The latest Residential Property Price Index (RPPI) released from the CSO shows that Irish residential prices rose 0.9% m/m in March, snapping a two month run of falling prices.

Prices were 16.8% y/y above year-earlier levels, the highest annual change in the history of the series (which dates back to 2005).

Data for the sub-indices of the RPPI show that Dublin led the way in March, with prices rising 1.1% m/m and 22.8% y/y last month. Outside of the capital prices rose 0.7% m/m and 10.7% y/y.

Having troughed in early 2013, national residential property prices have rebounded by 25.9%. Despite this move, they remain 38.2% below peak levels. Dublin prices, which have recovered by 44.0% from their lows, are now 38.7% below their all-time high, while National ex Dublin prices, which have improved by 13.9% from the trough, are 41.5% below the previous peak.

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We were not overly concerned by the m/m decline in overall prices recorded in the first two months of the year, as we felt that recorded price moves around the turn of the year were likely to be distorted by tax incentives (the CGT exemption for those buying properties and subsequently holding them for seven years expired at end-2014). Another consideration is that the thin volume of transactions (only 2.1% of residential properties in Ireland changed hands last year, of which only about half – the cohort captured by the RPPI – involved a mortgage) at this time warrants a certain health warning around monthly RPPI readings.

Our view has been, and remains, that the path of least resistance for Irish house prices is to the upside, given supportive demand drivers (new household formation, rising employment, higher earnings, lower taxes on income and falling mortgage rates), while residential completions are running at a third of their long term average and less than half of what we would consider a normal level of activity to be. We would not be surprised to see a second successive year of double-digit price increases in Ireland in 2015. This outcome would have important implications for the covered banks (AIB, Bank of Ireland and PTSB), whose provisioning models, broadly speaking, assume a c. 50% peak-to-trough decline in Irish residential prices, which looks cautious compared to where the market is now.

Retail sales increase in March

The CSO also released retail sales data for March today. These show an improvement in retail sales in both volume (+1.4% m/m and +9.2% y/y) and value (+1.2% m/m and +5.7% y/y) terms last month. The headline retail sales index has now posted 15 successive months of annual growth in both value and volume terms. Stripping out the volatile Motor Trades component reveals that core retail sales were -1.0% m/m and -0.9% m/m in volume and value terms respectively, but still +4.7% y/y and 1.2% y/y.

Data for the 13 subcomponents of the retail sales index continue to show a broad recovery, with 8 posting m/m growth and 10 recording y/y growth in volumes. Sales of so-called ‘big ticket’ items continue to lead the way, with Motor Trades +23.1% y/y, Other Retail Sales (this includes furnishings, jewellery and numismatic purchases) +19.3% y/y, Furniture & Lighting +18.7% y/y, Electrical Goods +11.2% y/y and Hardware, Paint & Glass +10.2% y/y (all in volume terms).

As alluded to above, while some tail risks (chiefly relating to household debt) remain, the prospects for Irish consumers are the strongest that they have been in years. The KBC-ESRI Consumer Sentiment Index improved to a nine year high in January 2015 and this confidence is translating into a surge in consumer discretionary spending. Indeed, another CSO data release today show that Irish residents’ trips overseas rose 13.2% y/y in Q1 2015 (to 1.3m trips). With all that being said, the underperformance of retail sales in value terms relative to volume terms shows that an element of discounting is still needed in order to stimulate some of this extra business.

Philip O’Sullivan
Investec
http://www.investec.ie