Thursday, November 28, 2013

28/11/2013: Irish Residential Property Prices: October 2013

Irish Residential Property Prices index (RPPI) for October was published yesterday showing continued and rapid convergence in Dublin prices toward national levels.

Overall National all-properties RPPI rose 6.12% y/y in October 2013, having posted 5th consecutive month of annual rises. Compared to peak, National RPPI stands down 46.82% and is up 8.27% on crisis trough. 3mo MA of RPPI is 3.96% higher than for previous 3mo period. Cumulated 24 months change is now -2.53%.

National Houses RPPI also rose strongly, posting a gain of 5.86% y/y and marking the 5th consecutive annual rise. The index is 45.23% below its peak and 8.23% above the crisis period trough. Cumulated change over the last 24 months is -2.69% and 3mo average through October is up 3.95% on previous.

National Apartments RPPI is up a massive 11.68% y/y and is 15.1% above the crisis period trough, although the index is still 57.55% below the peak. Cumulated 24 months gain is +0.77% and 3mo average through October is now 4.49% ahead of 3mo average through July.

National ex-Dublin RPPI declined 0.29% y/y. last time the index posted positive gain was in February 2008. The rate of decline is moderating significantly, however, as shown in the chart below. The index is now 46.89% below its peak and 3.48% above the crisis trough. Cumulated change over the last 24 months is -9.16%, but 3mo average through October 2013 is 0.69% above 3mo average through July 2013.

Dublin RPPI (all properties) rose massive 15.02% y/y in October, marking 10th consecutive annual rise and third consecutive rise in double-digits. The Index is now 49.89 below its peak and 17.63% up on crisis period trough. Cumulated 24 months change in the index is +6.81% and 3mo average through October is 8.31% ahead of 3mo average through July.

Decomposition of Dublin RPPI:

Dublin Houses RPPI rose 14.61% y/y in October. This was the third month of double digits annual gains and the 10th consecutive month of positive annual rates of growth. The index is down 48.19% on peak and is up 17.43% on crisis trough. Cumulated 24 months gains are 5.62% and 3mo average through October is 8.7% higher than for the 3mo period through July.

Dublin Apartments RPPI posted the fourth consecutive double digits annual rise with a gain of 18.01% y/y. This is the 5th consecutive month of positive annual growth rates. The data is exceptionally volatile and, as CSO points out, is based on thin volumes.Overall, apartments prices are down 56.28% on the peak and are up 20.3% on the crisis trough. Cumulated 24 months gains are at 9.65%.

Top-line conclusions:

  • Dublin prices are converging back toward longer term equilibrium levels. These, in my opinion, should be around -20-25% of the peak, to return us to inflation-consistent growth path.
  • The rate of convergence is very strong and disturbing. This is probably due to one-off factors that are likely to run their course over time.
  • It is likely that the prices will overshoot the new equilibrium trend on the way up and will then moderate back toward trend.
  • The rest of the country is in the flat-line pattern and can see a psychological boost from Dublin. This boost is unlikely to be sustained in the short run.
  • Uncertainly is significant in the market in the short run (through 2014-early 2015) due to the backlog of unresolved mortgages arrears and Nama holdings.
  • Long-run equilibrium for the national prices is also around -25-30% on pre-crisis peak.

Table below summarises the levels of equilibrium indices and the shortfall on equilibrium:

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