations in November 2009 reflected both the mortgage and cash market, and that would be true. But we know from the CSO that the cash market represented just 6% of the total market in 2009. So it seems highly unlikely that there would be such disparity between the NAMA and CSO valuations in November 2009.

But what about NAMA’s present estimate of a 57% decline, which you must admit is a precise number, not a round 50% or 60%, but 57%. Have cash- and mortgage-transaction prices declined by just 14% in NAMA’s world in the past two years when we know from the CSO that mortgage-transaction prices alone have dropped by 29.6% Surely the cash market which now accounts for between 25-35%, according to estate agents, would exacerbate the decline? That’s certainly what the Allsop Space auctions imply with 65-70% average declines. It’s a mystery!

Could NAMA’s pronouncements have anything to do with NAMA seeking to protect its own position. The thrust of what NAMA was saying last May 2011 – when NAMA chairman Frank Daly told an audience of licensed vintners that NAMA’s experience was that residential property had declined by 50% in November 2009-  was that we were nearing the bottom and that property had declined by more than people appreciated. In other words, BUY NAMA PROPERTY NOW. But why would NAMA be saying today that property only declined by 14% since November 2009 when mortgage-transaction prices have fallen 30%? Might NAMA be trying to minimise the impairment costs it takes in its accounts in 2011, possibly so as to avoid a further injection of capital from the State? Who knows, but the disparity between the NAMA pronouncements and the CSO indices is striking.