What is "the long-term economic value of" Irish property??


#41

An article in yesterday’s Sunday Tribune had a commentary on the propertry crash, its causes etc. What interested me was the graph which tracked annual CPI compared with houseprice inflation. It shows a strong correlation between CPI and houseprices for c. 20 years prior to the spike we all know about from 2002 onward. The article is attached here but the online version doesn’t contain the graph unfortunately.

tribune.ie/business/news/art … nt-invest/

The graph shows that houseprice inflation has now almost returned to the pre-boom level (the indices were last “equal” in 1998). When the houseprice inflation index does indeed return to the more normal CPI level, does that indicate that some sort of parity (and perhaps even normality of sorts) has been restored between CPI and houseprice inflation in this country?

I’m probably being an ignoramus and missing something obvious but just curious if anyone else read the article.


#42

Where’s the Guinness pint house price index, we had it a while ago.

It depends on what you track Zapp… Obviously, it’s useful but there are a number of x-factors now that simply weren’t prevalent during the historic correlations…

First off, supply and the quality of the housing / apartments stock… Then you have to take a view on median household income, the double income effect, etc.

We’ve done alot of work on that graph over the history of the 'pin.


#43

en.wikipedia.org/wiki/Consumer_price_index


#44

I caution against using an Irish CPI or even Irish HICP as a benchmark for growth in Irish house prices. We have seen Irish CPI grow at an unsustainable rate resulting in shocking uncompetitiveness in some areas and extreme prices in others. That this bubble was fed by and fed house prices is probably not at issue, but it does complicate measurement of house prices on a traditional “inflation+0.8%” basis.


#45

I haven’t seen the graph as it’s not online, but I think it charts commercial property:

I think the crash in commercial property has been more severe than for residential, although I could be wrong on that.


#46

Here’s StatusIreland’s graph of the PTSB Index. For Dublin, from Q1 1996 to Q3 2010 it goes from €83,071 to €238,986.

statusireland.com/statistics … -1996.html

And here’s an Irish Inflation calculator (which I’ve seen quoted on the Pin and I think is accurate). I make €83,000 in 1996 to be €121,000 in 2009.

anthonykelly.com/inflation.html

(I’m assuming changing the Input to €’s from £’s is allowing for the currency change and is directly comparable to the €83,000 in the SI graph. And I think one must allow for the possibility of some structural HPI in the late 90’s that might push that €121,000 figure up, and also that the €238,000 figure is out of date and needs to fall).


#47

Does anyone have a more recent graph for house prices than this one?


#48

Thanks. Very useful, according to that we were at about 2002 levels in Q4 2010. We might be back almost to 2000 by now

I’m trying to convince someone not to buy just yet, although to be honest I’m nervous about advising anyone to strongly on such an important decision. It has to be their own choice in the end.


#49

Great graph, really helps put some perspective on where we are right now. Although as someone already mentioned it would be much improved if it were corrected to earnings data (which i can’t seem to find) rather than inflation.

I can’t really comment on what will happen outside the Dublin Area as there seems to be more supply than there could ever possibly be demand for. However in the Dublin Area I don’t think we will see house prices settle down to the long term average on this graph (ie down another 50% from here) as there are other factors to be considered. For example in 1991 there were 1.025M ppl in dublin, now it is 1.27M*. There’s still plenty of space to add apartments around town, but it’s very difficult to increase the number of 3, 4 and 5 bed houses within 30 mins of the city centre. There social changes such as more women in the workforce (particularly women in their 20s, which will build a couple’s overall savings by 27 - 33, when they are first likely to hit a functioning property market. And despite current hardships there is a lot more wealth in Ireland now than in the 80s and early 90s, much of which inevitably end up in the property market.

Quatifying this is difficult and not that necessarily that useful for now. Currently there is enough evidence here for me to be certain prices are heading significantly lower in the short term to medium term and there is not enough long term value in current prices to make the risk of loss worthwhile, so my money is staying is staying in my pocket.

*Census data


#50

Similar graph but this time divided by GDP per capita. It was a bit tedious but fun because I really had no idea what it was going to look like at the end.

https://i55.tinypic.com/2lwn71u.png


#51

Perhaps better to divide by GNP as GDP figures distorted by Multinationals.


#52

Yeah I thought of that as soon as i saw that big drop on the last datapoint, especially remembering the GDP/GNP differences in the latest figures, but not bothered doing it again now. It’s not like any graph is going to tell the whole story and i’m pretty sure the general shape would be very similar.


#53

That second chart is quite extraordinary.
When you see the discrepancy between apartments and houses, and properties in Dublin vs outside Dublin it means that the value dropped for houses outside Dublin is probably only 12% since January 2005. That works out at about an average of less than 2% per year since January '05. Could that be right?
I was expecting that even with the initial price rise post 2005, that the average fall since 2005 would be at least 5%.


#54

I did the same by GNP per capita and the graph was quite similar, not as marked an increase in late 90’s.
I then adjusted for interest rate movements and it pulls the right side well down. I did it up to end 2010 and the end point was back to around the same level as 94/95.
I’ll see if I can find it again.
How do I post a graph?


#55

first off move it to paint and save the file, then


#56

the current figure is now 5.06


#57

Great chart OI. A topic worth a little more investigation, particularly in relation to the lag between the two components of the graph.


#58

Any chance of a chart with GNP ?


#59

A comparsion with salary inflation over 50 years would be interesting, since people (during normal times) buy houses with salaries to live in. The one adjustment to this is that there are probably a lot more 2 income households than there used to be (and some which would rather go down to one income if they could afford it).

I would guess where we are now would suggest fair to reasonable value where supply is limited. Unemployment has been stable for a while now and if this or the credit situation improves it could represent good value.

There are also demographics to consider. First time buyers on the whole have been out of the market for 5 years. That’s a whole bunch of college leavers from aged 22 to 27. The longer they stay out and the bigger that pool becomes, the bigger the deposits that can be saved by this group and the bigger the eventual jump when price to salary ratios become right and credit and confidence returns.


#60

Taking a different approach from most on this tred. Lets compare Ireland to another country of similar GNP per capita and overall tax rate. I am picking Germany, GNP per capita €43,000, Ireland €42,000 as of 2010. en.wikipedia.org/wiki/List_of_co … las_method_per_capita

Both have an overall tax rate of the economy of 43% of GNP according to Eurostat.

Interestingly german house prices have barley moved in nominal terms in the last 16 years, and in real terms since 1990. You could not argue that german house prices are in bubble territory. Infact probably German property is close to its ‘‘real’’ long term value which given Ireland similar GNP and overall tax on the economy would be a good bench mark to measure how over/under valued Irish property is.

Average german house price is €175,000 in 2011,
globalpropertyguide.com/Euro … ce-History

Average Irish house price €177,000 q1 2012.
finfacts.ie/irishfinancenews … 4141.shtml

So maybe we are close to long term value.