Lenihan says house prices now at bottom
'Confidence will rebuild, as up to now people were holding back'
Published 04/04/2010 | 05:00
Finance Minister Brian Lenihan claimed yesterday that the residential property market will stabilise following the transfer of toxic debt from the banks to Nama -- and predicted that people will now begin to buy houses again.
Nama is buying most toxic loans at an average discount of 47 per cent, which is far steeper than the 30 per cent "haircut" which had been anticipated last September.
Yesterday, Mr Lenihan told the Sunday Independent: "One of the good things about the steep discount, averaging 47 per cent, is that the residential property market will now be stabilised at a realistic level."
He added: "You can now buy in confidence that the price is realistic."
The Finance Minister's belief that the property market has hit the bottom will come as a surprise to a number of economists, and other observers of the market, who recently predicted a further decline.
Statistical analysis shows that overall asking prices nationally have fallen 27.3 per cent from their peak in 2006. However, anecdotal evidence suggests that prices achieved are already up to 50 per cent lower than at peak.
Property prices plunged by 3.3 per cent in the first three months of this year, according to the latest property barometer from myhome.ie, which shows a slight ease in decline when compared to the 3.5 per cent fall during the last quarter of 2009.
Mr Lenihan is this week taking a far more optimistic outlook, not just in relation to the moribund property market, but in relation to the economy more generally. He has pointed to what he called "encouraging signs".
The motor industry, he said, reported a 31 per cent increase in car sales, and the NCB Purchasing Managers Index, an indicator designed to provide a measure of the health of the manufacturing industry, was at 53 per cent -- the highest for a long time.
He said that this indicated "considerable optimism" among a key group.
The tourism sector, he said, would show some improvement this year as consumer prices become more competitive. "People are buying motor cars and, now that a realistic value has been established, more people will also buy residential property," he said.
"This will begin the rebuilding of confidence because up to now many people were holding back."
In its quarterly report published last week, National Irish Bank said that Dublin house prices would "hit a bottom" during this year, although prices nationally would continue to fall.
"Prices in Dublin started to fall earlier and have fallen further than in the rest of the country," the bank's chief economist, Ronnie O'Toole, said.
However, Mr O'Toole also said, in his 2008 quarterly report, that house prices had almost "bottomed out" at just 15 per cent off their 2006 peak, and that sales activity would return to normal in the second half of that year.
Meanwhile, Mr Lenihan also told the Sunday Independent that the international financial markets did not consider that the Nama project and bailout of the banks were a "catastrophe".
He said: "Over the past few days, the cost of our borrowings has not gone up.
"In fact, the confidence of those who trade in Ireland debt and Ireland's stock, and the positive reaction from the IMF, both indicate a strong, favourable reaction abroad," he added.
Mr Lenihan said that there was no point in going into denial about our problems.
"I understand that, to the general public, the numbers involved are frightening. But I would ask people to bear in mind that the Nama project is set up over a 15-year period and that there will no immediate cost in 2010 to our balance sheet."
He said that Bank of Ireland and Allied Irish Banks were viable enterprises and the resolution of their problems was reflecting the real value of those banks.
And the cost of Anglo Irish Bank and the two building societies, Irish Nationwide and EBS, would also be averaged over a 15-year period with no immediate cost.
To have allowed Anglo Irish Bank to collapse would have involved a fire sale, and the paying off of all depositors at an enormous cost to the taxpayer, he said.