Bubbles in the Dublin Housing Market?

Is there a bubble in the Dublin house market? The latest figures might well give one pause for thought, with a 22% year on year increase, clearly unsustainable.

dublinall

However, this may not be the entire story.
A newly developed statistical technique (see here and here for previous posts using it to talk about bubbles in London and Bitcoin) has, it is claimed, good power to detect bubbles. Below see the results for real dublin house prices, 1996 prices, for new and second hand homes.
dublin new
dublin second
We can interpret these as a bubble being present in the series when the blue line exceeds the red line. It clearly picks up the last bubble period, and interestingly dates its beginning to the 1997-1998 period. What it also shows is that there seems to be no such bubble at present.
This is only a statistical test – it is by no means definitive. What is clear is that bubble or no, Dublin prices in nominal terms are rising unsustainably fast.

What is your thought reader?

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10 thoughts on “Bubbles in the Dublin Housing Market?

  1. NH

    i went to a presentation on sunday evening that discussed this topic. firstly, it not define what a bubble was. there seemed to be a requirement of easy credit being a factor. I don’t think that is the case yet – but that could shift post the asset quality review. secondly rental yields are at 4 to 4.5% in most of Dublin. is that really a bubble? still high relative to bond yields. secondly, people think its a bubble. that in itself means it could keep going as that is the consenus view. doesn’t Niall Ferguson’s work show that the real return on property over time should be zero. can’t we at least look at long run inflation and see how far ahead we were in 2006 versus how far behind we are now?

    Reply
  2. Tony Foley

    Affordability is the key and certainly its going out of kilter for a lot of people.Once people start to bid a spiral develops and its hard to stop.Supply is at the root of the problem and until its addressed we will continue to see increases even though they are unsustainable. I see a repeat of our bubble.
    Value for money has to be the guiding force

    Reply
  3. simonposullivan

    Sure 4-5% looks fine against bonds that themselves only yield 2.5% – but the bigger question is whether bonds themselves are in a bubble. It could be argued QE has so distorted the true cost of capital that far too many investment decisions are being made using the wrong WACC and IRR’s, and that all this mal-investment will only come apparent in hindsight. I dunno maybe its different this time….

    Reply
  4. NH

    so where is affordability in ireland/dublin? re bond yields…yes but we also have examples like japan where post a deflation, de-leveraging cycle bond yields can remain low for an extended period. we can’t on the one hand discuss how poor things are in terms of underlying consumer/affordability/labour force slack etc and then on the other hand talk up bond yields. its not consistent. you either have a strong recovery with rising wages, rising tax take and higher bond yelds or you get stuck in the middle i.e what we have now. a sluggish post credit crisis growth phase where real assets are supported by low yields in the search for income for an ageing demographic.

    Reply
  5. Roisin

    Government want this…….so that they offload as much NAMA properties in Dublin at best price. If people as stupid enough to pay, then let the state coffers benefit.

    Reply
    1. simonposullivan

      but but but in the boom the state coffers were swollen with all the capital gains/stamp duty/income tax etc and we know how that ended – turned out it was a mirage. Maybe we are delighted with Johnny Foreigner coming in and buying distressed properties but they are not the likely long term holders of Irish property (Kennedy Wilson saying this morning Ireland is overcooked and are looking to Spain and Italy). Seems to be a lot of people here unhappy with Wilbur Ross making a fortune (Government sold boi too cheap meme). Once the 7 year capital gains exemption is up there will be a lot of selling – who will buy then – NAMA II?!

      Reply
  6. frankwhitney

    Good post Brian. Any interest in running a story on the prank AIB and BOI playing with mortgage prices. They are getting funds at less than 1% and are charging 4.4% for variable mortgages making customers subsidise their shortfall on the trackers. They should be brought to account on this. Thanks, Frank
    Sent from my iPhone
    >

    Reply
  7. Pingback: Too late to stop a Dublin house price bubble? | Brian M. Lucey

  8. Pingback: Fundamental bubbles in Irish House prices? | Brian M. Lucey

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