The international property cycle appears to have turned following the precipitous falls seen over recent years.
Residential and commercial property prices have started to rise again in many countries (over half of the 20 residential markets monitored by ‘The Economist’ are showing annual gains) although the pattern is by no means uniform, with Europe lagging and Asia leading in the cycle according to Bank of Ireland’s latest Bulletin which was published today, 7 May 2010.
Author of the Bulletin, Dr. Dan McLaughlin, Group Chief Economist, Bank of Ireland said: “The UK is an exception in Europe, with clear evidence that an upturn is underway. Residential house prices bottomed in the first quarter of 2009 according to the Nationwide index, having fallen by 19% from the peak, and have risen by over 11% since then because demand has stabilised against a backdrop of limited supply. The UK commercial property market also hit bottom in 2009, this time in the second quarter according to the IPD index, and capital values subsequently rose by over 10% in the second half of the year with further gains evident in the early months of 2010. Commercial values are still substantially below the peak (the peak to trough fall was 42%) but it appears that the combination of extremely low funding costs and yields approaching 8% tempted investors back into the market.
“The picture in the US is less clear-cut, as the residential market there has been strongly affected by a series of fiscal incentives, resulting in a high degree of volatility in the monthly data. Nonetheless, the most widely quoted price index, covering 20 major cities, bottomed in the second quarter of 2009, having declined by 32% from the peak, and has risen 4% since then, although some cities are still seeing falling prices. Housing affordability in the US has never been better, which is boosting demand; new home sales have risen by 24% in the past year, with existing home sales up 16%. Commercial property also appears to have hit bottom according to Moody’s index, with price rises in the three months to January, although February did see a marginal fall.
“The commercial property market in Ireland also appears to have reached a turning point; the IPD showed a marginal positive return in the first quarter, the first in two years. Capital values fell again in the quarter, it has to be said, by 1.8%, bringing the decline from the peak to over 56% but the trend implies that capital values may have stopped falling in the current quarter. The news on the Irish residential market is less positive however, as all the published data still points to a decline, with the most widely quoted permanent-tsb/ESRI index recording a 4.8% fall in the first three months of the year. An alternative, the Daft.ie measure of asking prices recorded a 3.8% fall in the three months to March with the CSO on private sector rents also showing further declines in the first quarter, albeit at a much slower pace than a year earlier”concluded Dr. Dan McLaughlin.
7 May 2010
Dr. Dan McLaughlin
Group Chief Economist
Bank of Ireland Global Markets
Tel: 01 609 3221
Bank of Ireland
Tel: 076 623 4772