many thanks for the clarification. It would be interesting to see whether NAMA’s loyalty to long term economic value and NAMA’s size in the marketplace would lead to a prolonged slump but alas there is only one future and it may be impossible to untangle the various factors at play.

Yes, they did get the gist there.

All I did was state the obvious (at least to me it is obvious), namely that it is better that prices adjust asap rather than have the thing be dragged out — although the fact that price declines can become self-sustaining after 8 years or so was a striking finding in our analysis and a new reason for wanting those price declines to happen asap.

I didn’t commit myself to saying ‘NAMA is preventing prices from dropping’ or even ’something is preventing the prices from dropping’ since I don’t have a basis for saying that; but it would be a very bad thing if NAMA had that effect, and if it did then yes, that graph might make sense (although perhaps the ‘with NAMA’ bottoming out happens even further out than you show, and perhaps it doesn’t even succeed in making the trough shallower in the sufficiently long run).

” ‘I agree with Morgan Kelly’ — should probably have left it at that!”

So true on so many levels! Did they get the gist of what you said right here

“it would be better for the economy if house prices here rapidly hit the bottom because otherwise the slump could extend for years”

And if so what are you suggesting is preventing house prices from hitting the bottom? NAMA or banking/government policy perhaps? If so is this graph the sort of thing you have in mind - and if so would you be prepared to take a stab at the changes to the gradients?

http://docs.google.com/leaf?id=0B1V6jFjykyK6MTQzODcwY2YtNzUwMi00MTg3LWE5ZjEtZjZiOGMxMDU1NjI2&hl=en

when he asked me the question, I started by saying something like ‘I agree with Morgan Kelly’ — should probably have left it at that!

Why 70%?

http://www.tribune.ie/business/news/article/2010/jul/25/house-price-fall-could-be-worst-in-history-academi/

For your interest. BOH.

http://pantomimevoiceover.wordpress.com/2007/12/13/interesting-map-countries-whose-gdp-matches-individual-us-states/

(a) booms/slumps in product (ie the number of new houses built and houses traded), which is included in GDP

(b) booms/slumps in house prices, which is not included in GDP”

I must be missing something.It’s just that I thought that RFI mattered too? As in no. new houses x price = RFI… am I wrong?

Indeed, I though non-residential fixed investment (apartments, retail, offices, factories) contributed a bigger slice of GDP and that the slowdown in completions and lower prices have also had an effect on GDP?

Thanks for the link - there is indeed a paucity of some information.

What I wanted to get at was volume statistics for sale/purchase transactions. Is it really the case that the State doesn’t publish these? Surely when these pick up, we will know the slump in volume terms is coming to an end (what value do planning permissions and completions have when people are possibly spending lots on extensions and home improvements?).

I note JTO’s reference to the IAVI report today that sales activity had picked up in Q2. However if you look back to their last report for Q1, they said something similar.

http://www.iavi.ie/NewsDetail.aspx?rowid=260590

The mortgage statistics from the IBF show that mortgage lending fell off the cliff in Q1 - look at the volume figures which belie the headline.

http://www.ibf.ie/gns/media-centre/news/10-05-20/Home_Purchasers_Show_Resilience_in_Market_Slowdown.aspx

There are 800k mortgages in the State on 2m-odd dwellings (350k-odd are “vacant”), so it might be the case that there are lots of transactions without mortgages to offset the decline in mortgage volumes, but somehow the fact that the IAVI report is based on surveying members whose career prospects depend on a recovery make me wary.

So anyone? Know of any source of transaction volumes in the State?

Very interesting data on mortgage volumes you published. That data is especially interesting as it indicates that the peak was in Q4 2005.

The government imagines that our problems began in 2008 when the economy reversed direction. But it is clear that the bubble was letting out air well before that. One can variously date the peak as being:

Q4 2005 - peak of mortgage volumes approved
Spring 2006 - peak of private sector credit growth
Spring 2007 - peak of Irish bank share prices

The top was in long before our problems were recognised.

Is there a source in the State which accurately publishes all property transactions so that you could measure activity levels?

Many people are asking the same questions for a lot of different reasons. From Construction Ireland blog. BOH.

http://constructireland.ie/index.php?option=com_myblog&Itemid=107&lang=en&show=Where-are-the-BERs-.html

The items produced were produced and costed to expected prices that were inflated in the bubble (boom). The costs in a boom increases more than economically justifiable and almost all that went into producing the overpriced house went in at an inflated price: Wages, raw material.

In essence most economic activity related to the housing boom were inflated and therefore the housing boom affects the GDP.

I’m not surprised about the increase in activity in registrations and commencements. NAMA was introduced with mumbling of it placing a floor under the property market: What is the effect of a price floor?

It guarantees a supply as long as the costs of producing are lower. Sunk costs are gone. The cost of construction is probably (surely?) lower now than during the boom so presto: House building into an oversupplied market can be economically justifiable due to the price floor.

I also think that there is something in the English language as a vector of bad lending practices/property overheating. Is it any coincidence that the UK, the US and Ireland have all had a property crash in the last 2 years?

Property taxes seem inevitable.

It is generally agreed that an excessive boom in house prices is a bad thing, with very few compensating benefits. A boom in housing product is generally considered a good thing, except for environmental wackos, bringing increases in employment and contribution to GDP.”

Increases in house prices have a big effect on GDP as equity releases increase domestic demand.

Equity release is of course accompanied by increased private debt. Therefore unsustainablehousing booms are particularly dangerous.

Is there a source in the State which accurately publishes all property transactions so that you could measure activity levels?

The IBF publishes mortgage volumes which show the following number of new mortgages for dwelling purchase (the IBF represents 95% + of mortgage lending in the State).

Q1, 2005 21,371
Q2, 2005 27,833
Q3, 2005 29,592
Q4, 2005 31,699
Q1, 2006 25,888
Q2, 2006 28,088
Q3, 2006 29,884
Q4, 2006 26,930
Q1, 2007 20,966
Q2, 2007 22,086
Q3, 2007 21,878
Q4, 2007 19,264
Q1, 2008 13,299
Q2, 2008 16,694
Q3, 2008 14,208
Q4, 2008 9,415
Q1, 2009 5,508
Q2, 2009 6,678
Q3, 2009 6,804
Q4, 2009 6,107
Q1, 2010 4,224

The government issues Stamp Duty returns doesn’t it which continue to show drops in value but doesn’t tell us about volume.

The CSO takes mortgage information when producing its average dwelling price and doesn’t appear to produce volume figures.

Of course the Revenue and Land Registry will hold the information. But is volume information on transaction levels published anywhere?

thanks for the link to the Feb ‘08 article, looks very comprehensive.

@ Jagdip,

Paul Krugman’s three part podcast to LSE available at the link, was very good. BOH.

http://www.lse.ac.uk/resources/podcasts/publicLecturesAndEvents.htm

“Don’t forget that the P in GDP refers to production, and the appreciation of your home as you sip your chardonnay in your hammock in your back yard is not production and doesn’t count as part of GDP. But jobs in construction, finance and real estate do count. Thus volumes matter for real GDP accounting, not prices.”

This is exactly the point. Perfectly expressed.

When talking of housing booms/slumps, we need to distinguish two things:

(a) booms/slumps in product (ie the number of new houses built and houses traded), which is included in GDP

(b) booms/slumps in house prices, which is not included in GDP

All those economists/commentators who say that the economic growth up to 2007 was based on high house prices are talking through their hats. The high house prices (or low house prices now) are not and never were included in real GDP.

It is generally agreed that an excessive boom in house prices is a bad thing, with very few compensating benefits. A boom in housing product is generally considered a good thing, except for environmental wackos, bringing increases in employment and contribution to GDP.

It is possible to have one of the above booms/slumps and not the other, or to have both or neither. For example, Ireland had a boom in both housing product and house prices. The UK had a boom in house prices but not in housing product.

In the years up to 2007, while house prices rose sharply in the UK, at more or less the same rate as in Ireland, the number of new houses built slumped and was much lower than it was 40 years ago, while in Ireland the number of new houses built rose sharply. That’s why homelessness, overcrowding and bad housing conditions have deteriorated in the UK in recent years, while improving in Ireland. Ireland now has the most modern housing stock in the EU, while the UK has the oldest, with consequent social and health effects. One only has to drive through Ireland and the UK to see this.

Booms/slumps in housing product are primarily driven by demographics. Over the long run, bank lending practices have little effect, while they are the principal effect on booms/slumps in house prices. It could even be argued that a boom in housing product is less likely to lead to a boom in house prices, as supply will be greater. And, it could also be argued that a slump in house prices is more likely to lead to a boom in housing product, as affordability will be greater. Were house prices in Ireland to fall to the levels Morgan Kelly predicts, then every Tom, Dick and Harry in Ireland (both in Republic of Ireland and Northern Ireland) will be able to afford a holiday house on the Atlantic coast.

So, regarding Ireland’s housing slump, we should not necessarily expect the slump in housing product and the slump in house prices to end and be reversed at the same time. The two should be treated differently, just as Stephen Kinsella says, While there is no sign yet that the slump in house prices is ending, there are signs that the slump in housing product has. These are not definitive and I don’t wish to exaggerate their significance, but in recent quarters the number of new house starts has increased. In Ireland, there are two statistical indicators of new house starts (a) registrations (b) commencements. The latter includes one-off houses, while the former doesn’t. The latest figures for both are:

registrations:

2010 Q1: 479
2010 Q2: 814

commencements:

2009 Q4: 1,353
2010 Q1: 1,696

As I say, it takes more than one quarter’s figures to be certain that the turning-point has been reached, so I don’t wish to exaggerate the significance of one quarter’s figures, but it is possible that they signify the turning-point in the housing product slump/boom cycle, although not the house prices slump/boom cycle. Also included in the ‘housing product’ that Stephen Kinsella referred to is trading of houses. This, also, seems to have turned the corner. The Irish Times today reports today a survey showing house sales increasing sharply q-on-q. So, it looks very much as though housing activity (ie starts and trading) has been increasing in 2010, although not house prices.

Isn’t it the case that a property crash is accompanied by an economic contraction? With a floating currency, wouldn’t your currency tend to lose value and inflation tend to rise with imports increasing in price? No chance in Ireland - France and Germany trump any disturbance on the periphery. So we’re going to have low inflation for the forseeable future (and indeed prices have increased by 1% since the peak in Jan 2007 to June 2010).

The UK in 1989 - 1996 is a case in point - prices dropped 10% from peak to trough in nominal terms (as you say 30% in real terms over 6 or so years) so in nominal terms the crash was less serious for those with mortgage debt and negative equity for example did not become a barrier to recovery.

Japan’s lost decade(s) would be the exception which was distinguished by its low inflation (deflation) - is that the most likely scenario here? Hope not because in 2010 there are still property prices in Japan that have not recovered to their 1990 values.

The CB is on the case:

http://www.irishtimes.com/newspaper/ireland/2010/0722/1224275196494.html

Does anyone know where I can find a link to this CB report?

This sort of noise is hardly likely to do anything other than continue the decline. I wonder where the bottom is? Just looking in the window of an estate agent a couple of days ago, there is still a lot of property around priced at ‘hopeful’ (i.e. hopefully and idiot comes along) levels.

It all looks like it’s going to continue to be kind of painful. For banks and home-owners.

Irish price growth has been comparable with that of the UK where planning restrictions keeps building of new houses at the lowest level of the big European economies.

Access price data on Excel spreadsheet:

International House Price Comparisons 1970-2006: Irish price growth in 36-year period third highest among 18 Developed Countries

Competitiveness is proportional to poverty.

Thanks for the reply. The work makes interesting reading.

I hope Irelands potential first time buyers take note. The more people fooled on the way down, the slower the fall.

Also, a lot of what makes us uncompetitve simply boils down to rent prices which are somewhat perportional to house prices.

Hopefully we’ll see a copper fastening of credit rules. i.e. nail lending for principle residents to 3.5 times a persons salary.

Wouldn’t it be great if we take this oppopportunity to end the boom bust housing rubbish. Looking back on the last decade, all one can say is ‘What a bloody waste waste of time (and resources)’, and unfortunately not just, a waste of time, no one can say we’re in a better place now than we were in 2000.

End of rant.

The points you are making in relation to the US market, also have a lot of relevance when discussing other aspects of the economy. Types of industries, centres of innovation and what not. Often in the Irish scene, you hear discussion about R&D, venture capital and so forth, as if that existed all across the north American continent. When the reality is, there are only isolated pockets. I watched an episode of the Frontline on PBS a while ago, which featured a capital of the credit card industry in the United States. There was something purely created out of state level policy directives. Ireland became a centre of some kind of financial services activity over the past decade also. That certainly did impact on the housing market here. Stewart Brand makes some very interesting comments about rural de-population. There are schemes to offer people 100 acres of free land in the middle of the US, he says, to encourage people to move there. More than likely, a state level incentive scheme. I can appreciate in that situation, how the competitive landscape for utility companies must vary. BOH.

There is *no such thing* as a “US electoral system”, and there never has been.

Each state has its own state constitution, and sets its own way of choosing or electing the electors who in turn elect the President.

While it’s useful to analyze the USA as a whole (e.g. its position on the table in the article referenced here by KOR), the situation varies widely from one state to another, in part because state laws regulating mortgages differ.

OTOH the US bankruptcy law is a federal law.

Not necessarily. Different states in USA have completely different policies and regs regarding feed-in tariffs and distributed generation–amount of grants, whether or not there is a feed-in tariff, whether or not they have schemes to help (or require or prevent) you hooking up to the grid if you install renewables.

There are grid issues there, like there are here (old, failing grid not capable of handling some aspects of distributed generation).

Consider that virtually *each* US state is much bigger than Ireland, and *each one* functions like an independent country in ways Europeans often don’t realize. Ditto for educational policy, sales tax, etc.–it’s set at state and local levels.

B Peter.

Many or most of these regs are set by the state (not federal/national) and counties/municipalities can also have their own special schemes.

Not to mention the plethora of private utility companies that people do business with in North America, from one side of the continent to the other. Many of those utilities (from my limited understanding), would rather not have to produce over capacity of power, and have to handle all of the associated overheads of power distribution lines etc. That is, they would be more than happy to grant you money to install some local, on-site generation capacity through PV panels, hydro or whatever.

That is an excellent point about the US electoral system btw. I hadn’t thought of it that way, ever before. Regards, BOH.