Wednesday 25 April 2018

Average homes €50k below their true value – Central Bank

Thomas Molloy and Laura Noonan

THE average house is undervalued by up to €50,000, according to a new report on the state of the property market.

This means a house that sells today for the national average of €160,000 would be worth about €210,000 in a healthier economy.

In its report, the Central Bank says house prices have been pushed down too far and are as much as 26pc lower than they should be.

Years of plummeting prices and the crisis in the banks means that conditions are far from ideal.


But the new research suggests that house prices could begin rising again if the banks begin lending, or new lenders come into the market.

However, the report warns that the "logical" price of a house will only be realised again when buyers regain their confidence, and banks have the money to be able to lend again.

Prices have fallen by 49pc on average during the crash.

In the past 12 months prices have fallen by 16.3pc, but the pace of the fall has slowed, according to recent statistics.

The Central Bank points out that we have a rising, relatively young population and houses have become twice as affordable in recent years.

It says this gives the market more chance of recovery than the likes of Japan, which has endured the worst property crash in global history.

But banks are only giving out about 10pc of the mortgages compared with the height of the boom.

They are struggling to find the balance between beginning to give out more mortgages and not being seen as lending recklessly again. They are also coming to terms with a massive lack of funds.

Despite the fact that property here is now undervalued, house prices could continue to fall for the foreseeable future as lending and confidence are at rock bottom, the Central Bank says.

The study used a series of calculations based on factors such as interest rates, income and housing stock to determine whether house prices had fallen too far.


One test showed prices had fallen 26pc further than was justified, while other results put the figure at somewhere between 16pc and 12pc.

The researchers called their report 'Why Are Irish House Prices Still Falling?' as they investigated the reasons why prices had crashed further than was deemed logical.

They said buyers were holding off and driving prices down because they feared further drops and were worried about the broader economy.

The banks' need to reduce borrowing under the terms of their rescue agreements were also factors explaining the massive price declines.

Analyst Brian Devine of NCB Stockbrokers said the report was right to emphasise that Ireland's rising population and relatively young population would lead to a stabilisation in prices.

"Unlike Japan there are fundamentals that allow recovery," he added. However, he said that prices might fall another 10pc before reaching bottom as "economic models can't take confidence and bank lending into account".

While the Central Bank research suggests house prices are lower than logic dictates, it cautions that an upturn in the property market "appears some way off" because of a low level of loans and property sales.

Irish Independent

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