Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

Property Market

First results from the property price register – the IMF effect and rising prices?

As I mentioned in my earlier post today, Ireland has –at long long last – a public property price register. I also mentioned that it is a tricky business to extract any meaningful signals about the market as a whole from a database that has no structured information about location (other than county), never mind the property’s attributes, such as size, type, number of bedrooms, bathrooms, etc.

“Tricky” is not the same as “impossible”, though, so in this post, I’ve assembled a few facts and figures about the market, based on the 50,000 market-price transactions that have taken place since January 1 2010.

The IMF effect

The key use of the property price register, when talking about analysing the market as a whole, is the information it contains on the volume of transactions. The picture that emerges is a tale of two halves. The first half is the what happened in 2011 compared to 2010, the IMF effect as the economy in general and property market in particular adjusted to life in bail-out Ireland.

The impact on volumes was clear. The number of transactions in the first half of 2011, at just over 7,000, was 20% lower than the same period in 2010, when it was just over 8,800. Dublin in particular was hard hit by the uncertainty, with the number of transactions down 31%, from 3,100 to 2,100.

The first half of 2012 has been a period of regaining lost ground, with the total for the six months to June 2012 of 8,740 very close to the 8,800 two years previously. Dublin has been driving the higher volume of transactions, with over half of the extra 1,700 transactions occurring in the capital, but in general the increases in 2012 just offset the losses of 2011.

An overview of the volume of transactions by broad region is shown in the graph below.

Trading volume, by regional property market, 2010-2012

A first look at prices

Using a property price register to say anything at all about what has happened prices in the market as a whole is a game fraught with dangers. The most solid statistic is the median (or typical) price, i.e. the one with as many transactions cheaper than it as more expensive. It is quite different to the mean (or average) price, which will be skewed if one property sells for €100m, compared to €10m.

The picture that emerges is one probably far removed from the expectations of conspiratorial types who believed that everyone from the CSO to myself was involved in over-stating (or fabricating) a recovery in the property market. If anything, recent reports have understated the extent to which prices have stabilised. The first graph below shows the median price per region per quarter. The stability since the start of the year is notable, particularly when contrasted with free-falling prices in 2011. Also notable – with the exception of Q2 2012 – is the much smaller rate of decline in prices in Dublin than in other regions of the country. Since 2010, prices are down 20% in Dublin but 30% elsewhere.

House prices by region, 2010Q1-2012Q3 (2010=100)

The second graph below condenses this change in conditions since the start of the year. It shows the percentage change in median price between Q3 and Q1, for 2010, 2011 and 2012. Conditions worsened in 2011, with the national median price falling 7% between Q1 and Q3 2011, compared to 6% 12 months previously. By contrast, median prices have risen by 2% between Q1 and Q3 2012. Do not adjust your sets: yes, I wrote “prices have risen”!

Change in prices, Q3 over Q1, by region (2010-2012)

What next?

Suspicious types should be asking themselves why I chose the rate of change between Q1 and Q3, rather than the more obvious Q2 to Q3. Using Q2 instead would suggest a 14% increase in Dublin prices in just three months. Would anyone believe me if I said that?

That highlights the limitations to using the property price register for any sort of price analysis, even the (hopefully) careful median price analysis I’ve done above. The reason why a median price might shift 14% in just three months relates to the limitations of the data: we know nothing about the attributes of the properties in question. So maybe 3-beds formed a bigger chunk of the Q2 market while there were more 4-beds in Q3. Or perhaps conditions improved in South Dublin, and it formed a much bigger chunk in Q3 than in Q2. Ultimately we just don’t know.

It seems such a shame that having all this transaction price information out there, we can’t undertake any meaningful analysis of trends in prices… yet. I’m working with the tech guys at Daft and we’re hoping to match up addresses of property listings and property transactions. That way, we would know lots more about the properties sold, such as exact location, property type, and number of bedrooms and bathrooms. While this would inevitably be just a proportion of all transactions, and a small fraction of all listings, it would still allow the calculation of a substantive mix-adjusted price index of transactions, which would be a companion to the already existing asking price index.

Wish us luck!

Three tips for using Ireland’s property price register

At long long last, Ireland has a property price register! The site went live hours before the revised deadline (end of Q3 2012), and there will hopefully be time in future to quibble about how it took so long for what seems to be no more than “export to .csv” – particularly given how much extra had been done by private citizens, by the time I went to bed less than 12 hours after its launch, from rival sites to apps.

Nonetheless, we should take the opportunity to bask in this wonderful new service available to individuals and households active in the property market. With all the excitement, I thought I might offer three tips for researchers, from someone who spends an unhealthy amount of time with property market data, as I see from thepropertypin and other places that plenty are starting to do their own number-crunching.

Individual analysis, not market analysis

The first tip would be to remind people that the primary contribution of the register is in relation to individual transactions, not market-level analysis. What I mean by this is that someone thinking of buying a property has an area, village or street in mind, and with this tool, they can go on and – using their knowledge of particular properties, including things like size, condition, aspect, etc. – see what prices are like nearby.

The volume of sales

Nonetheless, people will be determined to divine some signals about the market as a whole from the register as currently constituted. So, when it comes to market-level analysis, the only really cast-iron contribution of the register is sales volumes. The register tells you how many properties were sold by month for each county. It is clear that there will be variability in individual county-month pairings, so my own recommendation would be to focus on quarterly data at the provincial level (counting Dublin as its own province).

What about prices?

Ultimately, though, people want to talk about prices, which I get. If you must talk about prices, best to talk about median prices (=MEDIAN in Excel), or perhaps the other quartiles such as 25th and 75th percentiles (one quarter and three quarters the way through the price distribution).

What I am stressing, though, is to avoid talking about mean prices (=AVERAGE in Excel). Even with median prices, the data are going to get dragged this way and that by the mix of locations and types of properties sold in any given quarter, which is why even median prices have greater health warnings than – believe it or not – hedonic or mix-adjusted prices such as the CSO and series.

Mean prices (what we think of when we typically think of averages) will be affected not only by that but also by extreme values and in particular errors in data entry by solicitors, which are not infrequent (having spent a lot of time yesterday wrestling with the data). For example, one property in Limerick sold for €127m [I’m guessing €127,000 is its true price] while others in “leafy” parts of Dublin sold for mere thousands [not hundreds of thousands].

So, use with caution as a market research tool. This is not a substitute for a rigorous index of house prices and, like it or lump it, indices such as the CSO and remain far better tools to analyse price trends in the market as a whole. But that should not take away from the main point, i.e. that this is an absolutely essential tool for those looking to buy and sell. Happy nosy-parkering!

Ireland’s two-speed rental market

The latest Daft Report was released yesterday – all the materials are available from the usual place, including a commentary by John Logue, the new president of the Union of Students in Ireland, and the full report itself (PDF), which includes the annual “Student Special” of rates close to all Ireland’s major higher education institutions. There are two main headlines, at least by my reading: one in relation to rental trends and the other in relation to the number of properties on the market.

In relation to average rents, it remains hard to describe the national rental market with just one statistic. Rents have been higher (in year-on-year terms) in Dublin and Cork every quarter since the start of 2011 (the last six quarters). On the other hand, outside Ireland’s cities, rents have been falling consistently in year-on-year terms since early 2008.

It should be noted that the rate of change in both cases is small – up typically less than 2% in Dublin and Cork, down roughly 3% outside the cities. Nonetheless, as each quarter adds to the last, the split becomes more and more apparent and something a few of us predicted would happen in late 2009/early 2010 looks to have come to pass. (For those wondering about Ireland’s other three cities, Galway city is a bit of intermediate case – rents have effectively been static the last six quarters. Limerick and Waterford are closer to the non-city areas than to Dublin and Cork in their performance.)

Rental supply

In relation to the supply of rental properties, the number of rental properties on the market continues to fall – and this is again driven by Dublin. On August 1st 2012, there were 16,500 properties on the market available to rent, down from almost 19,000 on the same day in 2011 and over 23,000 in 2009. While this is still well above the 7,000 or so rental properties on the site in mid-2007, I think comparisons with 2007 miss two important facts: the rental market outside cities was much more limited while there were free capital gains to be had in real estate; and secondly, the delay in people buying property means that there are more renters than a “business as usual” scenario.

In Dublin, there were 4,200 rental properties on the market at the start of August this compared to 5,400 last year and 6,500 two years ago. As someone who was actively on the market last summer, the market was by no means over-stocked then – so market conditions will be tight for those looking to rent in prime locations, even as conditions remain firmly pro-tenant in many counties. There is less than one month’s supply on the market at any one time in Dublin now, compared to two months in Connacht-Ulster.

A case of urban economics

Returning to the first point, though, the difference between Dublin and Cork in particular on the one hand and the non-urban areas of the country on the other is increasingly striking. The graph below shows the performance of the two segments over the last two years (since 2010-Q3) as well as giving the context of what happened 2006-2010.

Rents in Dublin and Cork compared to the non-city areas, 2006-2012 (2010Q3=100)

The fall from the peak to 2010-Q3 was certainly larger in Dublin and Cork… but the falls elsewhere since then reverse this conclusion. Rents in Cork and Dublin are now on average 25.5% below their 2007/08 peak, while the falls in the “Rest-of-Country” segment (i.e. outside the five main cities) is now 27%.

This is probably mostly a case of common sense: people move to cities because they are the best job creators. The “labour market amenity”, as urban economists such as myself might call it, has perhaps strongest appeal when jobs are tight. Given no significant oversupply of rental properties in either of Ireland’s main cities, and given willingness-to-move to the cities from elsewhere in the country by Ireland’s young workers, it’s unlikely there’ll be any reversal of the trend any time soon.

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, 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 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.

Property prices rising?! Thoughts on the latest firesale auction

Ireland saw its first “fire sale” auction in April 2011 and over the months since then they have become an regular feature, with at least six auctions held by Allsop/Space in Dublin in that period. Last Autumn, I analysed the results of the first three auctions and concluded that, comparing the September auction to the April one, the price level had fallen.

To do this, I constructed a peak price for each property. I did this by using the “hedonic” model that underpins the Report, which effectively breaks every property’s value down into certain components, such as number of bedrooms, type of property, location and what quarter the property was listed.

Falling prices – so what?

In one sense, you may say: property prices were falling in Ireland last year, so what? Didn’t we all know that? The reason it concerned me at the time was that swings in property prices are typically driven by credit conditions and – at a macro level – the number of buyers relative to the number of properties being sold. In an auction setting, the number of properties being sold is fixed (there are about 60 residential properties sold in each fire-sale auction) and in a country of 4.5 million people, it should not be a struggle to find at least sixty buyers. More importantly, though, the buyers are mostly cash buyers, so their price level should not really change from auction to auction: if it was two thirds below the peak in April 2011, everything else being equal it should be roughly the same six months later.

The conclusion last September, however, was that the cash price level in the market was quite a bit lower in July/September (about 71% below peak) than it was in April (about 66% below peak). It’s important to remember that each additional percentage fall from the peak is proportionately greater at the time. So if a property valued at €500,000 at the peak falls 65%, it is worth €175,000. If it were to ultimately fall by 75% from the peak (to €125,000), that fall from €175,000 to €125,000 is not “just another 10%”, it’s a fall of almost 30%. For this reason, the fall from April to July/September was noteworthy.

So, halfway between the May and July auctions, what does the May 2012 auction tell us?

The latest fire-sale stats

As before, I’ve analysed each of the sixty-two residential lots sold in the May Allsop/Space fire-sale auction. For each one, I’ve jotted down the type, number of bedrooms and bathrooms and plugged its location into the model of the Irish property market to construct our best estimate of what it would have sold at, at the peak. Where rental information is given, I’ve noted this too as the ratio of annual rent to the price is – as established readers are probably sick of hearing – the single most important indicator in the property market.

Thus for the sample as a whole, there are two important metrics: the average yield (rent to price ratio) and the estimated typical fall from the peak (not an important measure in theory but one which everyone understands). Not only that, the sample can be divided into two groups: Dublin and the rest of the country. (This doesn’t quite do justice to the non-Dublin cities, which in my opinion are closer to Dublin in their supply and demand dynamics than they are to, say, the Upper Shannon region but a sample that size has its limits.)

The key stat from the May 2012 auction is that the estimated typical fall from the peak was 69%. As is shown in the graph below, this marks a sort of inching upward of auction prices from their July 2011 level – at least when measured by the median. The difference between mean and median shows the limitations of the small sample size – a few outliers can skew conclusions.

Estimated average fall from the peak, by Allsop auction and region

Prices not falling? What?

What is interesting is how the extent to which Dublin prices are down from the peak has changed since September. Last April, the typical Dublin lot sold for 61% below its estimated peak price. By July, the discount was 66% while by September it was 68%. The May 2012 lots sold for an estimated 65% discount from peak prices. Whisper it, maybe, but Dublin cash prices may be creeping up. (Using the mean, rather than the median, doesn’t change the conclusion.)

Elsewhere in the country, though, the discount from the peak remains significantly larger: 73% in May 2012, compared to 74-75% in the July and September 2011 auctions. The evidence that Dublin is decoupling from the “rest-of-country” property market is beginning to stack up.

What about yields? The earlier auctions suggested something of a paradox: the desired yield was higher in Dublin than elsewhere in the country, despite people reasonably assuming that to get people to buy outside the largest markets you would need to offer them a risk premium in the form of a higher yield. The May 2012 figures, however, confirm what was suggested by the September 2011 figures: there is a significant risk premium emerging for properties outside Dublin. While the typical Dublin yield is between 8% and 8.5%, the yield elsewhere in the country is above 9.5%. The slight fall in yields in both Dublin and elsewhere is consistent with the price level at the fire-sale auctions rising slightly.

One shouldn’t forget that a large chunk of the residential transactions at the fire-sale auctions so far (perhaps 50 out of 400) have been from one development, Castleforbes Square near the O2 in the IFSC. This adds a further asterisk to the results so far (Dublin vs. rest of country comparisons are at least in some way Dublin city centre vs. rest of country comparisons) – but also creates an opportunity to compare like with like over time – something I’ll be doing anon.

In the meantime, though, it will be interesting to see what future fire-sale auctions throw and whether prices level off, rise or fall and how this continues to vary across the country.

PS. The full database of results from the firesale auctions is now up on the Allsop site here.

Signs of life or April Fool? The latest Daft Report

The latest House Price Report was released this morning and contains what may be surprising reading for some. Across three different metrics, there were signs of improved activity in the market in the first three months of the year. Given we sent out press releases to journalists before midday on April 1, I did worry that some of them might think it all just an April fool!

Increased optimism

But the signs are there. The fall in asking prices in the first three months of the year was, at 1.4%, the smallest fall in asking prices seen since prices started to fall in 2007. “Smallest fall” mightn’t sound like particularly good news for homeowners but what was particularly interesting was the fact that the average asking price rose in a number of regions.

Of 26 counties, the average asking price rose in eleven. An average price increasing at the county-level despite general falls is not unheard of – every other quarter might see one or two counties buck the trend, before falling again the next quarter. However, eleven in one quarter is as many county-level increases as the previous seven quarters put together.

Quarterly change in asking prices, by county, Q1 2012

Over on Manyeyes, I’ve visualised the changes over the last three months by county – an overview is given in the graph above. I think what’s interesting is that there is an obvious difference between the “bottom half” of the island, so to speak and the stretch from Galway over to Dublin. This less than random scattering of increases also suggests something more fundamental at work.

Shifting properties

Why are sellers in many parts of the country being more optimistic, though? Some – such as NAMA Wine Lake – believe that we can read very little into analysis of the actions of 27,000+ sellers and this is probably just noise. However, what are other metrics telling us? Sellers may be more optimistic if properties are shifting.

There is some evidence, particularly in Dublin and Leinster, that properties are shifting. The total number of properties for sale in Dublin is at its lowest since mid-2007 while the slow and steady decline in the stock sitting on the market in the rest of Leinster continues: there are now 14,000 properties for sale in the province, down from a peak of 18,000.

One other metric we’ve been pioneering in the Daft Report is the proportion of properties selling within a certain number of months. Typically, one might look at time-to-sell of the average property coming off the market but in a market where some properties have been up for three or more years, averages will get skewed and not give a fair indication to someone selling at a realistic price now of how long it will take to sell a property.

The report gives the proportion of properties selling within four months of listing, for both December (30%) and March (33%). And – like the average asking price and total stock on the market – it does suggest a slight improvement in conditions in the first few months of 2012. One third of properties now find a buyer within four months. In Dublin, that figure is 40%.

As I’ve been saying on radio this morning, I wouldn’t be take this report and run off popping open the champagne in the certainty of the market having stabilised. Instead, it’s a step in the right direction. Recovery in the property market is about activity (not prices). There’s evidence from today’s report that conditions did improve in the first quarter of the year – but that could easily be undone by trends between April and June. In particular, without sufficient lending by the banks, it’s unlikely we’ll see any stabilisation and recovery in the property market.

The daft-myhome conundrum

For those paying attention, there’s an obvious clash between what this Daft Report is saying and what the alternative report, by, is saying. Whereas the Daft Report shows these three indications of improved market conditions, the Myhome report reads like the Daft Report from January: they’ve seen the largest fall in their series yet.

I learnt recently that there is one large methodological difference between the two reports. While the underlying methodology, hedonic regressions, is the same (and is also used by the CSO and was previously used by the ESRI), Myhome use all properties listed on their site come late March, no matter how long those properties have been listed. Asking prices however reflect sellers expectations and in my own opinion it should only be expectations formed (i.e. properties listed) during the quarter that are counted.

The other difference is the sample size available to each website. Daft has approximately 50% more properties listed for sale than Myhome and this is particularly pronounced outside Dublin (in the capital, to the best of my knowledge, it is pretty much even).

Buyer power: Latest rent figures suggest review of rent supplement will have an impact

Where is there oversupply in the Irish rental market? And where might there be shortgages? This post reviews the figures from the latest Rental Report, whose commentary is given by Minister Joan Burton. The headline figures suggest stability in rents, but that hides very different trends between the major urban markets, Dublin and Cork in particular, and the smaller rental markets. A comparison of supply and demand across the country suggests that rents should be falling faster in many parts of the country – turning the focus back on to rent supplement levels. Read more

Fixing or just another fix? Budget 2012 and the property market

Ireland’s Budget 2012, announced earlier this month, contained a number of property-related measures. This post reviews them. One would hope at this time that any measures would be the bold actions of a government with a large majority trying to create a sustainable property market. Instead, they seem like the actions of an addict who just can’t give up. Unsustainably cheap credit can never be the answer, boosting confidence and finance has to be. Read more

Time to face reality, as rents start to rise for family homes

The latest Rental Report, released today, found that rents nationally rose in the third quarter, for the first time since early 2008. The urban-rural difference in trends persists, though. This post looks at trends by bedroom number, finding rising rents for family homes in most urban segments. A persistence in thinking about one national property market, however, will prevent the response required to keep an adequate supply of competitively priced accommodation. Read more

Irish house prices: calling the bottom and worrying about the next bubble

The latest Daft Report was released this week and shows asking prices up to 55% below their peak. This post uses the latest figures to estimate when property prices in Ireland will bottom out. It outlines two scenarios, one where the country returns to normal lending conditions, and one where it does not and risks another boom-bust cycle. With the correct steps by the Government, property prices could stabilise in early 2013. Read more