25/06/2011: Daft.ie v CSO RPPI - property prices in Ireland

Courtesy of the CSO RPPI - published for the first time this year - Ireland now has two series of property prices data to compare - Daft.ie asking prices and rents, and CSO's RPPI. Since Daft.ie pre-dates CSO dataset and since Daft.ie is a private undertaking with no access to the resources of the state in paying for and collecting data, it might be of interest to see how the two series compare.

This is exactly the exercise I performed.

Let's take a look at the CSO RPPI (an index) and Daft.ie (prices):
So a strong relation in terms of asking prices and RPPI - some 97% of variation explained.

Similarly, a very strong relationship between RPPI and Daft.ie reported asking rents:
Note that there are serious lags in the asking prices and rents relative to what RPPI is measuring, but overall, Daft.ie seems to be doing as good of a job of capturing prices over the long term as CSO data.

It is worth noting that when I converted Daft.ie prices to an index comparable directly to CSO RPPI, the results remained the same. So well done to Daft.ie gang - they really managed to run (and continue running) a superb database.

Another interesting issue is the relationship between property prices and rents:
Really, self-explanatory.

23/06/2011: Quarterly National Accounts Q1 2011

QNA results for Q1 2011 are in today. Some are expected, some are not. Her's a quick snapshot of the core data. Keep in mind - these are initial estimates subject to future revisions.

Seasonally adjusted GDP rose 1.3% qoq. Surprised? You shouldn't be - in 2010 the same Q1 rise was 1.0%.

If a base year chosen for real variables adjustment was 2008 as before Q1 2011, year on year the increase in Q1 2011 was just 0.04%, so annualized growth extrapolated from Q1 result is effectively zero. At the same time, as predicted in my analysis of Q4 2010 results, GNP crashed on the back of strong outflows of net factor income. GNP is now down 4.32% qoq and down 0.65% yoy. The GNP decline was, as I mentioned before, predictable. In Q4 2010 many MNCs parked their profits in Ireland in hope of getting a new repatriation deal out of the US administration in 2011. Thus, they forward-loaded profits into Q1 2011, pushing transfers up and GNP down. Net factor outflows abroad rose to €7,712mln (constant prices seasonally adjusted terms) up 34.3% qoq.

Of course, CSO re-based their data to 2009 for the main series, which means that in constant prices terms, seasonally adjusted:

• Agriculture, Forestry & Fishing sectors output in GVA terms fell 2.2% qoq and rose 4.3% yoy, while still posting a 5.4% decline on the peak
• Industry GVA fell 0.4% qoq and 0.9% yoy to post -4.5% contraction on the peak quarterly performance
• Building & Construction sub-sector of Industry posted a 15.4% contraction qoq and 18.7% fall yoy, to end Q1 2011 at 75.7% below its quarterly historical peak
• Distribution, Transport & Communications sector grew 1.3% qoq, but still down 0.9% yoy and 15.7% below peak
• Public Administration and Defence shrunk 0.7% qoq and 2.2% yoy - not exactly what you'd expect in the age of severe austerity. The sector GVA is now 8.2% below its peak
• Other Services, including rents show 0.7% increase qoq and 1.7% decline yoy and are 8.3% below the peak
• Taxes net of subsidies were 2.2% down qoq and 2.2% down yoy, showing overall decline of 36.6% on the peak, implying that savings from austerity are not catching up with declines in taxes net of subsidies
• GDP in constant market prices and seasonally adjusted terms, based on GVA, had risen 1.3% qoq and is flat at +0.04% yoy and down 11.5% on peak
• GNP based on GVA is down 4.3% qoq, down 0.65% yoy and is 15.4% below its quarterly peak
  

Thus, the GDP/GNP gap has widened once again. On GVA basis (constant prices seasonally adjusted) the gap is now 19.62% up from 14.93% in Q4 2010 and 19.07% in Q1 2010. This is the record quarterly GDP/GNP gap in the history of the series.
So on the basis of GVA (Gross Value Added), Irish economy (GDP) grew solely on the back of Distribution, Transport & Communications sector expansion (qoq) and Other Services, including rents (qoq). For all the boom in manufacturing we are experiencing, industry still contracted qoq. Year-on-Year, the only positive contributor to GDP was Agriculture, Forestry and Fishing sector. Not exactly a boom time, folks.

Now, take a look at the expenditure basis of GDP calculations. Chart below illustrates:

Let's take a closer look. In constant market prices, seasonally adjusted:

• Personal consumption of goods and services fell 1.88% qoq and 2.72% yoy. This was the first time since Q2 2005 that personal consumption fell below €21 billion in any quarter. Relative to peak quarter performance, Q1 2011 consumption stands at -12%
• Net expenditure by central and local government has declined 1.93% qoq and 4.16% yoy, reaching -10.3% decline on peak historical quarterly performance. If you think that this austerity, then let's put it into euro value terms. Q1 2011 net government expenditure was just €131mln below Q4 2010 and €290mln below Q1 2010. Relative to the peak quarterly expenditure, Q1 2011 spending was down just €765mln or annualized savings of less than €3.1 billion. Not to say this is not a painful correction, but hardly a sign of severe austerity and certainly not enough to undo our €17 billion-odd annual deficit
• Gross domestic fixed capital formation improved - at last, posting 1.08% gain qoq, although still 8.85% below Q1 2010. Relative to peak, investment in fixed capital is now 59.2% below historical quarterly high
• Exports of goods and services boomed once again, rising 3.79% qoq and 6.85% yoy (an annual rate consistent with the IMF forecasts, but well behind the projections by the DofF and ESRI). Relative to historical peak Q1 2011 exports were 0.9% above historical high
• Imports have fallen 0.34% qoq providing positive contribution to GDP, but are up 3.79% yoy. Imports are now 10.6% below quarterly historical high
• Thus, GDP at constant market prices was 1.26% above Q4 2010 and 0.04% above Q1 2010, while GNP was 4.32% below Q4 2010 and 0.65% below Q1 2010.
  

In other words, GDP was supported in growth by Gross domestic fixed capital investment, smaller stocks drawdown, exports increases and imports declines. Qoq, net exports (exports minus imports) grew by €1,557m (20.6%) at constant 2009 prices. Domestic demand, on the other hand, declined by €990m (-3.1%) over the same period with personal consumption down by 2.9%.
Note the line showing trade surplus net of transfers of factor income abroad - after 3 quarters of registering positive net trade surplus, Irish economy has posted another deficit in Q1 2011 of €358mln. In other words, the value of all of our trade, once imports and profits of MNCs are accounted for, is negative, broadly speaking.

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.

22/06/2011: DofF latest fiasco

A very revealing article in today's Irish Times - link here and a HT to Prof Brian Lucey - states that "The memo from a senior official in the department rejected the assertion from UCD economist Morgan Kelly of a possible 60 per cent fall in values over nine years. It also advised Mr Cowen, who was minister for finance at the time, that he should warn against overreacting to falling house prices. The document, drawn up by economist John McCarthy in July 2007 and sent to the former taoiseach pointed out that the housing values remained above 2006 levels."

This is another piece in a long string of evidence trickling down from the Merrion Street that points to the nature of advice and analysis conducted by the DofF. In Summer 2007 Irish property markets started showing signs of significant stress and by August we experienced the first slowdown in the rate of growth in stamp duty receipts. National average asking prices for homes, according to Daft.ie, posted seasonally unexpected decline of 0.34%mom in March, bouncing off the historic peak in February 2007. This was followed by another seasonally unexpected decline of 0.44% in April, rebound of 0.69% in May, a decline of 0.09% in June (again out of line with seasonal patterns) and a drop of 0.56% in July. The signs of some sort of sickness in the market were already visible, therefore, at the time the DofF note was issued.

Of course, DofF can be excused for not spotting the turning point in the property market - after all, virtually all data through July 2007 was at the very best inconclusive. But, the report leaves several issues worth addressing:

1. By August it was clear that the global financial markets were suffering significant pressures, which warranted some DofF attention, including on the side of the property markets;
2. What was DofF's business in advising the Minister to 'warn against overreacting to falling house prices'? Should, in an ethical society, the Minister for Finance make any calls whatsoever on private asset markets? Or should, in a functional economy, DofF job cover the need for preparing a policy response to the potentially dangerous situation developing in the major sector of the economy? In other words, was DofF doing its job advising the Minister on a PR exercise, and was it not doing its jobs in not preparing for the contingency of a property market collapse?

Of course, all of this remains academic compared to the brutish bullying stupidity of Mr Cowen's boss who famously barked in response to Prof Morgan Kelly’s articles in 2007 that: “Sitting on the sidelines, cribbing and moaning is a lost opportunity, I don’t know how people who engage in that don’t commit suicide.” (see full record here).


Oh, and just in case you might think DofF has learned any lessons from the July 2007 note debacle? Think again. Per same Irish Times report: "According to fresh analysis conducted by department economist Ronan Hickey – and published yesterday – house prices had fallen by 40 per cent from their 2006 peak by the fourth quarter of 2010." (emphasis is mine)

Err, what a wonderful revelation that is. In fact, the DofF 'analysis' is so ground-breaking that it simply confirms the data released by CSO last month - see report on that here.

But don't blame Mr Hickey for this - blame Irish Times bizarre reporting style. Mr Hickey didn't carry any 'fresh analysis' that Irish Times claims he did. instead, Mr Hickey clearly and transparently quotes from a now discontinued time series data from ESRI and ptsb index that were publicly available for ages now.

You can see this in his own paper/presentation/post available here. Just go to page 10 to see this 'fresh analysis'. Again, Mr Hickey is not doing anything wrong here, it's just the excited Irish Times failing to read his paper reporting old news and new news.

What is, however, amazing about Mr Hickey's paper/presentation/post is that this very information and the same analysis is being provided for free on a number of blogs around the country. In many cases, blogs analysis is actually way better, more data-intensive and detailed. Yet, in age of austerity, the Gov see fit to spend thousands on wages of PR-spin economists working for DofF.

21/06/2011: Bilateral trade between Ireland and Russia

As promised earlier today - the latest updates on bilateral trade between Russia and Ireland, courtesy of the latest CSO release.

Imports from Russia rose from €10.6mln in February 2011 to €15mln in March, down on €18.8mln a year ago. Exports to Russia rose from €39.5mln to €40.6mln mom in March. Q2 2011 Exports now stand at €116.5mln while imports are €39.1mln implying a trade surplus in favour of Ireland of €77.4mln for Q1 2011 - up from €15.9mln a year ago. Overall, trade surplus to Russia for Q1 2011 is now above trade balance for Brazil (€19.1mln), Canada (€68.7mln), Malaysia (€56.7mln), Mexico (€69.5mln), Singapore (€54mln), South Africa (€38.5mln), South Korea (€14.6mln) and Turkey (€57.4mln). It is worth noting that trade with China, India and Taiwan registered trade deficits against Ireland.

Few charts to illustrate (note the annualized projections based on Q1 data - not for the accuracy points, but for the directionality).

So should the performance so far through Q1 continue, this will be another record year for bilateral trade with Russia both in terms of exports from Ireland and in terms of trade surplus.

21/06/2011: Trade Data for April

Per latest CSO data released today: Ireland's seasonally adjusted

• Imports rose from €3,721m in March to €4,914.3m in April (+32%)
  
• Exports decreased from €7,717.6m to €7,530.4m (-2%)
  
• Please note, these figures cover only goods trade

Ireland's trade surplus was €2,616.1m in April 2011, down on €3,758.1m in April 2010 and down on €3,996.6m in March 2011.

January-March 2011 imports rose strongly in:

• Food & Live Animals - from €1,066.1m to €1,248.0m yoy
  
• Crude Materials, Inedible, except fuels - from €152.7m to €189.9m yoy
• Mineral fuels, lubricants and related materials - from €1,347.9m to €1,748.1m yoy
• Animal and vegetable oils, fats and waxes - from €37.7m to €57.5m yoy
• Chemical and related products - from €2,131.3m to €2,524.0m yoy
• Manufactured goods classified chiefly by material - from €802.7m to €922.0m yoy
• Machinery and transport equipment - from €3,203.7m to €3,707.0m yoy
• Miscellaneous manufactured articles - from €1,408.2m to €1,494.0m yoy

Changes in imports in mineral fuels, lubricants and related materials, as well as in chemical and related products is broadly in line with MNCs demand for inputs to deliver increases in exports. Machinery and transport equipment imports increases were characteristic of some replacement of lost (depreciated) capital base in the industry.

Exports increased by 9% to €23,346m in Q1 2011 compared to Q1 2010 with:

• Exports of Medical and pharmaceutical products increased by 18% or €1,065m
  
• Exports of Organic chemicals rose by 15% or €716m.

Exports of Electrical machinery decreased by 6% or €48m.

Lastly, terms of trade deteriorated for Irish exporters from 78.0 (price of exports ratio to price of imports) in February 2011 to 77.1 in March 2011. March reading was the lowest since January 2003 and compares unfavorably to 86.3 reading in March 2010 and 86.6 reading in March 2009.
This, of course, means reduced profit margins for Irish exporters and pressure on tax returns from external trade activities, as well as potential pressure (it will take more than a couple of months of low readings) on employment in the traded sectors. Broadly-speaking (ignoring a slight rise from 80.8 in November 2010 to 80.9 in December 2010), terms of trade have been deteriorating now for 10 months.
So as chart above shows, high exports volumes are coming in at the cost of reduced profit margins. Of course, much of this can most likely be attributed to transfer pricing by MNCs, suggesting that we might see increased emphasis on booking profits via Irish operations. This, n turn, can provide artificial support for GNP in the same way as it did in Q4 2010.