The CSO’s residential property price index for June was published yesterday.  After a slight rise of 0.2% in prices nationally in May, the index fell by -1.1% in June.  So after the speculation in the media that property prices might have levelled off, especially in Dublin, it’s back to wondering when they might bottom out.  Last month we argued that we would need 6-9 months of prices staying even or rising slightly before the bottom could be called, that the rise was very marginal at 0.2% and prices were still falling for apartments, and pointed out that as prices have fallen since the peak in 2007 they have gone through periods where the drops have slowed down before falling again (see the interactive graph produced by AIRO).  In other words, not too much should be read into last month’s data as we need a time-series of data before we can talk about a trend with confidence.

There are also other reasons to be cautious about interpreting the data, which are based on mortgage transactions by eight lenders and constitute a three month rolling average.   Here are five of them.

First, because the market is so weak the number of transactions per month is relatively small.  Second, those transactions relate to a market that is not representative of the full range of stock that would be open to the market in normal conditions.  The present market contains a lot of distressed stock and many homeowners are keeping their properties off the market whilst prices are falling.  Third, as yet, the index does not include cash sales which the property sector are suggesting account for up to 30% of the market.  Fourth, due to the first three reasons the CSO itself warns that the index is subject to short-term volatility (“care should still be taken when interpreting monthly figures which may indicate short-term volatility rather than underlying change in longer term price trends”).

Fifth, the data are very circumscribed geographically providing an overview at the national scale, for Dublin only, and nationally excluding Dublin.  The housing market is geographically segmented and becoming more so in the crash.  Areas vary in the type and quality of stock available.  They have varying economic conditions, labour market activity and rates of unemployment.  They have different demographic trends, with some areas experiencing out-migration.  Those looking to buy in different areas have varying access to mortgage credit and some areas are redlined (it is just about impossible to get a mortgage for an apartment outside the four principle cities).  Areas have different rates of oversupply.  Housing vacancy is above 10% just about everywhere except Dublin, Kildare and Meath.  Apartment vacancy is above 18% everywhere and above 40% in a number of local authorities.  As constituted, the CSO index tells us very little with respect to how the market is spatially segmented.  The best data we have for that is the AIRO/DAFT house price mapping tool that provides asking price data 2007-2012 for 2, 3, 4 bed properties for c.1100 areas.  What that data shows is that the range of asking price drops varies from -35% to -65% across the country dependent on the factors above.

So where does that leave us?  Basically, as the CSO itself notes, care needs to be taken when interpreting the RPPI.  Whilst the index provides us with a good long-term overview of the trend in prices nationally and in Dublin, we should be careful not to read too much into monthly figures without putting them into the context of the longer trend and the various limitations with the data.  Moreover, we should be careful about drawing conclusions about local prices from the generalized large-scale aggregations (a classic ecological fallacy issue).  As the AIRO/DAFT data illustrates, National/Dublin aggregated figures are hiding a lot of local variability.  Hopefully, the new house price register might help, though it will not extend back to the peak in 2007 (it will start with 2010).

What is clear from the long-term trend is that prices have fallen substantially from the peak and they are still very fragile and are liable to fall further.  It is only with a run of data where prices are level or rising that the bottom can be called (and the depth of the bottom and its timing will vary around the country depending on the factors above).  Any attempt to call the bottom before then and to talk up the market will be premature.

Rob Kitchin

Advertisements