Friday, March 28, 2014

28/3/2014: Irish Mortgages Approvals: February 2014

There were some boisterous reports in the media today about the latest IBF data on mortgages approvals in Ireland, covering February 2014.

Here are the facts, some of uncomfortable nature for the 'property markets are back' crowd.

  1. Year on year, mortgages approved for house purchases rose 49.5% which, on the surface, is a massive nearly 50% jump, suggesting huge improvement in the markets (see below on this).
  2. However, 3mo average approvals through February 2014 are down 16.2% on 3mo average approvals through November 2013. Which suggests that things are still running slower in recent months than they did before.
  3. Top-up mortgages approvals have declined: down 6.6% y/y and down 27.3% on 3mo average basis compared to previous 3mo period.
  4. Average value of mortgage approved for house purchase is up 6.5% y/y, but it is down 5.4% for 3mo average through February, compared to 3mo average through November 2013. So mortgages being approved do not support price increases in recent months. Or put differently, mortgages being approved afford lesser LTVs on homes.
Chart to illustrate:

Key takeaways from the chart above:

  • Number of new mortgages approved is running well below the trend, so improvement in February is driven by something other than market growth. Instead, it is driven (as argued below) by extraordinary volatility in approvals around the end of 2012 - beginning of 2013, which was down to expiration of tax breaks at the end of 2012. 
  • Average mortgage approved is on-trend and the trend is down not up. So things are getting worse, not better.

Next, volume of lending:

  1. Total volume of loans issued for house purchase went up 59.1% y/y in February 2014, but
  2. 3mo average through February 2014 was down 20.9% on 3mo average through November 2013. In fact, February 2014 lending was the second lowest level over 10 months, with the worst recorded in January 2014. The start of this year is worse than any 2 months period since January-February 2013, which were distorted by end of tax break in 2012 and stripping these out, this years first two months are the worst since May 2012.

Key takeaways from the chart above:
  • February 'improvement' puts us below trend and within the general trend direction, so the reading is weak, but consistent with upward trend.
Now on to the main bit: What happened to drive February figures so dramatically up in y/y terms? The next chart explains in full (click on the chart to enlarge):

Key takeaways from the chart above:
  • Statistically-speaking, all of the massive increase y/y in lending for house purchases in Ireland recorded this February is down to huge distortion generated in the data by the end of tax breaks in December 2012. There is no other story to tell.
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