House prices 'must fall to become affordable again'
Estate agent economist says that cuts in stamp duty will not help
HOUSE prices have to come down to make them affordable for buyers again, and cuts in stamp duty will not help, according to an expert at a leading estate agents.
While estate agents are usually accused of 'talking up' house prices, Derek Brawn, economist at Savills HOK, said it would not really matter if prices fell 10pc over the next two years, so as to let middle-income buyers back into the market.
When inflation is added, such a fall might amount to a 20pc drop in real terms. "But they went up so much over the last decade, does it really matter?" said Mr Brawn.
"The cushion of equity in property is still huge at €430bn and the fall in real prices will close the gap in affordability."
Savills HOK operates the Hamilton Osborne King estate agents. Mr Brawn said there were signs that ordinary sellers were beginning to reduce their prices, but builders were still reluctant to do so on new properties.
"We are just telling the facts as we see them. There is no point in talking things up for the sake of it. The rapid rise in interest rates has put a huge dent in affordability and everyone has to adjust to that reality."
He said a middle-income couple taking home €5,000 a month could have serviced a €350,000 mortgage two years ago, but could now borrow only €280,000. "Prices for their kind of house have gone up €80,000 since then, so the loss of affordability is €150,000!"
Mr Brawn said cuts in stamp duty as proposed in election manifestos could not close such a huge gap without a fall in house prices. "Most first-time buyers don't pay stamp duty. Cuts for people are not materially significant compared with rising rates. They might even put more pressure on the price of new houses."
He said builders had tried marketing and special offers to sell new houses at existing prices, but without success. "They have made so much money they can afford to wait, but the penny will drop in the second half of the year and they will realise they are not going to get those prices.
"Interest rates have gone up seven times, and are expected to go up once more by the end of the year.
"They are likely to stay at those levels for a couple of years and that is the reality everyone must face."
He expects a rapid fall in the number of new houses being built. "We are predicting 75,000 completions this year, down from 90,000 last year, and falling to 65,000 next year and 55,000 in 2009. That is still a large number and would be enough to meet demand."
- Brendan Keenan
