Congratulations to regular commenter Dreaded Estate for producing this spreadsheet comparing sales prices at last week’s Allsop auction with the earliest available asking prices. Across the 46 properties for which previous asking prices could be found, the weighted average discount relative to the earliest asking price was 69 percent.
One can complain about this small sample (though Namawinelake points us to this map, showing a nice geographical mix) and also about extrapolating from the prices recorded at these kinds of “fire sale” auction. However, my inclination is that this is useful information about where the property market is likely to bottom out. (Of course, even with seventy percent discounts, most people will still need to find a bank willing to give them a mortgage to buy a house.)
70 replies on “Allsop Auction Price Declines”
Northern Ireland (Bank of England managing monetary policy, different planning authorities, inflation through UK QE, no ghost estates, different politicians, different developers though some were all-Ireland) has seen a peak to current decline of 44% (Bank of Ireland, University of Ulster index).
Spain resi is down just 21% from peak (4.7% in Q1,20911 mind). Spain has ghost towns, not just estates. I see the impish Herman van Rompuy is meeting with the Spanish this week ahead of the bank stress test results on Friday. Coincidence like Herman meeting Nicolas Sarkozy two days before meeting Enda three weeks ago?
What ever happened to good old fashioned common or garden Mortgage Interest Relief.It would appear that such relief on interest paid if granted on loans of up to €200,000 would go a long way to alleviating the hardship of those mortgages in arrears or about to go into arrears.It would help those proportionately with large mortgages as well as those on low mortgages.
If the taxpayer is penultimately going to pick up the tag why not assist Mortgagees to meet their payments before this eventuality occurs?
Without meaning to catastrophise, remember that the stress tests on our banks back in March anticipated 55-60% falls from peak on residential property. 60% was the adverse scenario.
Of course Dreaded_Estate’s analysis is between asking and settled, though the asking prices are “late 2007” which might be perhaps 6-9 months after the peak. And as Karl says, there are potential issues with sample size and the nature of the Allsop/Space auction.
What would a 68% or 80% decline in residential prices mean for the €24bn capital requirement. Another €10bn?
There was clearly collusion in the Irish property market.
Prices were fixed high in an arrangement which involved mainly the banks, also real estate agents, developers, the media and in a way all real estate owners in Ireland.
Anybody who looked at Ireland in 2008 and saw over 200,000 empty properties in a country with such a low population density as Ireland and prices higher than New York can only come to 1 conclusion. Collusion.
Collusion is always a net loss to society.
The sellers/colluders make higher profits than they should for a short time – gain. The buyers pay over the odds for the product – loss.
Then because of the high price demand drops as people decide not to buy.
The buyers lose as they can’t have the house they wanted. The colluders lose as the weaker ones go out of business due to drop in demand. There is much machinery and many workers left unused.
The Irish property market is a classic case of collusion/price fixing exaggerated by availability of credit, not the other way around.
The Irish banks should be investigated for facilitating price fixing of property in my opinion. The Irish government at the time actually brought in legislation to make house prices less transparent also facilitating price fixing.
This is what should have been done and should be done.
“What would a 68% or 80% decline in residential prices mean for the €24bn capital requirement. Another €10bn?”
€10 billion would hardly cover it. The total book loan value of the covered banks was €312 billion as per S Coffey presentation:
If the asset values underlying most of those loans have now dropped by 20% more that the strees tests allowed for, then the implications would certainly not stop at €10 billion. Probably closer to €50 billion.
It should also be noted that German property prices may not be getting as boomy as German economy.
A Quinlan shopping centre in Cologne purchased for €170 billion in 2006 was sold last wek for €130 billion, a fall of 25%.
From Sun Independent (July 10th)
“Irish private equity group Signature Capital has paid about €130m for a German shopping centre that had been controlled by Quinlan Private before the centre collapsed into insolvency.
The Neumarkt shopping centre in Cologne was bought by Quinlan Private, since renamed Avestus, for €170m in 2006 but it went into administration last November after Avestus missed a €9.6m payment.”
The bust is getting bustier.
Time for a complete rethink.
The price that finished property changes hands for is an irrelevancy to the real economy that livelihoods depend on.
If the Irish banks were found guilty of collusion to fix houses prices or facilitating fixing houses prices in Ireland in the boom
1. Anyone who bought during that period would certainly have a case for reducing their outstanding mortage repayments to what should have been fair market prices at least.
2. Some leading people involved could be jailed. This could be some concrete evidence to show to foreign investors or bondholders that the Irish people are not responsible for returning the money they placed in banks involved in pricefixing.
“The total book loan value of the covered banks was €312 billion as per S Coffey presentation”
My IT overlords haven’t installed flash on my work comp, so Seamus’ presentation wont work here, but this sounds a bit high?
Ressie mortgages in Ireland amount to 120bio (incl foreign banks). Total NAMA CRE, here and abroad, amounts to 75bn, but some of this has already been discounted by 70%, and much of it is foreign as well. I assume 312bn was the total balance sheet, which would include lots of different assets, here and abroad, corporate bonds, government bonds, etc etc.
In the 1960’s there was solid criteria in place by lending institutions in respect of people taking out Mortgages.Broadly it was:-
1/Only 75% of the value of the property could be advanced or 2.5 times the applicants annual income(1 income only).Whichever was the lesser.
2/If repayments exceeded 25% of monthly income a loan would not be approved.
3/A deposit of 25% was required to be provided by the applicant and a good savings record was essential for success in obtaining a mortgage.
4/Other liabilities such as a credit union or car loan may disqualify an applicant from getting a loan.
Why lending institutions were allowed to deviate from this now recognised sensible lending criteria will probably never be known.
If no deviation occurred it is probably fair to assume that we would not have had the property bubble we experienced.
I believe the banks are now closing the stable door and are enforcing even more stringent lending criteria with the result that only 20% (or less)of applicants are now securing loans.
@senior propertyobserver – many people including the executive members of the ECB are calling for stricter credit conditions to prevent similar instances from happening again.
However in practice it doesn’t work very well. Shanghai and Beijing brought in the kind of measures restricting credit mentioned above last year and the market kept going up and up – simply didn’t work.
More effective was a law resticting purchases to maximum two residential properties per person. A law intorducing higher property taxes. Anti-collusion measures such as making sale price reporting mandatory and transparent on all transactions and measures to prevent devopers from ‘haording’ developments and zoned lands. Since these measures were introduced this year, the house prices have dropped in both Shanghai and Beijing. Much more effective than stopping first time buyers from accessing credit.
Italy has similar measures on restrictions of residental property ownership and this saved its real estate market from a boom/crash relationship.
Some graphs to go with that…
Graphs of “Dreaded Estate”‘s numbers:
Graphs of bank lending and deposits (to fund those upcoming auction purchases!):
“What would a 68% or 80% decline in residential prices mean for the €24bn capital requirement. Another €10bn?”
I tried to make the point in advance of publication of the Irish scenarios, that in this day and age, and given the amount of fees paid by the taxpayer for their preparation, it would not be unreasonable to expect publication of a spreadsheet which allowed some variation of user defined inputs.
In this way, people like me would not be forced to largely partially the very expensive announced “results” because the assumptions looked unrealistic.
This gained zero traction. What should we do now, ask the central bank to re-publish with a different “adverse scenario” or just regard them more and more as a semi-PR exercise aimed at corralling expectations?
If forced to dismiss the published results from Ireland – or anywhere else – you don’t have to be George S to work out they become worse than useless.
Something might have leaked about Italian banks a couple of Fridays ago. The equity trading didn’t smell right then and the bond guys have been piling in on Italy recently. Meanwhile the ECB and France are discovering that banks have boards accountable to shareholders not sovereigns – again hardly surprising.
I would agree that the analysis is far from perfect and the limited sample size makes applying it across the entire market difficult.
However it does show that in the current market 70%++ discounts from peak can be needed to get a sale.
Added to this these auctions are only the first of many auctions that will be needed to clear the massive and growing backlog of properties currently on the market. And that is before we even start on the backlog of empty properties around the country according to the latest cso data that currently aren’t for sale.
So Morgan Kelly’s prediction that property prices could fall 70% to 80% in some situations could be far closer to the mark than many people thought possible at the time or even now.
I’m not complaining. If things keep going like this, a few years work in the UK and I’d be able to buy a 3 bedroom detached house in Ireland for cash.
What are the Irish Banks to me, or me to the Irish Banks? They’re not going to give me a mortgage, and I’m not going to pay to keep them afloat.
So let the property prices decline, and the banks fail. I think the country will be better off in the long run.
Ivan yeats said in an Article a few weeks back that we would need an Alsop Auction every working day for 8 years to get rid of the Nama overhang.
I think there will be three property markets in Ireland for the next few years.
The current one with the remaining banks and estate agents. Awful value, very little credit.
The one created by Nama. Bad value but credit will be available.
Auctions like Alsops. Good Value but only if you already have the money to play with.
George Soros in Today’s FT
“whatever happens to Greece is likely to spread to Portugal, and Ireland’s financial position, too, could become unsustainable – the rest of the eurozone needs to be ringfenced”
The three weakest wildebeests are to be sacrificed for the good of the Euro herd.
I was just about to pose the question…was Morgan right after all? Time to revisit his analysis.
It’s getting bustier alright. 27 cents will buy you a share in all our quoted banks today and our 2 year bonds are yielding 18%+. What a mess.
And speaking of bank stress tests (!) what do the current acrobatics on the bond markets mean for the adverse haircuts assumed in the stress tests.
A 19% haircut on 10-year bond holdings (some €2.5bn of them) looks laughabe when our 10-year bond is trading at 13.33%.
Overall isn’t it the case that the stress test results from March 2011 should be re-visited before Minister Noonan puts in €24bn (less LME profits).
After all, if the rationale for delaying the shovelling of the capital in March 2011 was to get a final figure, isn’t that reason just as valid today?
A reminder of the stress test results
@ Ronan Lyons
I think the prices achieved at the two Allsops auctions are going to cause reality checks in even the most optimistic property investors?
Do you think that we might see an increase in property supply as investors start to feel that we may not be at the bottom of the market and that it would be far better to try to sell now even at what they would consider to be a low price?
The numbers for AIB, BOI, PTSB and EBS were taken from Table 7 on page 17 of the original stress test document and relate the the 31st of December 2010. The numbers for Anglo and INBS were taken from the subsequently published addendum. These give notional loans balances of €312 billion across the six banks with a breakdown by loan type.
Just looked and the 10 yr 4.5% is trading at 58 and change. The 19% haircut looks daft. But wait until Friday when the EU bank stress test release converge with whatever haircut scheme is drawn up for Greece and the proverbial hits the fan.
“I was just about to pose the question…was Morgan right after all? Time to revisit his analysis.”
On the total fall from peak I think MK will be closer than anyone other forecast out there.
The backlog I was referring to is just the stock of properties sitting on daft.ie, myhome.ie and propertypartners.ie.
We will need several thousand of these size auctions just to clear that before we even get to the stuff that isn’t on the market yet.
We also have no idea of the level of voluntary surrenders in workout deals by some of the defunct foreign banks, or the number of properties that have been repossessed by actions against commercial owners rather than individual owners.
“(Reuters) – A deeper-than-expected recession caused Greece’s central government deficit to widen by almost one third in the first half of the year, widely missing an interim budget target under the country’s bailout plan, the finance ministry said on Monday.”
The figures are really bad with revenue off 8.3% and spending increased by 4.5% before interest payments.
Their Finance dept state they will make up the shortfall in the second half…..and pigs will fly.
We don’t look as bad, but I see manufacturing off 1.5% in the three months to May.
@ Seamus/Joseph Ryan
cheers. Of that 312bn, 43bn is UK residential, and an unknown amount, but reasonably sizeable, is non-Irish corporate, SME and CRE. Total deleveraging required is around 75bn (i think closer to 85bn when non-rolled payments are included?), and most of this is UK, so this is the very starting point i would assume, ie 230bn. Don’t think you would stress the corporate loan book to the same extent as the property related stuff, so its not a blanket “20%” is it? And i’d assume its not a linear “property decrease of X = loss increase of X”?
If, and it’s a very uncertain “if”, residential prices were apparently 68% down presently, then I think the effect on the March stress tests would depend on how far we had presently fallen but I think it would only apply to a defaulting subset of the €100bn-odd Irish residential mortgages. €10bn would be my stab, but the point is shouldn’t the numbers be crunched (using all the March 2011 assumptions, just change the baseline and adverse). If the cost of the bank bailout is to increase by another €10bn, shouldn’t we know beforehand.
Is this the sort of matter on which the newly appointed Fiscal council might express a view? I understand the council is not yet fully functional but what’s the point waiting for a Bill to pass in 6 months if there are multi-billion decisions to be made now?
Never ceases to amaze me how some people take pleasure in the pain of others. The same people who want to analyse everything in this country to death sic. The Allsop Auction prices are set based on the fact that Lenders are prepared to sell at rock bottom. We have around 74% home ownership in Ireland which is not as high as we always thought as in other jurisdictions. Most people are not sellers at present – in fact most are hangersoners because whatever about needing to sell there is in fact little or no mobility of employment/business within Ireland which generally is a big factor in moving house. We have not got a functioning Banking system which ultimately affects the prices paid for residential houses as in nearly every house transaction there can be up to 4 parties involved – the seller is buying another property from another party and the buyer is awaiting the completion of the sale of their property to another property. In England we were told that chains on each side were up to 3 parties per side in house transactions. The consequence is that “cash” is King and what we see at Allsops is a further abberation of the market based on a small sample not a reflection of what real prices would be in a reasonable market.
BTW I own my house and have had no loan on it for 7 years but I do feel the genuine pain of those who are under pressure enough without some people here and elsewhere dancing on their graves based on all sorts of spurious death wishes. Some on here should take the time to read some of the initial figures on housing in the 2011 Census from the CSO before making more comments. What would be more constructive from those here instead of wishing for argameddon is that the Minister for the Environment would get off his backside and set up a House Property Price Database Register next month which would provide real and factual data on housing price market trends.
The central Bank published its stress tests which included the important parameter of house price reductions which now appears to be significantly underestimated (20%?). I think it would be far too optimistic to assume that the effect of the house price fall parameter used would be ringfenced solely to the €100bn odd residential mortgages.
The effect of such a significant underestimation would surely have far wider implications for bank balance sheets as well as for the general economy, consumption, savings ratios etc etc.
Some on here should take the time to read some of the initial figures on housing in the 2011 Census from the CSO before making more comments.
That is a very sensible suggestion. But, far too optimistic for Ireland, I am afraid, where the idea of letting facts intrude on the argument is frowned on.
Have you noticed how all discussion of the census results disappeared from the Irish media about 24 hours after they were published? The Irish Times did not have a single reference to them all last week. Messrs Browne and O’Toole failed to mention them in their columns last week, despite having spent the previous couple of years claiming there was a huge exodus. And David McWilliams’ normal columns failed to appear in the Sunday Business Post of Sundays July 3rd and July 10th, or in the Irish Independent of Wednesday July 7th, and his last entry on his website is for June 29th, the day before the census results were published. Looks like he’s done a runner to save himself the embarassment of having to comment on the census results, which contradict everything he has written in recent years. And likewise with Gurgdiev, who similarily has failed to mention them, while posting about virtually everything else in the 10 days or so since the census results came out.
Even worse, the Irish Times is still printing rubbish that was clearly planned before the census results came out. So, on Saturday morning, as a preview to the London v Waterford GAA football match in Ruislip, West London, the IT had an article (link below) about how the mass exodus of GAA players to London (the IT article called them Generation London) was turning London GAA into world-beaters.
Naturally, not a scrap of statistical evidence was given to support it, and it is completely contradicted both by the Irish census results and by the UK ONS quarterly population figures (which show the number of Irish-born in England continuing to plummet). And what happens? London promptly lose by 1-17 to 0-13. I didn’t even know they played Gaelic football in Waterford. I thought it was a hurling county. Can’t be much of a GAA footballer exodus to London, if London go and lose by 7 points at home to Waterford. I can only imagine the slaughter that would have occurred in Ruislip, if London had been playing a real GAA footballing county, like Tyrone.
TRP is correct about the need to take the census results into consideration before pontificating on the housing market. The government should appoint a committee of experts to report on the implications for the housing market and future housing demand of the much greater growth in population and number of households that has occurred and is occurring, as compared with what was claimed (although not by me) to be occurring prior to 11am Thursday June 30th.
The stress test adverse scenario allowed for €16.3 billion of loan losses on €97.7 billion of Irish residential mortgages: €10.2 billion on €74.4 billion of owner-occupied mortgages and €6.1 billion on €23.3 billion of buy-to-let mortgages.
One difficulty we have in imputing revised loss rates based on the house price data is the uncertainty on the starting point used by the Central Bank.
The changes in house prices used in the adverse scenario are
What did they assume the drop in house prices to be from the peak in mid-2007 to end of 2009 when the above annual changes begin?
The recently released CSO price index shows a 30% drop from the peak in mid-2007 to the end of 2009.
If the CB started with a 30% drop then the above changes would mean a total peak-to-trough fall of 60%. If they started with a 20% drop to the end of 2009 then the changes would mean a peak-to-trough fall of 55%.
It would take an assumed starting drop of 45% for the adverse scenario annual changes to lead to a 68% total fall from peak.
I would think (hope!) that, at best, they started somewhere in the region of 25% to 30% below the peak. If they took a 30% starting drop then the adverse scenario would show a current drop from peak comparable to that in the CSO index.
It is equally hard to transform the house price changes in mortgage losses but I would guess that a further c.70,000 full defaults (based on €10billion) on top of the c.125,000 full defaults already allowed for (based on €16.3 billion) is wide of the mark.
OMF you are quite right to presume that you could buy a 3 bed house by saving up for it.This will be the next phenomenan to hit Ireland.A couple earning say €32,000 each per annum could save €32,000 per annum for 2.5 years and purchase a house outright without a loan(Taking prices from the Allsop Auction).If this happens and there is no reason to doubt that it won’t then it spells the end for lending institutions who make their money largely from loaning money for mortgages.House property must be nearly the only item which traditionally increased in price over time. Practically everything else other than precious metals,stones and antiques decreased in value over time.This is largely as a result of a mindset which brainwashed the Irish over many years, encouraging them to “get on the property ladder before prices increase even further”.As David Mc Williams has often said high prices in Ireland has been predicated on the high cost of servicing ridiculously high mortgages(ie demands for higher wages was as a result mainly of having to pay high mortgages). If house property prices were to reduce to affordable prices as should be a citizens entitlement then all other costs would reduce and Ireland would become a competitive economy attracting both industry and tourism.
I suppose it is churlish of me to say “I told you so!” (wrt declines in res property values and prices). I always thought MK was ‘wrong’ (bust would be worse than he predicted). I still hold to this opinion.
The res property market is, currently, a tar pit for the unwary. I am still astonished at the adverse reactions I get when I advise folk that we are in the middle of the bust, and that we still have perhaps four or five years of decline left!
Mind you, when I mention that interest rates have to be increased in order to ‘save the banksters’, things tend to get a bit quieter. Then you have the USC which gnaws part of your income. And of course the real killers: energy and food price increases!
House property must be nearly the only item which traditionally increased in price over time.
Exactly which planet do you live on? Just recollecting from my own childhood and teenager experience:
In 1960, the admission price for the Down v Kerry All-Ireland final at Croke Park was 5 shillings (25p in decimal)
In 1963, the Irish Times cost threepence (1.25p in decimal)
In 1966, a bar of Cadbury’s Dairy Milk cost sixpence (2.5p in decimal)
In 1967, the boat/train fare from Belfast to London was under a pound
In 1968, entry to the National Ballroom in Parnell Square was 7s-6d (37.5p in decimal)
If you know anywhere that matches those prices today, do let me know.
I am obviously referring here to items such as cars.Buy a new car today and in a few years time it will be half the value.
So too for nearly all other solid items such as furniture,TV,s ,Computers etc etc. But Houses increased.Of course I recognise that the items you mention are more expensive today.We are not comparing like with like.
It seems a little strange to take prices from an auction of property so poor it has ended up in this kind of auction and compare it to asking prices that may never have been paid (for the kind of properties in question) and extrapolate a figure for general decline.
I am no cheerleader for high property prices, they were insanely inflated by loose credit, particularly on the cost side through land price inflation, but also on the demand side through lack of control on mortgage credit.
Yet this market is almost as irrational as the boom. Banks can not lend, therefor no one can buy – no one can buy so the property based collateral and mortgage books of the banks become ever more distressed. And so banks can not lend.
You have an inverse ponsi scheme.
@SPO I live in a 120 year old building. If I had a 120 year old car in similar condition I expect it would have increased in value.
That’s because these other items are consumed immediately, or don’t last, or become out-of-date. Houses last and, if looked after and maintained with a bit of DIY, can be in as good a condition 50 years after being purchased as when new, so the value of a well-maintained and quality house, built in 1961, will be determined, not by the cost of building it in 1961, but the cost of building a similar-quality house today, which, of course, will be much greater than the cost of building it in 1961, because of wage and price inflation since then.
Most other products are totally different. A bag of chips purchased in 1953 would hardly be very appetising today. A man out to impress his girlfriend is hardly likely to purchase a 1962 Ford Consul today, although any man who had one back in 1962 would have had girls chasing him the length and breadth of the country. No one particularily wants to purchase a 1970 copy of the Irish Times today. Things like computers and mobile phones break down and are unsaleable a few years after they are purchased.
But, I would imagine that, if one purchased some item back in 1961, and it was still in as good a condition today as it was when purchased, and wasn’t the sort of item that went out of fashion, one could sell it at today’s price. If I had bought a few packets of Polo mints in 1961, and stored them in a cool clean place since then, so that they were still in mint (sic) condition, I’d imagine I could get today’s going rate for them.
If you had a 120 year old car in good condition, it of course would be a vintage car otherwise known as an antique and would naturally be valuable as I mentioned in my original blog.
JTO Would you say a mobile home well maintained for 50 years would be as valuable as a modern mobile home purchased today?Hardly.
I am just stating that the public have been brainwashed into expecting to pay high prices for houses.
Even the Govt. were forced into compelling builders to include so called “affordable housing “as part of their schemes.
Wouldn’t it be more sensible to calculate prices on the basis of the tens of thousands of houses that have been sold in recent years, rather than on the basis of an auction of a few dozen properties? That is another thing that the census results have changed.
We have been told ad nauseum for the past few years that virtually no houses were being bought or sold, and that the numbers of such have been too small to enable accurate figures for what they were bought and sold for to be calculated.
But, we now know from the census results that there was an additional 206,682 houses occupied in the country in April 2011, as compared with April 2006. Ignore those occupied between April 2006 and April 2007, when prices peaked. That leaves an additional circa 150,000 houses occupied in the country in April 2011, as compared with April 2007, the start of the price fall. Yet, we have been told over and over that virtually no houses were bought or sold in that time. So, how did these additional circa 150,000 houses come to be occupied by households in that time? They can’t all be squatters.
One of the usual reasons for justifying the long term above inflation rise in house prices is not so much to do with the replacement cost because obsolescence comes into it, but more to do with Mark Twain’s attributed advice
“Buy land because they’re not making it any more”
No doubt property prices in Ireland will increase again the future. However for today the concerns are more short term. Are we at the bottom? How will prices change in the next six months? Year? Five years?
We suffer from a dreadful lack of price discovery in this country. Which is why the Allsop auction is swarmed over to see what clues it offers. We don’t have settled prices for late 2007 when Irishpropertywatch was started. So what Dreaded has done is compare asking prices in late 2007 with the prices we do know, those achieved last Thursday in what appeared to be an open and transparent auction. Most areas of Ireland peaked in early 2007 it seems according to the CSO, so you MIGHT conclude that in late 2007 asking prices might have been more realistic. Who knows. It’s an indication, and I think a good enough reason to ask if the stress tests for our banks are adequate or should they be re-run.
Nobody would object to “a fair days pay for a fair days work”principle.
Taking a price of €66.50 per sq.ft to build a 3 bed semi.,then a house of say 1100sq ft. would cost about €73,150. If we add the cost of the site at about €30,000 then a fair price for the house would appear to be about€103,500.inclusive of all profits and fees etc.
Established houses in sought after locations could be expected to achieve another €20,000 or so.
Could this be the bottom so often referred to?
@SPO I agree with the general point that people were in Ireland and are in many other places convinced by the media and marketing to embrace unnecessarily high prices for property. (the ratio of house prices to real earnings in many Chinese cities is far worse than 2007 here). Though I would say that if prices do stabilise at 80% down there will be as little relation to the cost of construction as there was during the boom.
By if you exclude the cost of living stuff listed by JTO and accept that all good objects become “naturally valuable” antiques are you really left with many examples of things that have not consistently inflated.
Oh dear, oh dearie me. Are you really going to claim in a thread on an Irish blog that a large number of people have emigrated in the past couple of years? The ‘increase’ is largely made up of public sector babies, born of parents who have no real promotional prospects to focus on at the moment.
Whats the cost price or fair price got to do with the price of property ?
Its value is almost entirely related to the availability of credit – its a pure creature of debt used by the banking industry to extract a private tax on serfs.
Its a choice between the bailing out the banking sector & preserving the value of the currency.
It seems the western worlds parasitical sector has outgrown its host.
Credit resources must be directed towards productive investment and development only.
Clear the dogs at cash price.
houses, if looked after, are long term durable goods, unlike the other things you mentioned like cars and computers. Thats why they increase in price, because they get the benefits of inflation but don’t have the same disadvantages of wear-and-tear that most consumer goods do. Technological changes i also less of an issue in housing (ie a house built 30 years ago isn’t all that different to a house built now), but you can’t really compare cars, computers or CD players from the 80’s with those made today.
I’m sure some will denounce this as a British plot but the Economist still reckons our houses are over-valued
The genius of “Dreaded Estate”‘s analysis is in bringing 21st century information management to an 18th century marketplace.
In the absence of a proper price database, Dreaded Estate created IrishPropertyWatch and now, with the continuing absence of a proper price database, has provided information which the marketplace requires but is being denied.
No one wants to use asking prices as a starting point – but in the continuing absence of anything else it’ll do for me!
“Thats why they increase in price, because they get the benefits of inflation”
I think this is pretty much spot on but many people expect/believe that house prices increase by more than inflation over the long term. Even through there is very little evidence to suggest that this is the case.
Two of the longest time series on residential property (Dutch Herengracht index from the 1620’s and Shiller’ US index from 1890) suggest that prices increase by between 0.2% and 0.4% in real terms pa.
What we have seen across the world and particularly in Ireland over the last decade has been one of the largest financial bubbles since records began. It is going to take quite some time for the property market to return to long term normal levels.
@ dreaded estate
Do those studies take account of the money spent on the property in terms of renovation?
A house built in Dublin in 1900 will have had to have at least two full refurbishments done between then and now. The two refurbishments will probably cost almost as much as the initial build (with inflation) due to added difficulties (access, working with an exhisting building).
You said: “Naturally, not a scrap of statistical evidence was given to support it, and it is completely contradicted both by the Irish census results and by the UK ONS quarterly population figures ”
I was watching a programme on RTE last night (Departure Day) about all the young people leaving Ireland for Australia/NZ/Canada (including GAA players!) and other than a few sob stories/anecdotals, it didn’t present a scrap of evidence that quantified the argument.
Perhaps we can expect to see Calgary taking on Dublin or Kilkenny soon?
Does anyone actually know how many Irish people have left Ireland in the past year?
Neat piece of property on College Green – some time back I suggested it as a possible HQ for the IMF – but they didn’t bite. No need for a fire-sale here …
Now that the corner back from North Kerry has come on board I, in company with Joe and Joan Citizen_serf – Blind Biddy – Patricia the Irish Sovereign_in_exile – Seven_of_9 & the unemployed turf-cutters cooperative, urge all to fully support Minister Denihan in evicting the board of BoI [4 of whose directors have been in situ since vichy_banking crisis – corporate governance how are ya!] from these premises – after all us Serfs now own 70% of it …… and we want this little corner of our heritage back …. who knows, it might be restored to its former glory in this island’s heritage …. I’m sure John The Optimist will agree.
Interesting to look back at Morgan Kelly’s 2009 prediction for house prices.
Rental yield at peak of bubble 4%.
Equilibrium around 8%, but rents have fallen by 25% so far: implies
price falls of around 60% from peak.
Prices often overshoot: fall of 70% to bring 10% yield.
However, this assumes rest of economy continues to function
Collapsing employment implies many will be unable to meet
mortgages, leading to forced sales at all levels of market.
Many heavily indebted households will disappear abroad.
Liquidation sales of unsold stock by bankrupt builders.
Many households, including the very wealthy, that invested in
apartments and commercial property will be forced to sell all
assets to cover debts.
Internationally unprecedented falls of 80% or more are therefore a
Property prices are still nuts especially in Dublin. Some boxes in Ranelagh are asking 675,000 even at this stage of the collapse. Looks like our futurologist, Morgan Kelly is right on the money yet again when he called an 80% drop.
I’m sure some will denounce this as a British plot but the Economist still reckons our houses are over-valued
Yes, by 22.9 per cent, they say.
And what do they say about over-valuation in other countries?
Australia over-valued by 50.1 per cent
France over-valued by 48.5 per cent
Spain over-valued by 39.2 per cent
Sweden over-valued by 35.8 per cent
Britain over-valued by 27.8 per cent
I am particularily perplexed by the Swedish figure, as it is many years since they’ve had a Fianna Fail government. How come house prices there are so-overvalued when we are always told that it is a model of good governance.
Naturally, being a typically badly-presented Economist table, it is impossible to do much analysis on the figures, as they don’t give the time-period to which the figures about over-valuation refer. If the Irish figure is from 2010, then the level of over-valuation now (July 2011) will be much less, as house prices have continued to fall in 2011. In contrast, in most of the other countries, the level of over-valuation now (July 2011) will be greater, as house prices have risen in most countries in 2011. Nor do they give the source for the Irish figure, which is critical for any proper analysis of them. As far as I am aware, there are only two: (a) the Department of the Environment figures, which only go up to Q4 2010 (b) ESRI figures, which have now been discontinued. There is a big difference in the two. The ESRI figures for average house prices are generally much lower. The latest Dept of the Environment house price figure for Q4 2010 is over 250,000 euros, while ESRI’s is under 200,000 euros. So, to analyse their 22.9 per cent over-valuation figure for Ireland, one would need to know whether they were using the Dept of the Environment figure or the ESRI figure. The CSO now publish a house price index, but not house price figures.
@ Karl Whelan
Thanks for the link. The economist ‘fall so far 2006 – 2011’ is only given as -35%, while the tenor of this thread is that Ireland is way beyond that now.
Over the last year I’ve found ‘Yields or Bust’ and ‘Brian Woods Snr’ pursuasive on this, and reckon, all other things allowed, a fall of about 75%.
On that link though, Spain is way over-valued by 39.2%. Does you think this may be the difference between crystalising bank losses up-front (Ire) and not (Spain), given relatively similar problems? Is there anything for economists to learn about handling the fall out from property bubbles here.
I was watching a programme on RTE last night (Departure Day) about all the young people leaving Ireland for Australia/NZ/Canada (including GAA players!) and other than a few sob stories/anecdotals, it didn’t present a scrap of evidence that quantified the argument.
I think that there is a lot of bluff by GAA county boards and managers going on. Just as a Premiership manager will tell the media that all his players are crippled with injuries, and that he will have to field third-team players on Saturday, then Saturday comes, and the full first-team turn out, and they win 6-1, so also do GAA county boards and managers tell the media that they won’t achieve much this season because all their players have emigrated. We in Tyrone were deceived by this tactic this year. All winter, we’ve hear nothing from across the border in Donegal but about how all their players had emigrated and how they might have to play a few over-65s this year, so denuded was Donegal of its young people. Then, Tyrone meet Donegal in the Ulster semi-final, and they beat us for about the first time in a million years. That was the Sunday before the census results came out. I knew even then that all the stories about emigration from Donegal were nonsense, designed to lull Tyrone into a false sense of security. A county wracked by emigration simply doesn’t beat Tyrone. Sure enough, the census results come out four days later, and it turns out that the population of Donegal has increased by almost 10 per cent in 5 years, and that they’ve experienced massive net immigration in that time.
Another reason why the increase in house prices in Ireland (and, to a lesser extent, elsewhere) is far less of a bubble than some claim, is that both the quality and size of Irish houses have been increasing rapidly. These should both be factored in, when comparing the trend of house prices over time.
In the early 1970s, almost half of Irish houses had no indoor toilet – now they all have.
In the early 1970s, almost half of Irish houses had no fixed bath – now they all have.
In the early 70s, the average Irish house had 4.5 rooms – now it has 5.6 rooms.
These figures make the idea of using some sort of historic norm for the ratio of average house prices to average incomes deeply flawed. Of course, it is going to be higher now, because the average house now is so much better and bigger than in the 1970s. Obviously, this doesn’t acount for all the increase, and there is indeed a large inflationary component. But, the improved quality and increased size of houses in Ireland should be factored in as well.
@Michael Hennigan (in anticipation)
If you come on and post, as is your wont, that the above is wrong and that Irish houses have been getting smaller, I shall refer you for the umpteenth time to the CSO figures for average floor sizes of new Irish houses (link below)
These are the figures the CSO give:
CSO figures for average floor size of new houses (square metres):
CSO figures for average floor size of new appartments (square metres):
I am certainly not suggesting that increasing size explains the whole, or even most, of the increase in house prices in Ireland between the early 1990s and the late middle 2000s, but it certainly should be factored into the calculations. If it was bars of chocolate that we were talking about, it would be elementary that this be done.
Location, location, location!
I dont think anyone is trying to dance on anyone’s grave.
The objective is to try to take a look at where we are and which direction property prices are likely to go.
You are right to say that immediately setting up a property price data base would help.
“The consequence is that “cash” is King and what we see at Allsops is a further abberation of the market based on a small sample not a reflection of what real prices would be in a reasonable market.”
But when do you expect to see a reasonable market?
And if by reasonable you mean a return to Banks offering more than 90% or 3 times yearly wage then reasonable is something we don’t need.
Also I am going to take a guess based on the tone of your comments which seemed quite emotive.
Do you have a close relative in negative equity?
You mention that the CSO figures should cause a rethink.
I have one point to make about the great news about our population growth and how that will affect house demand.
My instinct (could be totally wrong) is that one reason the extra demand you would think will materialise, may not actually is because I think we will see a reverse in the trend for decreasing persons per household. I think as we become a little less affluent the trends for low person per house holds will reverse. This could wipe out the benefit of the increase in population. Also demand will be affected by emigration.
“Do those studies take account of the money spent on the property in terms of renovation?”
That’s a good point. If hedonics were applied to house inflation the way they are to other products, long-term real price increases would be negative – indoor plumbing, fitted kitchens, heating, insulation, electrification etc. have hugely increased the living value of four walls and a roof.
D.O.C Do you actually believe that because credit is available(in abundance up to 2007)that developers,builders,vendors etc should be paid in accordance with the amount of money that can be borrowed?In other words if a lot of credit can be given by lending institutions it justifies paying exorbitant prices for property.Hardly.That’s why a fair price for something should be based on the amount of effort required to produce the funds to acquire it within reason.And thats why since 1959 a 3 bed semi (even without the indoor toilet!)could be purchased for around 2.5 times the national average industrial wage as was the case in 1973, up until 1996 and between 1996 and 2007 it became 8.5 times the national average industrial wage.So to reach the bottom they have to return to 2.5 times the national average industrial wage approx.
When both partners became employed a corresponding increase occurred in the price paid for property because with 2 people working a higher mortgage could be paid.And as we now see it really could’nt be afforded as such loans should only have been advanced on the basis of one income and if this had transpired house property would never have reached the ridiculous prices that they did at the height of the bubble.
The annual Mercer cost-of-living survey is just out.
The figures are for March 2011. Dublin is now down to 58th most expensive city – among other EU15 capitals, Dublin is now below Copenhagen, London, Paris, Rome, Vienna, Stockholm, Helsinki, Amsterdam.
It only gives the top 50 (the full list will no doubt appear in due course), so possibly some of the other EU15 capitals (Madrid, Lisbon, Athens, Brussels, Berlin) are in the rankings from 51 to 57. Clearly, Dublin is now one of the cheapest capital cities in the EU15. It is even cheaper now than some of the eastern European capitals, like Prague and Istanbul, which would have been considered very unlikely a couple of years ago.
The relevance to this thread is that the Mercer survey confirms that the necessary adjustment in the cost of living in Ireland had already been achieved by March 2011. Ireland is extremely competitive again. So, there is no economic need for the further large falls in house prices that some are predicting. That doesn’t mean they can’t happen, as these things often overshoot. But, that’s what they would be: on overshoot, that would itself be corrected in due course.
@seniorpropertyobserver: I fear that time has dimmed your memories of the difficulties in getting on the property ladder.
The Department of Environment website contains a nice data base of new house prices (admittedly not mix adjusted) and average industrial earnings between 1970 and 2010. This demonstrates that house prices were 7.4 times average earnings in 1970, they fell to 4.0 times average earnings in 1983 but never fell below that during the 30 years of the data series. Prices rose to a high of 10.2 times average earnings in 2006/07 and have been on the slide ever since. If someone advises me how to do so, I’ll post a copy of a graph summarising the data.
Anyway my point is the view that (at least since the invention and widespread availability of mortgages) that average house prices 2.5 times average incomes is fiction. The proportion of households living in rented accommodation was almost twice as high in the early 1970s as it is now. Why? Because people couldn’t afford to buy.
JTO On a recent trip to Dusseldorf in May it was noted that almost everything was about 25 to 30% less expensive than Ireland even still.This in a city which was regarded as expensive compared to Ireland 15 to 20 years ago.
I do agree that some reductions have been achieved in Ireland but there is still a long way to go.It must be remembered that we need to be almost the least expensive in the EU if we are to regain the competiviteness we enjoyed in the past!
No I am not concerned in particular about close relatives/friends in negative equity although I do know of many people in that situation particularly those that bought after 2005. I understand their pain. I am concerned that such a hysteria has now been created that lots of young people are not interested in owning a home. They have this belief that a home can soon be bought for a song if you wait long enough based on the meanderings of St Morgan and others ,but, that belief has an opposite person who needs to feel secure in the home they have bought be it 5,10 or 15 years ago as being something worthwhile and essentially very sensible so as not to feel when you reach nearer to old age to realise that you still owe a rent each week/month and may not have security of tenure if you cannot pay that rent. The present market is not a reasonable market when this hysteria is pervasive.
As regards multiples of income etc this is all balderdash at present because the Bankers have found multiple ways of saying No to borrowers not because they cannot afford the property but because the Banks do not want to lend – full stop. The people now inhabiting these institutions are the ones that doled out the money so freely but now want to see themselves as squeaky clean when it comes to new lending. I have come across cases turned down by the Banks on the most spurious excuses which would not be tolerated 20 years ago. This is not a reasonable market.
The recent CSO Census 2011 figures show not only the numbers in the country at it’s highest in decades but a new level of increase in the number of households presumably because of changed mores and culture with more cohabiting persons. I see no evidence of the young ones returning home to Mammy. The number of inhabited houses increased from 1.503 million in 2006 to 1.710 million in 2011 a 13.8% increase. The Census also shows that taking Dublin for example that the number of vacant housing units had dropped to 8.6% from 9.7% in a period when there was an extra 52,000 units in Dublin since 2006. There is without doubt a demand for housing but if hysteria continues to be manufactured about house prices and the Irish Banks are allowed by the Government that owns them to spurn those that want loans to buy them then that is not a reasonable market.
St Morgan is giving a Public Lecture at the Kilkenny Arts Festival in St Canice’s Cathedral Kilkenny on saturday 6 august @ 6pm. The tickets are pricey but then genius never comes cheap !!!
St Morgan is giving a Public Lecture at the Kilkenny Arts Festival in St Canice’s Cathedral Kilkenny on saturday 6 august @ 6pm.
Always eager to help, I have cut and pasted some figures relating to Kilkenny from the CSO census report. I hope St Morgan will be able to drop them into his lecture. Locals in Ireland usually like it when a visiting celebrity makes references to their own county, as they rarely get to see anyone as famous as him.
Population 2006 87,558
Housing stock 2006 (Number) 34,353
Occupied dwellings 2006 30,245
Vacant dwellings 2006 (Number) 4,108
Vacancy rate 2006 (%) 12.0
Population 2011 95,360
Housing stock 2011 (Number) 39,299
Occupied dwellings 2011 34,558
Vacant dwellings 2011 (Number) 4,711
Vacancy rate 2011 (%) 12.0
So, the population of Kilkenny increased by 8.9% in 5 years. To put that in perspective, the population of the EU increased by 2% in that time. And the number of occupied dwellings in Kilkenny increased by 14.3% in those 5 years. If St Morgan drops these figures into his lecture, and manages a few references to hurling into the bargain, his Kilkenny audience will love him.
Please give the man his proper title/s. He has earned them.
He was a tad wrong (he has underestimated the decline) with his prediction (of should that probabilistic opinion) of res property decline. It will be in range of -70% -> -90%, depending on nature of property and of course, the location. I suggest interested parties should research property prices in daily newspapers published from mid-1980s up to mid-1990s for enlightenment.
If there are many ‘forced sales’, who will be doing the buying? Cash customers? The current res property market is a – non-market!
“The Department of Environment website contains a nice data base of new house prices (admittedly not mix adjusted) and average industrial earnings between 1970 and 2010.”
Were average earnings closer to median earnings in 1970? I feel they have drifted far apart with the rise of super-larger earnings…
Using the average industrial wage gives some different figures. I don’t have them for as far back as 1970, but 1973 at 5.6x AIW to a peak of 6.36x in 1979 before falling back to 3.36x in 1983 and still below 4x in 1995 (peaking at 8.16x in 2006 before I lost interest in trying to find the figures.
Using averages is, anyway, a mugs game. Median is what we want both for wages (by age decile maybe) and for property type and location… Sure what’s another year, we’ve only be waiting twenty years for this…
And the commercial property market looks to be in equally poor shape.
The Gov’t may have delayed the market bottoming out but they have ensured that the recovery will be delayed as the surplus dribbles onto the market. The dribble will become a deluge if the other two ratings agencies follow Moodys.
Are we headed back to conditions similar to 1932. In them days you bought property with a purse full of Sovereigns. Banks were few and far between and were not inclined to speculate on property. A cash property market without the leverage afforded by bank loans. Where would the bottom be in those circumstances. It is hard to believe that in 2007 the mantra was ” there have never been declining property values in Ireland”.
MH You are quite right even in the early 60’s you could not speculate with the Banks money.Banks in those days only lent for “productive purposes”.Are we returning to that?Selling houses to one another at ever increasing prices is now seen as a folly.The solution lies in investments in such things as Renewable Energy,Road,rail and infrastructure projects which will give employment and provide long term benefits for the country.To have house property available at reasonable cost as heretofore can only but enhance available finance in a household where there is money left over for other purchases after paying the mortgage.
See the small print of Allsop Auctions. The seller, his agent or the auctioneer is allowed to place bids while the auction is in progress, when the price is below the secret reserve price.
It is possible that a single bidder could be bidding against the seller!!!!
Buyers should read all the small print specially clause A3.5