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Are banks lending yet?

By Kerryfox at 14:28, Wed April 18 2012, in Buying or selling - 11 responses

Post Auction opinion on Irish house price values
Quote Alsop/space; The lack of transparency on sales prices in the Irish residential property market has contributed to the prolonged nature of the Irish housing market crash. Identifying accurate trends or calling the bottom of the market is impossible without the existence of public sales data.

Goodbody’s have a released their latest economic report on the Irish housing market (based on Allsop Space auction data) demonstrating that residential property prices have fallen more than the official indices suggest.

Public auctions in Ireland held by Allsop Space reveal price declines have been more marked than official indices suggest.

Auctions do not face privacy restrictions, and thus give an important snapshot of the current transaction prices for property in Ireland. Based on available asking prices at the peak, the Allsop Space property auctions reveal a 68% decline. Goodbody’s analysis also shows that the average rental yield on these sales is 8.8%. Within this, apartments sold at an average yield of 9%, while houses sold at an 8.4% yield.

This suggests that prices are now close to long-term value – While cautioning on the small sample size, this data provides an opportunity to assess whether the price declines so far are sufficient. On rental yields, the 8.8% average from the auctions is now slightly higher than the long-term average of c.8%. Secondly, with a 68% price decline from the peak, we estimate the price/earnings ratio stands at 2.8x (with a 60% price decline the ratio stands at 3.7x). This compares to a long-term average of 3.5x - 4.0x in the UK and 8.6x at the peak in Ireland. While it would be our contention that prices are undershooting due to lack of access to credit and a weak domestic economy, this analysis suggests that residential property, at 60%+ from peak, is now transacting for prices very close to or at long-term fair value.

Official index will not pick up cash sales - Allsop Space auctions have brought an added vital transparency to the market. The upcoming release of the property register will add to this transparency.

Credit availability key to recovery - A key ingredient for any recovery in the Irish property market is credit availability. Last year, mortgage lending was only c.14,000 (11,000 excluding top-ups and remortgaging), some 93% below the peak level and back to levels last seen in 1971. While transactions will not get back to the peak, these levels are unsustainably low. With prices now transacting at the margin for more than 60% below the peak levels, the fear of further large-scale price declines should not be the major determinant to demand. Credit availability shouldn’t be either.
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