International Monetary Fund - Irish property 33% overvalued

[groom]

According to the IMF, Ireland is top of the league table of most overvalued property in the developed world.

Ireland's prices are judged to be 33% more expensive than fundamentals such as salaries would underpin. Therefore we hold most 'vulnerability to a housing correction'.



http://www.imf.org/external/pubs/ft/.../01/pdf/c3.pdf

This is the IMF talking. This article hasn't been properly talked about in the papers. Instead we see headlines like 'Buying a house can now beat renting' on the front page of IT business section.

[ballot stuffer]

According to the IMF, Ireland is top of the league table of most overvalued property in the developed world.

This is the IMF talking. This article hasn't been properly talked about in the papers. Instead we see headlines like 'Buying a house can now beat renting' on the front page of IT business section.

The IMF have being saying this for years, noone seemed to pay a blind bit of notice.
If you are a vested interest, please choose from one of the following rebuttals:

But don't worry, this time its different!

The fundementals are solid!

We still have one of the lowest home ownership rates in europe!

Property will always go up because its the only thing they aren't making any more of!

[freedomlover]

The figures appear to be out-of-date. I'm not certain, as its a hopelessly laid-out document, but it looks as though the Irish figures are for Q4 2006. That's what it says for one of the tables in the document giving house prices for Ireland, although it doesn't give any date for the main table. But, Irish house prices have fallen by about 10 per cent since Q4 2006, which would bring the overvaluation down to 20% currently. That's on the official figures from TSB/ESRI. Some people like Alan Ahearne claim the TSB/ESRI figures are wrong and that house prices in Ireland fell by 15% in 2007 and will fall by 15% in 2008. As we're now in April, if he is correct, they would have fallen by 5% since the end of 2007. So, if Alan Ahearne is correct about house prices (and I have no idea if he is), they would by April 2008 have fallen by 20% since Q4 2006. That would bring the overvaluation in April 2008 down to about 6.5%, or even less if we take account of the fact that incomes in Ireland have increased since Q4 2006. Meantime, in most other countries (some exceptions like the US) house prices continued to rise in 2007 and early 2008. I think in Australia, for example, they rose a lot in 2007 and 2008.

For those not statistically-minded, it should be noted that a 33% overvaluation means house prices would need to fall by 25% in real terms (less in nominal terms) to correct. If the TSB/ESRI figures are correct, the correction is halfway through. If Alan Ahearne is correct, its almost completed.

[Dreaded_Estate]

The figures appear to be out-of-date. I'm not certain, as its a hopelessly laid-out document, but it looks as though the Irish figures are for Q4 2006. That's what it says for one of the tables in the document giving house prices for Ireland, although it doesn't give any date for the main table. But, Irish house prices have fallen by about 10 per cent since Q4 2006, which would bring the overvaluation down to 20% currently. That's on the official figures from TSB/ESRI. Some people like Alan Ahearne claim the TSB/ESRI figures are wrong and that house prices in Ireland fell by 15% in 2007 and will fall by 15% in 2008. As we're now in April, if he is correct, they would have fallen by 5% since the end of 2007. So, if Alan Ahearne is correct about house prices (and I have no idea if he is), they would by April 2008 have fallen by 20% since Q4 2006. That would bring the overvaluation in April 2008 down to about 6.5%, or even less if we take account of the fact that incomes in Ireland have increased since Q4 2006. Meantime, in most other countries (some exceptions like the US) house prices continued to rise in 2007 and early 2008. I think in Australia, for example, they rose a lot in 2007 and 2008.

For those not statistically-minded, it should be noted that a 33% overvaluation means house prices would need to fall by 25% in real terms (less in nominal terms) to correct. If the TSB/ESRI figures are correct, the correction is halfway through. If Alan Ahearne is correct, its almost completed.

Whats stop them from going to 70% of fair value these things have a habit of over correcting. I very much we are going to from 133% to 100% on the money.
There is still a way to go yet

[irishpeoplearewhingers]

The figures appear to be out-of-date. I'm not certain, as its a hopelessly laid-out document, but it looks as though the Irish figures are for Q4 2006. That's what it says for one of the tables in the document giving house prices for Ireland, although it doesn't give any date for the main table. But, Irish house prices have fallen by about 10 per cent since Q4 2006, which would bring the overvaluation down to 20% currently. That's on the official figures from TSB/ESRI. Some people like Alan Ahearne claim the TSB/ESRI figures are wrong and that house prices in Ireland fell by 15% in 2007 and will fall by 15% in 2008. As we're now in April, if he is correct, they would have fallen by 5% since the end of 2007. So, if Alan Ahearne is correct about house prices (and I have no idea if he is), they would by April 2008 have fallen by 20% since Q4 2006. That would bring the overvaluation in April 2008 down to about 6.5%, or even less if we take account of the fact that incomes in Ireland have increased since Q4 2006. Meantime, in most other countries (some exceptions like the US) house prices continued to rise in 2007 and early 2008. I think in Australia, for example, they rose a lot in 2007 and 2008.

For those not statistically-minded, it should be noted that a 33% overvaluation means house prices would need to fall by 25% in real terms (less in nominal terms) to correct. If the TSB/ESRI figures are correct, the correction is halfway through. If Alan Ahearne is correct, its almost completed.

Whats stop them from going to 70% of fair value these things have a habit of over correcting. I very much we are going to from 133% to 100% on the money.
There is still a way to go yet

nothing....it's a question of sentiment

[freedomlover]

I emailed the IMF and asked them: (a) what period in time their 33% per cent over-valuation figure referred to and (b) what figures were they using for Irish house prices (in particular, was it TSB/ESRI?):

Their reply (cut and pasted):

"The 33% house price gap for Ireland is based on the OECD house price data ending 2007Q2. This was the latest figure that we had when we finalized for the publication."

"We also looked at the house price data you referred to and after deflating the nominal prices with CPI, it looks like the OECD data indicate higher house prices in Ireland than the TSB/ESRI data, in both nominal and real terms (see the attached file)."

As there was only a small fall in Irish house prices between 2006Q4 and 2007Q2, the analysis I gave in my previous post still stands. This is a key point. Most posters on here and on other sites and in the media today were under the impression that the 33% over-valuation referred to current prices. Not so, they referred to prices one year ago. As we all know, they have come down a lot since then.

But, they also say their estimate is based on OECD house price figures for Ireland which (they say) are higher than TSB/ESRI figures. Yet most people here claim that TSB/ESRI figures are higher than what house prices actually are.

The upshot is that, even on the IMF analysis, the over-valuation in Irish house prices will be over by the end of this year if the TSB/ESRI estimate of house prices falling by 8% or so a year is true. However, some economists claim that house prices have been falling by far more than 8% a year - Alan Ahearne claims 15% a year - if that is true (and I have no idea if it is or not), the over-valuation will be over in a couple of months. It is true that prices could under-shoot, just as they over-shot in the past. But, an under-shoot will inevitably lead to a rebound, just as an over-shoot will lead inevitably to a downturn.

[blindjustice]

never mind the IMF

What about what the Irish Central Bank think or thought back in 2006:





if your interested in more these threads are recommended:

Interest only Loans and the Speculator side to the Market
http://arandomwalk.com/forums/index.php?showtopic=58
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=

Demographics:
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://forum.globalhousepricecrash.com/ ... opic=16445


Unemployment/Construction Industry:
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=

Social aspects of the Bubble:
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=

Long Drawn Out:
http://www.thepropertypin.com/viewtopic ... highlight=
I quote myself from that thread from June 2007:

I think 10,000 is being a little conservative!!

Im starting think that this crash is gonna be big news in the 3rd and 4th Quarter. There will be no hiding it. What other tricks could they pull?

Of course that was before Morgan Kelly informed us that the banks were still payrolling the builders even though they werent selling anything
Which leads us to the current stock market falls and loss of confidence in our economy and in my view justified wariness of our banking system:

http://arandomwalk.com/forums/index.php?showtopic=121

Stealing a Quote from 2Pack - Its the empties STOOPID!
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=



Clouds and Silver linings:
http://www.thepropertypin.com/viewtopic ... highlight=

a deflationary period would help keep jobs - note all the companies leaving citing labour costs...

[freedomlover]

never mind the IMF

What about what the Irish Central Bank think or thought back in 2006:





if your interested in more these threads are recommended:

Interest only Loans and the Speculator side to the Market
http://arandomwalk.com/forums/index.php?showtopic=58
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=

Demographics:
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://forum.globalhousepricecrash.com/ ... opic=16445


Unemployment/Construction Industry:
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=

Social aspects of the Bubble:
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=

Long Drawn Out:
http://www.thepropertypin.com/viewtopic ... highlight=
I quote myself from that thread from June 2007:

I think 10,000 is being a little conservative!!

Im starting think that this crash is gonna be big news in the 3rd and 4th Quarter. There will be no hiding it. What other tricks could they pull?

Of course that was before Morgan Kelly informed us that the banks were still payrolling the builders even though they werent selling anything
Which leads us to the current stock market falls and loss of confidence in our economy and in my view justified wariness of our banking system:

http://arandomwalk.com/forums/index.php?showtopic=121

Stealing a Quote from 2Pack - Its the empties STOOPID!
http://www.thepropertypin.com/viewtopic ... highlight=
http://www.thepropertypin.com/viewtopic ... highlight=



Clouds and Silver linings:
http://www.thepropertypin.com/viewtopic ... highlight=

a deflationary period would help keep jobs - note all the companies leaving citing labour costs...

It is potty to say, as Morgan Kelly did, that builders aren't selling any houses. They aren't selling as many as have been built, which is why the number being built is being cut back. Between April 2006 and April 2008, about 160,000 new houses were built, i.e. about 80,000 a year. Of these, about 130,000 were sold, i.e. about 65,000 a year. Definitely over-supply, which needs to be and is being cut back. But, completely loopy to claim that no houses have been sold. For those who say that, especially Morgan Kelly, I have one question. Between April 2006 and April 2008, the population increased by 210,000. Where do you think these additional people are living if no new houses have been sold? Tents in the Phoenix Park perhaps?

[Supermanpolitician]

McWilliams tried to warn us....

When media outlets sought opinions, they went to banks, estate agents, investors...when the economics warned they shouted don't rain on our parade.

[blindjustice]

ah come on freedomlover is that the best you can do - take my words out of context and purposely take a figure of speech as literal? You understand the english language, your not stupid your cunning and doing it on purpose.

Im very interested in links to your volumetric information though it still doesnt contradict the oversupply in the market.
daftwatch, as used by the ESRI , shows a build up in inventory to the tune of a couple of years worth of building:

http://daftwatch.atspace.com/

What matters in the market is supply and demand and we have an over supply situation combined with a credit crunch.

Simple as that. Simple simple economics.