Europe: FT European house price guide

Lots of maps and interactive charts including Ireland.

Interesting stuff that.

They have calculated real and nominal indices for Ireland. A reversion to the mean (and isnt that always what happens) would sugest a fall of 60% in nominal terms from peak (allowing for an uplift in the real mean of 25% for the cheaper financing provided by the euro). This would bring us back to 1998.

Suppose those half mill shoeboxes do seem more realistic at 200k.

If the housing market wasnt so emotive then probably thats what would happen.
Instead I reckon those 500k shoeboxes will reduce to 350k or so and then sit there for years until inflation makes that in line with historical norms.
When prices stop falling there is not going to be any bounce but a long drawn out period of stagnation, great if you are a potential buyer i suppose,

Interesting, this makes the Irish market not look too bad from what I can see?
Am I missing something here?

Average Irish house prices are amongst the highest in Europe, this in a country where housing supply far exceeds demand. The percentage increase seen in prices in some of the countries covered in the report has to be seen in the context of a relatively low starting point e.g. Poland, Latvia etc. The UK, Spain and Denmark have experienced housing bubbles but not on the same scale as Ireland. If you compare Ireland to Germany, Austria and Switzerland; where prices have remained pretty flat, you get a different perspective.

ahh true, also, Northern Ireland is just insane…

So Duplex,where do you see Irish prices retracing to?I would be interested to know your thoughts.

To where prices reflect average gross rental yields of about 10% is my guesstimate.

Not quite sure what that means for prices,any chance you can be more specific?

Here is a post I made recently with my views,I think a 38% retracement to put the average country bungalow at E256,000 or thereabouts would be as low as the banks will let it go.

"I think a Fibonacci retracement would be very applicable to this bubble,if you take around Euro 70,000 as the starting point (mid 90’s)and around Euro 370,000 as the absolute peak for the average three bed bungalow in the country this would give the following retracements:

23.6% E300,000
38.2% E256,000
50.0% E221,000
61.8% E186,000
76.4% E141,000

23.6 can be ruled out as it will be exceeded in the next couple of years,I think due to central bank intervention in the form of hyperinflation(the alternative is to let the banks go to the wall -which do you think they will choose?)that leaves 61.8 and 76.4 as too extreme for the banks balance sheets to tolerate,38.2 and 50 seem the most likely,it all depends on how interventionist the ECB gets and the degree of intervention of the government.

When these corrections are viewed against the massive rise in prices it will provide very little relief or hope for those struggling to get on the ladder,and as prices fall, those desperately waiting for lower prices will in fact help suppport prices on the way down by buying on every dip and in the process limit further falls."

Pot calling Kettle… Come in Kettle…

I think house prices will reach a level equivalent roughly to ten times the annual gross rental value. Like I say its a guess.

If looking at current rents of say E700 per month for above bugalow=7800 per annum and equates to E78,000 to buy!!!

This would imply a 100% retracement and a return to prices where they started in the mid 90’s.Is this what you are saying?

Just thinking,if prices went to E256,000 and yield was 10% also,would give monthly rental of E2133 approximately three times current rent,anything is possible of course,the looneys are in charge.

No, I’m saying that I think house prices will in the future sell at prices that reflect average gross yields on rental value of approximately 10%.

Thanks for that, how would the deflation of the japanese asset bubble fitted into the sequence?

Nikkei 225 went from around 7000 in the mid seventies all the way to 39,000 in 1990 and then all the way back to 7/8000 in spring 2003 so a 100% retracement,and that was with the Bank of Japan cutting rates to 0.25%!

So,no it didn’t work but do you think it will stop the lunatics that run the Fed/ECB/Bank of England from doing the same?Of course not.That’s why I fully expect them to start cutting.

What basis have you, in real terms, for accusing the ECB regarding their actions to date (and indeed statements), that they are “lunatics”?!?

We keep having the same arguments regarding the rate of inflation,the ECB has failed for TEN CONSECUTIVE YEARS to keep inflation below its target of 2%(see red ink below) and that is using their own fiddled figures,do you seriously believe Euroland inflation is currently 4%?Even if it is 4% when are they going to put up rates to control it?When it gets to 6% or will they wait until it hits 8% or maybe 10%?

Do you not think the current rate running at double the target warrants immediate action?I believe euroland inflation to be currently around 10% for the average working man so what I want to know is when are the ECB going to actually put up rates to 10%?

Mr TUG, the European and American banks are virtually bankrupt as it is,if as everyone on this site believes we are in for a nasty correction in property prices,are the ECB going to exacerbate this by putting up interest rates which would precipitate the collapse?Of course they are not.

Trichet signals ECB ready to act soon against inflation
Bloomberg News, Reuters, The Associated Press
Published: June 5, 2008
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FRANKFURT: The two most important central banks in Europe, the European Central Bank and the Bank of England, left interest rates unchanged Thursday, but the ECB gave a strong signal that it is preparing to act against inflation pressure.

The ECB left rates at 4.0 percent for the 12th month running, confirming its concerns about price pressures. All 82 economists in a Reuters poll last week predicted the ECB would leave euro-area rates steady.

Speaking to the press after the meeting, Jean-Claude Trichet, ECB president, said the bank was monitoring inflation with “heightened alertness” as oil and food prices increase, toughening the ECB’s interest-rate stance.

“We noted that risks to price stability over the medium term have increased further,” Trichet said. “It is our strong determination to secure a firm anchoring of medium to long-term inflation expectations.”

Trichet said he was “not excluding” interest rates could go up “a small amount” at next meeting.
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So far, ECB policy makers have refused to follow the Federal Reserve and the Bank of England in cutting rates because they’re concerned unions will push through demands for higher wages and companies will lift prices. Surging food and energy costs pushed inflation to 3.6 percent last month, matching the fastest pace in 16 years.

The ECB, celebrating its 10th anniversary this week, aims to keep the rate just below 2 percent, something it has failed to do every year since 1999.

Higher prices are also draining consumers’ purchasing power, weighing on an economy already struggling with a credit squeeze and the stronger euro. Manufacturing and service industries barely expanded in May and retail sales suffered the biggest annual decline in April since records began.

The Bank of England, which has cut borrowing costs in three quarter-point steps since December, left its benchmark rate at 5 percent. The Fed has reduced its main lending rate seven times since mid-September, to 2 percent from 5.25 percent.

Data over the past month highlight the dilemma facing the ECB and other central banks. On the one hand, economic growth is stuttering but on the other oil and food prices are fuelling high inflation.

Annual euro-zone inflation accelerated in May to 3.6 percent. The ECB celebrated its 10th birthday this week faced with the unwelcome prospect of average annual inflation exceeding its 2 percent ceiling for 10 years in a row.

Meanwhile, the Organization for Economic Co-operation and Development said it expected strong inflation pressure to keep ECB rates on hold until the end of 2009. But the think tank stressed that the ECB should remain nimble to react to any change in the outlook.

“It is only towards the end of next year that inflation comes back to 2 percent,” OECD chief economist Jorgen Elmeskov told at a news conference on Wednesday. “The right thing to do as we see it is to keep interest rates unchanged.”

Trichet and other policy makers have already warned that second-quarter growth will weaken, a picture backed by softer consumer sentiment and a fall in April retail sales.

In Britain, a survey on Wednesday showed the services sector contracted last month for the first time in five years while employment in the sector suffered its sharpest decline in more than a decade.

“Over the past ten years weak PMI data would normally be followed by a rate cut,” said Ian Kernohan, an economist at Royal London Asset Management. “Times have now changed and the MPC actually wants the economy to slowdown quite a lot in order to contain stubbornly high inflation.”

The MPC refers to the bank’s monetary policy committee.

Only 2 out of 71 analysts polled by Reuters last week expected the committee to cut borrowing costs this month. The rest predicted rates would stay at 5.0 percent for a second month running, and probably for a while longer.

That is a far cry from a few weeks ago when a majority were expecting rapid rate reductions.

April’s British inflation number shocked analysts and policy makers, showing a jump in the annual rate to 3.0 percent, a full percentage point above the central bank’s target.

The Bank would find it hard to cut rates when its mandate is to keep inflation at 2 percent.

Some traders are even betting British interest rates could rise by the end of the year. But policy makers have given little indication that they are even beginning to consider this while the economy is vulnerable.