Euro area annual inflation is expected to be -0.6% in January 2015, down from -0.2% in December 20143, according to a flash estimate4 from Eurostat, the statistical office of the European Union. This negative rate for euro area annual inflation in January is driven by the fall in energy prices (-8.9%, compared with -6.3% in December). Prices are also expected to fall for food, alcohol & tobacco (-0.1%, compared with 0.0% in December) and non-energy industrial goods (-0.1%, compared with 0.0% in December). Only prices for services are expected to increase (1.0%, compared with 1.2% in December). See full report of EUROSTAT: http://ec.europa.eu/eurostat/documents/2995521/6581740/2-30012015-BP-EN.pdf/d776fbcc-89b2-4bae-beb0-ad30fa709244Download ()
Eurostat, the statistical office of the European Union, publishes1 for the first time today relevant information on contingent liabilities and non-performing loans of government. These data have been provided by the EU Member States in the context of the Enhanced Economic Governance package2 (the “six pack”). The contingent liabilities published in this release include government guarantees, liabilities related to publicprivate partnerships recorded off-balance sheet of government and liabilities of government controlled entities classified outside general government (public corporations). The liabilities are called “contingent” in the sense that they are by nature only potential and not actual liabilities. Non-performing loans could imply a potential loss for government if these loans were not repaid. Thus, this new data collection represents a step towards further transparency of public finances in the EU by giving a more comprehensive picture of EU Member States’ financial positions3. Due to their characteristics, data are country specific and closely linked to national particularities regarding the economic, financial and legal structure of the country. Furthermore, data coverage is not complete for all the Member States, as indicated in the attached country footnotes. For these reasons, data presented in this news release should be interpreted with caution. In particular, for the liabilities of public corporations, the data comparability is very limited due to the fact that for some Member States data reported is not exhaustive, in some cases not including the liabilities of financial institutions and/or the liabilities of units controlled by local government. Several other aspects should be taken into account when analysing the results of the liabilities of public corporations. Firstly, the data reported for liabilities of public corporations are not consolidated, which means that part of the liabilities of these units could be towards entities in the same company group. However, the liabilities between units in the same group are not identifiable from the data reported. Secondly, the data collection only refers to liabilities without balancing them with the assets. This aspect is very important in the case of financial institutions which normally have both significant amounts of liabilities and assets. Additionally, for some of the Member States, most of the liabilities reported by financial institutions concern deposits. Source and see more: http://ec.europa.eu/eurostat/documents/2995521/6616449/2-10022015-AP-EN.pdf/d75df6fe-100b-4ae7-a09e-00400edb183aDownload ()
In December 2014 compared with November 2014, seasonally adjusted production in the construction1 sector fell by 0.8% in the euro area2 (EA18) and by 0.5% in the EU282, according to first estimates from Eurostat, the statistical office of the European Union. In November 20143, production in construction fell by 0.5% in both zones. In December 2014 compared with December 20134, production in construction fell by 3.5% in the euro area and by 0.5% in the EU28. Average production in construction for the year 2014, compared with 2013, increased by 2.0% in the euro area and by 3.0% in the EU28. See more: http://ec.europa.eu/eurostat/documents/2995521/6639446/4-18022015-AP-EN.pdf/ed3e8778-2a1e-4f70-9234-252b6be80b73Download ()
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-2012q2Download ()
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.
Source: OECD Report 2005 "recent house price developments: the role of fundamentals"
- 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.