Irish house prices fall 4% since the start of 2009 – latest daft.ie report

Ireland’s property slump marked it second birthday today, with the news from the latest daft.ie report that asking prices for residential property fell 4.2% in the first three months of 2009. This latest drop in prices marks the eight consecutive quarter that prices have fallen.

As the official press release notes, the national average asking price now stands at just over €280,000, meaning that prices have fallen almost €70,000 from the peak in early 2007. What’s interesting to note at this stage is that Dublin was worse hit on average over the first quarter – in particular Dublin city centre, where prices fell by 11%. Other notable falls since the start of the year are Sligo and Waterford city, where prices fell by about 10% in three months.

The fall in the first three months of the year should not be underestimated, particularly as the year-on-year rate of change has now slid to -15.7%. Nonetheless, a graph of the quarterly change in asking prices gives some food for thought. The falls in house prices got worse and worse more or less every quarter from mid-2007 on – until now, as the diagram below shows. How much we can read into this, though, will have to wait until next quarter, when we can see if the trend continues.

Change in national average asking price from quarter before, source: daft.ie

Change in national average asking price from quarter before, source: daft.ie

Commentator for this report is Liam Delaney, a behavioural economics expert. He discusses the importance of psychology – and the value in terms of self-worth of things like owning a house or having a job – in current economic conditions. He draws an important distinction between public and private sector workers (or at least that’s how I interpret it):

This report – combined with the recent labour force figures – indicates considerable hardship for those in once solid middle-class jobs that are now facing a potential double-whammy. People will inevitably feel even worse when they see neighbours and friends who are in better situations. Consider the position of a college graduate who purchased in Dublin in 2006, based on the income from his financial services job (now gone), to the position of his neighbour who secured a public sector position on leaving college and purchased in 2001. While neither is laughing, the latter must at least be considering himself the better off of the two. They are certainly not in the same boat and the widening rift in society being generated by asset price decline and employment uncertainty is the defining theme of our time. As described by John Fitzgerald and others, there are many who are currently better off than last year, as they are facing declining prices and interest rates in the context of stable employment in their sector.

He also describes two scenarios for the future, drawing on Gerard O’Neill‘s own commentary on a previous Daft report, where he suggested that the current economic maelstrom in which Ireland finds itself is probably the only thing that could possibly ever turn Ireland into a nation of renters – the implication being that may just happen. Liam then walks through the implications of these two scenarios:

One version of a national narrative that was articulated in the previous commentary by Gerard O’Neill was the idea that the Irish cultural and psychological need for property may be displaced by a culture where renting is given more credence as part of a normal adult life. Were such a story about the Irish relation to property to take hold, it would clearly have substantial implications for any potential future rebound in property prices. Key players at the moment are those who can afford property but are riding out the current uncertainty by taking advantage of falling rents. If they follow Gerard’s story, they may never come back into the buying market and the next generation may follow them into long term renting.

Yet, we still hear strongly the story that the Irish have always been and will always be wedded to the idea of home ownership as a fundamental part of maturing into adulthood. If such a story about Irishness and adulthood maintains its hold, house prices will eventually settle at a higher level, and changes in the market will depend on macroeconomic conditions, rather than on the type of seismic shift in Irish culture described by Gerard.

I’ll be posting each day this week on different findings from the latest figures, starting tomorrow with a Budget-day special… did someone say an Irish property tax? Later in the week, I’ll also look at the stock of property for sale – which incidentally has now fallen, however slightly, each of the last six months – but before I do, a quick comment on asking prices versus closing prices. Accurate measurement of house prices is a hot topic at the moment – it seems the ptsb closing price index reached a minimum fall in year-on-year terms of 10%, while asking prices haven’t yet found their nadir.

Changes in asking and closing prices, 2007-2009

Changes in asking and closing prices, 2007-2009

The full report is available at www.daft.ie/report and contains, as mentioned above, a commentary by Liam Delaney, Lecturer in Economics with the Geary Institute, UCD, as well a regional and county-by-county analysis of the latest trends in the property market.

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Guess the Index: The Daft Report turns fun!

Following on from my recent post about Web2.0, hubdub and guessing Irish unemployment, I think it’s only right that I turn this future prediction market technology on myself. Well, on the Daft Report at any rate.

At this link, you’ll find a market on how much lower rents in Ireland will be in January 2009, compared to a year earlier. All you have to do is place some of your hubdub dollars (don’t worry, the whole thing is free, it’s just to measure how sure of the outcome you are) on the year-on-year rate of change, as per Daft’s very own National Rent Index.

Those who get it right will get naught but some more Hubdub dollars, but hopefully that will suffice. Well, that and the knowledge of being right, and perhaps some real dollars, in the form of a cheaper rent, if you’re a tenant bargaining with your landlord – assuming of course rents fall. (As I write this, the Hubdub market currently gives a 5% chance to rents falling less than 6% or rising, so some of that 5% includes the theoretical, at this stage, outcome that rents will go up.)

There is of course a serious side to all this (careful, blogosphere, here comes the science bit). If the market matures enough, it will be interesting to see how correct it is, compared to the actual outcome. Consistently accurate markets, across a whole range of these hubdub thingies, would say something to economists and policymakers, for example in Ireland, in light of the social partnership talks about public sector pay cuts (e.g. have public sector workers already cut their expenditure in anticipation of a cut?)

Most importantly, though, have fun! We need all the fun from markets we can get these days.

Westmeath says ‘Watch out below’! An updated heat-map of Ireland’s property market

A little behind schedule, given that the report is out a couple of weeks at this stage, but the latest Manyeyes visualization of Ireland’s property market is up here. The overview snap is below.

Heat map of price changes in Ireland's property markets

Heat map of price changes in Ireland's property markets

As you can see, all counties have notched up two consecutive quarters of price falls by this stage (Limerick was last to fall). Some counties are now on six quarters. It seems that those that fell first have fallen hardest – in the Midlands (defined loosely enough), Laois and Longford were among the first counties to register falls in asking prices. They have now been joined by neighbouring counties, which are among the worst affected so far by falling prices. Take Donegal, for example, which was among the last to give up rising prices, where they are now 17% lower than a year ago. In Westmeath, the figure is even higher (18.1%), which marks a huge slide of more than 10% in the year-on-year change from the previous quarter. Longford and Louth are also in the same range close to 17%.

Now, as for Tipperary and Waterford (and Limerick and Mayo, the other two counties where falls are still single digits)… Are sellers there living in a mild form of cloud cuckoo land? Even looking at fall-from-peak figures, rather than year-on-year, they’re still in single digit territory. Or perhaps they think that they’re more sheltered, because the overhang of property is not as severe as it is in the Midlands/North-West? Answers on a postcard…

(PS. Do people think that this heatmap should change from year-on-year changes to one masuring the fall from the peak instead? That might give a better idea of total adjustment. Biggest adjustment so far is still Westmeath, down 20.0% exactly.)

The year of the renter… the Irish Times whets the appetite for next Daft report

Daft has been getting lots of exposure in the Irish Times recently, as the batch of year-end reports and prognoses for 2009 flood in. In particular, the Irish Times has begun whetting the appetite for the 2008 Year in Review Daft Rental Report. Their recent article, ‘A renter’s market‘, reviews current trends in the rental market, citing the November Daft Report, which found a fall of almost 8% in rents in 2008 up to that point. It also pointed out the single most noteworthy feature of Ireland’s rental market at the moment, the overhang in rental stock around the country, which suggests that the smart money is on the next report to show a continuing fall in rents in pretty much every part of the country.

Below is a pithy analysis in the article from a man with a growing national reputation, Stephen Kinsella:

“What’s happened is that people bought [properties] to flip,” says Dr Stephen Kinsella, of the Kemmy Business School in UL. “They weren’t selling so they put them on the rental market. So what’s been happening over the last number of months is that the supply of available high-quality, brand new housing, especially apartment housing, has gone through the roof.” On the other side of the rental equation, demand has flagged due to the exodus of migrant workers from Ireland. The ESRI expects that net outward migration will reach 50,000 in the year to April 2009, which would free up even more rental properties. “You don’t need a PhD in economics to know when the supply of something goes up, the price of it is going to go down,” says Dr Kinsella.

Earlier IT coverage of the Daft Report focussed on the ongoing debate about the true level of house price falls. On Wednesday January 14, it reported the main findings from the Year in Review report for the sales market, alongside findings from the IAVI report out the same day. In an article entitled ‘Prices of houses in Dublin fall by 16.5%‘, the paper reported:

The latest Daft.ie house report, also published yesterday, shows that asking prices for houses fell almost 15 per cent over 2008.The decline in prices, according to the property website, accelerated in the latter months of 2008 with asking prices falling 5.8 per cent in the last quarter alone. According to Daft.ie, the national average asking price fell €58,000 in 12 months to €295,000, the same level as in January 2006.

Somewhat confusingly, though, the very next day, it published an article that was not so keen on the Daft Report. (One could of course be all conspiratorial about these things, bearing in mind that the Irish Times owns daft’s rival myhome.ie, Ireland’s second largest property portal, with approximately one third of the visitors, traffic and listings of daft.ie!) Michael Grehan, MD of Sherry Fitzgerald, sought to set the record straight on the true state of the property market, in an article entitled ‘Reports do not reveal true price drop‘:

Michael Grehan, managing director of Sherry FitzGerald, says that a report this week by property website Daft.ie, which showed a 15 per cent fall in house prices last year, doesn’t tell the full story, since the research is based on asking prices rather than those actually achieved. Grehan argues that while Sherry FitzGerald’s own property indices shows an average price correction of 30 per cent, since the peak, he knows of properties that appear to have taken cuts of 40, 50 and even 60 per cent, in at least one case. The size of the drop has been confirmed by other agents who have seen prices fall through the floor as buyers bargain aggressively. “The lack of publicly available information on actual sales prices puts buyers at a disadvantage as there is often a big difference between an initial asking price and the eventual selling price,” says Grehan.

Of course, he’s dead right. The Daft Report is based on asking prices, which is why, for example, the index is called the Asking Price Index. Also, it’s nice to see what those on thepropertypin.com would call a VI (vested interest) arguing strenuously that house price falls have been up to three times as large as those reported in the statistics. What makes it all a little bit more confusing, however, is that Sherry Fitzgerald conducted their own analysis of the Irish property market in 2008 and published their findings a week earlier. And what did they conclude? According to a January 7 report in the Irish Times entitled ‘More price cuts as season starts‘:

The average price of a second-hand property in Ireland fell by 7.1 per cent during the final quarter of 2008, according to a report by the agency [Sherry Fitzgerald] earlier this week. “This brings the level of price deflation for 2008 to 18.1 per cent – the highest level of price deflation ever recorded in the Irish market,” says the company’s chief economist, Marian Finnegan.

Confused? I know I am!I think it’s probably fair to say, though, that most people would be surprised if the 3% gap between the 2008 fall in Daft’s asking prices and the 2008 fall in SF’s index of prices truly reflected how much buyers are undercutting listed prices – which I think was Mr. Grehan’s point.

The moral of the story? Probably nothing more insightful than: know your stats, what they’re telling you and what they’re not, and always keep a healthy sceptical outlook on everything you read.

Ireland-AM Interview on regional property trends in the Daft Report

How did Roscommon’s property market fare in 2008, compared to Limerick’s? Why?

For some thoughts on the above, and on South County Dublin, Cork City and Kilkenny, as a representative smattering of the regional tidbits in the latest Daft Report, you can catch a five minute or so interview on January 15’s Ireland AM on here, on TV3’s revamped website.

Ireland: the Britney Spears economy? The Daft Report (2008 in review)

This is an unabridged version of my commentary on the latest daft.ie report (2008 in review), which is available at daft.ie/report.

When we look back at 2008 in a few years time, I think it’s fair to say we will regard it as the annus horribilis for Ireland’s property market. In late 2006, we issued a report which was the first to spot a slowdown in the property market. At the time, it was our view – unpopular though it was – that rising interest rates and high levels of supply would lead to a levelling off in house prices. This turns out to only have been the start of the story.

Ireland has become a bit of  Britney Spears economy. Bursting onto the world stage at the end of the 1990s, Ireland was heralded as an economic phenomenon and rapidly became a global superstar and poster-child for economic development. But recently it looks like it’s all just falling apart. Nowhere is this more evident than in Ireland’s housing market – until recently the engine of Ireland’s economic growth. House prices have fallen significantly from their 2007 peak, with trends in Ireland’s property market driven by the ongoing effects of overproduction of housing, combined with extraordinary international economic developments.

As the daft.ie review of Ireland’s property market in 2008 shows, asking prices for Irish property fell on average 15% during the last year. That makes 2008, in many ways, the opposite of 2006. While asking prices were static throughout 2007, the 12 months of 2008 have seen the typical home lose just over €50,000 in value, almost the exact amount gained in 2006. Ireland’s average asking price of €295,000 in December 2008 is almost exactly the same as that in January 2006. Even the property market’s quarterly trends were like 2006 in reverse.

The early part of the year was marked by uncertainty about growth in developed economies, as ongoing financial turmoil took its toll on share prices and the dollar. There was still a widespread belief, however, that emerging markets would take up the slack and that we were experiencing a blip rather than a derailment. Asking prices therefore eased back just 1.4% in the first three months of the year. As summer came along, though, it seemed that we were entering a new economic era, one of $200 oil and inflation. As this sank in, confidence took a further hit. Asking prices fell twice as fast between April and June as they had done in the first quarter, with the outer commuter counties of West Leinster, more dependent on petrol prices than elsewhere, particularly badly hit.

As autumn descended, the full extent of the financial crisis was revealed. Long-standing banks and investment houses were wiped out or nationalised on a weekly, if not daily, basis. House prices fell almost 4% in the three months between July and September as a result. There was still a feeling, however, that the financial and real economies, or Wall Street and Main Street as they were dubbed, worked in somewhat separate spheres. As the year came to a close, however, the full impact of the financial crisis on the real economy was becoming apparent, with job losses in retail, catering and manufacturing. The largest fall in asking prices, almost 6%, has come about in the final months of the year (just as the largest rise occurred in the first part of 2006).

South County Dublin has been in many ways the flagship of Ireland’s property market. Average asking prices in the area rose from €530,000 in early 2006 to over €680,000 by mid-2007. They have fallen steadily since then and in late 2008 fell over €50,000 to stand very close to their early 2006 levels. Elsewhere around Dublin, the fall from the peak has been in the region of €70,000 to €80,000. Outside the capital, falls in asking prices of between €40,000 and €50,000 from peak values in mid-2007 are more typical.

A range of global economic developments has made it necessary for countries around the world to revise down their growth estimates over the coming years. Russia, which earlier in the year had been expecting growth in 2009 of perhaps 7%, is now fighting talk that it is already in recession. The US may experience its first two-year recession for some time, while the IMF believes that the world as a whole will be in recession next year, according to its definition of global growth of less than 3%.
Ireland was delicately poised atop recent global economic trends. Its two major currency exposures are to the dollar and to sterling, so recent depreciations of both are having a major impact for Ireland’s exporters.

In the midst of all these external developments, Ireland’s domestic sector – so heavily reliant on construction for employment, wages, tax revenues, and general sentiment – has contracted sharply. The government budget shortfall for the year totalled €8bn, with likely implications for public sector pay and employment in 2009 and 2010. It is likely that net migration will change from large inflows in 2007 to outflows in 2009, particularly as unemployment looks likely to reach double digits at some point in the next few months.

What do all of these local and global trends mean for homeowners and prospective first-time buyers? To see where the property market will go next – and when it is likely to recover – it is necessary to look to the past as well as to the future. Over the past few years, Ireland has built perhaps twice as many houses as it needed, due in large part to tax incentives. Between 2005 and 2007, a quarter of a million new homes were built in a country that only had 1.4 million households in 2005. Worse still, due to the nature of the tax incentives, many of these properties were built in areas that did not need them. It stands to reason that if you build twice as many houses as you need for three years, you’ll need to build half as many as you need for six years to get back to equilibrium.

So should we write off Ireland’s property market until 2015? Not necessarily. It’s likely that prospects will vary from region to region. As outlined above, areas like South County Dublin are certainly feeling the pinch now, falling almost €150,000 on average from peak values. In such areas, prices are determined less by wages and interest rates, and more by expected future value and confidence. Therefore, whenever sentiment eventually reverts to a more optimistic outlook, those areas are likely to rebound faster. With the government seemingly tied into a pro-cyclical trap and not able to implement an economic stimulus package, due to large increases in public expenditure in the good times, it is of course an entirely different question whether lower interest rates will be enough to kick-start sentiment in Ireland.

In other regions, the long-term prognosis is very different. For properties close to centres of employment, four elements – employment, wages, interest rates and access to finance – will be crucial. Other areas, suffering from a glut of properties, may need a longer or a larger adjustment. Ballpark figures, based on the 2006 Census and daft.ie listings, suggest that as much as 10% of properties are for sale in counties like Roscommon, Cavan and Leitrim, compared to less than 5% elsewhere. It won’t be impossible to sell properties in these counties in coming years, but sellers must be realistic about the value of their property in a flooded market.

As I mentioned at the start, Ireland has been in many senses the Britney Spears of the world economy over the past ten years. Bursting on to the scene in the late 1990s, we earned worldwide recognition for how much we achieved so fast from such humble beginnings. With all this fame, it was perhaps to be expected that we lost our way in the early years of this decade. Recently, things have got a lot worse. With bank bailouts, budget debacles, job losses and public sector cuts, we’ve been through it all. Nonetheless, like Britney, while a lot of damage has been done, with good management, we can look ahead and spot elements of a brighter future – just look at the cost of petrol, mortgages, food or clothing now compared to a year ago. Ultimately, with the resolve to put right what needs to be fixed, and with a far better starting point than we had in the mid-1980s, we have to be confident about our prospects for the future.

Brrr… Sure ’tis cold in Sligo: A heat-map of Ireland’s property prices since early 2007

As those who’ve checked out/had to put up with my many word clouds on various different topics from Wicklow genealogy to Barack Obama will testify, I’m always looking for new ways to present data and information. For those with similar interests, a useful tool in that regard is Manyeyes, a free data visualization service offered by IBM. First thing you might do when you click through is have a wander around some of its featured visualizations, such as the OECD economic outlook or the World Cup Finals.

You needn’t stop there, though, as once you’ve registered, you can upload datasets yourself and visualize them. What’s particularly cool, in my opinion, is the ability to do maps with subnational data points, e.g. for the USA, China and, somewhat surprisingly until you remember IBM’s presence in the country, Ireland.

So I plugged in some county-level statistics from the Daft.ie database, in particular the year-on-year % change in asking prices by county from the first quarter of 2007 to the third quarter of 2008. The results are available for all to see on Manyeyes – I haven’t been able to put a live visualization up here, but you can get a sneak preview below and indeed the whole shebang just by clicking on the picture.
E9a845ba-c221-11dd-9c2e-000255111976 Blog_this_captionWhat, even clicking on the link is too much hassle? OK, here’s the lazyman’s version:

Heat-map of Ireland's property prices

Heat-map of asking prices for Irish property, 2007/2008

The easiest way to get the overview of the story – but with the minimum detail and surprise factor – is to go straight from 2007-q1 to 2008-q3. As you can see the map goes from totally brown to totally blue! But that naturally is hiding a lot of detail… So here are some other highlights on regional trends in Ireland’s property market:

  • Sligo is a constant underperformer – having enjoyed some of the smallest increases in the first half of 2007, it’s now suffering from some of the largest falls in 2008
  • Aside from Sligo, West Leinster was the first region in the country to suffer from falling house prices, in year on year terms, with Longford and Laois falling in year-on-year terms by (and we can pretty much throw in Westmeath there too, where prices were no higher than a year previously, in the same quarter)
  • In late 2007, asking prices in south-east Leinster (e.g. Carlow, Kilkenny) and neighbouring Munster counties (Tipperary, Waterford) were still rising in year-on-year terms.
  • Limerick was the last bastion of rising house prices. It’s the only county not to have registered two consecutive quarters of year-on-year falls in house prices… yet!
  • Have a look at 2007-q4… poor old Donegal just doesn’t get it! Even in early 2008, it was still at it. In Q3 2008, though, with prices down over 11% compared to a year earlier, it’s landing with a bang.

There are just some initial observations on the figures – overall, Manyeyes is a pretty useful tool, I’d have to say. I’d be interested in hearing anyone else’s observations on regional differences in price trends. What have I missed? Or indeed, what should I be heat-mapping?