Saturday, March 30, 2013

30/3/2013: A simple, yet revealing, exercise in house prices

Based on the latest reading for the Irish Residential Property Price Index, I computed three scenarios for recovery, based on 3 basic assumptions of:

  1. Steady state growth of 5% per annum in nominal terms (roughly inflation + 3% pa)
  2. Steady state growth at the average rate of annual growth clocked during 2005-2007 period, and
  3. Steady state growth at inflation + 1% pa
Note, Scenario 3 is the closest scenario consistent with the general evidence from around the world that over the long run, property returns are at or below inflation rates.

Table below summarises the dates by which we can expect to regain 2007 peak in nominal terms:

Yep, turning the corner (whenever we might do that) won't even be close to getting back into the 'game'...

1 comment:

Jim D said...

Wow, that's how long it will take just to reach the nominal! The reality for Bankers is that negative equity will only be very slowly wiped out via price appreciation. Lots of write offs on the way and bankruptcies too. Jim