Confederation Europeenne de l'Immobilier European Confederation of Real Estate Agents
5 Oct 2012

Irish real estate market activities

Read the comment on the irish real estate market from Daft's inhouse economist Ronan Lyons: Taking stock, five years on Although the first signs of the slowdown in the Irish property market date back to the Daft.ie Report of mid-2006, the start of Ireland's property market crash is typically dated from when property prices started to fall in the second quarter of 2007. This quarter's report, which marks five years of falling prices, and the 50th Daft.ie House Price Report, presents an opportunity to take stock on what has happened and what that can tell us about the future. Ireland in perspective Already, Ireland's property crash is recognised as one of the most severe ever experienced by a modern developed economy. OECD research suggests that the typical housing market downturn lasts over four and a half years, so the crash is already longer than the usual one. Not only is it longer however, it is also sharper. During the typical OECD housing market downturn, the fall in prices is 23%. According to the latest Daft.ie Report, the average fall from the peak nationwide has been 53%. An average, however, can hide all-important details. For example, in the U.S., the median house price has fallen 20% since 2006. However, to focus on the 20% is to ignore the hugely different experiences across each of 140 metropolitan areas . According to U.S. realtor figures, in 27 cities, including San Antonio and Amarillo in Texas, the median price has actually risen in those six years. Conversely, in high-profile cities such as Phoenix, Orlando, Las Vegas and LA, prices have fallen by more than 50%. In Detroit, the average house price has fallen 66% in the last six years. Over the last few years, daft.ie has built up a huge dataset of property listings - over 1.1 million lettings ads and 660,000 sales listings since the start of 2006. Tens of thousands of new listings are used each quarter in the daft.ie reports on the sales and lettings markets. But the sample in its entirety can also be used to take stock and see what structural changes have happened in the Irish property market since the final stages of the bubble. Mapping changes in the Irish market Since the start of the year, I have been working with the National Institute for Regional & Spatial Analysis at NUI Maynooth analysing Ireland's property market since 2006. The approach involved using the address of each listing to map all the ads as accurately as possible and then breaking the country down into as many zones as possible. These zones were built up from the 4,500 Census districts in the country (enumerator areas in the cities, electoral divisions elsewhere). These districts were added together until each zone had enough listings in both the bubble and crash period to estimate where it fits in the nationwide spread of prices (and rents), both in 2007 and in 2012. Maps of house prices and rents in 2007 and now are available at daft.ie/research. The models of house prices used - which are explained in more detail in a working paper available here - point to some important adjustments that have taken place in the housing market since the end of the bubble. They also highlight important differences between the sales market and the lettings market. The obvious difference between prices and rents is that the typical fall in prices (54.5% according to the most thorough model developed) has been almost twice the size of that in the rents (29.4%). As a result, the rent-to-price ratio (or 'yield', which is also mapped for each of the 4,500 Census districts) has increased from historic lows in 2007 (3.5% on average) to 5.5% in 2012. However, that is not the only significant difference between prices and rents. While the spread of rents has narrowed, the spread of house prices has if anything increased. The easiest way to think about this is to look at the p remium associated with a particular property size. During the latter stages of the bubble, the average difference between a four-bedroom property and a two-bedroom property in the same location was 45%. Since 2009, though, it has increased to 58%. As shown in the figure below, this increasing premium associated with space holds true for property types (e.g. detached versus apartment) as well as for property sizes. Premium associated with certain property types (national average), for different periods The increase in the price of space since the bubble ended is the opposite of what has happened in rents, where there has been greater compression in rents. In one sense, this runs counter to people's intuitions - surely after a bubble, the more expensive properties will be hit most? The figures suggest, though, that the bubble was characterised by what could be termed a "property ladder" effect: people disregarded where they wanted to buy long-term, which pushed up the price of smaller properties, including one and two-bedroom apartments and terraced properties. What these maps mean for the future Five years into Ireland's property market crash, and prices continue to fall. According to the latest Daft.ie Report, the average asking price fell 2.6% in the second quarter of 2012, compared to 1.4% in the first quarter and an average quarterly fall of 4.3% during the period 2008-2011. Dublin prices have fallen by most - but as the maps show, this may be due to smaller properties seeing their prices fall by more on average. In general, the signs from the Dublin property market are much healthier. The average asking price in Dublin in June (€214,000) was quite close to that in December (€217,000), while the average price outside the major cities fell from €162,000 to €149,000 in the same period. But it is important to remember that recovery in the property market is not about prices - it will take over four decades of "normal" house price inflation of 2% to reach the prices last seen in 2007 - rather, recovery is about activity. Measures of activity in the Daft Report also suggest that the Dublin market is improving. The stock available for sale in Dublin, at just over 4,600, has fallen 35% from its peak of late 2008 and is only 18% above the levels of early 2007. In June, 34% of properties that were put on the market two months previously had sold - up from 25% last December. All these figures suggest that the Dublin market is closest to being a normal property market again. Outside the major cities, though, it does not look like the property market adjustment has completed. Not only are prices still falling, oversupply is still an issue: there are still twice as many properties for sale now as in early 2007 (16,000 compared to 8,000). Unlike Dublin, there has been little change in the number of properties selling within two or four months. In Connacht-Ulster, just 12% of properties find a buyer within two months, a fraction that has not changed since the start of the year. People will want to live near cities, which will drive most jobs growth. This demand-side factor will compound supply-side differences. A large oversupply in some areas and in some property types, such as apartments and terraced homes, will only slowly fade away, while urban areas may need construction of new family homes soon. While confidence and credit are of course important national factors, over coming years, Ireland's property market will be characterised by these differences. Policymakers, both national and local, ignore them at their peril. Source: http://www.daft.ie/report/ronan-lyons-2012q2

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4 Oct 2012

OECD: Fundamentals of house price developments

In the vast majority of OECD economies, house prices in real terms (the ratio of actual house prices to the consumer price index) have been moving up strongly since the mid-1990s. Because of the important role housing wealth has been playing during the current upswing, this chapter will look more closely at what is underlying these developments, with a view to shedding some light on whether or not prices are in line with fundamentals. The chapter begins by putting the most recent housing price run-ups in the con- text of the experiences of the past 35 years. It then examines current valuations against a range of benchmarks. It concludes with a review of the links between a pos- sible correction of housing prices and real activity. The highlights from this analysis are as follows:

  • A number of elements in the current situation are unprecedented: the size and duration of the current real house price increases; the degree to which they have tended to move together across countries; and the extent to which they have disconnected from the business cycle.
  • While concerns have been expressed in several quarters about high housing prices, the evidence examined here suggests that overvaluation may only apply to a relatively small number of countries. However, the extent to which these prices look to be fairly valued depends in good part on longer-term interest rates, which exert a dominant influence on mortgage interest rates, remaining at or close to their current low levels.
  • If house prices were to adjust downward, possibly in response to an increase in interest rates or for other reasons, the historical record suggests that the drops (in real terms) might be large and that the process could be protracted, given the observed stickiness of nominal house prices and the current low rate of inflation. This would have implications for activity and monetary policy.
    The magnitude and duration of house price cycles Various statistical and other criteria will be used to put the current period of real house price increases into historical perspective. Based on a procedure to date house price cycles, it appears that, to the extent that there is an “average real-house-price cycle” over the period under consideration, it has lasted about ten years. During the expansion phase of about six years, real house prices have increased on average by around 45%. In the subsequent contraction phase, which lasts around five years, the mean fall in prices has been on the order of 25%. By implication, at least since 1970, real house prices have fluctuated around an upward trend, which is generally attributed to rising demand for housing space linked to increasing per capita income, growing populations, supply factors such as land scarcity and restrictiveness of zoning laws, quality improvement and comparatively low productivity growth in construction. To put the current large run-ups in these prices in perspective, the characteristics of what are considered major real house price cycles are calculated. To qualify as a major cycle, the appreciation had to feature a cumulative real price increase equalling or exceeding 15%. In this context, the current housing price boom differs from the average of past experiences in two important respects.
    • First, the size of the real price gains during the current upturn is striking. For Australia, Denmark, France, Ireland, the Netherlands, Norway, Sweden, the United Kingdom and the United States, the cumulative increases recorded in the recent episode have far exceeded those of previous upturns. With the exception of Finland, real house prices in the countries experiencing gains are above their previous peaks.
    • Second, its duration has surpassed that of similar past episodes of large real price increases for almost all countries. It is at least twice as long in the Netherlands, Norway, Australia, Sweden and the United States.
    Source: OECD Report 2005 "recent house price developments: the role of fundamentals"

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28 Sep 2012

The Dutch Housing Market (Rabobank)

Rabobank published its latest market report about the dutch housing market. Nearly 35.000 houses have been sold in the second quarter 2012. The rise of more than 17 % came in june when uncertainty about the new stamp duty in the Netherlands came to buying and selling parties. Read the Rabobank summary:

"In the second quarter of 2012 second-hand house prices fell further. Compared to the first quarter, prices dropped by 1.8%. This further decline does not come as a surprise. We have seen the number of houses for sale continue to rise, while disposable income is still dropping. Besides having less money to spend, potential buyers are faced with uncertainty about their jobs, their pensions and the question of mortgage interest re- lief. Nor do we expect this picture to change materially during the coming quarters. Uncertainty about the future of mortgage interest relief still prevails now that the de- bate about the housing market has been postponed until after the September elections. The main question is whether there will still be a majority in parliament after the elec- tions to implement the full package of housing market plans agreed to last spring. For the time being we assume that this will be the case, particularly as virtually all the par- ties are in favour of reforming the housing market. Because buyers are unwilling or unable to pay the current asking prices, and vendors are dropping their prices only in a piecemeal fashion, both parties are slow to reach a 'sale agreed'. As long as this mismatch between demand and supply remains, prices will continue to drop and sales figures will remain low. No change is expected in this scenario during the coming year and a half. On balance, we expect that prices of se- cond-hand houses will drop by an average of 5% in 2012. This trend will likely continue in 2013 - by a further 4%. However there may be large differences according to both price bracket and region. The Spring Agreement is not likely to contribute much to this downward price trend, as it will do little to reduce the borrowing capacity of households, if at all. Thus the price decline will depend largely on choices made by households. The introduction of the Spring Agreement may in fact have a positive effect, as it will create more certainty for buyers about the future of mortgage relief. During the second quarter a total of 34,628 homes changed hands - a rise of 17.3% on the same quarter a year ago. The increase is mainly seen in the month of June, when sales rose by nearly 70%. The main reason for this spike is the uncertainty about the rate of stamp duty to be paid after 1 July. This induced both buyers and vendors to close the deal before that deadline. However, the total number of sale agreements did not rise in the first half of the year. This leads us to conclude that transition between sale agreed and conveyancing was shortened considerably, which will be reflected in a sharp drop of ownership transfers during the coming quarter. In the fourth quarter we are likely to see a slight rise in the number of sales registered, as household will want to avail of current fiscal measures. On balance, a total of some 113,000 house sales are expected to be registered in 2012. In 2013 a similar number of homes is expected to change hands." Source: http://www.rabobank.com/content/images/Dutch_Housing_Market_tcm43-33324.pdf

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19 Sep 2012

US Real Estate Market – Prices continue to rise

The National Association of Realtors NAR is a partner association of CEI. Their research team published the latest news about the real estate market in the US. Sales of existing homes rose in July even with constraints of affordable inventory, and the national median price is showing five consecutive months of year-over-year increases, according to the National Association of Realtors®.  Monthly sales rose in every region but the West, where inventory is very tight. Total existing-home sales1, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.3 percent to a seasonally adjusted annual rate of 4.47 million in July from 4.37 million in June, and are 10.4 percent above the 4.05 million-unit pace in July 2011. Lawrence Yun, NAR chief economist, said housing affordability conditions are very good.  “Mortgage interest rates have been at record lows this year while rents have been rising at faster rates.  Combined, these factors are helping to unleash a pent-up demand,” he said.  “However, the market is constrained by unnecessarily tight lending standards and shrinking inventory supplies, so housing could easily be much stronger without these abnormal frictions.” NAR is asking the government to expeditiously release the foreclosed properties it owns in inventory-constrained markets. Given population and demographic demand, Yun said existing-home sales could be in a normal range of 5 to 5.5 million if all conditions were optimal.  “Sales may reach 5 million next year, but it will require more sensible lending standards and stronger job creation to push beyond that,” he said. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.55 percent in July from 3.68 percent in June; the rate was 4.55 percent in July 2011; recordkeeping began in 1971. “Fewer sales in the lower price ranges are contributing to stronger increases in the median price, but all of the home price measures now are showing positive movement and that is building confidence in the market,” Yun said.  “Furthermore, the higher median price naturally means more housing contribution to economic growth.” The national median existing-home price2 for all housing types was $187,300 in July, up 9.4 percent from a year ago.  The last time there were five back-to-back monthly price increases from a year earlier was in January to May of 2006.  The July gain was the strongest since January 2006 when the median price rose 10.2 percent from a year earlier. Distressed homes3 – foreclosures and short sales sold at deep discounts – accounted for 24 percent of July sales (12 percent were foreclosures and 12 percent were short sales), down from 25 percent in June and 29 percent in July 2011. Foreclosures sold for an average discount of 17 percent below market value in July, while short sales were discounted 15 percent. NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said pricing is the primary factor in determining how long homes stay on the market.  “Correctly priced homes, regardless of price range, are selling quickly these days,” he said. “Fully one-third of homes purchased in July were on the market for less than a month, and only 21 percent were on the market for six months or longer.  Sellers should carefully consider a Realtor’s ® advice about marketing their homes,” Veissi said. Total housing inventory at the end July increased 1.3 percent to 2.40 million existing homes available for sale, which represents a 6.4-month supply4 at the current sales pace, down from a 6.5-month supply in June.  Listed inventory is 23.8 percent below a year ago when there was a 9.3-month supply. Yun said there are distortions in housing inventory.  “The total supply of housing inventory appears to be balanced in historic terms, but there are notable shortages in the lower price ranges which are limiting opportunities for first-time buyers,” he said.  “The low price ranges also are popular with investors, so entry-level buyers are at a disadvantage because many investors are making all-cash offers.” First-time buyers accounted for 34 percent of purchasers in July, up from 32 percent in June; they were also 32 percent in July 2011.  Under normal conditions, entry-level buyers account for four out of 10 purchases. All-cash sales slipped to 27 percent of transactions in July from 29 percent in June; they were 29 percent in July 2011.  Investors, who account for the bulk of cash sales, purchased 16 percent of homes in July, down from 19 percent in June; they were 18 percent in July 2011. Single-family home sales increased 2.1 percent to a seasonally adjusted annual rate of 3.98 million in July from 3.90 million in June, and are 9.9 percent above the 3.62 million-unit level in July 2011.  The median existing single-family home price was $188,100 in July, up 9.6 percent from a year ago. Existing condominium and co-op sales rose 4.3 percent to a seasonally adjusted annual rate of 490,000 in July from 470,000 in June, and are 14.0 percent higher than the 430,000-unit pace a year ago.  The median existing condo price was $180,700 in July, which is 7.7 percent above July 2011. Regionally, existing-home sales in the Northeast rose 7.4 percent to an annual level of 580,000 in July and are 13.7 percent above July 2011.  The median price in the Northeast was $254,200, up 3.5 percent from a year ago. Existing-home sales in the Midwest increased 2.0 percent in July to a pace of 1.04 million and are 16.9 percent higher than a year ago.  The median price in the Midwest was $154,100, up 5.8 percent from July 2011. In the South, existing-home sales rose 2.3 percent to an annual level of 1.77 million in July and are 8.6 percent above July 2011.  The median price in the region was $162,600, up 6.6 percent from a year ago. Existing-home sales in the West were unchanged at an annual pace of 1.08 million in July but are 5.9 percent higher than a year ago.  With pronounced inventory shortages, the median price in the West was $238,600, a jump of 24.5 percent from July 2011. Source: www.realtor.org

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12 Sep 2012

European Capital Markets Market view (CBRE)

CBRE has published its latest report about the European Capital real estate markets. These are the trends of Q2 2012: Transactions total falling on weak economic outlook Total commercial real estate investment activity contracted slightly in Q2 2012, totalling some €24.3 billion. This is below both the total for Q1 2012 and for the same quarter last year and is a reflection of the difficult economic conditions in Europe at the moment. Although investors remain prepared to buy prime property, demand for anything with significant issues is very price sensitive and requires substantial discounts from historic valuations. Office activity dominating the market Offices made up 50% of the value of commercial property traded in Q2 (in line with each of the previous two quarters). Although prime retail space remains in demand from investors, the supply of stock that meets their requirements has dried up over the last year. As a result the share of the market that is made up of investment in retail property has fallen to around 25%. Foreign investment One of the most striking features of the market in Q2 was the very high level of activity by non-European investors. Cross-border investment jumped to 46% of the total (by value) in Q2, the highest percentage since Q2 2008. Of this, more than half came from outside Europe, with significant capital flows from North America, South America and Asia. Not since early 2007 have non-European investors been so prominent in the European market. Foreign investors target large lot-size transactions Also notable was the extent to which non-European investors targeted the largest lot sizes available in Europe. Whereas the average transaction size in Europe was around €27 million, domestic investors were over-represented in the smaller transactions, with an average deal size of €22 million. The average transaction by a Europe-based, cross-border investor was significantly larger at €56 million, while non-European investors typically targeted the very largest transactions, with an average lot size of €79 million. Top-10-Investment Markets CBRE says that London still has a 20 % share of the commercial real estate market in Europe and the biggest single market. The London market rose by 25 % comparing to the first half of year 2011. Paris, Stockholm, Oslo, Munich, Copenhagen (+136 %), Moscow (-47%), Berlin, Hamburg and Frankfurt are completing the TOP-10-Markets in Europe. Market Outlook Probably the most significant trend to emerge so far this year has been the increase in the proportion of cross-border transactions, particularly those involving buyers from outside Europe. Such cross-regional transactions accounted for 25% of the European market in Q2 2012, the highest proportion since Q2 2007, before the financial crisis hit the market. Source: http://www.cbre.eu/portal/pls/portal/res_rep.show_report?report_id=2094

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