There now follows a statement from Continuity EPR (Existing Property Reports), which was delivered to me anonymously in the dark of night.
Hello. We are Continuity EPR. We represent existing property price reports. We would like to respond to NAMAWineLake’s recent obituary for us. We are not dead… Indeed nothing could be further from the truth!
It was very certainly interesting and rewarding to read NAMAWineLake’s assessment of our contribution over the last few years. However, NAMAWineLake – while incredibly strong on the legal and journalistic side of things – seems to be unaware of the economics and statistics that underpin solid property market reports like ours.
Take, for instance, this quotation “With the launch yesterday of a property price register in Ireland, we are now close to drawing a line under the relevance of the … indices which prevailed for so long” – which is quickly followed by a less than charitable “Good Riddance!”. There are three core reasons that, like us or lump us, existing property price reports are not only not dead but every bit as relevant now as they ever have been.
A register, not an index
Firstly, the new Property Price Register is not an index and not designed to be one. It is a register. As merrionstreet.com notes, “It is important to note that the Register is not intended as a ‘Property Price Index’. The details made available on the property register are limited to price, address and date of sale and do not include such details as property size or number of rooms.”
A NAMAWineLake partisan might say that it doesn’t matter and we can use averages or standard deviations or some such to throw off the shackles of existing indices and embrace the new register. As star economist and all-round nice guy Ronan Lyons has already outlined, even using something that sounds sensible like the median, which is unlikely to be skewed by errors or outliers is fraught with issues of interpretation and confidence.
Does anyone reading this believe that prices in Dublin rose 14% in the third quarter? That is what the PPR median would have you believe!
Quantity as well as quality
“But,” the NAMAWineLake fundamentalists cry, “surely someone somewhere will do something!” They write: “by January 2012 there should be some entrepreneurial move to create an index based on settled prices”.
It’s funny that they should mention this, because who will be best placed to compile such an index? That’s right, those already familiar with the data pitfalls and methodologies required. Unfortunately for NAMAWineLake, they may find that come January 2013, rather than celebrate the demise of existing reports, they are forced to report an expanded set of statistics from them.
Even aside from issues of individual errors, there is a major drawback associated with the Property Price Register in current market conditions. That drawback is volume. The greater the volume, the more reliable the findings from a rigorous property market report.
With just 400 transactions this year so far in all of Connacht and Ulster excluding Galway city, it will not be possible for even the best data wizards to ensure inclusion of structural differences in house prices between, say, the coastline north of Sligo town and the coastline west of it. This is something that at least one member of Continuity EPR, the Daft.ie Report, does every quarter, while another of our group, the CSO Index, can currently only compile indices for Dublin and the rest of the country.
So the quantity is there – while NAMAWineLake themselves argue that the quality is going to get better. Preliminary figures suggest a 96% correlation between asking prices and closing prices – more of that anon – but that may get even better. NAMAWineLake writes, remarkably in our very own obituary: “as a result of the transparency revealed in the property price register[,] asking prices should be more realistic… and buyer/seller expectations should be more closely matched.”
“But,” a NAMAWineLake fundamentalist might cry, “surely at some point in the future this problem will go away!” And indeed, it is presumably a question of when, rather than if, the volume of property sales is roughly similar to the volume of property listings. Surely then, we become defunct?
Cast your minds back to the second quarter of 2006. Ireland was getting ready for yet another Celtic Tiger summer and the ESRI-PTSB report showed annual house price growth of 16%, up from 13% in the first quarter. Yet along came the Daft.ie Report, which showed annual growth in asking prices slowing dramatically, from 14% in early 2006 to 6% in mid-2006. Indeed, it showed no change in effectively no change in asking prices between late 2005 and mid-2006.
It happened again in early 2007, when transactions-based measures showed house prices rising but the Sunday Times led with “Ireland’s Property Market R.I.P.”, based on the latest Daft.ie Report.
The point is: we did not come into existence because there was no other measure of house prices. The Department of the Environment produced an average house price series for decades before we came along. And throughout the last ten years, there has been either the ESRI-PTSB (a former member of our group) or the CSO index (a current member) tracking prices based on transactions.
The key point is that asking prices capture sellers’ expectations and this is generally a lead indicator for the market. The importance of indices based on asking prices will probably increase, rather than diminish, as Ireland (eventually) heads back into its next real estate boom.
So, if we are so good, why do we vary so much? Why, every quarter, do the CSO, Daft.ie and myhome indices show different quarter-on-quarter percentages?
The first thing is to take a step back. Have a look at these indices from 2006 to now. Are they really telling vastly different stories? Not at all. Journalists would be well served by focusing less on the quarter-on-quarter changes and more on the bigger picture, such as annual or from-peak changes.
But why specifically do they vary from quarter to quarter? Remember that none of these metrics is equivalent. None of them are meant to be the same. They all use roughly the same methodology (hedonic regressions) but on different datasets. The CSO dataset uses all mortgage transactions, the two limitations being it cannot include cash transactions and that it is lagged by the length of time it takes between agreeing a price and drawing the mortgage down officially, which is typically at least a month. (Note that the Property Price Register also suffers from this timeliness drawback!)
The myhome index is based on a snapshot of all properties on the market at any one time. It captures a mix of past and present expectations on the part of sellers. The drawbacks here are its limited market share, especially outside Dublin, and the consequence of its design, i.e. that a property whose list price was set in 2009 but is still on the market is given the same weight as one whose price was set yesterday.
The daft.ie index uses only those properties newly listed or that have changed their price in a particular quarter. This leaves rich datasets – as many in one quarter on average as there are transactions in total in the Property Price Register from the start of 2010 – but excludes all but the most recently set expectations.
We look forward to NAMAWineLake’s extended coverage of our reports come January and forgive them for their premature obituary!
P.R. O’Perty, Continuity EPR.