The latest Daft Report is out today, showing a further 3.7% fall in asking prices between June and September. In his commentary, Patrick Koucheravy comes up with the best estimate I’ve seen yet on the typical fall in land values around the country: 75% as a credible minimum average fall for land values.
What else does the report reveal? Two things in particular are worth highlighting: the rate of property price falls, and the rate at which properties are selling. After that, I’ll do some tea-leaf reading on when prices may level off, followed by an update of the number of households in negative equity around the country.
Are price falls easing?
The year-on-year rate of change in the index is, at -16%, the slowest rate of price falls since late 2008. This may sound like clutching at straws, but one thing we do know is that when prices do level off, that will have been preceded by a period of ever-shrinking property price falls. Going from about 20% year-on-year to about 15% year-on-year may be the first step in that process.
Perhaps more importantly, there looks to a change in dynamic in what’s driving the fall in the national average property price. For most of the recession, house prices in Dublin have fallen by more than elsewhere, in percentage terms each quarter. But for two of the last three quarters, that trend has reversed, with falls in Dublin below those in the “Rest-of-country” region (i.e. outside the five main cities). We may not be anywhere near there yet, but at least it looks like we’ve stopped diving further into the sea and may slowly be making our way back up to fresh air.
Are properties selling?
The total stock of properties on the market is doggedly stuck at 60,000, and now has been for over two years. This might suggest no – or at least very few – properties are selling. In fact, it seems that some properties are selling, and without difficulty. Again, Dublin is different from the rest of the country. In general, about 40% of properties posted for sale in April had sold by October 1. But in Dublin, the proportion is much higher, with only one in three of the properties posted for sale in the capital still for sale now.
Where might property prices level off?
There are plenty of ways one might try to calculate where prices level off – for example looking at the amount of oversupply, or my favourite yields. However, sometimes – as people who work in financial markets may tell you – statistics rather than economics can reveal what may happen. Consider the euro change in average property prices each quarter since early 2006. This is shown in the graph below, for the country on average (red), for Dublin (dark brown) and for outside the major cities (light brown).
What it reveals is that the quarter-on-quarter change in house prices worsened (i.e. got more negative) all the way until late 2008. Since then, particularly in Dublin, the falls each quarter have got smaller. The dashed lines take the average “improvement” in falls since late 2008 in each of the three lines and work them forward. For example, the falls in Dublin are getting smaller by on average €3,400 each quarter. If the easing off in house price falls seen in Dublin continues, house prices in the capital could stabilise as early as mid-2011. Outside the main cities, though, the equivalent “improvement” is just €400 a quarter. If this were to continue, prices might not level off until late 2014, something that may tally with yield or oversupply arguments.
No matter which way one looks at the housing market, though, it seems that a divide is emerging between Dublin at one end and the rural parts of the country at the other.
How many are in negative equity?
In the summer of 2009, I did some work, looking at county-level house prices and Live Register figures, as well as figures from the Irish Banking Federation on loan-to-value, to try and estimate the incidence of negative equity and unemployment around the country. With a year of new information, both from the property market and from the labour market, it’s time to revisit the numbers.
The figures are, as may be expected, frightening. About 200,000 mortgages are in negative equity, based off the best public information we have about who borrowed what and when. Small amounts of negative equity are, in the main, not an issue, if people keep their jobs and thus can keep up their payments. However, what is very worrying is that negative equity seems to hit some groups particular hard. It does not taper off up at the top. In fact, 100,000 mortgage-holders are in negative equity of greater than €50,000 – what anyone would term severe negative equity.
In many respects, this is a Greater Dublin area problem. Of the 100,000 in severe negative equity, two in five are in Dublin while a further 17,000 are in its four commuter counties. These are also the most likely to have bought smaller “ladder” properties at the height of the boom. In contrast, very few people in Limerick, Longford or Mayo are in severe negative equity, as house prices were lower there to begin with.
In a scenario where prices fall 55% from the peak, as some think possible, current figures suggest that 330,000 households – or more than half of mortgage-holders – would be in negative equity. What is particular worrying is that the new additions would not be as significant as the doubling of the numbers in severe negative equity of more than €50,000. Without knowing more about the relationship between mortgages and unemployment, it also suggests that if the Live Register reaches 500,000 next year, something in the region of 70,000 households – 4% of all homes – could be in both negative equity and unemployment/underemployment.