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What's ahead in 2008 house market

Jim Power

Chief economist Friends First

THE market is still dead and will remain so for some while. The only properties turning around are those in very good areas, but even these are selling 15 per cent below their guide price.

In general, however, about 90 per cent of those on the market are not selling. Confidence among buyers has been shattered and the key reason is the belief that prices will fall further and if you believe that you will postpone the decision to buy. The stamp duty changes are not sufficient to turn the market around

The key market force in 2008 will be ongoing expectations for lower prices and huge levels of buyer resistance.

Interest rates are a key catalyst and the expectation of further increases was a factor bearing down on the market.

That has now changed and the ECB will find it difficult to justify any further rate increases, so there is better news on that front.

Any cut will be small and that will not be sufficient to turn the market around.

Overall then, 2008 will be another difficult year, characterised by buyer caution and downward pressure on prices which will probably fall another 5 or 10 per cent.

As the autumn selling season resumes there will be more life but it will be 2009 before we see real recovery. It will potentially be 2010 before we see prices matching what was attained in early 2007.

David Duffy

Author of Permanent TSB/ESRI house price index

THE two key things are interest rates and sentiment. There is a lot of bad news coming out about the economy in general and media speculation about the housing and property market, which has acted as a drag on confidence.

Interest rate increases have also been a drag but they are now very close to the top of the cycle, even if there is one more increase in the pipeline.

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The Budget will make some difference as it wasn't as severe as anticipated. The increases in mortgage interest relief had been well flagged in advance although the changes to stamp duty were more of a surprise. That tax needed to be reformed, although I would not have done it now. However, it will facilitate mobility if and when people decide to move. But they will not decide to move on that basis, rather affordability will be key.

In the early to mid part of the year we will see low activity levels and some further declines in prices but towards the middle of the year moderate growth in prices should return on the back of some improvement in sentiment and a clearer interest rate picture.

We have to remember that there are still forecast increases in employment and income, so if rates peak and prices continue to moderate we will get improvements in affordability. However, any increases will be moderate, so it will probably be the end of 2009 before prices return to previous peaks.

Geoff Tucker

Economist Hooke and MacDonald

IT is fair to say the past year has been challenging in terms of residential sales. Buyer confidence is at low levels and people have been holding-off buying decisions.

However, as we head into the New Year there should be an improvement. First is the changing interest rate environment. We believe a cut is likely. If we get a signal early in 2008 that the next move will be down, it will help to restore confidence. This will be important for potential buyers.

Second, it is now becoming, on average, cheaper to buy than to rent, at least in certain first-time buyer sectors of the market when you take into account mortgage interest relief up to €333 a month.

At the same time, rents are increasing, which is positive from a property market perspective. Some first-time buyers are now likely to switch back from renting to buying.

In addition, in the second- hand market the changes in stamp duty should feed through to a pick up in activity of people trading-up.

The changes to stamp duty in the recent Budget are a welcome development but it is not the single defining feature of the market.

However, when combined with falling rates and the fact that it is becoming cheaper to buy, it will ensure that price growth levels-out early in the year.

New home registrations have also slipped so the supply of new homes will be dampened later this year, and in some areas we will see the emergence of supply gaps, which will have an impact. But it will be 2009 before prices are back to 2005 levels -- before the market started to overheat.

Tom Foley

Chief executive IIB Homeloans

WHILE there is still quite an amount of nervousness about the market at present, I believe that overall prospects remain reasonably healthy.

We should see a pick-up in transactions and greater stability in prices as excessive pessimism fades.

The basic requirement for a healthy property market is a healthy economy and I believe that will remain in place in Ireland in 2008 and beyond.

In spite of a lot of negative talk, the Irish economy is solid. Although the pace of growth is easing, particularly in the construction sector, our forecast is for GDP to increase by roughly three per cent in 2008.

This sort of increase, which remains much greater than in most other economies, should be sufficient to ensure incomes and employment continue to grow.

There is also little doubt that the sequence of interest rate increases that we have seen since the end of 2005 has been the major driver of the softening in the property markets.

Fortunately, it appears that we could be close to a turning point in the interest rate cycle. It is becoming more and more likely that the next significant change in borrowing costs in Ireland will come as a result of lower rather than higher interest rates.


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