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Sunday, 14 August 2011

House Prices Could Fall 67%...

House prices ‘could fall by 67% from peak’...

INTERNATIONAL credit ratings agency, Fitch Ratings has warned of "further downside risks" to Irish house prices; adding that prices could ultimately fall by 67% from peak levels in a worst-case scenario.

In a new report on the Irish housing market, Fitch said it realistically expects prices to show a total drop of 50% from their peak around four years ago. However, it added that while that rate of decline forms "the most likely scenario", a worst-case scenario would result in a full-term 67% drop in house prices.

"Irish house prices continued declining during 2010 and now are approximately 42% below the peak.

"In light of the oversupply of properties and continued restricted credit availability, the agency sees further downside risks to Irish house prices and as a result, Fitch now expects a peak-to-trough house price decline of approximately 50% as the most likely scenario," said Ketan Thaker, senior director in Fitch’s European Structured Finance team. Fitch said it has pushed an expected rebound back to next year.

"Interest rates are also expected to rise before a full economic recovery, which would result in affordability stress for the majority of borrowers in the Irish market," it warned further.

Fitch is also warning of a potential increase in "foreclosure frequency" — or house repossessions — here, reflecting "the deterioration of the Irish economy and the heightened sovereign risk and its impact on mortgage performance."

"The Irish economy has experienced unprecedented stress, which has knocked 12% off real GDP over a three-year period and increased the unemployment rate by 9% over the same time. Combined with a sharp house price correction, Fitch’s revision to its Irish mortgage-loss criteria reflects the stress in the Irish economy," said the agency’s Michael Greaney.

"Almost all the mortgage debt in the Irish market either starts off floating or becomes floating-rate during the term of the mortgage. The low interest rate environment, over the past two years, has significantly reduced the debt service burden for many borrowers. With the ECB recently starting to raise interest rates, these borrowers are likely to be exposed to higher debt service burdens," the report added.

Property agency Savills said it broadly agreed with the Fitch forecasts.

"The pace of price falls totally depend on locations, however," according to Joan Henry, head of research at Savills Ireland.

"In prime locations, house prices are showing signs of bottoming out at between 50% and 55% from their peak. But in commuter areas, where there may be an oversupply of housing, prices are likely to bottom out at between 60% and 67% below peak.

"There’ll still be demand problems in areas of oversupply," she added.

Report by Geoff Percival - Irish Examiner

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