A 50pc descent from peak to trough...
IF there is one economic certainty for 2009 it is that Irish house prices will continue to fall just as the economy accelerates in reverse. Even the most bullish of commentators or indeed vested interests have pencilled in 2010 as the earliest date for a turnaround.
According to the ESRI, which is now firmly in the bear's camp, prices are likely to end 2009 at the same level as the last half of 2003. This means anyone who bought from 2004 on is very likely to have a home worth less than they paid for it.
With the economy set to decline by 5 per cent or more and employment to fall by as many as 140,000 jobs resulting in double digit unemployment figures, people will simply hold off on most purchases.
According to Jim Power, chief economist at Friends First this deterioration in the labour market with massive job losses and increased job uncertainty as well as downward pressure on wages will keep sentiment pretty negative. The result, he says, will be further falls in property prices of around 15 per cent in the first half of 2009, with an overall fall from peak to trough of 50 per cent.
However, there is disagreement over how far prices have already fallen. According to Power and many estate agents, it is around 30 per cent. But David Duffy of the ESRI and the man responsible for the ESRI/Permanent TSB house price index has calculated it at 15 per cent.
Duffy says his figures reflect actual sale prices rather than the advertised price cuts which may not actually shift the house.
This is a huge difference and some sort of transparency about actual sales prices would obviously be in the interests of the market. The Irish Auctioneers and Valuers Institute does have all the data and this could be used. However, it appears reluctant to release the real data and a report it commissioned earlier this year has not been published.
One figure both sides agree on is that prices will fall by around 15 per cent next year. According to Duffy, this would bring a peak-to-trough collapse of almost 30 per cent, bringing prices back to levels last seen in the second half of 2003. If true then this implies average national house prices of around €225,000 with Dublin prices averaging €300,000 and first time buyers paying just under €200,000.
Some forecasters are less bearish. AIB for example is forecasting that prices will fall another 8 per cent next year after a 10 per cent fall this year. Their economists point to the increasing affordability of home loans which are now back to 2000 levels and may fall as low as 1997 levels if further interest rate cuts emerge. The result is that despite rent falls buying a home is more attractive than continuing to rent, its latest report states somewhat optimistically. They do, of course, have a vested interest.
However, both Duffy and Power believe that the sheer weight of bad economic news will overwhelm any impact from falling interest rates. According to Duffy, while interest rate cuts do help affordabality the fact that the global economic environment is so uncertain and that people will be losing jobs makes many feel uncertain. "Prices will fall until people feel more certain about the environment."
According to Power, what activity there is will be focussed at the first-time buyer end of the market, given government incentives and increased lending from banks to first-time buyers. It is still unclear what will happen to the Government's sub-prime scheme announced in the Budget.
Its intention appears to be to hold a line on prices but this is likely only to aid developers and postpone the inevitable correction.
Whether or not this scheme goes ahead, activity is likely to be in the €150,000 to €400,000 bracket with few homes over €1m being sold.
Demand is likely to be stronger around Dublin but could be extremely muted in other parts of the country which are likely to suffer a more severe employment shocks particularly if large single employers such as Dell do start to let staff go.
Report from Sunday Independent