Fitch joins Moody’s in predicting further major declines in Irish property

[The 30 second version is Fitch today issued a note on housing issues in Europe and predicts that Irish residential property prices have another 20% to decline, that’s the same as the prediction by rival ratings agency Moody’s last summer. Unlike practically all other participants and commentators, ratings agencies are independent, and although their predictions may not come to pass, it is worth examining them. The Fitch report is here]

Last June 2012, when ratings agency Moody’s predicted further major declines in Irish property prices, one of the country’s leading estate agencies was quick to rubbish the prediction.  Moody’s said in June 2012 that it believed there would be a further 20% decline nationally in Irish residential property prices which would bring the overall decline from peak from the current 50% to 60% – remember 20% of 50% is 10%! Mark Fitzgerald at Sherry Fitzgerald said the view was “misinformed”. We had a little fun with the innate nature of estate agents and ratings agencies here.

Since last June 2012, prices nationally have been relatively stable according to monthly indices produced by the Central Statistics Office and at the end of November 2012, prices remained 49% off peak. In the last quarter of the year, there was palpable ebullience on the part of estate agents who correctly pointed to an increase in transactions evidenced by the newly-launched Property Price Register, and mortgage lending picked up in Q3,2012 according to the Irish Banking Federation, though from a low base.

And in the past month we have had reports of Minister Noonan calling a bottom – though if you carefully read what the Minister said, it was more circumspect. NAMA last week said both the commercial and residential property markets were stabilizing, but NAMA has been saying that since June 2010 and has now repeated the claim at almost regular half-yearly intervals – you might recall that NAMA’s most senior property man thought commercial property was close to the bottom in late 2009, it has since declined 25-30%. Newspapers which are really suffering at the moment would love to see a return of confidence which would boost transactions, and consequently desperately-needed advertising revenues. Banks want recoveries to help boost balance sheets which are at risk from negative equity mortgages – in December 2012, a non-executive public interest director of Permanent TSB Ray MacSharry told an Oireachtas finance committee “ If house prices drop by 59% or 60% that capital adequacy ratio could drop to 6%, which is a real stress case.”

At this stage, there are very few who want to see property prices decline further – most of us have some skin in the game, either directly in property or in the economy which benefits from stable and slowly rising house prices.

Most of us do have skin in the game, but ratings agencies dont, and today Fitch has issued a downbeat assessmentt of prospects for our residential mortgages and property. It predicts prices will decline a further 20% from their current levels which are themselves 50% off peak.

Fitch sees poor prospects for economic growth in Ireland, and says that our real GDP will grow by a measly 1.5% in each of 2013 and 2014, that unemployment will continue at a high level over 14% and that mortgage arrears will continue to rise strongly. It says of our mortgage crisis – “Both countries [Ireland and Greece] have experienced dramatic performance deterioration over the past year. The outlook remains highly uncertain. “ It points to a general property oversupply and government cuts which will push down prices and push up arrears. It says there is “no end in sight to the deterioration”

It’s a sobering counterpoise to recent upbeat pronouncements Mind you, it is consistent with the view on here and the prediction of 10-15% declines in 2013.