Tuesday, October 9, 2012

Irish house prices could take 22 years to recover says Irish central bank

Reporting on a study release by the Irish central bank, the Irish Independent's Charlie Weston highlighted that it could take 22 years for Irish house prices to return to their former peak.
IT COULD take up to 22 years for residential property prices to recover fully, a research paper produced by staff in the Central Bank indicates. 
The paper looks at 147 price collapses internationally and concludes that the Irish home price collapse is the most expensive of those....
The academic paper looked at crashes in three Nordic countries and Japan to estimate how much longer the Irish crisis will continue.  
Their research found that Ireland’s banking crisis is the most expensive of 147 crashes they examined. 
This means it could take between 11 and 22 years for prices to recover to their boom levels. The property crisis here is already five years old. 
The report confirms why adoption of the Swedish Model for handling a bank solvency led financial crisis is preferable to the Japanese Model.

The Swedish Model which requires the banks to recognize upfront the losses on the excess debt in the financial system was adopted by Finland, Norway and Sweden.

The Japanese Model which focuses on protecting bank book capital levels and only slowly recognizing the losses on the excess debt in the financial system was adopted by Japan and Ireland.

The following table from figures in the report shows how the Swedish Model outperforms the Japanese Model.
Country Total % Fall house prices peak to trough   No. of years to recovery of house priceIreland                     -46.92                                       ongoing (after 5 years)                      
Japan                       -45.12                                       ongoing (after 22 years)
Finland                    -45.79                                            13
Norway                   -36.13                                             7
Sweden                   -29.18                                             7
The outperformance of the Swedish Model over the Japanese Model is clear.  It is not to late for the Swedish model to be adopted by Ireland, across the EU, the UK and the US.

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