Why are Irish house prices still falling?

Gerard Kennedy and Kieran McQuinn from the Central Bank give their view on where house prices should be in Ireland, and why they haven’t stopped falling in this new paper (.pdf). This paper is a kind of update to Morgan Kelly’s 2007 piece on the likely extent of house price falls (.pdf) as well as other papers.

From the abstract of Kennedy and McQuinn, then:

In this note, the continued fall in Irish house prices is examined. The increased rate of decline in 2011 resulted in Irish prices being almost 50 per cent down from peak levels of mid 2007. Accordingly, in over forty years of house price data, the fall is now one of the most significant across the OECD. We outline the current state of activity in the housing market and, using a suite of models, assess whether the fall in house prices is in line with that suggested by current fundamental factors within the Irish economy. Given that the analysis suggests prices may have overcorrected since 2010 we discuss possible reasons for this continued decline.



The Fiscal Treaty in the Sunday Papers

The Sunday papers/blogs have some good contributions to the Fiscal Treaty debate.    In the Sunday Independent, Colm McCarthy cuts through much of the confusion with his usual clarity:

This referendum has consequences and is not just an opinion poll on whether people are pleased that we have an enormous debt and an ongoing deficit.

There are two net issues. The first is whether a ‘Yes’ vote would result in additional constraints on Irish budgetary policy in the years ahead.

The second is whether a ‘No’ vote would make the financing of the Government more difficult once the EU/ IMF programme ends in December 2013.

 

You should read the full article for Colm’s analysis of the two issues.   But it is worthwhile to note the conclusions:

The fiscal treaty does not, in the short or long term, create new commitments to budget cuts beyond what is in store anyway. But rejection could result in a sudden drying up of access to finance — and hence an immediate requirement to balance the books — and would be highly disruptive.

This treaty will not solve Ireland’s problems, but voting it down could make a bad situation worse, for no obvious gain.

Cliff Taylor echoes these conclusions in the Sunday Business Post.   The article is behind a paywall, but a fair-use quote gives the gist:

So there is no additional austerity for Ireland which will result from voting Yes.   Austerity is inevitable – we just have to hope that some pick-up in growth will make the sums easier.   And let’s not fool ourselves that a vote here would in some way change the course of what might happen in Europe.   That will depend on the big countries.  Full stop.

If a No vote brings no obvious advantages, it does bring risks.   As the rules stand, we would not have access to the European Stability Mechanism, the new permanent bailout fund.   So, if we need more cash after this bailout runs out – or other forms of support, such as further underwriting – we will not qualify if we vote No.   Sinn Féin has argued that the EU and IMF will not see us stuck.   But why try to find this out?

Finally, Nama Wine Lake, our new national treasure, provides a useful overview of the arguments here.

Reminder: IMF loans more expensive than EU loans

The Sunday Times reports that the IMF could be an alternative source of funding in the event of a No vote.

One point to keep in mind in this debate is that the IMF charges a penalty premium of 200/300 basis points on large loans, whereas the premium has been dropped from EU loans, as decided at the July 2011 summit.

The relevant IMF funding schemes  (Extended Fund Facility, Precautionary and Liquidity Line) are described here and here.

Tax and Multinationals

The NYT has a long article on Apple’s global tax strategies here.

Stability Programme Update

The April 2012 Stability Programme Update from the Department of Finance is now available as well as a short statement from Minister Noonan.