Is the decline in Irish house prices over? NCB Research 23/5

Is the decline in Irish house prices over?
Source
ncbresearch.com/fixed_income … operty.pdf

Is the decline in Irish house prices over?

• There is an enormous amount of excess supply at a national level across Ireland, with 68 months worth
of excess supply based on household formation.
• There are vast differences across regions though with Dublin and the Mid‐East having far less relative
supply.
• Daft.ie data on properties for sale reveal that when broken down into category and by area that in
certain instances there is not an abundance of properties, again particularly in Dublin.
• Rents have been stable to rising at a national level for 16 months now. This though disguises the fact
that rents in the cities has been rising while rents outside of the cities have been declining.
• Based on average household income and rental yields we see house prices as being somewhere
between fairly valued and 25% overvalued.
• At current levels of rents and house prices it is rational for certain households to purchase rather than
rent. This is based on certain assumptions and does NOT imply house prices will not fall further.
• Ultimately the decline in house prices will be determined by confidence, employment, positive
expectations, government decisions and the banks decisions regarding lending criteria.
• Given this we think a 60% peak to trough or further 20% decline in the CSO national index as a
reasonable assumption given the risks to the economy, consumer confidence, government policies and
bank lending.
• The key point though, which is evident throughout this whole piece is that there are vast differences
across regions with some areas already being at or near bottom.
Overview
The 2011 Census revealed that the vacancy rate (ex. holiday homes) was 11.9%, the equivalent of 230,000
properties. Based on Census 2011 population data, we calculate that average household formation over the
period 2011‐2016 will be circa 22,000, implying that on a potential demand basis it would take 123 months to
clear the vacant stock. This is a misleading statistic though as there is always a certain level of vacant properties
in an economy.
Assuming that 6% is the normal vacancy rate, it would take 68 months on a potential demand basis to clear the
excess stock. There are large differences across regions with Dublin and the Mid‐East having much less relative
supply than the Border and West. Ireland may have a huge amount of supply on a national scale, but within
regions and for certain categories of property there is not an abundance of supply.
Cont…

A good report in my view. Considers on many of the things other surveys miss, like rent supplement and stock overhang.

My opinion would be that their stressed scenario of 25% yet to come off is close to the truth.

I think their estimates for mortgage amounts are a bit low.

I think the analysis could have looked at income numbers and at mortgage loan numbers to give an indication of demand.

Some estimate of a propensity to buy would be useful as this is what will start the “recovery” - when people feel like buying and feel it is worth buying.

Some better correlation of demographics to identify demand should have been included.

Some comments on likely further volumes of property put up for sale would have contributed to a fuller picture. Given the current market, those people who sell must be doing so for a very good reason. It has to be hell for a seller at the moment.

However, a good overall high-level analysis in my opinion and a better fact-based analysis than the recent Central Bank model-based nonsense. Parts of Dublin are bottoming out where buyers perceive value. Latent demand and just plain desperation are playing their parts in this. Elsewhere, prices will just continue to drop.

It certainly bursts the bubble of the 26% undervalued brigade.

The 22,000 home formation per year between 2011-16 is a bit optimistic, I think this would only coincide if there was at least 22,000 net jobs per year created. Already in 2011 there was no net jobs created and considing we will be cutting the defcit so much adding over 1% to the workforce per annum does not sound right.

They also leave out that a round 10,000 units per year will prob be built by 2016 eating into any home formation that is created slowing the overhang to clear.

Good report that highlights the differences between Dublin and the rest of the country.

Am I interpreting the report correctly when I assume Dublin is close to fair value and the rest of the country has 25% further to fall?

The surplus housing figures make for interesting reading especially for the Dublin region.

I look forward to seeing how that’s taken into account. No mention of the impact of mass repossessions. Probably because it seems more and more like a pipe dream, with every year this drags on.

+1

In general the report is reassuring for everyone except Dublin buyers looking for the premium locations. The point a few of us (Landlord, myself, doubledigitgrowth, for example) have been making for a couple of months now about certain parts of Dublin seems to be finally sinking in, here on the pin and elsewhere. Based on what I’m seeing lately, a few parts of Dublin probably *have *hit their bottom and will now settle there for a while or start a very gradual and jumpy ascent.

If I were looking to buy in those strongest areas of Dublin and wanted best value, I’d be buying as soon as possible.
If I were looking to buy in less strong parts of Dublin I’d be getting my ducks in a row and not expecting much more of a drop, but not feeling too hurried about it either.
If I were looking to buy beyond the greater Dublin area, by and large I’d be sitting back for the moment and enjoying the ride for a bit longer - maybe (if NCB are right) up to 25% longer!

The bottom for Dublin will occur when we can see prices stabilising and starting to rise in some instances…

ie… about 2 weeks before they release the property prices database :wink:

Repossessions?

I can’t claim to have had any inkling as to how bad the bust was going to be back around 2006/07 beyond reading Morgan Kelly’s opinion pieces, but I remember telling my wife that if there was to be a bust that the place to be was in the same boat as your average family and that there would never be wholesale repossessions.

Because everything here is subservient to the demands of a populist electorate, particularly economic policy.

Wonder why he would use Daft when most properties are going on to Myhome, but not necessarily Daft…

I’d question his data simply for that.

He is a bright guy…

Interesting. How do you think the levels of arrears will effect the bottoming out process. Currently 9.2% and creeping up at around 1% per quarter (90 days or over). There are also 36,000 restructured mortages (roughly another 5%), how many of these are temporary measures in a declining economy and are heading for arrears. Is it likely that these arrears figures do not impact the “strongest areas of Dublin”? Are the “strongest areas of Dublin” likely to suffer more or less arrears?
Can you really say that an area has bottomed out when it is possible that 15% (and likely climbing) of the mortaged stock is in arrears or restructured?

I don’t foresee the arrears problem being dealt with by such a radical solution that we would see a sea-change in supply caused by reposessions.

There was a time when I held out that hope, I really did - I have posted elsewhere about my blinkered vision in the early days of my househunting forays - I was truly convinced that Something Great Would Happen To Dramatically Improve This Lousy Supply Situation Sooner Or Later. But I eventually snapped out of it.

Had a more detailed look at this…

there are definitely interesting parts to it…for example his comments on the Central Bank research.

The core of it though is the difference between one part of the country (ie Dublin) and the rest…and to this extent, he is just saying what people on the Pin have been saying for a good while now…that supply has dried up.

The difference between us and him is
(i) He is saying it 6 months after the Pin started saying it
(ii) He is getting paid to say it.

Here is a thread I started on the same subject 5 months ago, and there were others:

viewtopic.php?f=10&t=42312&hilit=+january

Of course, its not simply a case of supply drying up…

Its a case of prices falling to a level where sellers are saying I am not going to sell at these prices…and buyers saying I will buy at these prices…

And those are informed decisions, informed by for example Sharper1971 mentioned, buyers and sellers making their own minds up about whether repossessions will bring in a flood of new properties. We’ve had 6 Allsop auctions and there has barely been 10 decent family homes in the whole lot.

its like waiting for a bus that never comes…

I hear ya… While repossessions might be a pipe dream. Is having your debt written off just a dream too for many?

Your reckoning may be correct in that we see mass debt write-offs before we see mass repossessions. If that is your reckoning I find it hard to argue with.

Ok. You are willing to advise people to buy now, in certain areas, on the basis that you think that certain specific factors will have no effect on the market. At this point, you have nothing more than a gut feel for that. Is that correct?

CSO index is out tomorrow :slight_smile:

When the keys are handed back of course.

Facebook shares are up today, presumably that’s it now, they are locked into an upward trajectory. Time to pile in so :slight_smile:

What everyone is ignoring (big PINK ELEPHANT) is that the country is still wholly and totally bankrupt, spending way above earnings and with no way that gap can close.

So, with that in mind, either Ireland slashes expenditure, raises taxes or leaves the euro. I hate to burst the bubble of those landing on a soft bed of roses but EVENTS DEAR BOY, EVENTS will decide the fate of the Irish property market and Ireland has no control, zip, nada, nought control over the events.

So, no risk of uptick (in my opinion) but a HIGH risk of a major eurozone blow out taking out Ireland. Irealnd Inc. is insolvent but trying to do a Donald Trump “look at my shiny wife” approach to dealing with creditors.