Economist says house prices will drop even further
Market to fall 60pc from 2007 peak before bottom is reached
IRISH house prices still haven't reached the bottom and are not "cheap" at current levels, according to Dermot O'Leary, an economist at Goodbody Stockbrokers.
Earlier this week, the Central Statistics office (CSO) said house prices in Dublin had fallen by 12.5pc in the year to July from the peak prices seen in February 2007.
In a note yesterday, Mr O'Leary, said that while house prices had continued to fall for the past four years, the CSO data confirmed the downward trend, recording a 42pc drop nationally and a 49pc fall in Dublin.
He believes that they will have to drop to 60pc from the boomtime prices before they become "realistic". This forecast is based on an assessment of the prices that people can now afford to pay for property.
At the peak, property was being bought, on average, for as much as eight times the buyer's annual income. And while this has reduced to five times at current prices, it still looks expensive when compared with international trends.
Mr O'Leary said: "While there has been a significant correction, the international evidence would not suggest this.
"Given high unemployment and lack of consumer confidence, this scale of a drop in house prices would make property more affordable and begin to attract buyers once again."
There is a time lag between when Irish house price data are published and when the changes are recorded. When this is taken into account, the actual house price decline has been more severe, Mr O'Leary says. Some properties have already been sold at a 60pc discount from the boomtime peak.
This was the size of the discount on properties offered in the recent Allsop's auction. It suggests that prices have further to fall, particularly outside of the Dublin area, he said.
Much will depend on the type of property being sold and its location but Mr O'Leary believes prices still need to decline significantly before they become affordable and good value.
However, another economist, Alan McQuaid of Bloxham Stockbrokers, said on Monday that he was optimistic about house prices rising in the medium term.
"We think house prices should increase on a five-year view as the labour market improves" he said in a note.
"That said, the level of any rise over the next few years is only likely to be in low single digits as banks adopt a more cautious stance to lending than in the Celtic Tiger era" he said.