S&P - "Irish property could be undervalued" IT - 01/06/10

irishtimes.com/newspaper/bre … ing27.html

Brought to you by the people who couldn’t predict their way out of a paper bag…


I’d like to see how they arrived at 12% undervalued. It seems to me that any objective examination (ie rental returns, replacement costs etc) of the Irish property market will find most properties overvalued.

Note in parts of the country such as rural communities prices have dropped back to build costs or lower, mainly where liquidators have been told to sell unwanted housing stock. Urban prices are still way overpriced.

Thats such a bullsh1t article.
To sum it up …

Irish property could be undervalued … or not.

What “Fundamentals have improved dramatically”. It mentions interest rates have come down. False. Affordability has increased - Based on what. Everything else in the article points to further drops and no mention of the tsunami of mortgage defaults waiting to be unleashed.

This I feel the most telling.

“But the report warned the correction may not be over, and said there was the possibility of a second dip in several markets, either later this year or in early 2011.”

Where is 2pack and his empties, stoopid?

Fuck I missed the bottom!

Technical analysis? :unamused:

Thankfully it’s not in the most popular stories on the Times website (yet). I wish I hadn’t clicked on it to contribute to its hit count.

:smiley: :smiley:

A guess we’ll be upgraded to AAA later today then

You can access their press release (free registration required) at standardandpoors.com/prot/ra … 5212916482

The report itself is only available to subscribers but here is what they say in the Press Release

“France firmly leads the pack on the overvaluation side, standing at 18.5%
above its long-term average based on both indicators, whereas Germany,
unsurprisingly, appears undervalued by about 12.5% since it stayed on the
sidelines in the housing boom. In the U.K., meanwhile, the affordability ratio
highlights a large 21% overvaluation, which could spell some further price
slippage, perhaps later this year. Spain still has about 12% of prices to
correct before the market regains long-term equilibrium. In contrast,
Ireland’s ongoing correction seems overdone: The market appears undervalued by
about 12% by our calculations.”

There are no calculations shown. However didn’t the OECD last week also indicate prices had dropped by 57% in real terms and were undervalued by reference to long term ratios of salaries?

We haven’t had any detailed income statistics since 2006. How the fuck can they guess what affordability looks like based on bubble salaries? Interest rates? Don’t make me laugh. It’s no wonder the rating agencies got it so badly wrong with complex products. They can’t even work out the simple stuff.

Last week Moody’s said prices would fall another 18%…

irishtimes.com/newspaper/fin … 05750.html

In the top 5 most read now. Give yourself a pat on the back TUG :wink:

For the crime of suckering young innocents into the property market TUG now stands up there with the best of them … Desperate Dan, Comical Austin, Isobel etc etc

That article is twaddle. No accounting for empties or for emigration or for higher fertility in the remainder slowing down shrinkage in average household sizes from “historical averages” in recent years. It will bring some greasy toupéed EA’s out calling the bottom (again :frowning: )

Quite easily, and it would demonstrate just how badly wrong Mick and Biddly Public or rating agencies can get it.

Make the following assumptions;

i) A multiple of Average Income to Average House price of between 8 to 10 times is “normal”.
ii) Lending at 100% of the purchase price is “normal”.
iii) Lending rates to home buyers at or below 5%pa are “normal”.
iv) Year on year, wage inflation ahead of price inflation (ex-property) is “normal”.
v) Generous tax incentives for speculative residential property purchases as non-PPR’s.

So, in essence, assume the performance of the property market during the bubble years is the norm.

Then, ignore;

i) Circa 300,000 empty residential units in a country with fewer than 1.7m households.
ii) Net emigration.
iii) Reduced gross incomes.
iv) Increased personal taxation.
v) Removal of tax incentives for residential property “investment”.
vi) Higher interest rates.

Basically, ignore the economic fall out of the bursting of the bubble and global financial issues.

If that’s your frame of reference, then the period from 2007 has resulted in an undervalued market which, if you were to argue had deviated from its now “normal market paradigm”, should return to it’s norm.

The problems with that argument are, IMHO, two fold;

i) Economics/commerce/business 1-0-1; Fundamentals of supply and demand. There is more supply of residential property than demand. Plus, unlike nearly every other purchase made by individuals, buying a house for the majority is made on credit, vast amounts of it, which just isn’t as readily available as during the bubble years.
ii) Human nature. As has been demonstrated time and time again since the days of Tuplipmaina, after a bubble bursts and the market finally accepts the folly it was engaged in, a period of revulsion (or dislike for the investment category) takes over and individual investors tend to shy away from the “asset class”. Remember that there was very little institutional investment in Irish residential property (beyond initial funding). So, the days of 1 in 3 new builds being snapped up by speculative buyers are unlikely to return for at least a generation.

It would seem that on this analysis, S&P have continued their streak of getting it wrong.

Blue Horseshoe

Blue Horseshoe explained it much better than did I :smiley:

You can purchase the full S&P report for a few hundred USD which might provide the workings. The IT seem only to have seen the press release so no fact-checking, the fact it has S&P’s imprimatur is enough to quote from it Bible-like. At least Morgan Kelly, David McWilliams, DKM show how they arrived at their conclusions there’s still another 30-50% to come off the average price. At least Brian Lenihan referred to historically high commercial yields to justify (fallaciously it must be said) his bottom comments last September.

Moody’s didn’t provide the workings for its 18% fall by 2013 prediction either. I couldn’t find the OECD workings for the 57% off peak in real terms and bottom comments last week though knowing Permanent TSB/ESRI said we are 35% off peak at the end of March 2010 and there has been very little inflation since the start of 2007, those numbers look suspect.

Lastly from me, S&P predict a further 10% fall from today so even though we’re 35% off peak which is 12% too much, according to S&P, we have another 10% to go. What do these idiots think is the concept of the value of something if not what it will fetch?

Great post Blue Horseshoe, as usual.