I looked up ‘farcinating’ because it’s a mash of ‘farcical’ and ‘fascinating’. Thankfully the internet always delivers.
How prices in Dublin can go up 8% YoY when the market is half cash beggars belief. It’s a false signal, if and when we are wrong about this we’ll apologise, but let’s take a look at some key issues that support this view.
1. Put a blank county & address search into the Property Price Registry for 2013 and you’ll find that there were 13,320 transactions this year. At the same time the IBF/PWC data indicate that there was 5,297 mortgages drawn down this year. That would indicate a market that is transacting in cash to the tune of 60% or more. (clear issue being late registration could mean some 2012 transactions crept into 2013 but probably not enough to fundamentally change this point).
2. Something that mainstream commentary has missed out on is that the ‘low supply’ in Dublin is in part because the banks are not moving in on loans with deep arrears. This may seem like a morally defensible position when framed as it being ‘wrong that a person loses their home’, but how indefensible is it that new buyers who didn’t make purchasing mistakes are now going to pay upwards of 8% more for a home because somebody else is getting to keep theirs when they can’t pay for it? There will be many young couples who become the innocent victims of a society that wants to defend the incumbents. If the Dublin average (bearing in mind decent family homes are trading at far higher prices) is €230,000 then you are asking a person to pay €17,000 more than they have to! (230,000 / 1.08).
3. Banks are also the beneficiary of rising prices because when prices rise the amount they have to provision for losses decreases (equally price drops mean they have to provision more). We mentioned the last two points today on Newstalk.
4. Much has been made of the sample size in July, but that doesn’t resolve the issue of the year on year increase, and if the sample size is broadly the same then the price increase is probably true (for properties that are transacting, this doesn’t tell us about the properties that aren’t selling). If you had a severely decreased sample this argument holds, if you had a far larger sample then it would confirm that the increase is definitely more convincing. We already demonstrated that last year had a larger sample but that for almost every other month the sales recorded were higher and they factor into the YoY number in a more statistically reliable fashion (the higher sample effect just mentioned).
5. That banks ‘aren’t lending’ is false, we have discussed that, however, that they ‘aren’t lending enough’ is absolutely true, total credit in the Irish economy is shrinking and has been for quite some time. Lending has shrunk (on mortgages) by about €7 billion in the last year. We bailed out the banks so that the ATM’s would keep working and they would lend money, well, the ATM’s still work and they are lending, but at anaemic levels which should be causing a market contraction but which oddly enough are helping to prop up false prices!
While it makes sense to protect people from banks, it also makes sense to protect the innocent bystanders from everybody else, and the first time buyers in this instance who didn’t get in on any madness are going to get creamed. This is wrong by any standard, unless of course you are of the standard where under no circumstances can you accept that people have to lose sometimes in order to make way for others to win.