Irish property prices have overcorrected - Central Bank

Brussels Sprout · 30-04-2012 05:39PM #1

So apparently house prices are too low now!

The Central Bank has said that Irish property prices have overcorrected by between 12% to 26% compared with the fundamental value of properties.
The bank suggests that a lack of consumer confidence and expectations about further price falls is holding back purchases.
It also said that a lack of mortgage finance from banks is restricting market activity and price levels.
The bank warns that any immediate revival of the sector still appears to be some way off.

The bank’s researchers used four separate models to assess property prices for the research.
One model found that prices were 26% below what economic fundamentals in the economy would warrant....

link

I wonder what these fundamentals are considering that most people believe that property prices are still overvalued.

Count Dooku · 30-04-2012 05:44PM

Not so long time ago

Central Bank predicts soft landing for housing

rodento · 30-04-2012 05:47PM

People can only spend what they have or can borrow, so if they can't afford the prices at the moment and the banks won't lend, than prices will continue to fall

Monty Burnz · 30-04-2012 05:51PM

I'd have a lot more respect for these clowns if they told us property was twice the price it should be five years ago. What were they saying then? Oh yeah, 'everything is fine'. They were wrong then and they are wrong now.

Brussels Sprout wrote: »

So apparently house prices are too low now!

The Central Bank has said that Irish property prices have overcorrected by between 12% to 26% compared with the fundamental value of properties.
The bank suggests that a lack of consumer confidence and expectations about further price falls is holding back purchases.
It also said that a lack of mortgage finance from banks is restricting market activity and price levels.
The bank warns that any immediate revival of the sector still appears to be some way off.

The bank’s researchers used four separate models to assess property prices for the research.
One model found that prices were 26% below what economic fundamentals in the economy would warrant....

link

I wonder what these fundamentals are considering that most people believe that property prices are still overvalued.

unknownlegend · 30-04-2012 06:05PM

Monty Burnz wrote: »

I'd have a lot more respect for these clowns if they told us property was twice the price it should be five years ago. What were they saying then? Oh yeah, 'everything is fine'. They were wrong then and they are wrong now.

It's disheartening when an institution such as the central bank which should be considered as impartial and fair as possible spews garbage like this.

I guess it serves as a reminder that;
1 even though it's an institution it has a vested interest in the economy at large and seems to think increasing property prices is the cure to the very disease which blights it
2 it is run by people. People are irrational, tend to forget quickly, have their own interests at heart, and given their industry probably own plenty of bricks and mortar, which they'd like to grow in price and "pass the parcel" to the next fool.

Idbatterim · 30-04-2012 06:09PM

Well if the central bank say it...

meglome · 30-04-2012 06:25PM

Is there any analysis of how they come to this, quite frankly hard to believe, conclusion.

KyussBishop · 30-04-2012 06:32PM

We're not quite there yet:
http://www.nakedcapitalism.com/2012/03/housing-bubbles-house-prices-and-interest-rates.html

Farmer Pudsey · 30-04-2012 06:46PM

Can some let us know what is the average industrial wage is and what is the average price of a 3 bed semi detached in Ireland I know it depends wheather you are in Dublin/Cork/ Waterford/Limerick

comeback_kid · 30-04-2012 08:40PM

while the overall market will perhaps continue to fall or languish for several years , thier is tremendous value to be had in top locations in dublin right now , thier is always a certain number of moneyed people who will keep prices from dropping below a certain level in the kensington - manhatan versions of dublin , that said , everywhere has seen huge falls so anyone who has a bit of money right now and secure employment has a golden opportunity to buy in locations they could only dream to have ever lived in some five or six years ago

The_Honeybadger · 30-04-2012 09:12PM

comeback_kid wrote: »

while the overall market will perhaps continue to fall or languish for several years , thier is tremendous value to be had in top locations in dublin right now , thier is always a certain number of moneyed people who will keep prices from dropping below a certain level in the kensington - manhatan versions of dublin , that said , everywhere has seen huge falls so anyone who has a bit of money right now and secure employment has a golden opportunity to buy in locations they could only dream to have ever lived in some five or six years ago

Agree with this, prices may well have overcorrected in some of the cities. There is considerable stock across the country however in small towns and villages which has to "correct" quite a bit more yet, up to 50% more in many cases judging by the asking prices on daft. It should be possible to get a nice 3 bed semi in a midlands town for under 100k which is give or take 3 times the average wage, we're a bit off this at the moment. It's these prices I watch as I have never lived in Dublin and don't ever intend to. The problem in certain cases in negative equity, I personally know people who would love to offload their NE properties and carry the shortfall in the form of a personal loan but the banks aren't allowing them to.

rodento · 30-04-2012 09:18PM

What i'd like to know is, has the central bank factored in the housing stock that has yet to be released on the market, as well as the 80,000 odd thousand units were people are in mortgage difficulty:eek:

Add in another bailout and a slash in wages/saleries across the public sector and you have alot further to go

creedp · 30-04-2012 09:30PM

rodento wrote: »

What i'd like to know is, has the central bank factored in the housing stock that has yet to be released on the market, as well as the 80,000 odd thousand units were people are in mortgage difficulty:eek:

Add in another bailout and a slash in wages/saleries across the public sector and you have alot further to go

There we go again .. another thread with the ubiquitous 'slash public sector pay' comment. It sure didn't take long!! Earlier on I read a comment saying that public sector pay caused the property bubble so I suppose the reasonable corollary is that 'slashing publicbsector pay" will bring it back down .. obviously the rest of the economy's fundamentals are strong and valid .. now if only ......!!!

Farmer Pudsey · 30-04-2012 09:31PM

mickeyk wrote: »

Agree with this, prices may well have overcorrected in some of the cities. There is considerable stock across the country however in small towns and villages which has to "correct" quite a bit more yet, up to 50% more in many cases judging by the asking prices on daft. It should be possible to get a nice 3 bed semi in a midlands town for under 100k which is give or take 3 times the average wage, we're a bit off this at the moment. It's these prices I watch as I have never lived in Dublin and don't ever intend to. The problem in certain cases in negative equity, I personally know people who would love to offload their NE properties and carry the shortfall in the form of a personal loan but the banks aren't allowing them to.

20 years ago you would get 3 times one wage once the other wage and you had to have saved 10% of the value of the house ( as well as stamp duty,fees etc if it was a second hand house) and no new house was painted , carpeted you were lucky if you had a fitted kitchen.

So is the real test for affordability about 4-5 times the average industrial wage

Also there was a lot of fiddling to get the highest cert for wages possible

Dannyboy83 · 30-04-2012 09:56PM

It's difficult to refute the figures when they haven't shown how they were calculated.

But,
The average industrial wage is €35,000
The maximum borrowing limit at the moment for 4.5 times the average salary, which would be €157,500

In order to qualify for for a 92% mortgage of €144,900 - you must show that you have a net disposable income (including rent) of €1200 per month.

€35,000 after tax is approx €2,350 per month - net.
Difficult to factor in fuel costs because they're so volatile, but we'll say a frugal person could manage to live on €600 per month with no girlfriend/wife or kids. (We all know a woman isn't capable of living on €600 per month so don't bother with the sexist remarks!)

For a mortgage totalling 35 years then,
starting with a 5 year fixed rate @ 5.35%=€763.95
followed by 30 years @ 3% = €607

763+600=1,363
2,350 - 1,363= 987

Now factor in your insurances and assurances, add Property Tax, Water tax, broadcasting charge and the general cost of living.
.
.
.
.
Sod it - I'm not even going to bother finishing it.
It's pretty obvious the figures do not add up unless there are 2 people working.
I would say if you were a complete hermit you just may scrape by.

I don't see that many houses priced @ 150k (the ones that I generally do see at this range or below it, are lowered priced because the fuel bills are significantly higher)

TLDR version; What a crock of sh1te by the Central Bank

thebman · 30-04-2012 10:10PM

I'd question the person writing the article TBH. I don't see any quotes from the central bank.

Here is the actual report:
http://www.centralbank.ie/publications/Documents/HP_Let5.pdf\

Title and Authors:
Why are Irish house prices still falling? - Gerard Kennedy and Kieran McQuinn

However, as noted in earlier work (Kennedy and
McQuinn (2011)), it is not uncommon for prices
to fall in such a manner following a significant
house price crash. Investor confidence, a key driver
in a buoyant market, has been critically impaired
and will likely take some time to recover. Further
more, the natural inclination for a financial sys-tem to deleverage after a significant credit bubble
is compounded in the Irish market, where finan-cial institutions are obliged to reduce their balance
sheets in order to achieve a more stable funding
profile. A growing array of evidence suggests that
the difficulty in providing mortgage finance in the
Irish market is having a contractionary impact on
market activity and price levels.

It seems our journalists are constantly looking for anything that might suggest our property is undervalued or we should be out buying houses and it is a common theme across media organisations so there must be another driver for such behavior.

Seems a lot less like your all mad not to be out buying houses that the articles referencing the report seem to be trying to make it out to be.

Suryavarman · 30-04-2012 10:19PM

This is a ridiculous claim to be making. In my opinion, depending on economic growth over the next few years, prices would need to fall by another 15-25% just to get back to normal. Then on top of that prices will probably need to fall another 10-20% to clear the market of all the excess housing stock.

RobAMerc · 30-04-2012 10:31PM

comeback_kid wrote: »

while the overall market will perhaps continue to fall or languish for several years , thier is tremendous value to be had in top locations in dublin right now , thier is always a certain number of moneyed people who will keep prices from dropping below a certain level in the kensington - manhatan versions of dublin , that said , everywhere has seen huge falls so anyone who has a bit of money right now and secure employment has a golden opportunity to buy in locations they could only dream to have ever lived in some five or six years ago

you are looking at house prices in the wrong period if you think the current prices are value - stop looking at the house that was 1.5 mill in 2007 and is now 800 odd, think of it as having been only 400k in 2000 and work from that - hardly seems like tremendous value now !
Also, nowhere in Dublin is comparable to Kensington or Manhattan by the way, both are major cities in major global countries. Dublin is the capital of a northern European westerly outcrop who due to some liberal use of tax laws attracts a few big names here to funnel their cash through.

Farmer Pudsey · 30-04-2012 10:51PM

Dannyboy83 wrote: »

It's difficult to refute the figures when they haven't shown how they were calculated.

But,
The average industrial wage is €35,000
The maximum borrowing limit at the moment for 4.5 times the average salary, which would be €157,500

In order to qualify for for a 92% mortgage of €144,900 - you must show that you have a net disposable income (including rent) of €1200 per month.

€35,000 after tax is approx €2,350 per month - net.
Difficult to factor in fuel costs because they're so volatile, but we'll say a frugal person could manage to live on €600 per month with no girlfriend/wife or kids. (We all know a woman isn't capable of living on €600 per month so don't bother with the sexist remarks!)

For a mortgage totalling 35 years then,
starting with a 5 year fixed rate @ 5.35%=€763.95
followed by 30 years @ 3% = €607

763+600=1,363
2,350 - 1,363= 987

Now factor in your insurances and assurances, add Property Tax, Water tax, broadcasting charge and the general cost of living.
.
.
.
.
Sod it - I'm not even going to bother finishing it.
It's pretty obvious the figures do not add up unless there are 2 people working.
I would say if you were a complete hermit you just may scrape by.

I don't see that many houses priced @ 150k (the ones that I generally do see at this range or below it, are lowered priced because the fuel bills are significantly higher)

TLDR version; What a crock of sh1te by the Central Bank

If you go back to the old affordability ratio and this was when mortgage Intrest rates were 7-10% in the early ninty's ( there was six months when it hit nearly 15% when bertie was finance minster) but in general the ratio was 3 times one wage and once the second and this was for a twenty year mortgage it was the longest you get.

Now take a house costing 150k you have to save 10% cost so max mortgage needed = 135K= 3.86 of average Industrial wage

Over 20 years assuming 4% intrest rate repayments are 787euro/ month
over 20 years assuming 5% intrest rate repayments are 843/euro/month
Over 30 years assuming 4% intrest rate repayment are 600 euro/month
over 20 years assuming 5% intrest rate repayment are 656 euro/month

For a couple on a joint wage of 70,000 with a take home pay of 4660 it seems very manageable

I am not using a mortgage calculate I am using a maths formula to calculate the cost.

washman3 · 30-04-2012 11:03PM

Is Jim "soft landing" Power cheerleading this by any chance..!!!!

Monty Burnz · 01-05-2012 12:02AM

Dannyboy83 wrote: »

It's difficult to refute the figures when they haven't shown how they were calculated.

But,
The average industrial wage is €35,000
The maximum borrowing limit at the moment for 4.5 times the average salary, which would be €157,500

A word to the wise Dannyboy - the average industrial wage is not the 'average wage': the average industrial wage is a good bit higher. So you'll have to lower your borrowing limit etc.

Monty Burnz · 01-05-2012 12:05AM

comeback_kid wrote: »

while the overall market will perhaps continue to fall or languish for several years , thier is tremendous value to be had in top locations in dublin right now , thier is always a certain number of moneyed people who will keep prices from dropping below a certain level in the kensington - manhatan versions of dublin

HA HA! Brilliant! Sure you can't move in Dublin for Arab, Chinese and Russian billionaires...:D

Reminds me of that estate agent's advert where they compared some flats overlooking the Shannon in Athlone to Monaco and Manhatten!!

BornToKill · 01-05-2012 07:44AM

Dannyboy83 wrote: »

Difficult to factor in fuel costs because they're so volatile, but we'll say a frugal person could manage to live on €600 per month with no girlfriend/wife or kids.

Seriously? €600 a month in fuel costs? Maybe if our imaginary buyer was doing a lot of commuting by car.

shedweller · 01-05-2012 08:00AM

BornToKill wrote: »

Dannyboy83 wrote: »

Difficult to factor in fuel costs because they're so volatile, but we'll say a frugal person could manage to live on €600 per month with no girlfriend/wife or kids.

Seriously? €600 a month in fuel costs? Maybe if our imaginary buyer was doing a lot of commuting by car.

Add in heating oil or gas and you could get there. Two cars with 100 euro a week between them is 400 odd euro per month. That leaves up to 50 a week on heating. Ok 600 a month is on the high side but not that high.

Sleepy · 01-05-2012 08:09AM

A facepalm pic just doesn't quite cover my reaction to this report. Such irresponsible reporting is breath-taking. Obviously the media would like the bubble to re-inflate so they could get back to the housing-porn "property supplements" and all that lovely estate agent advertising but there's no way prices are going anywhere but down in this economy.

Brussels Sprout · 01-05-2012 08:31AM

rodento wrote: »

What i'd like to know is, has the central bank factored in the housing stock that has yet to be released on the market, as well as the 80,000 odd thousand units were people are in mortgage difficulty:eek:

Add in another bailout and a slash in wages/saleries across the public sector and you have alot further to go

creedp wrote: »

There we go again .. another thread with the ubiquitous 'slash public sector pay' comment. It sure didn't take long!! Earlier on I read a comment saying that public sector pay caused the property bubble so I suppose the reasonable corollary is that 'slashing publicbsector pay" will bring it back down .. obviously the rest of the economy's fundamentals are strong and valid .. now if only ......!!!

To be fair I think that comment was meant more as in "this is inevitable" rather than "this should be carried out".

Dannyboy83 · 01-05-2012 09:58AM

BornToKill wrote: »

Seriously? €600 a month in fuel costs? Maybe if our imaginary buyer was doing a lot of commuting by car.

That's €50 per 2 week period for fuel costs, or €100 per month.
Total living costs are €600, discluding rent

I calculated it as follows:

€50 per 2 weeks for fuel= €100
€50 per week for food = €200
€50 for car insurance = €50
€60 for health insurance = €60
€15-25 for phone = €15-25
€25 for broadband = €25
€40 for gym membership = €40
€15 for ESB = €60
€50 for Emergency Fund = €50
=======================
€600

God forbid you ever have to buy anyone a birthday card or an alcoholic beverage on that budget!:pac:

Dannyboy83 · 01-05-2012 10:15AM

Monty Burnz wrote: »

A word to the wise Dannyboy - the average industrial wage is not the 'average wage': the average industrial wage is a good bit higher. So you'll have to lower your borrowing limit etc.

The most up to date source I could find for the average industrial wage was here:
http://www.cso.ie/quicktables/GetQuickTables.aspx?FileName=EHQ03.asp&TableName=Earnings+and+Labour+Costs&StatisticalProduct=DB_EH

which is roughly about 35k per year.

Personally that seems over the top to me, but then I work in IT and it's generally not a well paid industry, so I probably have a skewed perspective.

It's extremely difficult to find recent figures for this stuff, if anyone has any, I'm all ears.

Solair · 01-05-2012 10:58AM

My only response to this is : LOL!

Does the Central Bank have any credibility left?

Since when has property had a 'fundamental price'?

The market dictates the price, and there appears to be absolutely nothing indicating a market recovery anytime soon.

1) Banks not lending.
2) Wages down.
3) Economic uncertainty - We don't even know if the currency will survive the next 5 years.
4) Rising taxes / charges.
5) Really high unemployment.
6) Massive oversupply of housing - most of which is off the market due to NAMA interference.
7) Emigration of those with high earning potential.

Doesn't seem to stack up to a cheery report like the CB released!

comeback_kid · 01-05-2012 10:59AM

RobAMerc wrote: »

you are looking at house prices in the wrong period if you think the current prices are value - stop looking at the house that was 1.5 mill in 2007 and is now 800 odd, think of it as having been only 400k in 2000 and work from that - hardly seems like tremendous value now !
Also, nowhere in Dublin is comparable to Kensington or Manhattan by the way, both are major cities in major global countries. Dublin is the capital of a northern European westerly outcrop who due to some liberal use of tax laws attracts a few big names here to funnel their cash through.

it was a figure of speech , i was not comparing any part of dublin to kensington , chelsea or manhattan , i was trying to illustrate the fact that highly sought after locations in dublin ( they exist ) will always command a certain price as thier is always a class of people who can afford to live in theese areas regardless of how bad the broader economy is , in the year 2006 , the likes of a guard could not ever dream of affording to buy a house in somewhere like blackrock of donybrook , in 2012 , they very much could due to have security of employment etc and the fact that even in theese locations , property prices have seen huge falls ,while propery in tullamore or naas could theoretically fall to early nineties levels , the same is not likely to happen in premium locations in dublin

Permabear · 01-05-2012 10:59AM

This post has been deleted.

Irish property prices have overcorrected - Central Bank

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