I teach a “case study” on Ireland when I discuss the Global Financial Crisis.
Ireland stands out absurdly even relative to other advanced economies when it comes to real estate appreciation in the first seven years of the century. We all know the troubles Ireland went through after 2009 (here and here), in large part related to this massive house price inflation.
Property price data are a complicated matter, particularly when one is focusing on cross-country comparisons. There are currently several sources of such data that deserve an independent discussion in a future post.
Personally, I am partial to the International House Prices Database of the Federal Reserve Bank of Dallas, in part because I contributed a tiny bit by helping Enrique Garcia-Martinez and colleagues get in touch with the provider of the Italian data (good job Dallas Fed team, it’s a great public good to provide!). One of the big advantages of this dataset is the availability of long time series. For example, one of the alternative data sources – the Bank of International Settlements (BIS) Residential Property dataset (available in Fred) – provides time series on Ireland only since the mid 2000s. Needless to say, longer time series come at a cost.
For this post, I extract quarterly times series of the real index (RHPI) for the U.S. and Ireland.
When plotting comparisons using time series, it is always useful to refresh students’ memory on how to “re-base” time series; I rebase the series to 2000Q1, a randomly chosen but good-looking starting point, but not necessarily the most relevant economically.
First consider the U.S. The core of the GFC experienced a huge property price appreciation between 2000:Q1 and 2007:Q1, the peak of the “bubble” (at least in these data, more on this in another post), a stunning +42% in the period considered:
Impressive! Scary, crazy, and unprecedented (ehm, not… particularly if one is based in Australia..).
But what if I re-scale the vertical axis and plot Ireland alongside? This gives a truly extraordinary comparison: While U.S. property prices grey by a mere 42% in about 7 years, Irish prices grew by an astonishing 80% in essentially the same period (the peak of this series occurs in 2007:Q1, just one quarter after the peak in the U.S., based on these data). The corresponding nominal growth rates would be 64% for the U.S. and 124% for Ireland.
Link to the background file: 2-Contessi-PDU-Post2-HPI-IREvsUSA.zip
Interesting link: Here‘s a 2011 Speech on asset bubbles by Gertrude Tumpel-Gugerell, a former Member of the Executive Board of the ECB, with a similar graph… not as pretty as my graph, ECB staff, sorry!