Price of average home has dropped by €30,000 in year
Thursday June 26 2008
THE property market is falling faster, and more than half of mortgage brokers expect the home loans market to weaken further in the next few months.
On a day when the bad news for the property market piled up, the head of the European Central Bank also indicated yesterday that interest rates were likely to rise next Thursday.
New figures out yesterday showed that the price of a house nationally was now down by almost €30,000, after prices fell by 9.5pc in the past year.
And the fall in house prices accelerated in May, according to the Permanent TSB/ESRI house price index.
Sharper
The index shows that average prices fell by 1.2pc in May. This was a sharper fall than the 1.1pc reduction in April.
Prices have now fallen by 4.4pc in the first five months of this year. The average price paid for a house in May was €275,176, almost €13,000 lower than the average at the end of 2007, and €28,990 less than the average price of a house in May last year.
And economists yesterday predicted continued sharp falls in house prices. Goodbody Stockbrokers' Deirdre Ryan said she expected house prices to fall by another 7pc this year. Earlier this week, the ESRI predicted house prices would fall by another 6.3pc this year.
Permanent TSB's Niall O'Grady said yesterday a combination of higher mortgage rates and ebbing confidence in the economy was increasing uncertainty about the property market and reducing demand.
Dublin house prices fell by 1.6pc in the month, while houses outside Dublin were down 0.8pc. The fall in the commuter counties around Dublin was 0.9pc.
Prices for first-time and second-time buyers showed falls of 1.2pc and 1.5pc respectively. New house prices were 1.7pc lower, while second-hand houses dropped by 1.5pc.
Also yesterday, a survey of mortgage brokers revealed that 57pc of them expect further declines in an already weak mortgage market.
The vast majority of brokers, who arrange most of the home loans in this country, have experienced a severe contraction in their business, according to the IIB Homeloans/Independent Mortgage Advisers Federation survey.
Brokers blamed higher interest rates and stricter lending criteria being imposed by banks for the sharp downturn.
IIB economist Austin Hughes said it was likely that tighter and more expensive credit would continue to affect the mortgage market, with no sign of an end to strains in international credit markets.
He added that this would also weaken the broader economy in the months ahead.
Increases
Meanwhile, the head of the European Central Bank played down suggestions yesterday that there would be several interest-rate rises in the eurozone.
Jean-Claude Trichet told the European Parliament he had never said the bank would envisage a series of increases.
But he also repeated that a small increase in the ECB's main interest rate -- currently at 4pc -- was possible.
A rise in ECB rates was likely to increase the cost for borrowers on existing tracker rates by around €45 a month, reduce the amount first-time buyers can borrow and further depress the moribund housing market.
Mr Trichet's remarks were set against a background of widespread expectations that the ECB would raise its key rate by a quarter of a point when it meets next Thursday.
- Charlie Weston Personal Finance Editor
