This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for April 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 (April 2011)
- the start of this year (end December 2011)
- last month (March 2012)
- this month (April 2012)
The CSO’s indices areIreland’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 ofIrelandgroup), 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. The CSO continues to hope that it can introduce supplementary property price statistics over the summer which will show the overall size of the market including cash transactions, which will give a solid basis for assessing the cash/mortgage elements in the market.
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, €157,360 (last month €159,044, peak €313,998)
In Dublin, €186,827 (last month €185,866, peak €431,016)
Outside Dublin, €143,148 (last month €146,061, 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 nationally have resumed their downward trend after being flat in the previous month. Prices outside Dublin continue to decline whilst for the second month running, prices in Dublin have shown growth, particularly apartments which were up 2.6%, though Dublin houses were up just 0.2%. Perhaps the long-awaited equalizing of declines betweenDublin and elsewhere is beginning.
Are prices still falling? Yes and the index declined by 1.1% in April 2012 after remaining flat in March 2012 following a 2.2% decline 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 49.9% (52.4% in real terms as inflation has increased by 5.2% between February 2007 and April 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 (22.4%) meaning that NAMA will need see a blended average increase of 22.4% 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.
Off topic, FYI:
If you have not already picked up this report, it’s an example of sub-optimal leadership in DoF, and its reckless decision making and incompetence, in respect of its own VAT rules, and contrary to the AG’s advice, all paid for by yours truly, namely the taxpayer:
http://www.independent.ie/business/stubborn-civil-servants-wasting-limited-resources-3117592.html
@ Seán The VAT issue involved here had the potential to influence hundreds of other cases.
it should be noted that it initially went to arbitration with the then President of the Institute of Taxation acted as arbitrator. He ruled against the tenant involved
The more important question was the whole tenancy arrangement, which of course was organised by a Government of which Mr. McGuinness was an office holder.
@Niall
As you seem to be au fait with VAT etc, there is an item that I have been seeking clarification on for some time but to no avail.
There was a significant change to vat on property that was brought in on July 1st 2008.
It would have been of significant cash flow benefit to developers who leased or rented properties that they had just completed as opposed to selling them.
In effect the vat due on ‘first-use’ of such properties would no longer be due at the point of ‘first use’, but would instead be collected over a period of 20 years.
It always sounded to me like a 20 year interest free loan from the State to said developers.
But of even greater concern would the uncertainty of collecting this money over a twenty year period.
The ‘gasworks complex’ was put on lease/rental around that time, having failed to sell.
I am surprised that the PAC has never queried the basis for this change or evaluated the cost to the State of the change.
Perhaps you comment.
@NWL
Apologies for being off topic.
We haven’t seen the bottom yet and if we pass this latest treaty demanded by Berlin I fear we will be seeing a lot lower prices as more austerity will cripple ordinary workers ability to even save for the prevail rainy day. Fear of job loss and no credit not to mention fuel prices (home heating and petrol) and ever more social taxes on the way (Water, rain, and household charges) is it any wonder? I bet we will be seeing Dublin apartment prices coming down to the mid fifties by the end of next year!
@NWL
You have forecast the bottom of the market as sometime in 2013.
Would you like to comment on your thinking in relation to that forecast?
@Joseph, with respect to the forecast on here of a “bottom” in 2013, the view is that there are a number of distortions presently preventing property reaching its clearing price
(1) Bank restraint in not enforcing defaulting loans. We know that a Personal Insolvency Bill is set to be published in June 2012, and the betting is that it will be in effect before the end of the year. I would expect widespread use of the Bill to deal with negative equity, arrears and forebearance. There were 53,000 mortgage accounts in arrears for more than six months at the end of Q4,2011 – we’re expecting the Q1,2012 in the next day or so. But when an account is over six months overdue, the likelihood is that it will default. This will lead to distressed sales and will act to depress prices, but by 2013 we should have a sense of the effect of this new legislation.
(2) Lack of transparency. Presently the CSO says that prices are down nearly 50% from peak, others say that it is 60% and say the CSO’s exclusion for cash sales accounts for the difference. Who knows, but we are expecting to shortly have a House Price Database which will show transaction prices from 1st January 2010. In a buyers market, buyers will not want to pay more than the lowest price transacted and that will lead to declines. But the HPD is due by the end of this year, so again by 2013 its effect should have worked its way through the market.
(3) There is limited bank lending at present, but Bank of Ireland has committed €1.5bn for mortgage lending in 2012 and given the capital in banks, there should be some stabilisation which although is not evident yet, should – in the view on here – be evident in 2013.
(4) People still haven’t grasped what lies ahead with budget adjustments. We have another €5,000 per household of which about a third will be new taxes and charges and the rest will be reductions in social welfare and public services. And that is not €5,000 over three years, no it is in one year – in 2015 compared with 2012, each household will be €5,000 worse off in that one year. I think that after Budget 2013 to be announced in December 2012, people will appreciate more what is in store and there may be more realism in the property market.
(5) We are projecting 2.2% GDP growth in 2013 and modest GNP growth of 1.4%. If these Department of Finance projections come to pass, there should be a degree of stability and confidence.
(6) The shape of property taxes, water charges and septic tank fees should be known by the end of this year, so after 2013 should not have a distorting effect.
(7) There will still be oversupply issues but in urban areas these should begin to disappear. Current vacancy rates in parts of Dublin are 5-10% which is pretty much in line with long term averages. In some places, it will take years to get to a point where oversupply is no longer affecting traction.
Of course it is merely a forecast that we will see a bottom in 2013, and as such the forecast is no more than a notch or two above a crystal ball.
@NWL
Thank you for very comprehensive reply: One point ‘alarmed’ me, if that is still possible.
“People still haven’t grasped what lies ahead with budget adjustments. We have another €5,000 per household of which about a third will be new taxes and charges and the rest will be reductions in social welfare and public services. And that is not €5,000 over three years, no it is in one year – in 2015 compared with 2012, each household will be €5,000 worse off in that one year. ”
Is that true?
It sounds like a hell of a lot. €100 per week from every household!
Not pobbible is my immediate reaction!
@Joseph, all you have to do is read the annual adjustments that this country has signed up to with the EU/IMF troika. They’re there in black and white – in 2013 we need cut €3.5bn, in 2014 we need cut an extra €3.1bn ON TOP OF the €3.5bn in 2014 – in other words in 2014 we need cut €6.6bn compared with 2012. And in 2015 we need cut an EXTRA €2bn on top of the €6.6bn in the previous two years. So compared with today, we need cut €8.6bn in the 12 months of 2015. And given there are 1.7m households in the country, that’s an average of €5,000 per household in that one year alone. And as bad as that is, it depends on 2.2% GDP growth in 2013 and 3% in each of 2014 and 2015. Some people say those are optimistic growth projections.
The €5,000 will not be all taxes and new charges, about €1,700 will be. The rest will be cuts to social welfare payments and the public sector. Yes, it is frightening, and when you think of the credit union research which shows half of Irish adults have €100 or less left over each month, you can see the potential for this being a nightmare.
http://www.creditunion.ie/communications/pressreleases/2012/title,5404,en.php
I’d love to compile a video montage of all those shill economists giving interviews about how houses would increase forever, or how there would be a “soft landing”, or how we’d finally reached the bottom. All done with a big flashing “HOUSE PRICES HAVE DROPPED BY 70%”, South-park Scientology style. If only I had a bank of source material.
(Of course, I’d have to include myself owing to my “Welcome to the bottom” comment a few weeks ago! Fair’s fair after all.)
As soon as Chinese based cash buyers are finished globe trotting, the bottom will be visible, but even then not reachable. The Chinese based cash buyers have good taste and are buying a lot of nice homes around the world. Then someone else has to flush out all the not so fancy stuff, the cheap stuff, the undeveloped stuff….down and down we go.
regarding finding the bottom….
It can be a tough lesson to learn, but the buyer (someone with a bag of money) will decide when this is all over.
Nobody else.
Of course average and low earners’ income is noticeably undertaxed compared in Ireland with abroad, so increasing the USC, reducing allowances etc is probably a big part of the solution. Of course, not easy on those families with high fixed costs e.g. overstretched on mortgages.
The other side of this is finding “good” taxes to increase. I’m still very much in favor of removing the capital gains tax exemption on the primary residence, which would bring in quite alot of money, and help the country move away from property mania.
“Yes, it is frightening, and when you think of the credit union research which shows half of Irish adults have €100 or less left over each month, you can see the potential for this being a nightmare.”
I wonder what the number is in most places and most times? That Credit Union report got great play in the media, but it’s methodology was not really explained (did they just ring up and ask people? what counts as essential bills, if this is meant to be money-left-over-after-essential-bills? did they double check for accuracy by asking some respondents to demonstrate income and expenditure?).
It is axiomatic in the world of high finance that cash flow is everything. In round numbers, if 5,000 is sucked out of a household that equates to an 80,000 price reduction (buying power) in terms of typical mortgage payments. Austerity can be a real killer when it comes to asset deflation.
@Jake Watts
That is an Interesting way of looking at the impact of the €5000 per household cuts.
Another view would be that it is the equivalent of an €80,000 mortgage in perpetuity placed on every household in the country.
The more I think about this, the less likely any of it will work.
I would foresee bust number two for the banks between now and 2015.
The man in the audience of Frontline last Monday night asked the most important question “How and where will the cuts be made”over the next 4 years.There will be no resources left to families to pay mortgages and is why Morgan Kelly predicted huge mortgage defaults.All these happenings coming together will I believe depress the property market further to a 90% drop from peak I fear.