25/6/2012: RPPI May 2012: Residential property prices in Ireland

CSO's residential property price index (RPPI) is out for May. Headlines are:

• Overall Index moved from 65.4 in April to 65.5 in May, marking the first (+0.15%) m/m rise since September 2007 (previous best performance months saw zero falls in the index).
• However, statistically (based on data from January 2008), we need to see a raise of 0.32% (1/2 stdev) at least to make a reasonable judgement on upward gain.
• Overall RPPI is now at 3moMA of 65.67, down on 3mo MA of 65.87 in April and 67.5 in previous 3mos period through February.
• Year on year, RPPI slipped -15.27% compared to May 2011 and 3mo MA through May 2012 of 65.67 was significantly below 3mo MA through May 2011 (78.17).
• Relative to peak, RPPI is now down 49.81% in May 2012 - an improvement on -49.89% for April 2012, but, again, not statistically significant improvement.

Improvements in RPPI were driven by houses and Dublin houses in particular, with Dublin Apartments prices continuing to tank.

Looking at Houses and Apartments:

• Houses index rose from 68.1 in April to 68.2 in May, marking the first monthly rise (+0.15%) since August 2010 and the largest m/m rise since November 2007. Monthly rise also failed to be statistically significant (stdev=0.643) for the crisis period (since January 2008)
• 3moMA for houses index is now at 68.4, down on 68.67 in April 2012 and 81.3 in May 2011.
• House prices index is down 15.17% y/y compared to -16.24% in April 2012 and house prices nationwide are now down 48.3% relative to their peak.
• Apartments price index is now at 48.6 in May 2012 down 2.02% on 49.6 reading in April 2012 and down 19% year on year.
• Apartments prices m/m decline in May broke 2 previous months consecutive increases.
• Apartments prices are now down 60.77% to peak.
• Monthly decline in apartments prices was statistically significant (stdev=1.56).

Dublin prices drove the overall index this month:

• RPPI for Dublin stood at 58.4 in May, up on 58.3 in April 2012 (+0.17% m/m) marking the third consecutive m/m increase in the series. However, current rise was not statistically significant (stdev=1.18) and cumulative increases during the last 3 months (total of 1.39%) also fail to be statistically significant.
• Annually, prices are down 17.51% in May, which is worse than 17.3% y/y decline in April.
• Relative to peak, Dublin property prices are now down 56.58%.

So nothing new, folks - the market is looking for a catalyst - which is a fancy way of saying that it might go down or up, or stay flat.

27/05/2012: Residential Property Prices: April 2012

Much has been made in the media on the foot of the latest (April 2012) data for residential property prices in Ireland.

In light of this, let's do some quick analysis of the data. The core conclusions, in my opinion are:

1. Data from CSO - the best we have - only covers mortgages drawdowns reflecting actual sales. So this is tied to mortgages issuance activity and is of limited use in the markets where cash sales are significant.
2. If increases in prices are sustained, mortgages drawdowns might be reflective of improved credit flows or credit flows fluctuating along the bottom trend.
3. The above two points strongly suggest that we need to see more sustained trend to draw any conclusions on alleged 'stabilization' of the market.
4. Aside from seasonality, the data shows patterns of false bull-runs or 'stabilization' episodes in the trends that usually were followed by downward acceleration on the pre-stabilization trend. Not surprisingly, the core improvements in March-April 2012 are in exactly the segments of the markets where such false starts have been more pronounced in the past.

So caution is warranted. 

Top stats:

• Residential property price index has fallen from 66.1 in February and March 2012 to 65.4 in April implying m/m change in overall prices of -1.06% - the shallowest monthly decline since July 2011, other than zero change in m/m prices recorded in March 2012. 
• This m/m pattern of slower decline (to near zero rate of fall) from a steep previous drop, followed by re-acceleration in decline is something that is traceable to October 2010-January 2011, June-August 2011, July-September 2010, February-April 2010, October-December 2009, so caution is warranted in interpreting short-term 'stabilization' episodes.
• Y/y index fell 16.37% in April, an acceleration on March 2012 y/y decline of 16.32%, but a very slight one. Current y/y decline is the second shallowest since November 2011, so no signs of stabilization here either. In fact, April 2012 y/y rate of decline was the 5th sharpest for any month since January 2010.
• Index reading continues underperforming its 3mo MA which currently stands at 65.87.
• Relative to peak, the index is now down 49.89%.
• Thus, overall, by both, its absolute level, and its 3mo MA, as well as relative to peak, the index is at its new historic low. Stabilization is not happening anywhere at the levels terms.

Chart below shows sub-indices performance for houses and apartments. While it is clear that houses sub-index is the driver of overall prices, the apartments sub-index received much of attention in recent months. The reason for it is two consecutive months of increases in apartments prices. Details are below:

• Overall, House prices fell in April 2012 to index reading of 68.1 from 68.9 in March, registering a m/m drop of 1.16%. This represents an acceleration from -0.14% m/m decline in March 2012. However, April m/m drop is the shallowest since July 2011. 
• Despite the above, bot the index and the 3mo MA have again hit their lowest point in history of the series.
• Y/y house prices are down 16.24% and this is the fastest y/y decline since November 2011. 
• Relative to peak house prices are now down 48.41%.
• Apartments prices index has improved from 48.6 in March 2012 to 49.6% in April 2012 (m/m rise of 2.06% following a 0.41% rise in March 2012).
• However, m/m rises are not rare for the sub-index. Apartments prices subindex rose - in m/m terms - in November 2011 (+2.68%), December 2010 (+0.31%), December 2007 (+0.50%) and posted falt or near-flat (1/4 STDEV from zero reading) in February 2008, January 2011, May 2011, and December 2011. 
• 3mo MA is now at 48.87% and this is the lowest on the record 3mo MA reading for the sub-index.
• Y/y the decline in April was 17.88% while March 2012 y/y decline was 20.33%. This is the lowest y/y decline reading since January 2012. However, back in April 2011, y/y decline was 'only' 15.29% - shallower than in April 2012.
• Relative to peak apartments prices are now down 59.97%.

Conclusion: any talk about 'price trends improvement' in apartments will have to wait for further confirmation of the upward trend.

Chart below shows trends for prices in Dublin - another focal point of attention for those claiming substantive change in property prices trends.

• Dublin property prices sub-index has improved from 58.0 in march 2012 to 58.3 in April 2012, reaching exactly the same level as in January 2012. Thus, m/m index rose 0.52% which is slower than March 2012 m/m rise of 0.69%. Last time the sub-index posted non-negative m/m change was in July 2011 when it remained unchanged m/m and last time sub-index actually posted positive growth was in May 2011.
• To see two consecutive monthly rises in the index, however, is rare. We would have to go to January-February 2007 for that. However, index posted a number 'near trend reversals' in the past marked on the chart. All turned out to be false calls and virtually all led to re-acceleration of the downward momentum compared to pre-event.
• Y/y sub-index posted a decline of 17.30% against 18.31% in March 2012. In April 2011 y/y change was 12.96% - much shallower than current y/y decline.
• 3mo MA is unchanged in April 2012 at 57.97 compared to March 2012, and is much lower than 71.27 registered in April 2011.
• Relative to peak, house prices in Dublin are now 56.65% down which is identical to their position in January 2012.

Overall, all data points to potential stabilization that is in a very nascent state. However, this is certainly a local phenomena for now - with Apartments and Dublin properties showing some potential signs of improvement. Only the future can tell if:

1. we are witnessing actual flattening of the trend, and/or
2. we are witnessing a reversal of downward trend toward a positive (sustained) trend.

26/3/2012: Residential Property in Ireland - things are still getting worse, faster

Residential Property Price Index for February is out today and, surprise, the property price deflation is accelerating.

Details:

• All properties headline index now stands at 66.1 down from 67.6 in January 2012 and 80.4 in February 2011. So mom contraction of 2.22% in February 2012 makes this the fastest rate of monthly decline since March 2009 and the third fastest rate of monthly decline in history. Relative to peak, residential property price index is now down 49.35%. 12mo MA of monthly declines is at 1.62% and January-February average is at 2.05%. Year on year index is down 17.79%. Which is what it says on the tin - third month of accelerating declines in prices in a row.
• House prices sub-index is now at 69.0 against January 2012 reading of 70.4 and February 2011 reading of 83.5. Monthly rate of decline in February was 1.99% - steeper than anything recorded since October 2011, marking third consecutive month of accelerating monthly drops. Year on year, the index is down 17.37%. Compared to peak valuations, house prices index is now 47.73% down. Year-to-date average monthly drop is 1.90% against 12 mo MA decline of 1.58%. Again, house prices are dropping at an accelerated rate now as well.
• Apartments sub-index has reversed two months of consecutive shallow gains in November -December 2011 and run a 4.30% contraction inJanuary 2012. February 2012 monthly drop was even larger at 5.47%. The sub-index now reads 48.4 against February 2011 reading of 63.5. Year on year February apartments prices index stood at -23.78%. 12mo MA decline is 2.06% and this has dramatically accelerated to January-February average of 4.88% monthly rate of price declines.
• Dublin properties prices sub-index was at 57.6 in February 2012, down 1.2% on January 2012 and down 20.33% on February 2011. This is the only major sub-index that posted de-acceleration in monthly contraction rates. 12mo MA contraction rate is 1.87% and January-February average is 2.58%, but January mom decline was 3.95% against 1.20% drop in February.

Charts to illustrate:

Note: no update to my forecasts.

Nama valuations:

2/3/2012: RPPI for January 2012 - Things are Getting Worse, Faster

Residential Property Price Index for January released yesterday shows continuation of a dramatic downward trend in property prices that continues to confound the rents data signals over a number of months now.

Top level data first, followed by Nama valuations-linked analysis in the subsequent post.

1) Overall RPPI has fallen to 67.6 in January 2012, down 1.89% mom (the steepest decline since October 2011) and 17.36% yoy (the largest annual drop since January 2010). 3mo MA now stands at 68.87 and 12mo average rate of change is -1.58% monthly.

2) Index for house prices nationally fell to 70.4 in January from 71.7 in December 2011, implying a monthly decline of 1.81% - steepest since November 2011. Annual rate of decline is now 17.08% - the fastest rate of decline since December 2009. Annual rate of decline has been now rising every month since July 2011, same as for all properties RPPI.
3) Apartments prices index fell to 51.2 from 53.5 in December 2011, implying a 4.30% decline mom and 20.87% drop year on year. This marks the sharpest rate of monthly decline in prices since August 2011 and the sharpest drop year on year since March 2010.

4) Dublin properties index now reads 58.3 compared to December 2011 reading of 60.7. Mom prices are down 3.96% - sharpest on the record and yoy prices are down 21.11% - sharpest since February 2010.

Overall, relative to peak:

• All properties index is down 48.20%
• House prices index is down 46.67%
• Apartments prices are down 56.82%
• Dublin property prices index is down 56.65%

 Acceleration in declines in index readings is present for:

• All properties index since November 2011 for monthly changes and since July 2011 for yoy changes
• House prices index since December 2011 for monthly changes and for yoy changes since July 2011
• Apartments prices index since November 2011 for monthly and yoy changes
• Dublin property prices index since October 2011 for monthly changes and since July 2011 for yoy changes

In other words, things are getting worse faster.

2/2/2012: Sunday Times 29/01/2012 - irish property bust

This is an edited version of my Sunday Times article from January 29, 2012.

In a recent Annual Demographia International Housing Affordability Survey of 325 major metropolitan areas in Australia, Canada, Hong Kong, Ireland, United Kingdom and the United States, Dublin was ranked 10th in the world in terms of house prices affordability. The core conjecture put forward in the survey is that Dublin market is characterized by the ratio of the median house price divided by gross [before tax] annual median household income of around 3.4, a ratio consistent in international methodology with moderately unaffordable housing environments.

Keep in mind, the above multiple, assuming the median household income reflects current unemployment rates and labour force changes, puts median price of a house in Dublin today at around €175,000 – quite a bit off the €195,000 average price implied by the latest CSO statistics. But never mind the numbers, there are even bigger problems with the survey conclusions.

While international rankings do serve some purpose, on the ground they mean absolutely nothing, contributing only a momentary feel-good sensation for the embattled real estate agents. In the real world, the very concept of ‘affordability’ in the Irish property market is an irrelevant archaism of the era passed when flipping ever more expensive real estate was called wealth creation.

What matters today and in years ahead are the household expectations about the future disposable after-tax incomes in terms of the security and actual levels of earnings, stability of policies relating to household taxation, plus the demographic dynamics. None of these offer much hope for the medium-term (3-5 years) future when it comes to property prices.

Household earnings are continuing to decline in real terms (adjusting for inflation) in line with the economy. The CSO-reported average weekly earnings fell 1.2% year on year in Q3 2011 once consumer inflation is take out. But the average earnings changes conceal two other trends in the workforce that have material impact on the demand for property.

Firstly, reported earnings are artificially inflated because the workforce on average is becoming older. Here’s how this works. Younger workers and employees with shorter job tenure also tend to be lower-paid, and are cheaper to lay off. Thus, the rise in unemployment, alongside with the declines in overall workforce participation, act to increase average earnings reported. This explains why, for example, average weekly earnings in construction sector rose 2.5% in Q3 2011 year on year, while employment in the same sector fell 4.1% over the same period. This means that fewer potential first-time buyers of property are having jobs, and at the same time as the existent workers are not enjoying real increases in earnings that would allow them to trade up in the property markets.

Secondly, the real world, rising costs across the consumer expenditure basket, further reducing purchasing power of households, is compounded by the composition of these costs. One of the largest categories in household consumption basket for those in the market to purchase a home is mortgage interest. This cost is divorced, in the case of Ireland, from the demand and supply forces in the property markets and is influenced instead by the credit market conditions. In other words, the 14.1% increase in mortgage interest costs in the 12 months through December 2011, once weighted by the relative importance of this line of expenditure in total consumption is likely to translate into a 2-3% deterioration in the total after-tax disposable income of the average household that represents potential purchaser of residential property.

And then there are effects of tax policies on disposable income. One simple fact illustrates the change in households’ ability to finance purchases of property in recent years: between 2007 and 2011 the overall burden of state taxation has shifted dramatically onto the shoulders of ordinary households. In 2007, approximately 46% of total tax collected in the state came directly out of the household incomes and expenditures. In 2011 the same number was 58%.

The above factors reference the current levels of income, cost of living and tax changes and have a direct impact on demand for property in terms of real affordability. In addition, however, the uncertain nature of future economic and fiscal environments in Ireland represents additional set of forces that keep the property market on the downward trajectory. For example, in Q3 2011 there were a total of 116,900 fewer people in employment in Ireland compared to Q3 2009. However, of these, 113,700 came from under 34 years of age cohort. Unemployment rate for this category of workers, comprising majority of would-be house buyers, is now 20.4% and still rising, not falling. Given the long-term nature of much of our current unemployment, no one in the country expects employment and income growth to bring these workers back into the property markets for at least 3 years or longer. Without them coming back, only those who are trading down into the later age of retirement are currently selling, plus those who find themselves in a financial distress.

Tax uncertainty further compounds the problem of risks relating to unemployment and future expected incomes. Government projections that in 2013-2015 fiscal adjustments will involve raising taxes by €3.1 billion against achieving current spending savings of €4.9 billion are rightly seen as largely incredulous, given the poor record in cutting current spending to-date. Thus, in addition to already draconian pre-announced tax hikes, Irish households rationally expect at least a significant share of so-called current expenditure ‘cuts’ to be passed onto households via indirect taxation and cost of living increases.

In short, there is absolutely no catalysts in the foreseeable future for property markets reversing their precipitous trajectory. No matter what ‘affordability’ ranking Irish property markets achieve, the demand for property is not going to grow.

This, of course, brings us to the projections for the near-term future. The latest CSO data for the Residential Property Price Index released this week shows that nationwide, property prices were down 16.7% in December 2011 compared against December 2010. Linked to the peak prices as recorded by the now defunct PTSB-ESRI Index, the latest CSO figures imply that nationally, residential property prices have fallen from the peak of €313,998 in February 2007 to ca €166,000 today (down 47% on peak). In Dublin, peak-level average prices of €431,016 – recorded back in April 2007 – are now down to close to €195,000 (almost 55% off peak).

Using monthly trends for the last 4 years, and adjusting for quarterly changes in average earnings and unemployment, we can expect the residential property price index to fall 11-12% across all properties in 2012. Houses nationwide are forecast to fall in price some 12-14% - broadly in line with last year’s declines, while apartments are expected to fall 11-12% year on year in 2012, slightly moderating the 16.4% annual fall in 2011.

More crucially, even once the bottom is reached, which, assuming no further material deterioration in the economy, can happen in H2 2012 to H1 2013, the recovery will be L-shaped with at least 2-3 years of property prices bouncing along the flat trendline at the bottom of the price correction. After that, return toward longer-term equilibrium will require another 1-2 years. Assuming no new recessions or crises between now and then, by 2015-2016 we will be back at the levels of prices recorded in 2010-2011. Between now and then, there will be plenty more reports about improving affordability of housing in Ireland and articles about the proverbial foreign investors kicking tyres around South Dublin realtors’ offices.

Chart: Residential Property Price Index, end of December figures, January 2005=100

Source: CSO and author own forecast

Box-out:

Ireland’s latest shenanigans in the theatre of absurd is the fabled ‘return to the bond markets’ with this week’s swap of the 2 year 4.0% coupon Government bond for a 4.5% coupon 3-year bond. The NTMA move means we will be paying more for the privilege to somewhat reduce the overall massive debt pile maturing in 2014, just when the current Troika ‘bailout’ runs out. So in effect, this week’s swap is a de fact admission by the state that Ireland has a snowball’s chance in hell raising the funding required to roll over even existent debt in 2014 through the markets. Which, of course, is an improvement on the constant droning from our political leaders about Ireland ‘not needing a second bailout’. Of course, as far as our ‘return to the markets’ goes – no new debt has been issued, no new cost of financing the state deficits has been established in this swap. The whole event is a bit of a clock made out of jelly – little on substance, massive on PR, and laughable from the functionality perspective.

24/1/2012: Residential property prices - 2011 highlights

Latest Residential Property Price Index (RPPI) from CSO posts another monthly decline in the price series and marks deep drops in the property prices in 2011. Here are top of the line figures - end of year readings:

And updated Nama valuations referencing:

So to summarize (note - there will be more detailed analysis of this data coming up in later posts):

• All properties index is now 31.1% below January 2005 levels
• Houses are now down 28.3% below January 2005 levels
• Apartments are now down 46.5% below January 2005 levels
• Dublin all properties are now down 39.3% below January 2005 levels
• Rates of decline (monthly) are greater than 1.5% (12mo average) for 3 months in a row for all properties and for houses.

20/12/2011: Residential property prices for November

Today's data focus for Ireland is on residential property price index for November.

Prior to today's release, in the 12 months through October 2011, residential property prices were down 15.1% year on year - steeper decline than in July-September 2011 (12.5%, 13.9% and 14.3% respectively). In 12 months through October 2010 the rate of prices decline was 11.1%, shallower than in the 12 months through last October. So price drops were accelerating before November data release. In fact, mom prices dropped 2.2% in October, against 1.5% mom decline in September.

The latest data, therefore, was expected to come in with some moderation in the rate of decline. And in that, there was no surprise - mom change for November is at -1.54%, ahead of September, but behind October reading. 


November index of all residential properties prices is now at 70.1, down from october 71.2. 3mo MA is down to 71.37 from October reading of 72.63. We have to go back to November 2007 to see the first time that the overall index did not decline (it stayed flat in that month) and back to September 2007 to see the last monthly increase in the index. 12 mo MA of monthly changes is now at -1.41% mom and year-to-date monthly average change is -1.49%.


Nama is continuing taking a hit on its valuations. Referencing back to November 30, 2009 Nama valuations cut-off date, November 2011 prices are down 25.35%, which, adjusting for LTEV uplift applied by Nama implies that Nama valuations on its residential properties portfolio are 32.13% under water. Correcting the above for 'burden sharing' cushion applied by Nama legislation, Nama is nursing a loss of 28.9% on its residential properties-related holdings.

As chart above shows, overall residential property prices are now 46.28% down on the peak and year on year the prices are down 15.64%.

Houses prices index has fallen from 74.3 in october to 72.9 in November - down 1.88% mom, In October, monthly rate of decline was -2.24%, but November decline is second sharpest in the last 5 months. Year on year, house prices are down 15.72%, while in october the same rate of decline was 14.89%. Relative to peak, house prices nationwide are 44.78%.

Apartments fared better this time around, with index reading improving from 52.2 in October to 53.6 in November, a monthly rise of 2.68%. The index is also more volatile than that for all residential prices and house prices. Last time we saw a rise in house prices mom was in August 2010, and last time we saw monthly increase in apartments prices was in December and January 2010.

Apartments prices are now -16.89% down yoy and this marks an improvement on -19.82% decline yoy through October. Relative to peak, apartments prices are down 56.74%.

In my view, the divergence between apartments prices and house prices, if sustained over time, will be signaling the overall collapse of the purchasing power by the first time buyers, as well as demand push toward lower cost commuting locations as cost of transport continues to climb up courtesy of the Government policies. It can also signal the reflection of improving rental yields for some, especially city centre-located - properties. It is worth noting that Dublin apartments drove the monthly change for nationwide figures reported above, with Dublin apartments price index increasing from 50.8 in October to 53.2 in November a strong gain of 4.7% mom and driving year on year decline to -16.1% in November against -21.2% in October.


Prices in Dublin (all properties) posted index reading of 62.2 in November, down 1.43% mom on October reading of 63.1. This was the shallowest monthly decline since July 2011 when the index posted no change mom. Yoy index is now down 17.62% in November from 17.52% in October. Relative to peak the index is down 53.75%.

Updating annual forecasts, I expect overall RPPI to post a reading of ca 71.27-71.30 or a decline of 41.7% relative to peak. For houses, I expect index to run at 74.5-75.1 for 2011, marking a decline of 39.7% relative to peak annual index, while for apartment the same forecasts are for 56.5-56.7 index reading and a decline relative to peak of 49.7%. Dublin prices are expected to end the year on an index reading of 63.5-64.0 - a decline of 47.9% on peak. Mid-points are illustrated below:

So, overall, no surprise - another month of declines, another month on the road toward the average price around 60% off the peak. One to watch here is the sub-index for apartments prices, especially in Dublin.


It's worth noting here that per NTMA (source: Nama, December 2011), commercial property yields have been rising strongly in recent months. See chart below. This can also correlate positively with the rental yields for Dublin apartments, especially for centrally located properties.

21/11/2011: Residential Property Prices: October

Sorry to break the bad news, folks, but the latest Residential Property Price Index (RPPI) for October is showing accelerating property prices declines on foot of already substantial rates of contraction registered during 2011 as a whole. the bust is getting bustier.

All properties index fell to 71.2 in october from 72.8 in September, posting a monthly decline of 2.20%. This is the sharpest rate of monthly contraction in prices since March 2009 and the third fastest rate of decline in the history of the series! 3moMA for RPPI is now at 72.63. Year on year prices are now down 15.14% - the highest yoy decline since February 2010. Relative to peak prices are down 45.44%. 12 mo MA is at -1.36% for mom rate of decline and year-to-date rate of prices declines average -1.49%.

When it comes to Nama, relative to its cut-off date of November 30, 2009, property prices are now down 24.17%. When fully set up, Nama called bottoming out of the markets for Q1 2010. Since then, prices are down 20.62%, so those highly paid geniuses employed by Nama to 'value' properties and 'assess' markets are really shining stars. Recall that Nama paid an uplift of LTEV on assets purchased of an average 10%, plus carries a burden-sharing discount / cushion. Factoring these two into the equation, Nama-assessed properties are now held at a loss of 27.79% on their Nama valuations, even with burden sharing cushion 'savings' factored in. Taken across Nama book value, these (for now paper) losses can be assessed at ca €8.3bn.

Let's drill deeper. House prices sub-index is now at 74.3 against 76.0 in September, a decline mom of -2.24% the largest monthly drop since June 2011. 3moMA now stands at 75.77 and year on year change in the sub-index is 14.89% - the steepest annual decline rate since February 2010. relative to peak house prices sub-index is now -43.71% off. 

Apartments prices sub-index fell from 53.2 in September to 52.2 in October, a mom drop of 1.88% shallower than September mom decline of 3.10%. 3moMA is now at 53.43 and year on year sub-index is down 19.81% - the steepest annual decline since April 2010. Relative to peak, apartments prices are now off 57.87%.

Recalling that Nama holds loads of assets written against apartments, Nama cut-off-date valuations, LTEVs and burden sharing cushion included, Nama valuations for apartments-related properties are now off 35.10%.

Chart above shows the price dynamics for Dublin properties. Dublin sub-index stands at 63.1 against September reading of 65.1, a mom decline of 3.07% - steepest since the catastrophic drop of 3.76% in August this year. 3mo MA is now at 64.9 and year on year prices in Dublin are down 17.52% - largest yearly decline since March 2010. Relative to peak, Dublin residential prices are down 53.09%.

Given the above, we can update projections for the core index and sub-indices for 2011 as a whole. These are shown below.

Depressing is the word that comes to mind. The picture is made even less palatable when we recall incessant blabber from our Government reps and stuff-brokers, as well as property 'experts' that inundated the earlier parts of the year with 'property prices will bottom out in H2 2011' noise.

25/10/2011: Residential property prices: September

According to CSO Residential Property Prices index, September 2007 saw the historical peak in prices for overall RPPI at 130.5. Today's data shows that the index now stands at 72.8, implying that property prices have fallen nationwide by 44.2% on average since 4 years ago. Miserable news.

Now, September RPPI for all properties has fallen 1.49% mom and 14.25% yoy, exceeding (in terms of fall) analysts expectations for 13.4% decline. 12mo MA of monthly declines now stands at 1.27% and year-to-date average monthly decline is at 1.41%.

Relative to Nama's cut-off valuation date of November 30, 2009, factoring in average LTEV uplift of 10%, Nama residential properties-linked assets portfolio is now on average 29.52% under water. Factoring 5% burden-sharing (subordinated bonds), the downside is now 26.2% which means that Nama will need a lift-up of 35% on current values to break even.

For Houses, nationwide, RPPI fell to 76 in September from 77 in August a decline of 1.3% mom and 13.93% yoy. The index is now down 42.4% on peak of 132 achieved in September 2007. Apartments sub-index is down to 53.2 in September from 54.9 in August, with mom contraction of 3.1% - the sharpest monthly decline since March. Yoy the sub-index is down 19.03% and relative to the peak of 123.9 (February 2007) the sub-index is down 57.06%.

Nama holds loads of apartments, so applying the earlier assumptions on LTEV, Nama apartments-linked sub-portfolio is under water 36.9%, implying, net of subordinated bonds, a 33.9% decline in valuations to November 2009 cut-off date. This suggests an average required uplift in apartments prices of 55.12% for break-even.

Dublin properties prices are now 51.6% off their peak, with sub-index for Dublin declining to 65.1 in September from 66.5 in August - a drop of 2.11% mom and 15.56% yoy.

Annual forecasts, updated to include September figures, are below

26/09/2011: Irish property prices hit Early Paleozoic layer

Another month, another "Splat, Zap, Squish!" from the Amazing Property Bust Land, Ireland. CSO's RPPI data out for August today is showing continued falls in property markets and accelerating on the July 'performance'. Here are the updated charts and numbers.

Headlines are not pretty, folks:

• RPPI down 13.87% annually in August against a fall of 12.47% in July index now stands at 73.9 down from 85.8 in August last year.
  
• In 12mo through August the decline was 10.8%.
• Mom prices are down 1.6% in August. 3mo MA is at 74.9 down from 76.0 in July.
• Relative to peak, prices are now down 43.4%
• Relative to Nama valuations cut-off date of Nov 30, 2009, prices are down 21.3%. Adding LTEV uplift applied by Nama to purchased loans, state-held residential portoflio is now down in values some 28.5%.
  

Headlines on property prices by type are even less pretty:

• RPPI for houses is at 77.0 in August, down 1.41% on 78.1 reading in July. 3moMA is now 77.9, down from 79.0 in July. Year on year prices are down 13.58% from index reading of 89.1 in August 2010. Relative to peak prices are down 41.7% (September 2007). This is the steepest rate of decline since March 2011.
  
• RPPI for apartments is at 54.9, down 4.7% on July reading of 57.6. August 2010 reading was 67.2, so we are now 18.3% down yoy. 3moMA is now at 57.3, down from 59.0 in July. Monthly rate of declines is now accelerating for the 3rd month in a row. August rate of decline is the steepest monthly decline in the history of the series. Relative to peak (February 2007), apartments prices are now down 55.69%.
  

Geographical distribution of price changes:

• Dublin residential property prices fell by 3.76% in August and were 14.85% lower than a year ago. Dublin house prices decreased by 3.4% in the month and were 14.7% lower compared to a year earlier. Dublin apartment prices fell by 6% in the month of August and were 17.4% lower when compared with the same month of 2010. 3mo MA for Dublin properties is now at 68.23, down from 69.7 in July. Relative to peak (February 2007) Dublin prices are down 50.56%. House prices in Dublin are 48% lower than at their highest level in early 2007. Apartments in Dublin are now 57% lower than they were in February 2007.
• The price of residential properties in the Rest of Ireland (ex-Dublin) fell 0.3% in August compared with an increase of 0.2% recorded in August 2010. Prices were 13.2% lower than in August 2010. The fall in the price of residential properties in the Rest of Ireland relative to peak is at 40%.

My forecast for the annual results is below. In summary - we've gone from the penthouse to the ground floor, through the parking levels and still going - services levels, sewer, imaginary metro tunnel.... next "Splat" is due at around middle Paleozoic layer... see you in October's Early Mammals exhibit...

29/08/2011: Residential Property Price Index: July 2011

Residential Property Price Index for Ireland for July 2011 was released earlier today by the CSO, showing continued deterioration in property prices across the board.

Per CSO: "In the year to July, residential property prices at a national level, fell by 12.5%. This
compares with an annual rate of decline of 12.9% in June and a decline of 12% recorded in the twelve months to July 2010." Chart below illustrates:
Residential property prices fell by 0.8% in the month of July. This compares with a
decline of 2.1% recorded in June and a decline of 1.3% in July of last year. To give a bit more granularity to the data:

• RPPRI now stands at 75.1, down from 75.7 in June, and 3mo MA is 76.03, against June 3mo MA of 77.07.
  
• Relative to peak property prices have no declined 42.45% against June to-peak decline of 42%.
  

Using 7 months of 2011 data, we can forecast expected declines in the index for 2011 as a whole:
Please note: this is a crude forecast. The result suggests that prices can decline to 75.3% of 2005 levels by the end of 2011 for all properties, with corresponding declines in House prices to 78.41%, Apartments to 57.47% and Dublin prices declining to 69.02%.

Let us make another set of important calculations. Recall that section 73 of the NAMA Act 2009 established the definition of the cut-off date for NAMA valuations. This date was later set at 30 November 2009. NAMA then applied an LTEV uplift on properties valued to that date. According to NAMA own business projections, the agency will require 10% increase in property values referenced to LTEV and November 30th 2009 cut-0ff-date to break even. In addition, NAMA claimed that its valuations are based on the consulting report they received from London Economics that timed property markets bottoming out to the latest Q1 2010.

Well, since the cut-off date, Irish residential property has now fallen a whooping 20.02% and relative to the end of Q1 2010, when NAMA expected the bottoming of the property cycle, the property values are down 16.28%. Ooops...

Back to the data:

• Index for House prices stood at 78.1 in July, down from 78.6 in June (-0.64% mom) and down 12.25% yoy
• House prices 3mo average index is now 79.03, down from 80.1 a month ago.
• House prices are down 40.83% to peak
• Apartments continued falling at precipitous rates, with Price Index for Apartments down to 57.6 in July from 59.4 in June. A decline of 3.03% mom and 15.67% yoy.
  
• Apartments prices 3mo MA is now at 59, down from 59.93 in June.
• Apartments prices are down 52.59% to the peak.
  

Having posted a bizarre increase from 70.5 in April to 70.8 in May, Dublin prices have fallen off the small cliff in June settling at the index reading of 69.1. July data shows Dublin prices flat at 69.1. This means that 3mo MA is now at 69.67, down from 70.13 in June. Relative to peak, prices in Dublin are down 48.62%. Year on year, July Dublin prices are down 11.86%, an improvement on annualized rate of decline of 12.64% in June, but worse than yoy change attained in May (-11.5%).

03/07/2011: Household Credit: latest data

Some more analysis of new lending - based on CBofI data through April 2011.

Household loans and consumer loans are covered in this post. So house purchase loans first:

• Rates for the loans for House Purchases floating and up to 1 year fixation have risen from 3.09% to 3.20% in April 2011, relative to March. Historical average rate is 3.743% and the average rate since the beginning of the crisis (January 2008) is 3.574%. Current rates are above their 12mo MA of 2.959%. It is interesting to note that this data clearly shows that there is no statistically significant easing of rates during the crisis as crisis period average rates are not statistically significantly different from those for the entire history of the data series. Another interesting point is that when house purchasers are concerned, volatility of retail rates has risen during the crisis: the historical standard deviation of the series is 0.827 while post-January 2008 standard deviation is 1.072.
• Volumes of loans in the above category has declined from €1.190 billion issued in March 2011 to €1.092 billion in April 2011. Again, current rates of issuance are signaling continued credit tightening: historical monthly average issuance stands at €2.577 billion, while issuance since January 2008 averages €2.0 billion.
  
• Rates for the loans for House Purchases, over 1 year fixation have also increased mom in April from 4.23% to 4.29%. The rates are now above their historical average of 4.213% but below their crisis period average of 4.34%. April rate is above 12mo MA of 4.115%. As in the case of floating rate loans, fixed rate loans rates also risen in volatility during the crisis with overall historical standard deviation for the rates at 0.641 and January 2008-present standard deviation of 0.723.
• However, good luck to anyone trying to get these loans. Fixed rate loans for House Purchases issuance fell from €568 million in March to €331 million in April. New issuance of these loans is now well below historical average monthly volumes of €705 million and below crisis-period average of €521 million. Although 12mo MA is above the crisis average at €526 million.

A chart:
But what about consumer loans not designated for house purchases?

• Cost of consumer credit for floating loans and loans up to 1 year fixation fell from 6.02% in March 2011 to 5.23% in April. Thus, April rates were below their historical monthly average of 5.584%, their crisis period average of 5.565% and their 12mo MA of 5.640%. Note that crisis period was associated with higher volatility of rates in this category as well, with standard deviation rising from historical 0.836 to crisis-period 1.099.
• In terms of volumes of loans issued in the above category, the volume increased from €134 million to €156 million between March 2011 and April. However, volume of new loans issuance remains well below its historical average of €393 million, crisis-period average of €378 million and 12mo MA of €193 million.
• Cost of consumer credit for fixed loans (over 1 year) has fallen from 10.09% in March to 9.90% in April 2011, with current rate still above historical average of 8.589% and crisis period average of 9.494%, but is now below 12mo MA of 10.217%. Interestingly, volatility of rates charged on these types of loans has fallen from historical standard deviation of 0.962 to crisis-period standard deviation of 0.695.
• Again, good luck securing such loans, though, as volumes issued declined from €60 million in March 2011 to €51 million in April. Historical average issuance stands at €169.5 million, while crisis period average is €96 million. Current issuance however remains above 12mo MA of €48.8 million.

A chart to illustrate:

22/06/11: Residential Property Index - May 2011

The CSO released their latest data for the new Residential Property Price Index (RPPI) for May 2011. Here are the highlights and updates, including forecast for 2011 (see last chart).

• Year on year May 2011 residential property prices nationally are down 12.16% with RPPI standing at 77.3 in May down from 78.2 in April. The 6mo average rate of decline is now at 1.2% per month and 12mo average rate of decline is now 1.07% monthly.
• Relative to peak prices across the nation are down 40.77%.
• 3mo MA RPPI is at 78.17 in may, down from 79.2 in April.
• RPPI is now down consecutively month on month since its peak in September 2007 with exception for August 2010 when it posted no change mom relative to July. Last time the index posted increase in yoy terms was January 2008.
  

So per chart above, the crunch is getting crunchier (note accelerated average rate of decline for 6mo relative to the average for 12mo), and mom changes are also posting acceleration downward from -1.01% in April to -1.15% in May.

Breaking down across two property types:

• RPPI for houses fell to 80.4 in May from 81.3 in April, down 1.11% mom. This marks consecutive monthly contraction since August 2010 when it rose statistically insignificant 0.11%. Relative to peak the series now down 39.1%. the 6mo average monthly rate of decline is 1.21% well ahead of 12mo average of 1.03%
• RPPI for apartments is down at 60 in may from 60.4 in April (-0.66%). Apartments prices index is down 51.57% on peak and 6mo average at -1.19% per month is signaling slower rate of decline compared to 12mo average of 1.41%

As a signal of stronger regional economy, Dublin presents a slightly divergent picture to May national level data:

• Dublin RPPI rose from 70.5 in April to 70.8 in May (+0.43%mom), marking the first monthly increase since April 2008. This increase is statistically insignificant, however. In addition, 6mo average decrease rate of 1.06% monthly is still ahead of 12mo average of 1.01%, suggesting the latest move is unlikely to be a trend-breaker to the upside.
• Dublin prices index is now 47.4% below the peak.

Now, using 5 months data for 2011 we can attempt a very crude forecast for the entire 2011, as shown in the figure below.
So far, all indications are - we are looking at another brutal year when it comes to property prices here. then, again, with zombie banks not lending and continuously hiking the cost of mortgages for existent clients, with Nama still hell-bent on derailing any sort of market bottoming-out dynamic, with all fundamentals signalling decreasing demand for property and reduced ability to pay for mortgages, it is hard to imagine the upside trend establishing in Irish property markets any time soon.

07/06/2011: Residential property prices

An impressively decent dataset from CSO on residential property prices has been released for the second monthly installment, so here are the charts and some high level analysis.

• Overall Residential Property Price Index (RPPI) for April was 78.2 or 0.8 points below March levels. Hence, mom the index has fallen 1.013% and is now 1 point below its 3mo MA. Year on year the index has fallen 12.233% and relative to peak of 130.5 reached in September 2007 it is now down 40.077%.
• Overall RPPI has recorded its 8th month of consecutive declines having risen statistically and economically insignificant 0.11%mom in August 2010. Year on year, April marked 38th consecutive month of declines.
  
• April index for houses fell 0.9 points to 81.3, down 1.095% mom, or 1 point below 3mo MA. Year on year index has fallen 12.013%. The peak for this sub-index was reached in September 2007 at 132.0.
• April index for apartments fell to 60.4, down 0.6 points - a mom decline of 0.984% and a yoy decline of 15.288%. April reading was 1.233 points below 3mo MA. This sub-index peaked at 123.9 in February 2007.
• Dublin properties sub-index has fallen 0.5 points in April to 70.5, a decline of 0.704%mom or 12.963% yoy. The sub-index now stands 0.77 points below 3mo MA and 47.584% below the peak of 134.5 in February 2007

Charts to illustrate:
To summarize - the deflation of house prices continues, although the monthly rate of decline has now fallen below both 6mo and 12mo average. This, however, might be due to seasonality, since April marks a relatively moderate month in terms of price movements in every year since 2008. house prices have now fallen 38.41% since their peak, while apartments prices have declined 51.25% from their peak.

It is worth noting - not as a criticism of the CSO, since it cannot do anything about the data - that the index is computed based on mortgages drawdowns, hence excluding any share of transactions that might take place on the 'gray market' (tax evading payments, swaps etc), as well as cash-only purchases and mortgages issued by lenders other than the 8 largest lending institutions from which the data is available.

Another issue, again - little that CSO can do for this - relates to hedonic adjustments undertaken in index computation. Hedonic characteristics used by CSO exclude a number of relevant parameters, such as number of bathrooms and the site size, as well as existence of garage and/or off-street parking. This, alongside with the tendency - due to planning permissions restrictions - to under-report actual floor area and number of bedrooms - means that the hedonic model might be relatively weak.

Finally, CSO employes a Laspeyers-type indexation method, which is "calculated by updating the previous month’s weights by the estimated monthly changes in their average prices". However, like all types of indices, Laspeyers indices suffer from some specific drawbacks. In particular, these indices are weaker in periods of adjustment in the markets. Here's a quick non-technical discussion:

Laspeyers index is designed to answer the question: "How much is the sales price today for the house that is of the same quality as in the base year (2005)?" Quality is compared using the hedonic model mentioned above, based on specific size of the house (floor area), its amenities (number of bedrooms, house type) and location (note - we do not know the granularity of such 'location' adjustment, which can be critical. For example, I live in Dublin 4, but not the "fashionable" part of it. This means that if location code used is D4 for my house, it will receive signficantly higher locational weight relative to true value of my location than a house in a "fashionable" D4 locale.

One key objection to Laspeyers index is that it is computed while assuming that the base year (2005) house remains unchanged over time. Hence, quality is assumed to be constant for referencing, implying the index over-states inflation and under-states deflation.

In addition, index does not capture the effects of substitution in housing. In other words, Laspeyers index does not reflect conversions of house features to substitute away from more expensive options, etc, or purchases shifting in favour of smaller properties.

Index also assumes that geographical distribution of house sales does not change over time - a feature that introduces significant biases into the index when locational markets are not uniform (when there are significant differences within the markets).

Finally, the index overstates price appreciation at the peak of the bubble, since at that point, less desirable properties were disproportionately represented in the market as buyers chased any home available for sale. This is known on the basis of the US data where at the top of the markets 'gentrification' of lower quality locations in many states has led to Laspeyers indices understating price inflation.

For thes reasons, Laspeyers indices are known as 'constant quality' indices.

Chain-linked indexation, employed by CSO, helps addressing some of these issues, but it does not eliminate them. Of course, that too has its drawbacks, namely the more substantial data requirement, plus the lack of index additivity (you can see this indirectly in the first chart above by the gravitational pull of the houses index on overall index.