Green shoots overseas welcome, but fallout from property bubble will take longer to sort out

Oliver Gilvarry, Head of Research, Dolmen Stockbrokers

7th Jul 2009

Oliver Gilvarry, Head of Research with Dolmen Stockbrokers, commenting on the latest Daft research on the Irish property market.

The outlook for the Irish housing market continues to deteriorate, with asking prices falling an average of 20% year on year according to the latest Daft report. The scale of the decline in the Irish housing market is following the decline in Irish economic conditions. Recent Irish economic data has continued to be weak, with Q1 GDP falling by 8.5% and Live Register figures for June reaching 413,500 with a figure close to 500,000 very possible before the end of the year according to the Taoiseach. This is on the back of talk of "Green Shoots" in some of our major trading partners such as the US and UK.

The concept of "Green Shoots" should be compared to the scenario where investors believed that financial markets were about to collapse and the world economy was facing into a 1930's style Depression scenario. Policy makers' efforts to provide stimulus via fiscal, monetary and unconventional actions are beginning to prove successful and reduced the systemic risk that was so prevalent at the beginning of the year. As a result we believe the worst of current crisis is behind us. This is most certainly a positive, but economic growth will remain weak for the next number of years as the excesses of the credit bubble are worked out of the system. We expect the recession Ireland and its major trading partners are facing will be prolonged due to the problems stemming from the banking crisis.

The open nature of the Irish economy, recovery in our major trading partners, US and the UK will benefit us significantly. This benefit will be offset somewhat by the fallout from the housing market. The creation of NAMA will be of assistance to the economy as it will stabilise the banking system, but it will be an expensive solution. Unemployment will remain high, with some estimates of 10%, when the economy returns to more normalised growth patterns. The structural deficit that will remain with taxpayers will be another burden on the economy and will require higher levels of taxes and less government spending that was experienced between 2002 and 2007.

Therefore from a fiscal point of view, the Irish economy will be very different to what was experienced over the last decade, with higher taxes and unemployment prominent features. The collapse of the housing market will also result in a large number of social issues that must be faced by the government. Falling prices have resulted in large numbers of home owners facing negative equity, a situation not seen in Ireland on this scale previously. Following the UK property bust in the early 90s, homeowners had to wait almost a decade in some cases to move out of negative equity.

The effect of negative equity is to confine individuals to areas, resulting in lack of mobility in the workforce. If taking a new job means moving house, a person in negative equity will not be in a position to take the new role. A large majority of apartments built in the Republic over the last number of years were not of the kind young couples could raise families in easily. Again the burden of negative equity will prevent some couples moving to larger, family-suitable houses. These types of situations highlight the need to prevent residential property bubbles in the future, and need to be considered by policy makers to prevent such situations occurring in the Irish economy again. The government will also need to contemplate how to help such individuals once the economy is stabilised and economic growth returns.

The over supply of housing in the last number of years will keep rents under pressure this year and next. The comments recently by the Minister for Social and Family Affairs indicating that the rent allowance will be lowered further will also impact on rents across the country.

The "Green Shoots" being seen in other major economies will be a positive for Ireland in helping to stimulate growth, but another positive they will bring is reducing our unemployment levels. The automatic stabiliser of exporting our excess labour will come into play next year as graduates and other workers, both Irish and non-Irish, leave to look for work in other economies which are recovering more quickly than Ireland. This will further impact on rents as the numbers looking for rental accommodation will fall.

One factor that will provide some floor to the rental market is the number putting off buying a home due to the belief that prices will fall further, uncertainty over their take-home pay and /or fear of being made redundant.

The outlook for the Irish economy remains poor for this year and next, but the worst is over for our major trading partners with the proviso that Europe could weaken further as the policy actions taken by the Euro-Zone have not been as proactive as the US and UK. NAMA should be in place by the end of the year, which will stabilise the Irish banking system. This will cost the Irish taxpayer, but without a stable banking system no sustainable economic recovery can emerge in Ireland.

Pressures on house prices will continue this year and into early next year. With further tax increases likely this year, uncertainty over a property tax and civil servants facing further hits to their pay, buyers will remain in the background until they begin to see certainty on what their take home pay and employment prospects are like.

A more medium term issue relates to the impact of negative equity on individuals in the Ireland. This will restrict movement and leave young couples in housing that is not suitable.

Policy makers must become aware of these issues when formulating policy. While considering such policies, government must also ensure measures are put in place to prevent the re-occurrence of property bubbles on the scale that is currently facing the Irish economy. To paraphrase Wilde, to create one property bubble is unfortunate, to allow a second could only be carelessness.


HIGHLIGHTS:

Asking Price Index
Asking Price Index

Stock of properties
Stock of Properties


SNAPSHOT:

Snapshot
Snapshot of Asking Price Nationwide

Discuss This Article

  • Daft House Price Report Q2 2009 - Peak to Current Prices

    Posted By: Patrick Moran Date: Tuesday July 7, 2009 @01:54PM

    Hi,

    I am interersted in your "fall from peak" calculation. According to the report, prices are down 23% from the peak. Looking at your index it may be that you have compared the Q2 2009 average (i.e. average of 78.6, 77.8 and 75.8) to the peak of 100.8, recorded in February 2007. This calculation would give a fall of 23.4% from the Feb-07 peak. I would appreciate it if you could confirm if this is the approach that you have taken.

    Thanks, Patrick

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  • Re: Daft House Price Report Q2 2009 - Peak to Current Prices

    Posted By: Maisie Date: Tuesday July 7, 2009 @07:41PM

    If you are looking at Peak (Feb 07) to current prices (June 09) then the fall is in the region of 24.8%, yet the Sunday Business Post has repeatedly implied that prices have fallen by between 40 and 50%. Who are we to believe?

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  • Re: Daft House Price Report Q2 2009 - Peak to Current Prices

    Posted By: Mark Date: Thursday July 9, 2009 @01:16PM

    Are Daft really qualified to report on this...I have sold 3 houses in the past year, no estate ever suggested being on daft and the prices I have sold them for do come close to your report

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  • Re: Daft House Price Report Q2 2009 - Peak to Current Prices

    Posted By: Jasmina Date: Wednesday July 15, 2009 @02:27PM

    I am interested in how much have rent prices fallen compare the peak time 2007 to July 2009?

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  • Re: Daft House Price Report Q2 2009 - Peak to Current Prices

    Posted By: Apache Date: Friday July 17, 2009 @01:03PM

    Even though the asking prices are only 15% to 20% off the peak, they don't reflect reality on the market. There are still agents and landlords who refuse to wake up to the reality that there is nobody left to meet their asking price and stubbornly keep them up. Outside of their dream world the real people are renting with around 40% to 45% off the peak. There is a tremendous number of properties to let everywhere and there are more coming from the unsold pool therefore there is always room for negotiation.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: RAYMOND Date: Saturday July 11, 2009 @11:37PM

    Ireland is over Move to Manhattan

    Everbody looking in from the outside could see what was going to happen the only people that saw nothing were the irish people silly dumb people Ireland has nothing to offer only high priced goods look at the price of cars 80% higher than in london

    Raymond

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Ed Date: Friday July 17, 2009 @05:24PM

    Agree with that.
    It seems the denial persists. Indeed, there is a clear, real decrease in renting and saling poperty market, but it still quite expensive in Ireland.
    Months after months, all over the world, especially occidental, there are more and more people unemployed, or getting salary cuts, and even those who still have good wages try to be more cautious, and save money by not buying or paying blindly...
    I've read recently an article in the Indo about american tourists saying they won't come back here for holidays as it's too expensive, even if they still love the country.
    This denial will cause serious damages for the economy because foreigners flee the country to spend their money in more attractive market (understand cheaper... :-) ...)
    Too many landlords I think believe in a strong and prompt recovery, so they wait, decreasing just a little bit...
    This is going to discourage people to invest or pay...

    Let see what next Daft renting report is going to show...

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Aztec Date: Saturday July 18, 2009 @04:58PM

    We're going back to 1996 property prices baby!

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Mary Date: Wednesday July 22, 2009 @01:15PM

    Tell that to the estate agents who are living on cloud cuckooo land and by consequence keeping their property owning clients there with them wondering why they cannot shift their property for them. I have been looking for a property for over a year and people who I personally know not to be tied up in negative equity etc are still asking crazy prices that they have no hope of getting. I have even had estate agents trying to sell me a line "you had better buy now as the market has reached the bottom", yeah, right, like it will rise when people are daily losing their jobs, dumping their pets and emigrating again. As a buyer, I will sit back and WAIT.....for the inevitable, I never gained anything out of the so called Celtic Tiger, so why should I pay for other peoples greed and mistakes now. If owners and estate agents want to shift housing stock, then they need to start a realistic pricing system. The "daydream" is over and good riddance to it.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: soc Date: Friday August 7, 2009 @12:03PM

    I have to totally agree. I wish all the vested Intested parties would cut the crap and get on with the real business of selling. Too much focus is going into new paper / media articles trying to talk up the market. This is not going to work anymore, becuase people just do not have the money and now they can see the misery all around them, they are not going to, wherever possible, put themselves in that situation. They will only buy what they can afford to buy.
    I like many others (if you ever read The proprty pin website - there are thousands of people) out there will wait and wait and wait.
    The sooner Estate agents start selling this message, the quicker they might actually get rid of stock. Irish people (those looking to purchase ) are no longer buying the lines of the Estate Agents. Having said this, i do believe that many EA's are trying to convince vendors to be realistic. I for 1 managed to sell my apartment at 40% below its peak, and this is the reality - anything actually going sale agreed is at that level -- otherwise i think they will be holding on to that "For Sale" sign for a long time.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Maisie Date: Monday July 20, 2009 @12:20PM

    I read an article over the weekend, where an estate agent was complaining about the unrealistic asking prices still being advertised by others in his trade. He said that entire counties were being overpriced and as a result, buyers were staying well away because the inflated asking prices were deterring any interest.

    This has been my experience. I have been looking for a property in the county Roscommon area and the asking prices would make your eyes water! Isn't it time estate agents got real? We wont pay 'daft' prices for overpriced housing. We will just hold on to our money instead.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Aztec Date: Monday July 20, 2009 @04:32PM

    We're reaching the tipping point. The banks are coming looking for their money now re: ACC/Rabo. This will lead to forced liquidations etc. This is only the start of it.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Timmy Date: Wednesday July 22, 2009 @01:18PM

    Are there any auctions of Irish repossessed properties going at bargain prices like you get in the UK every month.

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  • Re: I dont understand

    Posted By: Spanish in Dublin Date: Monday July 20, 2009 @10:33PM

    Hi, i have a question, how can your houses be cheaper now in Dublin than in Madrid, when your minimun salarie is 3 times more than us and our unemployed is 19% and yours is 12%? And why you dont pay for water:)? Anyone know please?

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  • Re: I dont understand

    Posted By: Anonymous Poster Date: Sunday July 26, 2009 @10:12PM

    Probably because the population density of Madrid's metropolitan area is 3 times higher than Dublin's. Also wages in Madrid are proportionately higher relative to much of the rest of Spain than Dublin is to Ireland. 3 times the minimum wage doesn't buy you much of a house in Dublin or Madrid without going subprime, joint-incomes or renting out the house and living in the garden shed, i.e the minimum wage affects rents not house prices which have been on their own planet for quite a while now in terms of rental yields! As for paying for water en Irlanda lluvioso? ¿Estás loco?

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Kieran Date: Thursday July 23, 2009 @03:25PM

    Hi
    As I'm just starting off on the property ladder I am totally amazed at the prices estate agents are still charging in Co Cork area of Midelton. I was told by one agent that they sell 'good houses cheap' and best to place a bidding about 5.000 to 10.000 euro below asking price. Have I found the only "honest" estate agent in Ireland ? I think not. Kieran

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  • Re: The Daft House Price Report Q2 2009

    Posted By: RAYMOND Date: Thursday July 23, 2009 @10:09PM

    Ireland is so overpriced and no value for money. When will irish people figure this out.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: James Date: Wednesday July 29, 2009 @01:00PM

    Try bidding at least 50,000 and 100,000k below asking price.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Apache Date: Thursday July 23, 2009 @06:04PM

    In the current conditions asking prices have little significance for the market giving only a false indication of we're at. I'd say a much more accurate indicator would be how many units sell close to the asking prices. Economists everywhere try to call a bottom in a desperate attempt to prompt the falling market, but in reality we're just at the beginning of a huge correction, don't forget the price of an asset is not the asking price but the price a buyer pays. Sooner or later agents and developers who lived with the firm belief that they're the one calling the price will rediscover this or will be out of business.
    I know some of you will be outraged by my statement that we're just at the beginning of a great fall, little do they know that the cold shower for the market will be when the banks will start dumping properties at rock bottom prices in an attempt to limit their loses. The skeptics will say that's never going to happen and I'd say probably not while the banks are under state protection, but after September 2010 who knows we leave predictions to our bright economists.
    Happy investing everyone!
    Your humble market observer,
    Apache

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Housewife in Cork Date: Tuesday July 28, 2009 @01:14PM

    Fully agree with Apache. My son is entering the market as First time buyer, in Cork County, at the moment. The asking prices are ludicrous!! As Apache correctly said, it is a buyer's market, not an auctioneers market at present. Its up to every buyer to stay well away from ridiculous asking prices, drop them by at least 30K, be in no rush to buy, dont get involved in upping bids against others(This is an auctioneer's dream case!!), pull out immediately if another bidder enters the frame (no matter how wonderful the house is, there'll be plenty more like it available at much cheaper prices over the coming months when banks start repossessing from unfortunate people who lose their jobs/houses etc.) For those of us lucky enough to know that our salary is secure no matter what happens, test the market by buying at prices that suit your income and ignore the asking prices of the auctioneers!!! They will drop the AP accordingly when they eventually get the message from buyers. (hopefully!!)

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Paddy Indigo Date: Tuesday August 4, 2009 @03:07PM

    Loosen up guys. During the boom years estate agents were withdrawing houses from auction even though the bid had exceeded the "guide price". I.e., they were suggesting prices way below what they were prepared to accept. Now the reverse is happening, we're in the Gloom years & they are asking prices way above what they are prepared to accept. It's just the way it is. Ignore the asking price & make your offer.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Liam Date: Wednesday July 29, 2009 @01:42AM

    There are a couple of key indicators missing for the whole picture in the Irish property market which more transparent economies provide:

    -Actual closing prices of properties as registered at the time of sale. The problem with an 'asking price' index it that is includes inflated expectations of Agents who are incentivised to increase prices. Actual closing prices are available from the land register

    - Cost per square meter / cost per square foot
    You are literally going nowhere in trying to compare prices in one location to another without this key benchmark

    Were these metrics to be used, in addition to what daft provides, a clearer picture begins to emerge.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: David Date: Thursday July 30, 2009 @10:06PM

    Sale prices for houses or land are not available any where, and certainly not in the Land Registry!

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  • Re: The Daft House Price Report Q2 2009

    Posted By: David Date: Thursday July 30, 2009 @10:06PM

    .....and cost per sq/ft is not a METRIC measure!

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Anonymous Poster Date: Monday August 24, 2009 @07:34AM

    I believe he said it was a metric. Not a measurement on the metric scale. Look it up.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: David Date: Tuesday September 1, 2009 @02:39PM

    Metric as defoned by the Oxford English Dictionary is defined as....(adj)relating to or using the METRIC system...as opposed to the IMPERIAL system which feet, inches etc are part of. Look it up my friend!

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  • Re: The Daft House Price Report Q2 2009

    Posted By: RAYMOND Date: Friday July 31, 2009 @03:40AM

    Ireland is finished
    When will people finally wake up to this
    I thought Irish people were smart sad times sad times

    Raymond

    • Reply to this message
  • Re: The Daft House Price Report Q2 2009

    Posted By: raymonds optomistic outlook Date: Saturday August 1, 2009 @02:21PM

    cheer up raymond,tthink of the good points,we've needed this shock for a while now.WHEN we come out the other side of this I think we'll be all the better for it,we'll have cut a lot of our expensive ways,we should have a much leaner public service,property prices will be realistic. Think of its a our country realising it was living beyond its means and taking a trip trip mabs.Ha ha,

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  • Re: The Daft House Price Report Q2 2009

    Posted By: joe soap Date: Sunday August 2, 2009 @03:33PM

    hi everyone.. could i just offer my advice to all the "home owners" in ireland who are "upside down" with their mortgage. get out now. hand your keys back to the bank. go and rent at a fraction of the cost of paying your mortgage. who in the right mind would pay lets say 250,000 on a house worth 150,000. check out http://realestate.yahoo.com/calculators/rent_vs_own.html if you input the required info. in doesnt make sense to buy a house now,,and dont forget where it ask for appreciation over the next 10 years to put in 0%, and that is a conservative estimate. for those who bought in the last 5 years and owe more than the house is worth,,well the banks are so nice to you because they dont want you to leave and they end up with a huge loss on their books. no my friend, they want you to take that loss. and guess what,, if that house ever appreciates more than the bank is owed and you stop paying the mortgage , they will turf you and your family onto the street. you hold the ace card for now,, use it to your advantage. good luck. wexford man in new york.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Dave Date: Monday August 3, 2009 @10:35PM

    Dont be silly Joe, what about the prosecutions? At least in 20 years, those who unfortunatly bought at the peak, will break even, because the loss they will take, will have at least, off set the unpaid rent. But unlike renters, they will have a good money pot, those who pay a mortgage are in fact saving, because they will get back the inicial value of the property in 20 years time, the interest they paid for that money, will make it for the rent that they didnt have to pay for all those years.

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Anonymous Poster Date: Tuesday August 4, 2009 @04:05PM

    there are better, more liquid and shortly more tax friendly ways to save! Incomes ain't rising until parity is acheived between the developing world and the first world unless the West pulls all investment out of the far East. Most of the road to parity will happen through asset price/wage deflation in the West as jobs relocate. This has been on the cards for years and should asset prices recover or even nominally surpass 2006 prices it will be a foreign elite doing the buying and a case of the few remaining 'haves' not being able to afford to sell i.e you have to live somewhere. The days of banks being allowed to allow people to release equity against assumed values is over, not that it made any sense for someone to enjoy their so-called savings at the risk of losing their house and for a hefty charge of interest. The next few years will not be pretty!

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  • Re: The Daft House Price Report Q2 2009

    Posted By: Don Date: Tuesday August 11, 2009 @11:04PM

    The indications of this report are a 23% average and the permanent TSB /ESRI report is something similar. There are huge variations. The big falls i.e. 50% or even more are occuring in the countryside and the falls are less than this average in cities. I (Cork based) found it ludicrous that my house in the city was actually less in value at the peak than what was been paid for a house 15 mile out of the city. The main correction will occur in these countryside area. Granted that ludicrous prices were paid in some city areas especially in Dublin.

    As for people "holding off" until the "bottom" I think if people really look now they will find the bottom. Some people are desperate to sell and there are some fire sales starting now (e.g. houses in Cavan) so it is possible to get some deals. Nobody really knows when the bottom will be reached but when it is eventually reached demand will increase and price will rise again. I'd much prefer to be hunting for bargins in a depressed market.

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