The Economist on the new Irish Government

Taken from the economist, 15th June 2007

economist.com/agenda/display … id=9350986

economist.com/agenda/display … id=9350986

Blue Horseshoe

Now there’s a crowd who should be ordering the “I told you so” T-shirts by the truck load.

I think they are being a bit dovish with this forecast.

Indeed. The Economist has been claiming that Irish property prices are overvalued since 2001. They’d be quite happy to claim they were right all along if actual (not asking) prices started falling noticably in 2007.

Now other studies out there claim that Irish property prices are between 7 and 15% overvalued. I can’t remember the sources, but they seemed reputable. If this were so, it would imply that the economist was wrong in 2001 and probably wrong in 2002 and 2003 also.

I don’t for a second believe that houses are over valued 7-15 % in my gut it feels like 30-40%. So called reliable sources have been telling us the house market won’t come down for so many years. I’m not sure there are reliable sources I’m not sure the knowkedge of an economists adds and more insight in to the way common sense can interperate facts.

I’ve never felt I was stupid enough to fall in line with an authority when common sense felt it was wrong.

Rant over
Shirls

We really should make a little bit more of an effort re spelling and grammar :wink:

Yes indeed The Economist has been sayitng that property is/was overvalued since around 2001. But so have most independent economists. And based on how prices have moved since around then with no real regard to income or demographics (other than the irrelevent headline figures bandied about by the VI’s) I for one aggree with the Economist.

As for the current extent of overvaluation, apart from it being difficult to find anyone who believes its not very overvalued, the latest report I’ve read from a German bank (can’t remember which one, will try to find it), suggests Irish property prices are, on average, overvalued by 70%. That would tie in with the suggestion made by certiain Irish commentatiors that property here needs to fall by 35% to get back to fair value.

Of course, as most markets overcorrect on the way up, they also tend to overcorrect on the way down.

Blue Horseshoe

Property has been over-valued here since at least 2001; in my opinion, it has been over-valued since late 1999 and by as much as 66% - i.e. a fall of between 50% to 66% to return to fair value. I am simply amazed at people who can not see a 50% fall - it will happen and I will be proven right!

If its overvalued by 66% it only has to drop by 40% to return to fair value.

sorry :blush:

This is a nonsenical way of approaching things - when the Central Bank/the Economist magazine/the ESRI, etc say that something is overvalued by a certain percentage, they simply mean as a % of current value - therefore 20% means just that - 20%.

So let’s keep it simple

Hope I didn’t come across as the school teacher :blush:

Yeah but the point is that a 20% fall would mean than owner, who had a 25% price appreciation, would be back to 0 and a 50% fall would wipe out a 100% price appreciation.

WTF … :question:

People, when an expression of overvalueation is made, it’s usually as a factor of the current price over the “Fair Value” price.

An example …

Assume there is a bubble in the widget market.

Fair Value for a given widget is believed to be €200. However, this widget is overvalued by 50%.

Therefore, it trades in the market for 150% of €200 which is (for the percentagely challanged one and a half times 200 euro) € 300.

Simple, said widget is overvalued by 50%

Now, in order to return to fair value, the widged must drop from the traded price of €300 back to the accepted fair value price of €200, so it must lose 300-200 wich is 100. €100 as a percentage of the €300 paid, is ofcourse 33.3% (or a third)

So, fair value for the widget is €200
Trading price is €300 which makes it 50% overvalued.
Therefore, it must lose/drop by 33.3% of it’s traded/market price in order to return to fair value.

QED

Blue Horseshoe

Listen, BH, of course your figures are completely correct. I’m a chartered accountant with a masters in Economics so I fairly easily understand figures. Perhaps I should have explained myself a tad better - let’s just focus on the % falls that will/will not happen - when lay folk talk about say property being 50% overvalued they are also saying that they believe that a 50% fall is required (o.k. we know it’s not the same thing but big deal, we all get the message)

Fine by me …

Blue Horseshoe

say hello to pedantic pat!

There’s a lot of talk about “overvalued” property market and a lot of people on this forum seem to use accounting/economic concepts such as P/E ratios to try to quantify the degree of overvaluation. However, the truth is that Irish people (including small time investors) clearly put a premium on being property owners, above and beyond that which applies in most other countries, where property doesn’t have the same emotional significance (yes, “rational man” is a very imperfect economics concept). So the point is this, “value” is a personal thing and Irish property will always be “overvalued” relative to most of our European cousins, taking into account market conditions, general economic climate etc, etc. I expect property prices to fall significantly but not by anyway near the 50% that people are bandying about.

Yawn, we are different, yawn, we are special…

The prices are set at the margins and at the margins people do not put a premium on being property owners they put a premium on return be it through capp apprecation or yield.

I don’t agree with you, Bearhead, Why should Irish property be always overvauled relative to fundamentals? Back in the 80s it was undevalued relative to fundamentals?

All this thing about the irish having an emotional attachment to property is just relatively recent media hype. They said the same in Japan years ago and look what happened there.

I believe the bigger the sense that we are different and the bigger the sense that we are irrational then the bigger the Asset bubble and the bigger the crash.