The latest Daft.ie Report is out today. Its findings will make largely unsurprising reading, as asking prices fell by a further 3.1% in the first three months of the year and are now 43% below the peak prices of 2007. Optimists might point to two things: firstly, that some counties actually saw asking prices increase in the first three months of the year, and secondly that the quarter-on-quarter fall was the second smallest fall since the credit crunch began in 2008.
Pessimists could counter that rises in some counties may mark little more than relatively thin listings on the property market (“relatively thin” when it comes to Daft’s sample size still means almost 30,000 new listings in a quarter). They may also point to the commentary by Eoin Fahy, erstwhile member of the Commission on Taxation and Chief Economist with Kleinwort Benson Investments (previously a part of KBC’s asset management operation in Ireland).
Eoin’s commentary highlights three factors which he believes drove “Wave One” of house price falls: artificially high prices to begin with, large increases in unemployment and a sharp contraction in lending. He believes that these have largely run their course, in terms of driving significant price falls. However, he believes that there are factors which may bring about “Wave Two” of house price falls. He mentions repossessions and indeed strategic defaults as potential risks to house prices, especially in light of the scenarios envisaged in the Central Bank’s stress tests. He believes the main factor for house prices, though, to be interest rates, which may rise as early as this week:
“New buyers will get a smaller mortgage approval for a given level of income, as the monthly mortgage payments increase.
Existing mortgage borrowers will have to finance higher monthly repayments. In many cases the extra strain could push borrowers into arrears and for some that could mean that they have to sell their homes, increasing the supply of houses on the market.
Potential buyers, even those that are not significantly directly affected by the increase in mortgage rates, will be concerned that higher interest rates will lead to further house price declines, and may defer their purchase.”
As author of the Daft Report, I am often accused by some of overstating the degree of certainty about how far house prices have fallen, given the information is asking prices. In truth, the fight is largely the other way: if sellers in Dublin have discounted their prices 50%, my contention is that it is hard to argue – as many still do – that their home is still worth something closer to 30% off the peak (even as they admit properties “somewhere else” have been very badly hit).
Also, I do think it’s worthwhile to highlight differences across regions. Asking prices in Dublin city centre are down over 50% from the peak, compared to just 30% in Limerick city. This is a significant difference and should not be ignored.
However, the Daft report has not rested on price metrics alone, as asking prices are just one source of information from ads posted. A long-standing measure of quantities – rather than prices – has been the stock and flow on the market. That is falling, but only ever so slightly. In round terms, the total stock sitting on the market on April 1 was close to 60,000, as it has been on the first of every month for almost three years.
It could be argued, though, that there are two property markets at work: new properties which come on at realistic prices, get sold, and are replaced by fresh stock, and long-standing ads with unrealistic prices, which sit on the market for at this stage years. To see whether this is happening, and indeed to see whether market conditions are improving, I started looking a year ago at the percentage of properties advertised in one period still listed for sale at a certain future date.
In a way, this gives something like the probability of a successful sale. If 50% of properties listed for sale in October are still for sale now, then half have met some fate, typically finding a buyer. The graph below tracks the percentage of properties put up for sale in a year ago (in April 2010) and six months ago (in October 2010) that are still listed for sale (and not sale agreed). It does this for Dublin and the rest of the country, and also includes a comparative statistic for Northern Ireland listings from October 2010.
I think three things are of note:
- Firstly, there is a large gap between Dublin (the dark brown lines) and the rest of the Republic of Ireland (red lines). After six months on the market, only about half of Dublin properties are still available, compared to two thirds elsewhere in the country.
- Secondly, conditions in the market do not appear to be improving. If anything, they’ve drifted back slightly. Improving conditions would be seen by the solid lines being noticeably below the dashed lines; as you’ll notice, they’re actually slightly above.
- Thirdly, it appears the Republic is not alone: the Northern Ireland property market is –at least based on daft.com listings – every bit as tough a market for sellers as the non-Dublin market, and perhaps slightly tougher.
The gap between Dublin and the rest of the island is clear. But it does not appear to be the case that Dublin is leading the rest of the market back to stability and a healthier level of transactions. Instead, the entire market seems stuck at a low level of transactions and falling prices. Half of properties listed for sale outside Dublin are still for sale a year later, at current market trends.
The fight over the coming months and indeed years will be whether factors such as the supply of credit and supply of jobs will be enough to outweigh in particular higher interest rates and deliver noticeable improvements in these trends.