Dublin residential property prices increase – CSO publishes Irish price indices for March 2012

This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for March 2012. 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)
• 12 months ago (March 2011)
• the start of this year (end December 2011)
• last month (February 2012)
• this month (March 2012)

The CSO’s indices are Ireland’s premier indices for mortgage-based residential property transactions. The CSO analyses mortgage transactions at nine financial institutions : Ulster Bank, Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank of Ireland group), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The indices are 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 indices are averages 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. In February 2012 , 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 them says that almost three quarters of its auction transactions were in cash. The CSO still hopes 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. NAMA, which is not an honest broker in this discourse, said recently “the index indicates a decrease of 48% overall but we believe the market has decreased by 57% or 58% on average. The index simply has to catch up because the transactions on the market reflect that.” NAMA in particular seems to believe that prices outsideDublin have fallen significantly further than the CSO index suggests. A recent enquiry to the Property Regulatory Services Authority which will administer the new House Price Database asked about the launch date and the response was that it would be implemented as soon as practicable – sources suggest that will be Q4,2012.

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, €159,044 (last month €159,044, peak €313,998)

In Dublin, €185,866 (last month €184,584, peak €431,016)

Outside Dublin, €146,061 (last month €146,893, 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? Prices were flat nationally for the month of March 2012 and this is only the third time in the last 53 months when prices have remained flat; there have been declines in all other months since the peak in 2007. Apartment prices inDublin were actually up by 2.3% in the month following the 6.3% decline in February 2012. Non-Dublin prices are down 0.6%, perhaps the long-awaited equalizing of declines betweenDublin and elsewhere is beginning.

 Are prices still falling? The index was flat in the month followings a 2.2% dcline in February 2012, 1.9% monthly decline in January 2012 which was also up from the 1.7% decline in December 2011 and 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 49.3% (51.8% in real terms as inflation has increased by 5.2% between February 2007 and March 2012). Interestingly, as revealed here,Northern Ireland is some 45.2% from peak in nominal terms and 52.6% 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 29.6% from November, 2009.  The latest results from the CSO bring the index to 817 (22.3%) meaning that NAMA will need see a blended average increase of 22.3% 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 late 2012 following the passing of legislation this – read the latest on the House Price Register here. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here) – Phil Hogan’s 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.