House prices

Readers may recall that back in September 2009 I blogged about Finance Minister calling a floor in the property market, and how unlikely that situation was. Mr Lenihan was appearing before the Finance committee in relation to NAMA. Here is the video:

I also drew (very poorly) some graphs, arguing that the only way property prices were going was down. By a significant amount. Some of the lads over in politics.ie sniped that my poorly drawn graphs were laughable (they sort of were), but the logic behind them was, I believe, sound. Some disagreed.

So let us return to those graphs from 10 months ago. Here is the graph I drew in September, based on CSO data for second hand home prices:

Screen shot 2009-09-11 at 03.40.26

You can see that as of Q1 2009, average national house prices for second hand homes were around €290,000. Next up, my graph (which included more recent ESRI prices from July 2009 at €240,000).

Screen shot 2009-09-11 at 04.09.12

My argument was that prices would continue to fall, more or less symmetrically with how they would have risen. In other words the second property bubble was from 2002 to late 2006, about a four year period. In 2002 average prices were about €200,000. My graph indicates that prices would return to €200,000 by mid 2010, about a four year period. Well I would argue that they now have done so.

Here is the latest date from the CSO. Prices continued to fall, passing well below €250,000 in Q4 2009 (€40,000 below the floor Lenihan called).

Second hand home prices (national) Ireland

But we don’t have Q2 or Q3 2010 figures from the CSO yet obviously, so let’s have a look at the ESRI figures.

ESRI/PTSB house price index Ireland

According to the ESRI for Q1 2010, average national house prices are now €204,830, and we can easily imagine that since March, prices have continued to fall. Which means house prices are now back to 2002 levels, where our second property boom started.

The question now is, will we start now unwinding the first property bubble, 1997 to 2002? I believe we will. I would see prices returning to 1998 levels, factoring in inflation, which would lead to a national average house price of about €130,000 – €140,000 by late 2011, or early 2012. It could even be lower than this, as it tends to overshoot on the downside. I see no factor that would keep prices where they are now. Government policy and/or NAMA are the only variants that did not exist before – but I still do not see them being able to counteract the other major factors: rising unemployment, lower credit, a shrinking economy, bankrupt banks and oversupply of houses, among others.

Unfortunately for us NAMA officially called the bottom of the property market in November 2009. Since then its own assets have significantly decreased in value.

Of course if anyone disagrees with my analysis, have at it in the comments.

6 thoughts on “House prices”

  1. Gavin,

    You would indeed have cause to feel aggrieved at any criticism you received for highlighting Brian Lenihan’s comments – indeed there is now proof that even he didn’t believe them. In the November 2009 submission of the Anglo restructuring plan by the DoF their base plan was for prices to continue falling in 2009, 2010 and 2011 before stabilising in 2012 and which in its base plan saw a 47% average (69% worst case) peak to trough fall (and to September last year prices were only 25% off peak – national Permanent TSB HPI). The EU Decision which highlights the base plan assumptions in paragraph 41 is here.

    http://ec.europa.eu/competition/state_aid/register/ii/doc/NN-12-2010-C-11-2010-WLAL-en-31.03.2010.pdf

    With respect to NAMA, I tend to agree but the MfF told the Oireachtas last week that movements in values from Nov 09 to Jun 10 had a “broadly neutral” effect on NAMA. And indeed some NAMA markets (eg UK commercial and residential) have improved since last November. Not to divert attention away from your site and the excellent original work here, there is an analysis of movements in value in NAMA’s main markets since Nov 09 with the most uptodate information (unfortunately for Ireland, 3 months old) here:

    http://namawinelake.wordpress.com/2010/07/07/new-feature-%e2%80%93-nama-asset-performance/

  2. No problem at all Jagdip, your analysis is far better than mine. And thanks for the reminder, I’ve added you to the blogroll.

  3. Many thanks Gavin, you’ve probably seen the incoming links to your articles and in particular documents, which are original and often not available online elsewhere – keep up the brilliant work.

  4. Yes – this was a good call.

    If we are now past the 200k average we must be heading for somewhere between 100-150k average price in the not too distant future as there is absolutely no sign of any improvement on the horizon and that wave of repossessed properties from those who lost their jobs in the past couple of years has yet to hit plus the numbers struggling at the moment are only going to struggle even more in the future. God only knows what will happen when interest rates start climbing again. Joseph

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