No recovery yet
News Article Date: Wednesday 11th of March 2009
DUBLIN, March 9 (Reuters) - It will take more than a year for house prices in Ireland to start rising steadily and the risk to that forecast is towards further delay as soaring unemployment diminishes the pool of potential buyers.
A Reuters poll last week showed a dozen economists expect house prices to fall by 10 percent this year and to drop another 5 percent on average over the whole of 2010.
Seven of those economists went into more detail, with a consensus forecast that house prices, already down by as much as 40 percent since a peak in early 2007, will bottom out next March.
Prices would then embark on a steady upward trend from June 2010, according to the median forecast of the seven Dublin-based economists who responded to that question in the poll carried out between Feb. 23 and March 3.
The bursting of its property bubble has pushed Ireland into its worst recession on record, wiped out profits at banks exposed to failed development projects and stunted growth at building suppliers such as Grafton.
Revenue from property taxes last year was more than a billion euros down from 2007 levels, and Ireland this year is expected to have the highest budget deficit in the euro zone - 9.5 percent of GDP according to official forecasts.
As Ireland's small, open economy is caught in the middle of the global credit crisis at the worst possible time in its domestic economic cycle, risks to housing market performance still appear to be on the downside.
"If all that had happened is Ireland had a property bubble that burst then we'd probably be a long way through that burst by now, we'd probably be getting close to the bottom," said Alan Ahearne, a former senior economist with the U.S. Federal Reserve who now teaches at Galway's National University of Ireland.
"Unemployment is rising and that is causing people to defer purchases and putting additional downward pressure on house prices," he said.
As the property market stabilises, Ireland will also need to end its over-reliance on the construction sector as the source of economic growth and budget revenue, analysts said.
"The downturn in housing is having a huge impact on the economy and public finances because housing had become such a major part of the economy at 14 percent of GDP by 2006," said Oliver Mangan, Chief Bond Economist at AIB Global Treasury.
By the time house completions drop to 20,000 units next year from a peak close to 90,000 in 2006, the sector's share in the economy will also contract to 5 percent or below, Mangan said.
The commercial property sector, whose rise and fall has left banks with billions of euros in loans they don't expect to recover, could take even longer to revive.
"Company after company is putting expansion plans on hold," said Paul McDowell, partner and head of Ireland at property consultants Knight Frank.
Office prices could recover in two or three years, followed by retail space, where there was even more needless building and overheating of prices, McDowell said.
TOO MANY PROPERTIES
House prices in Britain rose in January after almost a year of decline, only to fall again at a record pace last month. The slide in Ireland has been more continuous but some say a blip upwards could get the market really going again.
"The first headline that comes out that house prices in Ireland went up by 1 percent or levelled off, I think there will be a mad rush to buy property," said Alan Grant, director of mortgage broker GMC Mortgages.
Others are more cautious. Daft.ie, an Internet portal claiming to host advertisements for 9 out of every 10 properties for sale in Ireland, said the correction still had 18 to 24 months to run in major cities and longer in remote rural locations.
The stock of houses for sale on Daft.ie grew from around 35,000-40,000 in early 2007 to 70,000 in 2008, though the rise has slowed recently, Daft.ie economist Ronan Lyons said.
"Until that starts to come back down again there are just too many properties out there," Lyons told Reuters.
Experts agreed the eventual recovery will probably bypass "ghost towns" dotting the countryside -- complexes of housing built without regard for actual demand in the "Celtic Tiger" boom years, with little hope of attracting buyers in a recession.
However, in prime locations, activity could be restarting already.
"Completions will keep falling this year but we think housing starts have bottomed out in Ireland," Grafton Group's Executive Chairman Michael Chadwick told Reuters.
Ireland's property market still appears to be better off than Spain, where most economists polled by Reuters advised house hunters to wait until at least 2010 -- many said several years more -- before tentatively dipping a toe back in.
Speculators and foreign buyers have abandoned the Spanish market, leaving the holiday home market on its knees, and with an estimated 1 million unsold new units prices are expected to gain little traction for the next three years or so.
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