Has Ireland’s world-beating housing bust ended?

ScreenHunter_01 May. 15 09.09

By Leith van Onselen

Back in April, I wrote how Ireland’s housing crash, whereby values had fallen by over 50% peak-to-trough, was reportedly the biggest property crash on record, wiping-out an estimated  €257bn inequity (see below chart).

ScreenHunter_04 Sep. 12 14.38

Finally, after six years of pain, reports are now emerging of a pronounced pick-up in housing activity and prices in Dublin – albeit from a low base – suggesting the Irish housing market might finally be on the road to recovery. From Reuters:

While prices began to rise again annually in June, some urban pockets are driving the recovery, with properties in Dublin being sold for 8 percent more than a year ago and higher still in affluent areas where 30-somethings outbid one another.

Having built the wrong stock in the wrong places during the boom – huge apartment complexes and out of town housing estates – there is now a big lack of supply in the capital and need for a battered construction sector to take the heat out of prices that some estate agents say are rising by 1 percent a month.

“There’s an element of craziness creeping back into it where people are getting frantic,” said Scott, a 37-year-old father of two young children, after wading through the crowds to view a four-bedroom, semi-detached house in leafy south county Dublin.

“Friends of mine have bought and gotten into bidding wars. It feels like the olden days; it’s kind of wrong.”

It is families like Scott’s, among the 305,000 households living in rented accommodation – twice more than five years ago – that are primarily behind the surge in demand, having waited patiently for prices to find a floor.

But the dearth of supply means the level of transactions has barely risen, and with cash buyers snapping up every second home, only one in every two mortgages approved are being drawn down, keeping Ireland’s stricken banks from reaping the benefits…

The CEO of building and home improvement supplier Grafton, however, said it was time to start building again now the “green seeds” of recovery were sprouting.

There are some signs of life among smaller players, too, according to estate agents who have begun to field inquiries into Greenfield sites for the first time since the crash.

“Developers have suddenly realised that there is a shortage of good quality houses in certain areas, so there has been a very strong focus on people looking for development land,” said Michael Grehan, head of residential property at estate agents Sherry FitzGerald.

Clearly, it’s only early days, and the Irish economy remains in recession. But at least its housing market looks to have bottomed, which augers well for a recovery.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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  1. mine-otour in a china shop

    Irish GDP numbers are irrelevant and driven by large multinational exports and transfers. GNP is a much better metric and shows much weaker growth from a lower base.On house prices – Beware the double dip! (1)There is a huge amount of supply to yet hit the Irish market from properties yet to be repossessed. (2) Many owners who are in negative equity are also likely to flood the market soon, as that burden eases somewhat with price rises. (3) You should also note this is the Dublin market – the supply overhang is catastrophic in other areas of the country. (4) Finally the big property hurdle – how to get banks lending again whilst they are paralysed by huge loss making tracker mortgage prodcuts.That said Ireland has taken its medicine/poison. After a further dip the markets should recover from its undershoot.
    Banks are the safety valve in all of this and must lend prudently going forward with hands on and no light touch regulation.

  2. Those Imperial walkers are headed toward Australia and New Zealand. Now, if all the people that don’t have a home and also rent were to pull their money from ANZ which is over extended in Melbourne’s property market (just picking on them as them seem weakest unless someone else has another opinion) do you think that might just wipe out the credit ratings or destabilize that bank enough to crash the property markets ? considering an earlier article shows that for every $100 dollars the banks can only cover about $1.25 dollars of it

      • reusachtigeMEMBER

        Many of us do not see house price inflation as any sort of recovery! Milk going up 10% IS NOT a recovery in milk, it is inflation of a bare necessity.

        • Inflation is the natural state of things. As long as inflation, incomes and GDP grow, so should house prices (on average). The problem occurs when growth exceeds these fundamentals, as it has done in Australia over the past 15 or so years.

      • Then why not use the term “house price inflation”?

        I understand it is common and even normal for FIRE industry and MSM to say house price “recovery”, but in the eyes of many commenters here, MB is at a level much higher than MSM “journalism” and “analysis” by FIRE industry insiders. That’s why you see people raising issues with the term “recovery” which gives illusion of “getting richer” and therefore deemed of a worthy pursuit, while in reality it is nothing but a necessary consumption item —like food—getting “dearer”.

        So when someone raises an issue with the term “recovery,” it is actually a subtle complement to MB team—a complement borne out of the expectation that MB will call a duck when it sees a duck.

      • Inflation is NOT “the natural state of things”.

        Inflation is a direct consequence of a usury-based money system.

        This money system is man-made. It is not “natural”. Thus, neither are its consequences.

    • While I typically have sympathy for the view that “recovery” is a bad word to use in relation asset price growth, in the case of Ireland it’s a fair description. You have basically everybody who bought between 2000 and 2007 in negative equity or close to it. This is a very sizeable slice of the community.

      Yes, in hindsight they were silly, but no more silly than your average Aussie punter. In fact, I’d say that your average Irish mug is less silly than your average Aussie mug because in Ireland’s case they didn’t have so many obvious examples all around them of how it was going to end in tears.

      This slight turn in the Irish market is in reality (I hope) the beginning of a recovery in householders’ balance sheets which may (hopefully) allow the country to take the first steps out of its recession/depression. Houses are not over valued in Ireland at present, so a slight uptick is not dangerous to anybody.

      • “In fact, I’d say that your average Irish mug is less silly than your average Aussie mug because in Ireland’s case they didn’t have so many obvious examples all around them of how it was going to end in tears.”


        I have some sympathy for those in the US, Ireland, Spain etc. who have been burnt by property crashes, I will have absolutely none for those impacted if/when it happens here in Australia.

      • Well, not quite true. There WERE abundance of examples from which the Irish could have learned, just not in their neighbourhood.

        I doubt it would have made much difference even if there were some examples nearby, because everybody in a bubble refuses to see the obvious (that is why it can develop into a bubble in the first place).

        In fact, all the examples we could (or should) have learned occurred far from our shores, so I would not say that we are any worse than the Irish even if we did not learn anything from others’ mistakes (not that we should take any comfort from being just as bad as the Irish).

  3. “Has Ireland’s world-beating housing bust ended?”

    Not too sure about the historical accuracy of that description, UE. In unadjusted euro terms, maybe. In percentage loss terms, probably not.

    If you take a long enough time frame, property in the capital cities of empires that existed long ago but whose capitals have long since crumbled into dust would have to take the crown.

  4. I wouldn’t use house prices as proxy for the broader economy (given that non-farm land’s primary productive use is rent, or substitute for rent). In fact high prices place downward, not upward pressure on the broader economy (exception being lenders…but I wonder how many of these are still Irish owned?).

    To this end it would be great if prices remained where they are while the economic quagmire they’ve been wading through recedes.

    But let’s hope things are on the up for them. The Irish Tiger has had a really tough few years, and the way many of them have handled it (including many moving their families to happier shores, such as Australia) is testament to their toughness (perhaps bred into them through their history?).

    • I was there a month ago, chatting with a lot of 40 somethings. They personally have learned something. It will take at least a generation for this lesson to be forgotten, probably two.

      From far away it’s very difficult to appreciate just how devastating this has been for Ireland. I’d liken it to a financial plague sweeping through the place. The world has utterly changed for them. Having lived there over 2000-2005 I’m in a reasonable position to compare the pre- and post-bubble worldviews.

      Possibly coming to a town near you soon!

      • Well given a recession/house price crash is about the only hope of affordable property ownership here, I wholeheartedly welcome it coming to a town near me!

  5. UE,

    Similar reports emerged out of Japan a few years after their RE market crash. Strong demand for the right product at the right price in the right locations but ongoing low demand/prices for many RE projects built during the boom in, for example, locations that are a long way out of Tokyo.

  6. I too disagree with the use of the term “recovery” when prices are actually still too high.

    It would be fair to use the term about Atlanta when their prices rise from a median multiple of around 2, back to the historical norm of 3.

    But when the prices went from a median multiple of 3, to 7 or higher, and fell back to 4, describing a resumed inflation as “recovery” grates on me every time I see it.

    Even the price index used in the graph on this posting, shows not a recovery, but a resumed inflation from a still inadequate reversion towards the historically affordable norm.

    This is a “recovery” of a cancer rather than a recovery of the patient.

    An Irish “recovery”, is about productivity and jobs and incomes and debt pay-down, not a resumption of historically abnormal unaffordability in house prices, which could well be disconnected from any of those things.

    In fact it is pretty much a given that systemic property value inflation occurs at the expense of the tradables part of the economy. I would like to see any counter example to this.

  7. The bankers made so so so much money out of the last global residential property boom, and barely a soul (if any?) have been held to account, it is absolutely no surprise they are moving heaven and earth to get this going again.

    How long will this boom bust cycle last?

    • IF ONLY conditions of bailouts included banking executives being removed from their positions, stripped of their superannuation and any other perks, and banned from holding company directorships and other offices for life – I reckon the behaviour of that whole sector would be quite different even if bailouts themselves were still a foregone conclusion.