Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

We’re different, roysh? The decoupling of the Dublin property market

Today sees the launch of the fiftieth Daft Report, with a commentary by yours truly. To mark the occasion, and to mark five years of Ireland’s property market crash, Daft.ie and the All-Island Research Observatory at NUI Maynooth, have launched a property value heatmap tool. In a companion post to this one, I outline the tool, how it works and what it tells us about Ireland’s property market crash.

In this post, though, I’d like to highlight what’s in the report itself. The principal finding from Q2 was that conditions in the Dublin market do indeed look to have improved considerably since the start of the year. This has happened at a time when conditions elsewhere in the country are pretty much unchanged. It seems the decoupling of the Dublin property market from the rest of the country has already begun.

One reason for thinking this is price trends. While the average asking price in the capital did fall in Q2 (by 1.2%), taking the first half of the year as a whole, list prices in Dublin fell by less than 1%, compared with a fall of 10% in the second half of 2011. This is also in contrast to what is happening in rural Munster, Connacht & Ulster, where prices fell by roughly the same January-June as they did in July-December (7% vs. 8%). The graph below shows the six-month change in asking prices since 2006 for Dublin and for the “Ex-cities” category.

Six-month change in list prices, by region, 2006-2012

As I will tell anyone who’ll listen, though, recovery in the property market is less about prices and more about activity. We should not worry about house prices being low in Ireland – that’s good for competitiveness and mobility. We should worry about the number of transactions being too low. With barely 6,000 first-time buyer mortgages given out last year, in a country that is probably forming 30,000 new households a year, I think it’s safe to say transaction volumes in the Irish property market are unhealthily low.

There are two measures of activity included in the Daft Report, the stock sitting on the market over time, and – since January – the percentage of properties selling within a certain period of time. At less than 5,000, the total number of properties for sale in Dublin has fallen 35% from its peak. There are now fewer properties for sale in Dublin than at any time since the first half of 2007. By contrast, in Munster, there are 19,000 properties for sale, down only 12% from the peak stock on the market (21,000) and more than twice the early 2007 level.

The second figure below shows the proportion of households actively for sale at the moment – this doesn’t include vacant properties not listed for sale. Nationwide, the percentage has roughly fallen from 4% to 3% – but the spatial variation is revealing. About 1% of Dublin homes are for sale at the moment, compared to more than 5% in Munster, Connacht & Ulster.

Percentage of properties actively for sale (approximate, based on daft.ie listings), by region

But of course, the number of homes on the market is what might be termed endogenous. If prices stabilise or, wait for it, even rise in Dublin, there may be plenty of households holding back that will be tempted on to the market. So stock for sale is not without its limitations.

For me, the newest statistic in the Daft Report, the proportion of properties selling within a given number of months, is very interesting. It takes a bit of concentration to get the chart, when first presented with it – but the short version is, for property market recovery, one would want to see the lines rising over time. (Rising lines indicate that a greater proportion of properties are selling sooner.)

The graph below shows the proportion of properties selling within six months for Dublin and for Ireland’s four other cities as a group, at three points in time: last December, last March, and June. The proportion of properties selling within two months in the capital has risen from 25% last December to 34% now. Half of all properties listed in Dublin are sold within four months now, compared to six months late last year.

Percentage of properties selling (or sale agreed) within a given number of months

I haven’t really discussed Ireland’s other cities in this post, so let me do that now – their level of transactions are shown in the bottom half of the graph above. Interestingly, conditions are – on average – noticeably tougher, with more than half of all properties still unsold after not just six months, but a year. Still, with 40% of properties selling in four months, there is reasonable movement in those markets. In Munster, Connacht and Ulster (ex-cities), just 25% of properties sell with four months currently, the same proportion as late last year.

All these signs from Dublin may of course be a dead cat bounce, a false rally that brings out some of the latent supply on to the market, which – coupled with declining after-tax income and net emigration – pushes prices in the capital further down. However, Dublin prices are now down close to 60% from the peak, which when compared with incomes or more importantly rents, does seem close to “long-term economic value”. All thoughts, as ever, welcome.

  • Stephen ,

    CSO show a price increase, Daft and Myhome show a price drop. Funny how the averages from all the sources are so different too 157,601(CSO) vs 172,000(Daft) vs 212,000(Myhome-although this could be Dublin, RTE aren’t specific and I can’t access the myhome report for some reason)

    You do mention that prices in Dublin are close to the long term when compared against rents. Have you tried doing the prices vs rents while taking into account the mortgage rants? A 150k house with a 1000k monthly rent might be good value at @4% but not so much if the mortgage rates going back up to 12%, repayments being 887.63 @ 4% vs 1440.20 @ 12%. I’m thinking that before the Euro interest rates, even real rates after inflation (http://www.ronanlyons.com/2009/06/12/property-a-shining-example-of-never-a-better-time-to-save/) were much higher back then which should push the index somewhat.

    • Ronan Lyons ,

      Hi Stephen,
      The difference between the three in terms of average price is due to weights. The Daft.ie report is the only one to use Census populations as weights (recently updated to 2011 Census) to average across counties, cities, etc. Myhome is a simple average from their site (all properties on their site, by the way, not just new listers), while the CSO just doesn’t have the sample size to start weighting by county.

      The comment about house prices relative to rents is based on long-run interest rates being about 6%. More on that here:
      http://www.ronanlyons.com/2011/07/05/are-we-nearly-there-yet-finding-the-new-floor-for-property-prices/

      Thanks for the comment.
      Ronan.

      • Laura ,

        If some studies show price rises and others show price drops they are probably measuring different things. I would imagine that its sign of stabilisation. As you correctly point out, there is a large level of household formation, but the problem is that I suspect, the vast majority of that is occuring in Dublin as that is where the jobs are.

        The interest rate impact is interesting to look at. I would imagine that in an environment where banks have high levels of arrears and cannot make profit at the current interest rates, they’d prefer not to lend at all. That said, I’ve been talking to one or two about car finance (that really I don’t need) and the fact that I’m a contract workers didn’t result in screams of horror, so unless they are told not to react that way, things might be stabilising.

        I suspect in Dublin though a lot of the issue is the “north south divide” – Balbriggan and Dublin 15 are in a terrible state with huge numbers of properties unsold but as you travel down the M1 or M3 things start to improve. I would love to see what price changes look like minus these outlying, overbuilt areas. The Dublin market really starts in Swords and Blanchardstown – outlying areas have more in common with commuter counties like Meath and Louth.

        • Derek Larney ,

          Ronan,

          Succinct article as usual=)

          With the recent articles on a property market recovery (or at least a slow down in price declines) now might be a great time to pen a piece on the dead cat bounce phenomenon. As far as I know virtually every property crash in history has suffered one, varying in duration of course. But Ireland has yet to see it. It might even go against some conventional wisdom in economics not to have one ?

          There are a number of conditions beginning to arrive that might cause a dead cat bounce such as a lot of civil & public servants retiring early with large cash lump sums and also the end of mortgage interest relief coming down the track, which is expected to bring some buyers off the fence. I’m thinking the 2013-14 period could see us ripe for a dead cat bounce but would love to hear your own opinions on it and comparisons with the UK, US, Japan, Finland etc

          • Giles ,

            Ronan,

            Notwithstanding the fact that supply in Dublin appears to be shrinking, I cannot see how prices can increase in an environment where (1) additional taxes on property will be imposed in 2013 (2) average disposable income will fall after a range of direct and indirect taxes in the upcoming Budget in December (3) the sustainability of the Croke Park agreement is being called into question – quiet rightly given the high pay levels (4) new mortgage rates for buyers will soon average at a minimum 5% – 5.5% given the talk of unsustainable mortgage pricing (5) phasing out of mortgage interest relief in 2013 for FTB’s (6) Banks STILL not fully reflecting the implications and associated cost of potential debt writedown on mortgage debt and consequent implications for liquidity when this eventually becomes obvious. There is also the little matter of a continued high budget deficit and an unemployment level that necessitates continued emigration. Given these headwinds I seriously can’t see how a property market can rise.

            • Ronan Lyons ,

              Giles,
              Thanks for the comment. I think we need to be careful about what is and is not being predicted. Certainly additional taxes (and the end of mortgage interest relief) will affect the marginal buyer in 2013 and beyond. Higher mortgage interest rates in the medium term may also weigh on demand, but to the extent that people worry about the medium term, that is already priced in. (Banks stress test at 6% already, for example.) This may be more of an issue if/when banks split their books into past and future and have separate interest rates accordingly (although again, this is probably largely done already through trackers).

              None of this changes the fact that six out of seven people at work in the boom are still at work now and, while there was “pre-buying” in the bubble years, come the seventh year of house prices falls, the net effect is the opposite and many have held off who would have bought in other circumstances. As these cohorts build up in the rented sector, they push rents up, while prices still fall. Those couples who can buy a family home for the next twenty years for fifteen times annual rental income are clearly going to do this. If this happens, we should not be surprised that prices in certain cohorts stabilise or even rise. This is completely different to saying that the entire market is going to turn-around. I have done my best to explain to people that “turn-around” means recovery in activity, not prices. If prices rise by too much in certain cohorts, that signifies an imbalance (under-supply), rather than health.

              Hope that clears things up,

              Ronan.

              • Giles ,

                Ronan,

                Thanks for your reply. I agree with your comments with respect to certain pockets of the cities having a desirability factor attached due to their proximity to schools / social / work etc. Given that prices in these desirable locations have indeed moderated to a level whereby the annual yield is in the 6% – 7% range, then without a doubt, it becomes a viable option to purchase in these locations. I believe that supply in these areas is key (as you mention) as the type of housing stock in the city that is suitable for families is not great if you want to live in a good area. I think we are referring to very specific locations in Dublin or other cities here and that we will at best see a stabilisation of prices in those areas, with all / most other areas showing continued declines. However I see the medium term availability of credit as being a stumbling block – as even though our banks have in theory being re-capitalised, if they were in fact to do a mark-to-market analysis of their mortgage books as present and realise all impairments given the number of mortgages in arrears, I wonder how well capitalised they would appear. Also given the fact that the their loan to deposit ratios at stuck at approximately 140% and all eligible collateral has being pledged to the ECB at this stage (I would imagine), their current marginal cost of funding versus their marginal lending rate must be poor. I think this factor will limit the turn-around in activity for some time to come. Indeed there was an interesting article on Bloomberg today highlighting that €326bn was pulled from banks in Spain, Portugal, Ireland and Greece in the 12 months ended July 31 last, with a corresponding rise of €300bn at lenders in the 7 core eurozone countries. When financing by central banks is excluded from this data the report shows that deposits declined in Irish banks by €37bn or 9% in the 12 months through to July. All of this has occurred in 2012 and is a renewed flight of capital as the deposit levels were stable in Ireland for the last six months of 2011. This may in some way explain the concern shown by the ECB and Fed over the past two weeks or so and their willingness to lower their standards with respect to collateral type – but it is something to keep an eye on.

                Thanks for your articles – they are thought provoking and tend to focus on underlying fundamental issues rather than some of the tripe one reads on a Thursday / Friday in our property supplements!

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