In this State, we have enough Irish jokes – what, with the 2008 bank guarantee and paying bondholders in utterly bust banks whilst putting at risk the credit worthiness of the State. But we haven’t had as good a joke as the report published by the Central Bank of Ireland (CBI) this morning. To be fair, the author Eoin O’Brien says at the outset that he is expressing his own opinion and it is entirely his work, but when something is published under the CBI brand, the CBI as a body corporate should bear some responsibility for its content.
So why the conniption?
The report sets out to examine prices of residential property achieved at recent Allsop Space Irish property auctions and to compare the current auction prices with peak asking prices and current asking prices. It’s not that he’s even comparing apples and oranges – or actual prices with asking prices – because at the peak where there was a sellers’ market, the asking price should intuitively be pitched considerably in excess of actual prices but today in a buyers’ market, you would expect asking prices to more closely reflect actual prices. So, 2007 oranges may well have a different quality to 2012 oranges. But what will really amuse you is the fact that he uses the results from the Allsop Space auctions to work out the actual price of residential property today, and the way he does it, he takes the total hammer prices and divides that by the number of properties sold, to get his average – or rather averages, mean and median (see * below for a refresher on the two). There is no attempt to match two bedroom apartments in Ballsbridge with other local two bedroom apartments, or even with two bedroom apartments in Ballyfermot. The statisticians refer to this matching of like with like as “hedonic regression”, but there is no attempt to do this with the auction results.
The report then goes on to calculate yields – simplistically the annual rent divided by the value of a home – but wait! For historical average prices, it uses the Department of the Environment, Community and Local Government average house price. Remember that’s the one that take a €58m sale like Walford on Shewsbury Road and a studio sale in Ballyfermot for €50,000 and says the average price of an Irish home is €29,025,000! No seriously, and by the way, even though the CSO index has become the premier index in the country, junior minister at the Department, Jan O’Sullivan has said that she will continue to fund the “marginal cost” of maintaining this utterly flawed series (which by the way excludes cash-only transactions!)
One of the regular commenters on here, WGU will shortly be on to say that auctions themselves are skewed towards cheaper property, and indeed the report’s author today does confirm this with his “Kernal density estimate” which shows the overwhelming majority of auction sales are in the €75-175,000 range.
So what are the conclusions anyway from the report? Here we go (the ranges are there to show mean and median)
(1) Dublin property is down 60-67% from peak asking prices
(2) Dublin houses are down 55-62%
(3) Dublin apartments are down 66-68%
(4) Non-Dublin property is down 72-77% from peak asking prices
(5) Non-Dublin houses are down 69-73%
(6) Non-Dublin apartments are down 80-83%
(7) Dublin property actual today is down 21-32% from current asking prices
(8) Dublin houses are down 3-23%
(9) Dublin apartments are down 28-33%
(10) Non- Dublin property actual today is down 46-57% from current asking prices
(11) Non-Dublin houses are down 39-48%
(12) Non-Dublin apartments are down 63-66%
If you were to extract messages from the above
(1) Dublin is down less from peak asking than non-Dublin, which contradicts the CSO index which suggests prices in Dublin are down is the other way around – to the end of August 2012, Dublin was down 57% and non-Dublin was down just 46%.
(2) Apartments are down more from peak asking than houses everywhere.
(3) Non-Dublin sellers are being completely unrealistic today with asking prices double auction actual prices.
Lastly it is worth saying that auctions generally tend to achieve lower prices than private tender sales through estate agents. There are apparent exceptions like the Northumberland Road property which sold for €685,000 last week at the Allsop Space auction after being purchased three months earlier for €550,000 but the consensus “on the street” was that the property was undersold three months ago. Buyers at auction are taking more risks and tend to pay in cash. So actual auction prices may tend to overestimate the decline compared with what would be regarded as normal mark prices. But since we’re comparing apples and oranges, does it really matter?
Thanks to the Property Price Register we now have actual sales prices. It may be some weeks before the data is analysed so that some third party provides an index, and the data only goes back to January 2010, but the age of the asking price is coming to a close, and the prediction on here is that if there are two headlines next January 2013 – “asking prices down 10% in quarter” or “actual prices down 5%”, I be willing to bet you will click on the latter headline and ignore the former.
*Now it might have been some years since some of you did you junior cert, so to recap on mean and median take the following numbers
13, 18, 13, 14, 13, 16, 14, 21, 13
The average (or “mean”) is the sum of these numbers divided by number of numbers or ((13, 18, 13, 14, 13, 16, 14, 21, 13)/9 or 15
The median is the middle number when these numbers are sorted in ascending order so
(13, 13, 13, 13, 14, 14, 16, 18, 21) or 14