Irish residential property increases by 1.1% in month of November 2012, biggest monthly increase since September 2006

This morning has seen the publication of the Central Statistics Office (CSO) residential property price indices for Ireland for November 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 (November 2011)
• the start of this year (end December 2011)
• last month (October 2012)
• this month (November 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: With the launch of the property price register at the end of September 2012, the continuing relevance of a mortgage-only index from the CSO may be short-lived. Already DAFT.ie has begun the work to produce hedonic indices based on all the transactions made available by the Property Services Regulatory Authority, transactions dating back to January 2010. I would not expect the CSO index to be the foremost residential property index in the State by the start of 2013.

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, in Dublin in April 2007 at €431,016 and outside Dublin in January 2007 at €267,987. If, and it is a big “if”, you were to take PTSB/ESRI prices as sound and comparable to prices captured by the CSO series, then these would be the average prices today:

Nationally, €160,017 (last month €157,360, peak €313,998)

In Dublin, €192,603 (last month €187,789, peak €431,016)

Outside Dublin, €144,401 (last month €142,733, 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? AThe decline in October 2012 agter three months of price rises appears to have been a blip and the 1.1% increase is the largest monthly increase since September 2006 when a 1.3% increase was recorded. Apartments nationally continued their decline with a stonking 3% month-on-month decline taking apartment prices nationally down 63.1% from peak in February 2007. Dublin prices were up a strong 2.4% in the month though that masked positive performance from houses and a decline in apartment prices.

Are prices still falling? No, and prices rose in November 2012 at the largest month-on-month rate since . This followed a 0.6% decline nationally in October 2012 after increases of 0.9% in September 2012 following a 0.5% increase in August 2012 and 0.2% in July and a decline of 1.1% in June, an increase of 0.2% in  May following a decline of 1.1% in April 2012, it was flat in March 2012 which followed a 2.2% decline in February 2012, 1.9% monthly decline in January 2012, 1.7% decline in December 2011, 1.5% decline in November  2011, 2.2% decline in October 2011, 1.5% decline in September 2011 and 1.6% decline in August 2011.

How far off the peak are we? Nationally 49.3% (50.1% in real terms as we have had inflation of just 1.5% between February 2007 and November  2012). Interestingly, as revealed here, Northern Ireland is some 55% from peak in nominal terms and 62% 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 in Ireland are now down 29.6% from November, 2009.  The latest results from the CSO bring the index to 791 (26.5%) meaning that NAMA will need see a blended average increase of 26.5% in its various property markets to break even at a gross profit level.

The CSO index is a monthly residential property price index calculated from mortgage-based transactions. There are four other residential price surveys, based on advertised asking prices or agent valuations (see below, details here). In addition Phil Hogan’s Department of the Environment, Community and Local Government produces an index based on mortgage transactions, six months after the period end to which the transactions relate, and which is not hedonically analysed – it is next to useless, and as some might say is a reflection of Minister Hogan, the Department will continue to produce these indices at a “marginal cost”.