Archive for the ‘Right Price Rentals News’ Category

John Fitzgerald, Professor at the ESRI, commenting on the latest Daft research on the Irish property market.

Amid all the uncertainty and excitement concerning bail-outs and banks it can be easy to lose sight of what is important to long-term growth prospects – the performance of the real economy. One important aspect of this is the housing market. While the dangers of a housing bust were well flagged, its full consequences, especially in terms of the financial system, have proved even more serious than anticipated. For the housing market itself we have seen a collapse in prices since 2007 and, as a result, a collapse in building. Unthinkable though it may be under current circumstances, eventually new building will become profitable producing an inevitable supply response. At some point in the future things will change – we will eventually run out of vacant dwellings in desirable locations and prices will begin to rise.

It is far too early to predict when the market will turn. All the uncertainty about the macro-economy will continue to have serious consequences for household confidence for some time to come. Households, even if they were not scared before, must be scared today. Even with secure jobs and reasonable after tax incomes it will be some time before many people are prepared to contemplate a major investment, such as buying a house. House prices, though falling much more slowly still have some way to go. This is also suggested by the current yield on rental properties in Dublin, which is below what might be considered its “equilibrium level”. However, the real economy continues to develop and the backdrop against which the housing market should be viewed is also changing.

One of the early and more surprising developments arising from the fall in house prices was an increase in the number of households in 2008/9. Over the period 1995 to 2005 the proportion of people aged 25 and over in Ireland who lived in independent households – had their own pad – did not rise significantly. On the face of this it was surprising given the huge increase in incomes. However, the very high cost of accommodation to rent or to purchase meant that Irish people shared an apartment or house or lived at their parental home longer than was common elsewhere in Europe (a similar pattern was apparent in Spain). With the fall in rents in 2008/9 this pattern changed and those who could afford the new lower prices (having jobs) took advantage of the more favourable market. This change in behaviour shows that people are sensitive to prices and rents.

In Dublin and Cork an important factor has been the desire by those who financed much of the recent build, banks (and NAMA), to see some income coming in even if they could not be sold. (It is important to remember that NAMA, just like an old fashioned bank, wants to make money – it is unlikely to adopt policies that would destabilise the market.) Hence the supply of rental accommodation increased and prices fell. In turn, as discussed above, more people entered the market, renting where before they might have bought. The result has probably been a reduction in vacant dwellings in the greater Dublin area. The recent Department of the Environment study shows the relative stock of vacant dwellings to be lower in Dublin than in much of the rest of the country.

What the DAFT rental index shows is quite interesting. Having seen very substantial falls in 2008 and 2009 it would now appear that rents in Dublin have stabilised. This is apparent from the data for the last few months. It is clear from this that the supply of properties to rent is equal to the flow of new households being formed – the market is in a temporary equilibrium. This is happening in spite of the very significant outflow of people through emigration. This situation could persist for some time with stable rents. However, at some point, with the supply of properties fixed, new household formation through new renters could begin to put pressure on the market. This may not seem likely now with major fiscal retrenchment in prospect and, hence, low growth likely in 2011. However, the recovery in the tradable sector of the economy, which is clearly under way, will eventually begin to drag the rest of the economy back to growth. Then, with employment rising, incomes stabilising and prospects becoming brighter, more people will seek rental accommodation. In turn, as the excess supply dwindles rents will begin to rise. Initially such a small rise in rents will not have much impact. However, when it becomes well established it will have a number of effects. It will cause some of those renting to assess whether, in the face of rising rents, house purchase might be attractive. Eventually, as returns for those owning rented property rise and when there is some limited bounce back in house prices, there will be a gradual perception that Ireland will need some more dwellings in high demand locations.

All of this is some way off today. Much will depend on the vigour of the recovery in the tradable sector. In July when we envisaged a fiscal adjustment of €7.5 billion over the period 2011-14 I felt that such a turnaround could occur in 2012 or possibly 2013. With the doubling of the fiscal adjustment, and its consequential effects in depressing domestic demand, this could be postponed till 2013-14.

The first sign that things are beginning to turn will be a move towards rising rents. This will predate any recovery in house prices and any new building. As of today it is clear that rents have stabilised. From now on I will be watching the DAFT index seeking signs that rents are beginning to rise. I don’t expect to see much action over the coming year but time will tell.

The importance of the Daft.ie database cannot be overestimated. It is surely unconscionable that in a country suffering the after-effects of a house price bubble, there is no real-time or even monthly house price index from any government agency. The unfortunate demise of the ESRI/PTSB index highlights this. Daft.ie now stands alone as the only national monthly index. We are, as a nation, steering blind, not to mention dumb, on the seas of house price deflation.

Given that, what do we find? Is the crash over? Yes, if you live in NAMA-land, a country wherein the valuation of assets to be transferred has been set at their value as of end-November 2009. In the world wherein the rest of us live, the crash continues. House prices continue to fall, albeit at a slower pace than heretofore. Nationally, in the first three months of 2010, the average asking price of a house was a shade under €235,000, down one third from the peak of early 2007. The fall during the first quarter was 3.4%, the smallest quarterly decline in almost two years. Year on year, the fall in the first quarter of 2010 was 18%, a slight decline on the record year on year fall of 19% in the third quarter of 2009.

So the crash is slowing. However, it is not over. The Daft.ie index peaked in May 2007. To expect the trough to be reached less than three years later is to fly in the face of historical evidence. Referring back to Morgan Kelly’s prescient, eye-opening ESR article which for many of us represented the key moment when our critical faculties on property were rebooted, a fall of 50% is likely. Based on a straight line projection of average declines in value since the peak this would see another 18 months of declining prices. That would be 50 months of house price falls, or just over 4 years, towards the lower end of historical experience. It is probable that as we decline towards the trough, the speed at which house prices fall slows down. And this is what we are starting to see – in the last six months, the average decline has been lower than the previous six months, itself lower then the period before.

Further evidence that this could be the case is that the time to sell is again rising. In Dublin, houses are spending longer, over five months, before selling, a rise from just below 4 months previously. These Dublin figures are reflected countrywide. Buyers clearly are factoring in further deflation (apart from one buyer, NAMA, for whom the crash is over…) and the stock of houses for sale remains very high. Dublin is a partial exception – in the capital, there is some evidence of clearance is emerging, with the total stock for sale having fallen by 20%. Much of this decline was from houses that were on the market for more than six months – evidence that a buyer can be found even in a falling market, if the price is right. Rural markets appear to be “marking time”.

Nationally, nowhere shows less than a 25% fall from peak prices, with Dublin leading the way, showing falls of 35% and more. The implications of these figures, continuing as they do a trend towards a bottom that we have not yet reached, are pretty horrid for NAMA. What’s horrid for NAMA is horrid for all of us, because – for good or more probably ill – our futures are all bound up with the failures of NAMA.

House prices have continued to fall since November 2009, the date chosen (why, on whose advice?) by Minister Lenihan as the valuation date for NAMA. Based on Daft.ie figures, house prices have fallen by a further 4.1%. Applied to a €50bn portfolio, that’s a €1.5bn excess that will be paid over what would have been the case had the minister waited. Put it another way – the entire public sector pension levy has been squandered on a needless overpayment. A further implication for the economy is that the emerging problem of negative equity will deepen – negative equity acts as a bar to labour mobility, to discretionary expenditure, and ultimately to economic growth.

The government cannot, try though it will, stop prices from falling further. It can only try to stem the losses to banks (and many suspect, with little evidence but much conviction, to developers) with our money.

Scoure: Daft.ie

The latest Daft rental report is just out and it shows that rents rose by 1% in January. It’s probably still too early to call as rents are still down 25% from peak, but the rental market may have reset to a new level and stabilised.

16th February, 2010 – Rents across the country rose by just over 1% in January, according to the latest report published by the property website, Daft.ie. This increase while marginal is the first time rents have risen since they began to fall 24 months ago. The national average rent now stands at €765, almost 25% below peak levels seen in early 2008.

The January increase follows sharp falls in rents during 2009. Over the course of the year, Dublin rents fell almost 19%. Rents in Cork, Limerick and Waterford cities fell by 16%, while Galway rents fell by 11%. Elsewhere in the country, rents fell by an average of 15%.

Over the past 2 years the number of properties available to rent has increased from an average of 6,000 at any one time, to over 23,000 in August 2009. In February 2010 that number has fallen to 19,000 – a drop of 20%.

Commenting on the report, Ronan Lyons, Economist at Daft.ie said: “It is too soon to say definitively whether rents have levelled off, but the January increase does seem to be broadly consistent around the country. The levelling off is most likely a result of a steady fall in the number of properties available to rent nationwide. Over the past 5 months we have seen the stock of property available to rent fall by more than 20%.”

For further information please contact:

Patrick McCann 1800 911 110, Right Price Rentals.ie – blog@rightpricerentals.ie