Thursday, September 26, 2013

26/9/2013: Irish Residential Property Prices: August 2013

Residential Property prices Index for Ireland is out today, showing strong gains in property prices in Dublin.

Y/y August 2013 residential property prices increased by 2.8% nationally. This compares with an increase of 2.3% in July and a decrease of 11.8% recorded in the twelve months to August 2012. That is a reasonable number, ahead of inflation rate, which is natural given the contraction in the market experienced so far.

However, several sub-trends are worth noting.

  • Residential property prices grew by 0.9% in the month of August. This compares with an increase of 1.2% recorded in July and 1.3% growth in June. Which implies that the rate of growth has slowed down through August. Seasonality is a factor here. 
  • Annual rate of growth is still rising: from 1.23% in June, to 2.31% in July to 2.76% in August. This means we have: rising rate of growth and three consecutive months of growth. Last time we had three consecutive months of growth was back in 3 months through January 2008.
  • 3mo MA for all properties index is at 66.33 in August, which is the best reading since March 2012. Over the last 3 months property prices rose cumulative 3.4% and over the last 6 months they are up 4.04%
  • August reading is the highest level since January-February 2012, although prices are still down 48.66% on peak.

The above is illustrated in Chart below:

Now, absent other sub-trends, we can be tempted to call a turnaround in the prices at this stage. With two caution notes: (a) this still is subject to adverse risks from the mortgages arrears side, and (b) the above turnaround only applies to Dublin.

Next positive bit: the uptick in the overall index was co-driven by the Houses prices (as opposed to Apartments). Houses prices are more indicative of long-term demand, rather than of short-term lettings demand closer linked to Apartments.

  • Houses price index rose 0.87% m/m and was up 2.65% y/y in August. August annual rate of increase was faster than July (2.06%) and June (0.89%) and marks the third consecutive annual rise. 
  • 3mo MA is now at the levels last seen around March 2012 and the overall index itself is at the levels of January-February 2012. Prices are still down 47.12% on peak.

Chart to illustrate:

Apartments prices have been moving sideways doe the last 8 months, bouncing around 49.5 mean. August reading was weak but slightly up at 50.0.

The core driver for overall RPPI is Dublin:

  • Dublin residential properties prices rose 10.55% y/y in August marking 8th consecutive month of increases. 
  • 3mo MA is at 61.93, the best level since December 2011 and the index itself is at the levels of October 2011.
  • These are solid gains and Dublin market appears to be in full turnaround, although prices are still down 52.86% on peak. Most of these gains was driven by houses, not apartments.

Chart to illustrate:

In brief: 

  • Good news is prices are growing broadly in-line with inflation plus modest recovery in values. 
  • Further good news, Dublin prices are converging up toward national levels - something that should have happened ages ago. 
  • More good news: prices outside of Dublin are slowly correcting down, declining 2.6% y/y in August. 
  • I think we can call turnaround in prices to be sustained for Dublin and getting closer to showing sustained upward dynamics for national level prices. Prices for Apartments and prices for properties outside of Dublin are still in declining or flat mode. 
  • Headwinds and risks remain on the side of mortgages crisis resolution and income dynamics.

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