>The commission’s report, however, makes a fundamental misstep in drawing its undervaluation conclusion. It uses aggregate income variables based on grossly inflated gross domestic product (GDP) numbers, getting an inflated sense of per capita income here and a faulty sense of the long-term income trend. The commission uses GDP for a uniform measure across the bloc. Of course in Ireland GDP is skewed by the presence of multinationals to such a degree that it does not reflect the real economy.
ESRI presumably happy out with this, given that their analysis has suggested an at least 7% overvaluation.
Paywall
Utspean onion 👍🤠
This utter shite annoys me.
Do we really need economic analysis to work out that houses are overvalued for the simple reason that there’s a shortage of them and very few can afford them?
If a state can’t provide good housing and manage the economy in such a way that people have the opportunity to purchase good housing then in my opinion it’s utterly failed.
This is unpopular af but the houses aren’t over priced. Sadly. Supply and demand dictate the price and as long as there’s buyers the price is right and not overvalued. The solution is supply. Increase the supply and reduce the price. The housing crisis isn’t due to overpriced housing it’s due to the lack of affordable housing but the overall lack of housing nonetheless. If you have to yuppie couples bidding on a 500k€+ house and they can both afford to up the offer by 50k to beat the other to it why wouldn’t they? If more desirable and realistic housing was available then Ireland would be hunky dory but it’s not. Also final part of my rant and as a foreigner I must say, the Irish people got themselves in this mess. And not by electing the wrong government or having incompetent leaders but by micro patriotism and behaviours like “ouh I won’t move into a flat because that’s lower status” or “neighbourhood xyz is dog rough so why bother moving there”. This has led to a crunch and an absolutely inflated image and price for things considered “sociably desirable” here in Ireland.
If the average person cannot reasonably afford to buy and run an average house they are overvalued.
(Copied most of the article but at least on a phone the last few paragraphs are overlaid with other text).
**European Commission warns several member states are at risk of a painful correction in house prices as rising interest rates dampen demand. But it claims homes in Ireland are undervalued.**
Every year the European Commission produces what it calls an Alert Mechanism Report. The purpose – in the commission’s words – is to “detect, prevent and correct imbalances that are adversely affecting, or have the potential to adversely affect, the proper functioning of the economy of a member state”.
The latest one, published two weeks ago, contains a chapter on housing. It warned that several member states were at risk of a painful correction in house prices as rising interest rates puncture the mini boom in values seen during the pandemic.
Houses are more than 10 per cent overvalued in over half of EU member states, it warned, and more than 20 per cent overvalued in nine countries: Austria, Belgium, the Czech Republic, Denmark, Germany, Luxembourg, the Netherlands, Portugal and Sweden.
*However, when it came to Ireland, it said house prices were “not overvalued”. In fact, they were undervalued to the tune of about 10 per cent.*
“Concerns associated with house price developments are present,” the report said, noting nominal year-on-year house price growth in the Republic increased to14.6 per cent in the second quarter of 2022. However, it said the commission’s “valuation gap metrics do not show signs of potential overvaluation”.
The finding will leave many here scratching their heads particularly when we know average house prices nationally, in Dublin and in Dún Laoghaire-Rathdown, the most expensive local authority area, are seven, 10 and 14 times the average full-time income here.
*The commission’s report, however, makes a fundamental misstep in drawing its undervaluation conclusion. It uses aggregate income variables based on grossly inflated gross domestic product (GDP) numbers, getting an inflated sense of per capita income here and a faulty sense of the long-term income trend.*
*The commission uses GDP for a uniform measure across the bloc. Of course in Ireland GDP is skewed by the presence of multinationals to such a degree that it does not reflect the real economy.*
Many also maintain that the long-term ratios between income and house prices are no longer relevant as they relate to an era before real estate became a turbocharged investment asset and price became a gross multiple of income.
ESRI perspective
*Using a different methodology, the Economic and Social Research Institute (ESRI), in its latest quarterly bulletin, came to an entirely different conclusion, estimating that house prices here were in fact overvalued by at least 7 per cent, probably more.*
The think tank modelled where house prices should be on the basis of various economic and demographic factors such as income, population, credit and interest rates.
*It found that prices were about 7 per cent above their expected trend values as of the end of last year. Unlike the pre-2008 period, when the overvaluation of property was driven by excess credit, this time around prices have been inflated by pandemic-related factors such as increased savings and curtailed supply combined with “the increasing share” of institutional investors in the market, it said.*
“The analysis is up to the end of 2021 so, given the pace of growth in house prices in 2022, the overvaluation right now is at least 7 per cent, possibly even a couple of percentage points higher,” the ESRI’s Kieran McQuinn said.
“That doesn’t necessarily mean that house prices are going to fall by that amount, but what it does suggest is that the substantial increases in house prices that we’ve witnessed cannot continue into the future and you’re likely to see a significant moderation in terms of house price growth in the coming quarters and over the next year,” he said.
7 comments
The key bit:
>The commission’s report, however, makes a fundamental misstep in drawing its undervaluation conclusion. It uses aggregate income variables based on grossly inflated gross domestic product (GDP) numbers, getting an inflated sense of per capita income here and a faulty sense of the long-term income trend. The commission uses GDP for a uniform measure across the bloc. Of course in Ireland GDP is skewed by the presence of multinationals to such a degree that it does not reflect the real economy.
ESRI presumably happy out with this, given that their analysis has suggested an at least 7% overvaluation.
Paywall
Utspean onion 👍🤠
This utter shite annoys me.
Do we really need economic analysis to work out that houses are overvalued for the simple reason that there’s a shortage of them and very few can afford them?
If a state can’t provide good housing and manage the economy in such a way that people have the opportunity to purchase good housing then in my opinion it’s utterly failed.
This is unpopular af but the houses aren’t over priced. Sadly. Supply and demand dictate the price and as long as there’s buyers the price is right and not overvalued. The solution is supply. Increase the supply and reduce the price. The housing crisis isn’t due to overpriced housing it’s due to the lack of affordable housing but the overall lack of housing nonetheless. If you have to yuppie couples bidding on a 500k€+ house and they can both afford to up the offer by 50k to beat the other to it why wouldn’t they? If more desirable and realistic housing was available then Ireland would be hunky dory but it’s not. Also final part of my rant and as a foreigner I must say, the Irish people got themselves in this mess. And not by electing the wrong government or having incompetent leaders but by micro patriotism and behaviours like “ouh I won’t move into a flat because that’s lower status” or “neighbourhood xyz is dog rough so why bother moving there”. This has led to a crunch and an absolutely inflated image and price for things considered “sociably desirable” here in Ireland.
If the average person cannot reasonably afford to buy and run an average house they are overvalued.
Bypass paywall link:
https://archive.ph/FLUHV
(Copied most of the article but at least on a phone the last few paragraphs are overlaid with other text).
**European Commission warns several member states are at risk of a painful correction in house prices as rising interest rates dampen demand. But it claims homes in Ireland are undervalued.**
Every year the European Commission produces what it calls an Alert Mechanism Report. The purpose – in the commission’s words – is to “detect, prevent and correct imbalances that are adversely affecting, or have the potential to adversely affect, the proper functioning of the economy of a member state”.
The latest one, published two weeks ago, contains a chapter on housing. It warned that several member states were at risk of a painful correction in house prices as rising interest rates puncture the mini boom in values seen during the pandemic.
Houses are more than 10 per cent overvalued in over half of EU member states, it warned, and more than 20 per cent overvalued in nine countries: Austria, Belgium, the Czech Republic, Denmark, Germany, Luxembourg, the Netherlands, Portugal and Sweden.
*However, when it came to Ireland, it said house prices were “not overvalued”. In fact, they were undervalued to the tune of about 10 per cent.*
“Concerns associated with house price developments are present,” the report said, noting nominal year-on-year house price growth in the Republic increased to14.6 per cent in the second quarter of 2022. However, it said the commission’s “valuation gap metrics do not show signs of potential overvaluation”.
The finding will leave many here scratching their heads particularly when we know average house prices nationally, in Dublin and in Dún Laoghaire-Rathdown, the most expensive local authority area, are seven, 10 and 14 times the average full-time income here.
*The commission’s report, however, makes a fundamental misstep in drawing its undervaluation conclusion. It uses aggregate income variables based on grossly inflated gross domestic product (GDP) numbers, getting an inflated sense of per capita income here and a faulty sense of the long-term income trend.*
*The commission uses GDP for a uniform measure across the bloc. Of course in Ireland GDP is skewed by the presence of multinationals to such a degree that it does not reflect the real economy.*
Many also maintain that the long-term ratios between income and house prices are no longer relevant as they relate to an era before real estate became a turbocharged investment asset and price became a gross multiple of income.
ESRI perspective
*Using a different methodology, the Economic and Social Research Institute (ESRI), in its latest quarterly bulletin, came to an entirely different conclusion, estimating that house prices here were in fact overvalued by at least 7 per cent, probably more.*
The think tank modelled where house prices should be on the basis of various economic and demographic factors such as income, population, credit and interest rates.
*It found that prices were about 7 per cent above their expected trend values as of the end of last year. Unlike the pre-2008 period, when the overvaluation of property was driven by excess credit, this time around prices have been inflated by pandemic-related factors such as increased savings and curtailed supply combined with “the increasing share” of institutional investors in the market, it said.*
“The analysis is up to the end of 2021 so, given the pace of growth in house prices in 2022, the overvaluation right now is at least 7 per cent, possibly even a couple of percentage points higher,” the ESRI’s Kieran McQuinn said.
“That doesn’t necessarily mean that house prices are going to fall by that amount, but what it does suggest is that the substantial increases in house prices that we’ve witnessed cannot continue into the future and you’re likely to see a significant moderation in terms of house price growth in the coming quarters and over the next year,” he said.