Daft House Price Report: 2010:Q2

The latest Daft house price report is now available here. Ronan Lyons discusses the report here and also discusses the need for a property tax.

The report shows asking prices down 36% from peak. Since asking prices during the boom tended to be less than purchase prices while the opposite seems to be the case now, I reckon it’s fair to view this figure as consistent with an actual decline in prices of over 40% since peak.

Are we near bottom? Nothing ever stops real estate vested interests from assuring everyone that things are stabilising and it’s a great time to buy. However, I reckon we still have further to go. The recent Honohan report informed us on page 83 that the (quite sensible) McQuinn-O’Reilly model indicated that house prices were 33% over-valued in 2007:Q2 relative to what could be justified by disposable income and mortgage rates.

This would justify a decline of one-third in house prices even if incomes hadn’t changed. However, nominal GNP has dropped by about 17% since house prices peaked while income tax rates have been increased. Headline mortgage rates are lower now for those on tracker mortgages but the more relevant measure is probably the cost of financing for the marginal new buyer and these are a good bit higher. One also has to factor in that people will need to make allowance for rate hikes to come.

Taken together, I think a peak-to-trough decline of about 60% wouldn’t be too surprising.

Update: John the Optimist reminds me that an overvaluation of 33% corresponds to 25% decline (100/133) which is fair enough. However, to be honest, I was being deliberately understated in the original post. Add in 17% for the decline in GDP, 10% for the effect of increased tax rates, and who knows what for tight mortgage credit and rate hikes to come and one can easily justify greater than 60%.

67 thoughts on “Daft House Price Report: 2010:Q2”

  1. @Ronan L

    Their are a lot of apartments between the canals. There would be few enough new houses in the same area.

    Given that apartments are bottom of the pile now it is not surprising Dublin City Centre is falling faster than other areas.

    Also, a lot of the apartments in the centre were occupied by workers from abroad. I expect a lot were employed in hotels, bars and restaurants. One expects there are less of foreign workers and a lot less hospitality industry workers now leading to a further fall in prices.

  2. ” … the need for a property tax … ”
    We need a property tax like a hole in the head. And where will the €1.3 billion go? Respite care, capital improvements or Anglo?
    We need to get our priorities right as a country first before raising any more taxes that will be thrown down bottomless pits.

  3. @ John Muldoon

    Since further tax increases are almost certainly required to stabilise the fiscal situation, I agree with Ronan that a property tax is one of the better ways for the state to raise revenue. Maybe “need” was an overly strong phrase.

    That said, there is indeed something extremely sad about how Ronan’s estimated €3 billion annual intake from a property tax almost exactly matches estimates of the annual drain on the exchequer due to the magic promissory notes used to recapitalise the banks.

  4. @zhou
    You’ve given me some homework! It should be possible, time permitting, to work out “standardised” falls from the peak based on the national/Census weight of properties, rather than the current region-by-region mix of properties. I wonder whether the fall is still greater in the city centre, possibly because investors are less sentimental than owner-occupiers?

    @John
    I think most people here would agree that you need reform of expenditure as well as reform of taxation. But that doesn’t mean we shouldn’t start planning the latter as well as the former.
    If you accept both of the following:
    (1) The deficit has to be reduced.
    (2) To prevent this from happening again, Ireland should follow OECD best practice, which in this case is to have property tax contribute about 10% of core taxes.
    Then we should start planning our property tax now.
    Particularly given that I would imagine there are at least some would-be buyers out there holding off until they here what the final answer on property tax is. Even though it would be perfectly possible to grandfather a property tax in, so as not to double tax those who’ve recently paid stamp duty, I wouldn’t want to have to depend on that happening!

  5. @Ronan L,

    my guess would be that many young first time buyers used to think of the property ladder and buying an apartment in central Dublin would be a good place to live when young and carefree and also a good investment (as property never falls in value…). Those who now might have been in that group might be wiser, the lending criteria might be stricter and salaries/incomes for that group might be lower. Hence I believe they are not a big group of buyers anymore.

    The other group of potential buyers would be the BTL. They should be wiser, banks apply stricter lending criteria and higher interest charges would make them to stay out of the market as well.

    The potential renting market is probably the young professional employed in a FDI company. Some statistics seem to indicate that this kind of employment peaked and increased supply to a saturated market leads to lower prices.

  6. @Ronan
    Very interesting report as always. Would it be possible to have some analysis of the ‘time to sale’ variable. What kind of distribution does it have and does it vary much by property type or region.

  7. Great as always.

    Question: Has there been any attempt to calibrate the Daft index against the ESRI TSB one, to get a sort of sales price estimate more current than the TSB one? Rather the way the CSO works with the live register and the QHS data?

  8. @ Karl,
    It would be interesting to know how you thought house prices would develop in 2006-07. Clearly they were overvalued. If I recall correctly, servicing the average mortgage absorbed about 40% of average household income against a long run of about 25%. This implied about 40% overvaluation based on a steady state income and mortgage rate.

    Were you in the extreme overvaluation camp or just in the overvalued camp? My question would be as someone who clearly got the direction right, have you been forced by the facts to revise down the magnitude of the decline?

  9. @Jesper
    Good points, I think looking at the rental market will be central to understanding the sales market anyway.

    @George
    Thanks for the suggestion. We’ve two metrics. One is to analyse properties coming off the site. This is the standard “time to sell”. The problem is that with properties up for two years in some cases, the median gets dragged very far out. The other is to analyse properties that went on a site in a particular period (e.g. during January 2010) and see how many are sold. This latter one is probably more helpful to new sellers because it shows their probability of success, so to speak. Either way, it’s definitely worth a blog post, so I’ll schedule one in the property market section of the site.

    @Ribbit
    Interesting idea. I’m working with the guys in the ESRI over the summer on a few housing-related things, so I’ll see whether this can be explored in more detail.

  10. @tull: Even though your question is for Karl, I will offer you my opinion. When my wife and I moved here in 2006, I though houses were extremely over-priced. My wife really wanted to buy a house asap as she did not want to miss out on the future gains. “Rent is dead money”. Two of her siblings were sitting on massive paper profits. But I was adamant! In my opinion houses were about twice as expensive as they should have been based on what the house we were living in at that time cost and what we – both “high-skilled”, “smart-economy” workers were earning.We could not have afforded that run-of-the-mill mid-terrace house without taking out a massive mortgage over 35 or 40 years. My forecast was for 50% drops without taking the international financial crisis into account. That has come to pass in Dublin. But I would have revised my expectations and expect further drops as there is a substantial overhang of unsold houses, there is emigration in the family-forming cohort, uncertainty over future tax hikes and interest rates will eventually be going up further reducing house prices.

  11. @ Garo,

    Thanks for that. Your is a logical view shared by many at the time. Resi & commercial Property looked overvalued to many at the time. It is interesting that as an “analyst” who came to the right conclusion, you are still cutting numbers for logical reasons. It just goes to prove the paucity of the “nobody saw this coming” line.

  12. @ John Muldoon

    I respect your view that much taxpayer money has been wasted in recent years by the political incumbents. I also recognise that the introduction of a new tax is highly emotive, especially with those in negative equity or those who’ve had to fork out (or borrow) to pay Stamp Duty. But we had the highest deficit in Europe last year @ 14.3%, even higher than Greece. Our national debt has more than doubled to EUR 84 billion from just EUR 37 billion 3 years ago. We need:
    Fiscal Consolidation = Public Spending Cuts + Tax Increases
    To date, the present government has focused exclusively on one part of that equation, namely; spending cuts. We need balance to maintain our society.

    There is one question John that I have been asking repeatedly that nobody has been able to answer, and that is: “Why do Irish people pay property tax in foreign jurisdictions but are so against it at home?”

    For example, I know a North Dublin businessman who owns a London property – a pied-a-terre as he does business there. He pays Council Tax of a couple grand per annum in the UK, but does not pay tax on his substantial principal residence in N.County Dublin. Likewise, I know of a West Cork businessman who has a business in New York and keeps an apartment in Manhattan e.g. even a 1-bed flat there costs around $675k with State tax of 2% on property = $1,300 per annum. I know a Journalist in South County Dublin with a 2nd home in France where property taxes are levied.

    All of these people can afford to pay a residential property tax in Ireland, but they are only paying property taxes abroad to foreigners.

    Finally, ask yourself what about the non-domiciled Irish elite who pay no taxes here whatsoever, but maintain Castles & large country estates in this country e.g. think of a philanthropic racehorse owner who is domiciled in Switzerland. Could he pay an annual property tax in Ireland on his palatial spread??

  13. @Karl Whelan

    Are we near bottom? Nothing ever stops real estate vested interests from assuring everyone that things are stabilising and it’s a great time to buy. However, I reckon we still have further to go. The recent Honohan report informed us on page 83 that the (quite sensible) McQuinn-O’Reilly model indicated that house prices were 33% over-valued in 2007:Q2 relative to what could be justified by disposable income and mortgage rates. This would justify a decline of one-third in house prices even if incomes hadn’t changed. However, nominal GNP has dropped by about 17% since house prices peaked while income tax rates have been increased.

    If house prices were 33 per cent over-valued in 2007:Q2, then that would require a fall of 24.8120 per cent (derived from 100/133) to bring them into line, not one-third as you say. A common mathematical error.

    Taking into account the 17 per cent fall in GNP since 2007 would bring the required fall to 37.5940 per cent (derived from 83/133). Which is more or less where we are at the present time, according to the Daft report, meaning we are now entering overshoot territory.

    However, the fall in GNP is coming to an end, both value and volume. The economy is growing again. Most forecasters now predict GNP volume growth of 3 to 4 per cent for the next few years. I predict more, but leave that aside. In addition, if the euro stays where it is now (which obviously no one can predict), GDP/GNP deflation will come to an end in the next few months. As an indication of this, I would refer to yesterday’s industrial production figures for May 2010. Industrial turnover (value), as well as industrial production (volume), is now rising strongly. In May 2010, industrial turnover (value) was up 8.4 per cent y-o-y and industrial production (volume) was up 9.5 per cent. In the early months of 2010, industrial production (volume) was rising strongly, but industrial turnover (value) was still lower than a year ago. The explanation was the rise in the value of the euro against the dollar and sterling. However, this has reversed since the early months of 2010. If the euro remains at its present level, industrial turnover (value) will be recording much larger y-o-y increases in the second half of 2010 than does industrial production (volume). The same will be true for services exports. This will be reflected in GDP/GNP inflation from the second half of 2010 on, in contrast to the GDP/GNP deflation of the past few years. That is on top of any volume growth in GNP, which, as i say, most economists are now predicting will be 3 to 4 per cent in the next few years. The upshot is that the 17 per cent fall in GNP will be eaten away in the next few years, with implications for your calculation of the required fall in house prices since 2007 required to bring them into line with incomes.

    That doesn’t mean that your prediction of a 60 per cent fall will be wrong. House prices can overshoot on the way down, as well as on the way up. But, it is important to note that that is what it would be, a massive overshoot. If, hypothetically, we assume that GNP values recovers the 17 per cent fall by 2014 (which is in line with most forecasts) and your prediction of a 60 per cent fall in house prices from their 2007 level comes to pass by 2014, then that would mean that by that year house prices would be undervalued 46.8 per cent. Obviously, that is a possibility, but it would be some overshoot.

  14. @Ribbit,

    “Has there been any attempt to calibrate the Daft index against the ESRI TSB one”

    The DoEHLG published today its house price report for Q4, 2009 which includes a table which compares the DoEHLG, DAFT.ie, Permanent TSB/ESRI and myhome.ie statistics which might assist you. The Permanent TSB/ESRI quarterly index for Q2 should be out in the next 2 weeks. There doesn’t appear to be any attempt by the DoEHLG to characterise the current market as the Bottom.

    http://www.environ.ie/en/PublicationsDocuments/FileDownLoad,23310,en.pdf

    @Ronan

    Congratulations on the report. Very good words on the property tax though the suggestion that there be a service to indicate current values (based on asking prices) is concerning – we need a cadaster and house price database and I would like to think that there won’t be a property tax until both are introduced.

  15. @ Karl

    I think your 60% figure is a good baseline scenario. Your colleague Morgan Kelly, almost 2-years ago on a TV3 programme called “Crunch Time” predicted that home values in the ‘better parts of Dublin’ would fall by 70% to 80%. That figure is the other end of the price fall spectrum, but could easily materialise.

    As Jim Power writes in his commentary, there are serious challenges or headwinds facing the Irish residential property market, but his figure for New Home Completions estimate of < 12,000 for 2010 looks to me to be very aggressive as we’re still finishing approx. 1200 homes/month – the official DoEHLG stats for 1st 5 months of 2010 was 6,112. Notwithstanding this amount, the real question is: “Are we selling more new homes yet than we’re still building?”. Central Bank lending figures (& IBF quarterly mortgage stats) would suggest not.

    Before we even countenance any stabilisation in prices, we have to stop adding to the oversupply & get activity moving again (not allow NAMA to hoard properties for years & years).

    Lastly, a little game I played two months ago in the TV3 studio was to ask people if peak property prices were say 100k & if they fell by 10% for 10-years where would they be? Answer: 35k, but most people said ZERO! I know that virtually all of the contributors to this blog understand that property price falls are ‘Division’ and not ‘Subtraction’ whereas gains during the boom was ‘Multiplication’ and not ‘Addition’. It is surprising still that a large number of Irish people have yet to get this e.g. if actual prices have fallen 40% to date from the ‘Peak’ then a further 25% drop would ONLY be a 15% fall from the top (worked example house 100k in late-2006, now asking 60k, but another 25% reduction would take it down a further 15k to 45k OR -55% from the peak).

    The best analogy that I can use, is that of a car journey from A to B, or say driving from Dublin to Cork. If you drive @ 200 KMH you get there in an hour-and-a-half, but if you drive at 50 KMH it takes 6 hours to get to the same place.

    The Irish property market using this metaphor, is crawling down the M7 in Kildare/Laois border, and is only half way there.

    ps. for those that are interested, say Irish home values are down 40% from the top, so what was 100k is now only 60k, if prices fell another 25% this year they would be 45k (per 100k) or down 55% from the peak. However, if home prices followed the path below they would ALSO arrive at the same end price:

    2010 -10%
    2011 -7%
    2012 -5%
    2013 -3%
    2014 -2%
    2015 +0%

    The above hypothetical sequence of another 4-years of price falls would only leave home values 25% below today’s levels. Not that unrealistic.

  16. @John The Optimist

    Thanks once again for bringing balance to the arguments and a lesson in basic arithmetic. There are dark shadows in the background that some people feel they have to pay homage to in UCD.

    This will indeed be a unusual country where around 25,000 people get married each year and many more cohabit and do not want to set up and own a home here so that now we are led to believe that prices will fall for another 4 + years .

  17. @ Ray

    I can’t believe you’ve rumbled my secret. Yes, it’s true. I pay homage every day to dark shadows in the background. Email me and I can give you information about our secret handshake!

  18. Thank you, Ray.

    Just to clarify, I’m not making any predictions for house prices. I have learned not to. It is possible that Karl Whelan’s prediction will prove accurate. I simply don’t know. Karl Whelan has said: “Nothing ever stops real estate vested interests from assuring everyone that things are stabilising and it’s a great time to buy”. I could equally well say: “Nothing ever stops academic economist vested interests from assuring everyone that things are deteriorating and it’s a terrible time to buy”. Obviously, heavily-publicised predictions that prices will continue to fall can be a self-fulfilling prophesy.

    My point was a purely statistical one, rather than a prediction.

    Namely, if the prediction of a 60 per cent fall in house prices since 2007 proves accurate, then, taking the consensus forecasts for GNP in the next few years, by the same yardstick as that by which house prices were adjudged to be 33 per cent overvalued in 2007, that would leave house prices massively undervalued by 2014 (by almost 50 per cent). While I am not saying this couldn’t happen, those who so predict should make it clear that an undervaluation of somewhere in this region would indeed be the case, as this would have obvious implications for subsequent recovery in house prices.

  19. @ Ray

    People will always need homes and new household formation will take place. The latest ESRI housing demand model (published last year by Prof. John Fitzgerald) estaimated that annual demand is for 45,000 new home per annum.

    We are not seeing this reflected in Sales/Activity (using mortgage data). Most people need to borrow a loan to purchase a property and lending has been severely curtailed – total Private Sector Credit peaked at EUR 404 billion in Nov’08 and was down to below EUR 352 billion in May 2010 (according to Central Bank Monthly Statistics Bulletin). Credit is being rationed today in Ireland.

    Irish banks are not lending that much money to FTBs. In fact, they’re receiving more money in Capital Redemptions (repayment of older loans) each & every month than they’re lending out. Which is why loans to businesses & individuals has shrunk more than 52,000 million over the last 18 months.

    Sorry, these are official figures not mine. Prices will fall this year and could fall for several more years. Nobody knows. But we do know that the fundamentals are awful :- unemployment, emigration, oversupply, lack of credit etc.

    In the USA, President Obama introduced a FTB tax credit of $8,000 per person (towards deposit for a home), and it improved the situation there for the period that it was in place. What measuures have the Irish government taken to help younger people on lower incomes to achieve home ownership?

    At least in the UK they’ve operated very successful Right-to-Buy schemes as well as Shared-Funding & Shared-Equity through Housing Associations. What have we done, but criticise academics who actually got it right.

  20. @ JTO

    Point about the 100/133 acknowledged in edited version of post. Still, factoring in taxes and the state of the mortgage market (not mentioned in your post, but then one wouldn’t expect that would we?) I still figure we have a good bit further to go.

    Beyond these “fundamental” points, one has to take into account the extent of oversupply in the market as well.

    As for “Nothing ever stops academic economist vested interests from assuring everyone that things are deteriorating and it’s a terrible time to buy” I can honestly say I have no idea what you’re on about.

  21. @Karl & JtO
    I think attempting to link GNP/GDP changes to the likely future movements in house prices is deeply flawed at the moment. While the link may be valid over the long-term the ratio will almost definitely be broken over the short-term in Ireland. So just as the link was non-existent during the bubble years it will be non-existent during the bursting phase of the bubble.

    IMO the two most significant factors that will drive Irish property prices over the next 5 years will be the return to normal rental yields and the unwind of the excessive stock and oversupply of properties.

    The latest report from Daft have the average rent nationally at €760.
    A rental yield of just 6% (which is low and hardly compensates for property risk when the Irish 10 year is yielding 5.3%) would indicate a fair value of €152,000.

    The latest sales report puts the average price nationally at €224,000.

    Which would indicate that property prices have 33% further to fall assuming there is no over shoot.
    Of course increasing rents could do some of this work but the 2nd factor, excessive supply, will probably prevent any meaningful increase in rents. IMO rents will continue to fall over the next 12 to 18 months which will mean prices could have even further to fall.

    Excessive supply is probably even bigger factor but much harder to quantify.
    There are various estimates around of the number of vacant non-holidays homes in Ireland ranging from 150k to 250k. If the natural demand is optimistically 40k per year and we only build 10k it will still take us 5 to 8 years to clear the over supply.

    A further 33% fall after the 40% fall thus far would mean prices could be 60% below peak.

    Finally, I would add that I see most of the risks to this prediction to be on
    the downside and the following could push prices down further.

    – Rental yield of just 6% hardly compensates for the risk
    – Excessive supply could force prices and rents down far further
    – Introduction of property tax
    – Emigration

    I think MK’s prediction of a 75% fall could be close to the mark than people think.

  22. @Karl Whelan

    For the sake of argument, let’s assume your prediction of a 60 per cent fall in house prices comes true (say by 2014, although you haven’t specified the exact date by which you think it will occur).

    Using the same yardstick as that by which house prices were adjudged to be 33 per cent overvalued in 2007, would you like to say by how much you calculate that they would be undervalued in 2014 on each of the following two scenarios for GNP:

    (a) pessimistic scenario – GNP remains the same in 2014 as in 2010

    (b) optimistic scenario – GNP recovers to its 2007 value by 2014

    My caculations give (a) 35.9 per cent undervaluation (b) 46.8 per cent undervaluation. Do you agree with those figures?

    I’m not asking this simply as an academic exercise.

    Its relevant to what the likely trend in house prices would be after they hit bottom. Its all very well to pluck a figure of 60 per cent out of the air for the peak-to-trough fall. As I said, you might (or might not) be correct in this. But, both the peak and the trough are only moments in time. Its how far above or below each is in relation to the long-term average (taking GNP into account, as you correctly suggest) that determines how prices will behave post-peak or post-trough. If the peak is way above the long-term average, then, as some economists loudly trumpteted, a sharp fall post-peak was inevitable. But, if the trough is way below the long-term average (as I maintain it would be if your prediction of a 60 per cent fall proves accurate), then a sharp rise post-trough is inevitable. What matters for NAMA and all that is not the level at which house prices bottom out for one month some time around 2014, its how they behave over the next decade.

  23. @ John

    The original post wasn’t attempting to make precise predictions — it was just raising the issue and giving a rough outline of my not-very precise thoughts. But clearly I wouldn’t agree with the figures in either (a) or (b). I’ve noted a number of other factors that you’re ignoring (taxes, mortgage rates, oversupply) so to my mind you’re well off track. But let’s agree to disagree.

    In relation to NAMA, what will matter will be the weighted average of the prices they recoup over time. I’m guessing that they will spread property sales over time, so the business plan’s assumption that all sales will be at their calculated LTEV is likely to be too, em, optimistic.

  24. @ KW

    re my original question, what was your prediction for house price deflation in say 2006-07? Did you concur with Dr Kelly or were you less pessimistic? Apologies if I was unclear.

  25. @Dreaded_Estate

    Do you still do the rental reports on irishpropertywatch? Unless I’m doing something wrong, it doesn’t seem to have been updated since 2 May. The CSO figures show rents stabilising in the past 6 months. The CSO index was 91.1 in December 2009 and 91.2 in June 2010. Do your figures agree with this? Even if different, I’m not saying that your figures are wrong and that the CSO figures are correct, just curious to know if your figures are in agreement with their’s, and why you seem to have stopped publishing your’s?

    http://www.irishpropertywatch.com/viewLatestReports.php

    Regarding house prices, I’d just make the same point as before. Namely, the peak-to-trough fall is an irrelevance. Its the long-term trend that matters. The peaks and troughs are merely moments in time. The price of oil fell from $150 per barrel in August 2008 to $30 per barrel in April 2009, a fall of 80 per cent. But, it only stayed at that level for a few weeks. It bounced back up to $80 per barrel. The reason it bounced back from its trough was because the $30 per barrel was an overshoot, leaving prices way below their long-term average. Likewise with house prices.

    Rather than people continually making predictions about the peak-to-trough fall, I suggest a better activity would be publish a quarterly estimate of how much house prices are overvalued or undervalued. Hardly rocket science. This would, of course, take GNP into account, as Karl Whelan correctly suggests. Based on the extent to which prices were overvalued or undervalued, people could then make their own judgements as to whether or not they were likely to rise or fall in the long-term.

    Based on the figures Karl Whelan gave, I calculate that house prices are no longer overvalued. As I said in my earlier post, a 33 per cent overvaluation in 2007 Q2, combined with the 17 per cent fall in GNP since then, would require a 37.6 per cent fall since 2007 Q2 to eliminate the overvaluation. But, that is almost exactly what has occurred. Hence, house prices are no longer overvalued.

    I agree that this doesn’t mean they won’t fall further in the short term (as well as the factors you mention, the mere fact that so many in the media are predicting that they will makes it more likely that they will). But, it does mean that there is every possibility that they will then recover post-trough over several years to their current values (plus an adjustment for further GNP increases in those years).

  26. @ Tull

    Re your original question, I was on the move when you posed it and have spent the little computer time I’ve had since defending myself against accusations of devil worship!

    In relation to my attitudes in 06-07, at a personal level, I couldn’t help noticing how — even though I was supposed to be well paid — I could barely have afforded a modest shack in South County Dublin, which just didn’t seem to be a sustainable position.

    Professionally, my opinions at the time were pretty much in line with the McQuinn-O’Reilly model mentioned above. At the time, my own research did not focus on the Irish economy and I also had a lot of administrative responsiblities, so I had limited involvement with the economics of the Irish housing market. However, that paper was produced when I was in charge of the research unit and it seemed a useful piece of work.

    So, long answer: I was definitely not as pessimistic as Morgan was at that time: the McQuinn-O’Reilly model was estimating a 15% overvaluation in 2005:Q4 when Morgan was far more pessimistic. However, through 2006 and 2007 prices kept going up and up and room for a “soft landing” seemed to me to be reducing.

    That said, I can’t in any way claim to have foreseen the global financial crisis nor, I must admit, was I fully aware of the scale of development lending in the Irish banks until Morgan raised the issue.

  27. How about ye all do a “What if” ….

    Aggregate economic activity (using whatever metric you wish) – Flatlines (at the current value) for a decade. Probability of >20%!

    So, your ideas for such a scenario are … …?

    This is neither a trite nor trivial question. I respectfully suggest ye apply yourselves to this.

    Res prop prices should decline by about -50% (of their current). The bubble run-up was approx 5 years. Run-down (Reversion) should approx 7.5 years (we’ve done 3). You do not need a goofy calculus model to estimate res prop prices. Prices should approx x 2.5 times wages/salaries, with a 20% cash down deposit. Simple.

    B Peter

  28. @Karl and Ronan,

    I appreciate more funds are required to stabilize our fiscal situation. But, as you noted, some planning needs to be done. I don’t see any evidence of that yet. F O’Toole in today’s Irish Times seems to bear that out.

    Even when the planning is done, I am unsure about the middle class’s ability to absorb another tax hike. In my opinion, the government has not only run out of money, but the taxpayer has too!

    @Derek

    Why do Irish people pay property tax in foreign jurisdictions but are so against it at home? As someone, who lived in the Boston area as a home owner for many years, I can tell you I was not wild about property taxes there, either. However, my money was kept local. I could see where it was spent. I could go to the town hall or school district and get an exact account of where all the tax money went. I don’t foresee that kind of transparency happening in Ireland unfortunately.

    As for our tax fugitives, my opinion is that they should pay taxes on any money they make in Ireland.

  29. @Jagdip Singh the land registry have a ITRIS (some acronym along those lines) digital mapping & folio database that has about 90% of the properties on it at this stage (but not for the purpose of levying a tax, adjustments would have to be made)- the other 10% may need to do a voluntary submission, the issue isn’t necessarily the data but rather where it is collated, this will require making unique identifiers that can be tied to PPNS numbers and properties then linked to revenue so they can collect the tax, easy right? wrong, data protection commissioner rolled in and decided that it was a breach of the data protection act to do this so there are legislative changes as well as operational ones to be considered. translate that into doing so in ireland: nightmare. this is all before you get the dept of agriculture involved because the idea of a site value tax is capturing public expenditure and farm land would likely need to have an exemption (primarily due to farming lobby as much as anything else).

    it sounds simple but you have to get mortgage banks, land reg, revenue/dublin castle all working in sync and it just isn’t easy to do. Then there may be contentious boundaries, essentially you have to have a built in appeals process as well, but if the will was there it could be implemented in 18 months, no more and possibly less

  30. @Karl Deeter,

    Helpful to know. Oddly enough you can get the rateable occupier of any property in the State

    http://www.valoff.ie/Research.htm

    but they absolutely won’t provide you with the owner.

    It was a couple of months ago when Emer O’Siochru appeared on the Vincent Browne show and told Vincent that we were the only country in the developed world that didn’t have a cadaster – a public record of who owns what. She also said that about 8 people owned most of the development land in Dublin.

    The issue of the House Price Database is raised in the Oireachtas every month by the Opp. The govt have promised it in their Renewed Prog for Govt and as recently as last week Michael Finneran said it was a “priority” for the present administration’s term.

    Do you have any link or source to what you say about the “data protection commissioner” getting involved in this? Michael Finneran has raised the DP Act as an obstacle though everything I have seen indicates that it just needs an amendment to a Land Registry act and their rules from the 1970.

  31. @ KW

    Your views were probably broadly in line with mine at the time. Same observation as Garo. This is toppy and it will go down. We have all been forced to revise down subsequently in light of events. Even though prices are down 50% in S Dublin, I bet you still can’t afford the stately piles that your predeccessors in the Economics Depts owned.

    As to Devil Worship, is that not more of a Trinity thing?

    About the only thing that can be said is that prices are down a long way. Emigration, taxation, availability of credit will not be conducive to a rebound. Yet the govt has a vested interest in prices going up. If I was Doctor H at the ECB, I would be a big fan of QE.

  32. @JohnTheOptimist
    No we aren’t doing the reports on IPW anymore. But the database still gets updated so it is possible to search for a daft, myhome or propertynews property and get the price history.
    Our figures would be broadly tie in with the CSO figures showing a slight increase in rents. Although we are probably showing a little more over the period.

    Firstly, I don’t subscribe to the GNP model you are using and I think there are much better models of house price out there. As I said I think the link between GNP and house price has completely broken down in Ireland during and post the bubble.
    Secondly, I think the starting point of an overvaluation of 33% in 2007 is simply wrong. And extrapolating from there gets you nowhere IMO.

    My prediction of a fall of a further 33% is just to get to equilibrium prices and that assumes constant rents. I am not assuming any over shot within that prediction but I think it will happen and prices will fall more than 60% peak to trough.

    After we get to the equilibrium prices, I think prices will bounce a long the bottom for much of the next decade. IMO house prices will not even beat inflation over the next decade and won’t come close to matching GNP growth.

    If you want a finger in the air long term prediction, I think it will be well past 2030 before we return to the nominal prices of 2009.

  33. @jagdip call me tomorrow, there aren’t links but I can put you in touch with the affected parties. on the Val office – this hits the same issue of identification of owner and linking to revenue then getting the info public. The ‘rates’ there are calculated differently than site value would be done, so it gets back to a similar issue of operation and implementation – but it helps to prove the very frustrating point – namely that we have the raw materials to do this with but nothing to tie it all together!

  34. @Dreaded Estate
    One quick comment on your yield calculation. The daft.ie average rent is based off Census lettings weights, while the average asking price is based off Census household weights, so that the two aren’t directly comparable.
    The yield figures given at the end of each Daft Rental Report use the same weights and so correct for this.

  35. @RonanL
    Cheers for that Ronan.
    Is the difference because there are more apartments for rent than for sale and generally a larger concentration for rent in cities?

    Is the average yield still only 3.6%!!

  36. @D_E
    If the average yield is still only 3.6% then prices are 100% overvalued (i.e. need to fall by 50%_ on average. Using a yield calculation.

    I notice nobody is talking about income figures. What’s the median wage in Ireland again? What’s a sustainable income multiple for the average couple to buy at?

    Given that the banks are being pushed to prioritise SMEs for lending and they have a finite and diminishing pot of cash to lend, where is the credit for an stabilisation, never mind an increase in prices going to come from? Time to go back to being a long-standing regular saver and cultivating the local bank manager perhaps?

    Finally, new house prices drive second-hand to a certain extent. In some areas (where new house supply is high), they’ll exceed old house prices (as why would you buy an old house when you can buy a new higher spec one for only slightly more). In other areas, they’ll be lower (as they just don’t have the character of the redbricks). In any case, there will be a relationship between the new and old prices. The banks no longer have an interest in new houses as they’ve offloaded them to NAMA. It is not their problem anymore, so they won’t feel any need to provide loans for newbuilds on a risky basis. They will, I believe, become ultra conservative with newbuild valuations, particularly given some of the quality issues that have emerged. This will restrict newbuild prices which in turn will have an effect on used stock.

  37. @ Dreaded_Estate

    Agree that the linkage between Real Economy & Real House prices broke down in 2007 when Irish economy grew +6% in Output terms & +4% in GNP, whilst prices fell -7.3% nominal or -2.6% in ‘real’ inflation-adjusted terms. For 35 years before that, house prices & economy moved in the same direction. Obviously oversupply, over-indebtedness & persistently high jobless rate (despite future positive economic growth) will ensure that this link will not re-establish itself for probably the next decade.

    In terms of models for estimating over/under valuation, why does everyone start with the peak years of 2006/07 assuming implicitly that these were ‘normal’. Why not begin a model with a base year when home values & economic fundamentals (including wage multiples) were at or close to equilibrium e.g. 1995. Then adjust forward to where house prices should be, taking into account inflation, wage growth etc.

    @ John Muldoon
    I know precisely what you’re on about. When I paid Council Tax in London, I received an annual statement of where my tax went to e.g. £146 Metropolitan Police, £220 Street-Lighting, refuse collection and so on. People are more likely to pay less grudgingly when they know where their money is being spent.

    @KW & JTO

    Trivia Question: What has been the biggest drop in an asking price of an Irish residential property?

    Answer: Monte Alverno, Dalkey was listed @ 25,000,000 but has dropped in price by -13,500,000 or a reduction of 54%.

    But this still represents +1000% Appreciation on the 1991 price – the last time this home was sold to the present vendor – or roughly +13% p.a. compounded.

    So you’re question about the next decade post market bottom is extremely difficult to answer, cos’ even assuming 0% growth, on a long-term trend basis, these S.Dublin excessive prices will take decades to correct, back to a more meaningful annual average appreciation over time (e.g. akin to inflation + a couple of percent). German house prices in real terms are back to 1967 levels.

    ps. MK has already been proven right as the biggest % drop in S.Dublin was Fairlawn, Saval Pk Rd, Dalkey (again) -65% in terms of asking price, from 6.25 million down to 2.2 million today

  38. @Derek Brawn & @John Muldoon: I think you are right about the breakdown and the ability to show value, the failure of property related taxes in general often has to do with ‘visibility’

    Any tax that is built into a system is far less likely to face backlash than a stand alone tax, we don’t cry about VAT (although I do because financial services is a zero vat biz and we get charged it but can’t in turn charge vat), we don’t tend to find a way to evade income taxes – for those on PAYE, and many other built in taxes become ‘hidden’, we know they are there but they don’t cause a stir, property taxes – stamp, stand alone bills for rates etc. on the other hand don’t have this, so perhaps an incorporation into payroll would be a system for doing this or having some other mechanism that makes the process less painful than a once a year bill landing on the door. thoughts?

  39. @Karl Deeter,

    Thanks for that. I have a fair store of information on the background of the HPD and indeed current developments – it’s just that I hadn’t seen any issues being raised by the data protection commissioner (do you mean Emily O’Reilly’s office?).

  40. @Dreaded_Estate

    That is interesting. So, you are saying that rents have stabilised or even slightly increased in the past six months. Both your survey and the CSO are now saying that. I don’t think that anyone was predicting that six months ago. And, naturally, it has got zero publicity in the media and on sites like this. How wonderfully convenient that Property Pin should drop your excellent survey the moment it shows rents stabilising or even rising. And, I’d say that the chances of Morgan Kelly mentioning in an IT article the fact that rents are now rising are about the same as those of Meath agreeing to a replay with Louth.

    Of course, six months is not a long time. It could be a blip. We will know better in another six months time. But, it is at least possible that it is related to the clear slowdown in the fall in the number of arrivals of foreign nationals. During the recession there has been virtually zero net emigration of Irish nationals, but a sharp drop in the number of arrivals of foreign nationals, resulting in a net outflow of foreign nationals (which is ludicrously presented in the media as if it were old-style emigration of Irish people to Camden Town and Kilburn, when it is no such thing). Regardless, the fall in the number of foreign nationals is clearly now slowing down, in line with the renewed growth in the Irish economy. These are the monthly PPSN numbers for 2009 and 2010:

    Jan 09: 17,532 – Jan 10: 13,470 – y-o-y fall: -23.2 per cent
    Feb 09: 14,377 – Feb 10: 11,837 – y-o-y fall: -17.7 per cent
    Mar 09: 15,204 – Mar 10: 13,083 – y-o-y fall: -14.0 per cent
    Apr 09: 13,585 – Apr 10: 12,125 – y-o-y fall: -10.7 per cent
    May 09: 13,493 – May 10: 12,497 – y-o-y fall: -7.4 per cent
    Jun 09: 14,230 – Jun 10: 13,375 – y-o-y fall: -6.0 per cent

    So, the number of PPSN numbers is clearly bottoming out, indicating that the number of arrivals of foreign nationals is also bottoming out. Based on these figures, there is every chance that the number of arrivals of foreign nationals will be rising again later in 2010. If so, this would have implications for rents and on the likelihood of the rise, that both you and the CSO have reported so far in 2010, continuing.

  41. Two other things that could push prices down are decreasing numbers in first time buyer age demographics (and that was before all the emigration was factored in) and the (perhaps unlikely) prospect of at least partial implementation of the Kelly Report when there is a change of government.
    I know many people in the Labour party still calling for it’s implementation.

  42. @Derek Brawn

    What exactly is the value of a scientific survey of house prices, based on the price of one house? I’m afraid that 25 million smackeroonies is a bit outside my range, so I haven’t been following price trends for such houses too closely.

    But, a relatively small number of houses fetching prices that only the very rich can afford does have one important effect. Namely, it skews up the figure for mean house prices as distinct from median house prices. Most countries publish figures for both mean and median house prices, and generally median house prices are a lot lower (for the reason stated above). In Ireland, as far as I know, no survey publishes figures for median house prices, only mean house prices. The upshot is that, even at the height of the boom, the extent to which house prices in Ireland were out of line with other countries was greatly exaggerated. The only report I’ve ever seen that based its analysis on median house prices in Ireland was by that American company (Demographia, I think it was called – but, Michael Hennigan would know more about it than me). But, when it switched to using median house prices for Ireland, it found that house prices in Ireland, even back last September, were only about 60 per cent of those in the UK. Given the fall in the euro, the fall in house prices in Ireland since then, the rise in house prices in the UK since then, median house prices in Ireland relative to those in the UK are a lot lower now than then. The bottom line is: house prices for the ordinary family in Ireland are now a lot lot lower than in the UK, which anyone can check out if they have relatives in the UK.

  43. @JohnTheOptimist
    Firstly IPW has absolutely nothing to do with the propertypin. The reports were stopped because those involved no longer have time to do them and the interest in the reports was low compared to the search facility on the site.

    The increases in rents is very minor John, we are showing 1.25% over the 6 months and I think we will see this reverse of the remained of the year. The CSO are showing even less of an increase. I expect the next Daft rental report will show a reversal of those small increases.

    Just because something is bottoming out doesn’t mean it is then going to go on to increase John. I fail to see any fundamental reason that foreign nationals would start returning to Ireland when the ESRI has predicted than 120k people will have left the country in the 2 years to next April. People come for jobs not houses, we have lots of houses but very few jobs.

    You have failed to address any of the other points I made in the post.

  44. @Dreaded_Estate

    So, they suddenly found that they no longer had time to do the rental reports just at the very moment when rents stabilised and even rose slightly? How very convenient.

    Alas, I have a day job to go too. I will try and deal with your other points this evening.

  45. @JohntheO
    When you get to D_Es other points, would you also be kind enough to dig out out the base GDP figure for 2009 you used to base your growth projection on?

  46. JohntheO,

    I would have thought falling rents would be much greater cause for optimism, though I do admire your capacity to see the glass half full no matter what.

    After all, rents on land are just about the only cost factor in the domestic economy which is truly under our control. Anyone interested in restoring competitiveness should want more rent falls, not an early stabilisation.

    However, here indeed there is some call for optimism. According to Eurostat numbers, Ireland and Estonia are the ONLY countries in the EU in which rents have fallen in response to the crisis. (I’m calculating %Δ in prc_hicp_aind from 2007 to 2009):

    European Union (27 countries) 0.042977323
    Belgium 0.03770264
    Bulgaria 0.184978413
    Czech Republic 0.247893258
    Denmark 0.056210335
    Germany (including ex-GDR from 1991) 0.022030651
    Estonia -0.510553448
    Ireland -0.1121673
    Greece 0.07108803
    Spain 0.069372063
    France 0.042577985
    Italy 0.055906222
    Cyprus 0.053196245
    Latvia 0.066901905
    Lithuania 0.181335157
    Luxembourg (Grand-Duché) 0.052976516
    Hungary 0.140196229
    Malta 0.065322149
    Netherlands 0.03900644
    Austria 0.056827436
    Poland 0.098103875
    Portugal 0.054852321
    Romania 0.250226729
    Slovenia 0.060246301
    Slovakia 0.075138985
    Finland 0.07644774
    Sweden 0.055120288
    United Kingdom 0.049151028

  47. @JtO
    We don’t do the sales reports anymore either and those prices are still definitely falling.

  48. @hoganmayhew

    When you get to D_Es other points, would you also be kind enough to dig out out the base GDP figure for 2009 you used to base your growth projection on?

    I will indeed hogan, within the next couple of days.

  49. @R.Lyons. Excellent report as always. If introduction of property tax could be combined with database of actual sale values then we could get two vital issues sorted.

    @D. Brawn I agree completely with the crazy notion of 2006 as a normal or base year for property prices.

    The study you suggest of going back to 1995 and examining whether the prices after that are fundamentally sound has been done a few times in the early 2000s by Dr. Maurice Roche (Nui Maynooth).

    My more modest attempt in 2002 showed that house prices then could not be justified by the fundamentals and were already overvalued.

    (Karl deeter can give you a copy of my 2002 study and contact details if your interested in discussing it)

  50. @Frank Quinn
    “(Karl deeter can give you a copy of my 2002 study and contact details if your interested in discussing it)”
    Most certainly am interested in reading it. I think we need to go back to see where we are going to go forward to. Some recent studies have picked an arbitrarily high baseline or average to benchmark against (mostly the commercial studies).

    @Karl Deeter – is the study available online? Thanks.

  51. It is possible to make the assumption that NAMA is affecting the property market by keeping properties off the market.

    If NAMA is affecting the property market, then it might be possible to estimate the increased cost of entry into the property market that NAMA might be incurring. Compare the current price with whatever model takes fancy and that is the cost incurred to the buyer. Renting might be dead money but that cost is dead money for the buyer anyway. How many months rent would that cover?

    Personally I wouldn’t buy until NAMA started disposing assets. Buy at LTEV or lower and since NAMA isn’t selling the current market price has to be higher than LTEV.

    If NAMA can’t sell, then NAMA has to rent out. I’m not convinced that NAMA is renting out all available properties. Cash outflow from NAMA might force NAMA to put more rental properties on the market. Increased supply with no change in demand -> lower prices.

    We’ll just have to wait & see. My personal estimation is that rents will fall further. Double dip.

  52. Hi all,

    Very well-informed thread.

    As an aside, if any ESRI people are on here, I’d be interested in knowing when the ESRI/PTSB house price index for Q2 (the only true metric of actual house prices we have) is next to be published?

    Q1 showed a dramatic fall of 10% in Dublin and 4.8% nationwide – but the report was published at a time that a cynic could say was guaranteed to minimise press cover (e.g. late Friday afternoon on a bank holiday weekend).

    http://www.irishlifepermanent.ie/ipm/media/pressreleases/permtsb/ptsb2010/2010-04-30/

    At that time, the Real Estate lobby were busy trying to call a bottom to the market 🙂

  53. @ wahoo

    PTSB/ESRI HPI is normally published end of the following month of the reference period, so June 2010 or Q2 index will be published on Friday 30 July

    @JTO

    Agree that median are better than average. Point i was making was that MK prediction was for ‘better parts of Dublin’. It’s what public & media focus on.

    I was an economic migrant for 19 years – left in late-1980s like many others & like those that are forced to today. Now SherryFitz, Hooke & MacDonald etc. tell us that Dublin home prices are down 50%, but the part of Dublin that I grew up in for the 1st 22 years of my life, prices went up by > 1,000% in the decade between 1996-2006, so they’re still +500% more than when I lived in S.County Dublin. Just like KW, I couldn’t afford a shack, even at today’s lower prices.

    We need a proper Land Registry HPI (with average + median, by area/postcode) just as the UK launched in 1990 following the Thatcher-Lawson Boom-Bust. By 1995 they had enough data to start a proper HPI based on RSR (repeat sales regression) i.e. same house, when it changes hands, price is recorded.

    We’re now in year 4 (began April) of the Property Slump & we’re nowhere nearer to getting a reliable HPI. The ptsb/ESRI index is now produced only quarterly & represents only a tiny fraction of the market. The DoEHLG index is highly dubious as it is not mix-weighted, so more D4 homes for sale at huge discounts + fewer D24 homes sold at ‘flat’ prices = Increase in Dublin HPI????

  54. @hoganmayew I’ll get karl to put the study on his site next week

    @Derek Brawn This is the best ever time to push for a proper price index as all parties including EA’s agree for the need to bring confidence and better understanding to the market. All we need is a reforming minister to push for it !

  55. @KW

    Now be fair you were never accused of devil worship. As a Freemason I know about secret handshakes and rituals but dark shadows refers to the Omerta that now permeates the present day Academic Economists that does not tolerate any view about the Irish Economy that is positive. If these people worked in the Private Sector they might have a different perspective on economics………………..try running a business with no hope for the future.

    .

  56. I know Ray, twas just a joke. But as for not tolerating positive views, trust me I’m very tolerant. Everyone can come on here and make their case — I just don’t have to agree.

    PS: No offence intended to Freemasons, who I’m sure are all salt of the Earth gentlemen.

  57. @Jagdip

    Quote from Today’s IT Letters from Alan Cooke, CEO IAVI……

    “On June 9th, 2008, the IAVI organised a meeting with the theme “Towards a More Informed Property Market” to examine the need for such a database. It was attended by representatives of three government departments, political parties, appropriate regulators, consumer interests and professional bodies. There, the IAVI representatives strongly championed the creation of a transparent and complete database for property transactions and a consensus of support for same emerged among those attending.”

    The Data Protection Commissioner did not attend, stating he had no role in the issue .

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