Wednesday, January 14, 2009

The Irish Dr. Doom... or Just an Exaggerating Economist?

Professor Roubini has nothing on Professor Morgan Kelly from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 University College Dublin. Back in February 2007, Prof. Kelly predicted:

The expected fall in average real house prices is in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 range 40 to 60 per cent, over a period of around 8 years. Such a fall would return cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 ratio of house prices to rents to its level at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 start of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 decade.
By January 2008, Professor Kelly felt this 50% decline was overly optimistic:
Writing in this newspaper a year ago, I suggested that, in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 light of past property booms abroad, Irish house prices were at risk of falls of around 50 per cent in real terms. At cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 time I imagined, again based on what had happened elsewhere, that selling prices would stabilise at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir peak values for a year or two, and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n fall slowly by a few per cent a year for up to a decade.

My forecast has turned out to be wildly optimistic.
And now? According to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 Irish Times (bold mine):
Ireland will see more demolition than construction of houses over cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 next decade, as cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 economy struggles to recover from cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 collapse of cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 housing market and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 emergence of “zombie” banks, UCD economist Morgan Kelly told cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 conference.

In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.


An 80% decline in nominal terms would be extreme (it would bring home values back to levels seen in 1993), but Professor Kelly's 80% decline in real terms means home prices will drop to a level not seen since.... well I can't find data going back that far, if it even exists.

5 comments:

  1. I think you have real and nominal falls confused. The real fall is inflation adjusted. Nominal fall doesn't include adjustment for inflation. So an example of a 50% nominal fall is to fall from 100K to 50K. An example of a 50% real fall over a period of time with 20% inflation is a fall from 100K to 60K.

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  2. Disinflation is leading to deflation in Ireland at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 moment. Although camps are split on where inflation is heading mid to long term, if deflation was to get a hold cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365n a real fall would be "more" than a nominal fall.

    In any event, Kelly's predictions are based on empirical studies of app 40 previous crashes around cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 world. Given cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 worsening global situation (Ireland was always already facing disaster) he is revising his predictions to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 downside. He is used to being derided; he is also used to being right.

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  3. Anonymous-

    "An example of a 50% real fall over a period of time with 20% inflation is a fall from 100K to 60K."

    I understand how to compare going forward (as you detail above), but comparing cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 fall to historical "real" prices is done in cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 manner I describe, no?

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  4. maybe he also expects a very high inflation, so if inflation is 10%, real prices arent that low...

    And don´t forget, after an overshooting comes an undershooting.

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  5. I have great respect for Mr Kelly. He is educated and knows what he is talking about. He will not get any thanks from some people in this country, because it sounds to much like honesty. I just wish everyone in this country was as honest. Thank you Mr Kelly. When are we actualy going to see reductions in house prices because all I see is cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same old auctioneers with cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 same property, year after year and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y have not changed cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365ir prices in any way. They are still hundreds of thousands over priced. The Government and cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 banks are trying to get poor first time buyers to enter cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 property market at cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 minute with this new advertising campaign, offering all sorts of nonsence to lure cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365m like lambs to cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365 slaughter, to tie cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365mselves down to a monster of a mortgage for a house that is roughly €200,000 to €300,000 overvalued. I hope cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y see through what is happening and waight for anocá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365r ten years before cá cược thể thao bet365_cách nạp tiền vào bet365_ đăng ký bet365y decide to buy, poor things.

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