Here's Dr Liam Delaney introducing the new Daft Report:
Psychology matters - particularly in times of uncertainty. Economists always talk about fundamentals and they are important - but prices are determined as much by people's emotions about the future as they are by so-called fundamentals. This is particularly pronounced in an environment of such uncertainty. Also, we are not computers. No matter how rational we think we are, humans are emotional - the cost of assets such as property and our job situation mean something to us, and these feelings relate to reference points that are set by culture, our peers and our past.
House prices are still falling and this downward trajectory is adversely affecting well-being, just as sentiment is boosted when prices were rising. This report shows that asking prices in March 2009 were over 16% lower than they were in March 2008. The average asking price nationally in March 2009 was €281,000, which is below September 2005 levels. In Dublin City Centre, prices are down 10% this quarter alone. Asking prices must be seen as an overestimate of actual prices for many reasons, not least of which the disgust people feel at disposing of an asset for less than they bought for.
As prices were going up, people failed to look at what value means (rent generating, in this case, a literal interpretation). The same occurs on the way down. The only thing in question, is the multiple of rent you feel is "comfortable". When developers say that they are "just breaking even" on prices at the moment, they are talking about prices with an inflated land purchase value. Houses are not at "Rent * years" value, if they were they would be worth 700 * 12 * 9 (yrs) = 75-100k max.