House prices to fall 8pc in year, then bottom out
HOUSE prices will fall 8pc by the end of this year as the pace of price drops continues to ease, Bank of Ireland chief economist Dan McLaughlin predicted yesterday.
But it will be next year before the housing market stabilises.
The most recent figures from the Permanent TSB/ESRI index show that house prices were down 9.4pc in the year to July.
The fall in house prices in July was the 17th month in a row that property prices fell.
Dr McLaughlin said it was significant that the pace of decline has been slowing in the last few months.
"The housing market is still in the throes of correction and it may well be 2009 before signs of stability emerge, particularly in the wake of the European Central Bank rate rise in July."
He added that house prices were now back to where they were in November 2005.
"Yet the monthly fall in July was only 0.2pc and the annual pace of decline also slowed, this time to 9.4pc from 9.7pc. As a result, Bank of Ireland projects an 8pc fall for the full year."
He added that mortgage lending continues to slow, reflecting a combination of weaker demand and constraints on the supply of money, with banks tightening credit standards in response to the credit crunch.
Gross new mortgage lending has fallen by 13.4pc in the year to the second quarter of 2008.
The Bank of Ireland chief economist, writing in his quarterly 'Irish Property Review', pointed out that the number of new mortgages drawn down April, May and June has picked up to 35,000 from under 29,000 in the first three months of the year.
However, the pace of growth in the outstanding mortgages also continues to slow to 9.6pc.
This means Dr McLaughlin is forecasting that mortgage lending growth will end the year at around 8pc, and that gross lending will amount to €29bn, up from €33.8bn in 2007.
He said builders had reacted swiftly to the fall in prices by slowing down construction.
Completions fell to under 28,000 in the first half of the year and still look set to reach 50,000 at best compared with 78,000 in 2007.
This would be the lowest percentage addition to the housing stock since 1996.
Dr McLaughlin said that leading indicators of housing statistics imply that the first half of 2009 may be weaker still. Bank of Ireland is now forecasting under 40,000 completions next year.
- Charlie Weston Personal Finance Editor
