Poacher turned gamekeeper wrote:
2)The levels at which the "bottom" will have been reached will be either when prices reach 2000/1 levels adjusted for inflation ie when the price excess of the post-9/11 low interest rate lending frenzy has been washed out of the system
Many people have identified inflation-adjusted 2001 price levels as the mean to which we must revert. This is understandable as for many it corresponds to the start of the post-dot.com, post-911 global credit splurge and the end of our export led growth phase. However, it ignores an important fact; In 2001 house prices were already grossly inflated.
Demonstrably, the bubble began in 1996, when house prices deviated from their long-term trend
By 1998, the government had commissioned the Bacon Reports
"to alleviate the desperate plight of first-time buyers". Which publicly states "Following the unprecedented growth in house prices, the Irish government openly acknowledged that a crisis existed in the Irish Housing Market."
By 2001, David McWilliams was already talking about the bursting of the bubble
By conceding that a reversion to 2001 levels would constitute 'normal', 'sustainable' prices, we are pretending that the bubble didn't exist pre-2001. For my mind, anyone who bought after 1996 was paying a bubble premium and buying at inflated prices. I am not saying that prices are headed all the way back to 1996, even in inflation-adjusted terms, but I do think that that's the basis point against which we should be calculating. The residual effects of the bubble, and the valid precipitating factors which caused it (wage growth, double incomes, lower-interest rates and greater access to credit) will most likely prevent a full reversion to the inflation adjusted 1996 mean. But I do see prices falling to pre-2000 levels.
Incidentally, inflation-adjusted 1996 levels would imply a fall of around 64%. While we might not quite get to there, I see falls of at least 50% as extremely likely. And if macro-economic factors (unemployment, bank failures, oversupply, etc.) get bad enough I wouldn't even rule out an overshoot on our way back to the mean.
Saying that 2001 prices represent good value is to deny the bubble existed at all before that point. Either those were bubble prices or Ireland really is different.