The year the roof began to fall in
This was the year of the property shock. The house price boom could only ever last so long, but despite all the warnings, many consumers thought it would never end. In 2007, they were proved wrong.
By March, the average national house price fell for the first time in five years, dropping 0.6pc for the month. It wasn't a huge fall, but, psychologically, it had a bigger impact.
In the 12-month period to March, house prices had still managed to grow 7.4pc, but it seemed clear that something was about to give. And it did.
As the property market got the jitters and growth prospects for 2008 began to be reeled in, buyers were in shorter supply.
Anecdotally, there was evidence of many homes that had been sitting on the market for months, with estate agents unable to shift them.
Stifling stamp duty rates, rising interest rates and then global market turbulence initiated by the subprime mortgage fallout in the US saw buyers hold their fire. As the market eased, developers reined in their completion projections for 2008. The property party was coming to an end.
In 2005, developers completed roughly 80,000 residential units. By September, the number of housing starts had sharply receded compared with the same period in 2006, with construction started on 46pc fewer homes in the three months to the end of August 2007.
Even as far back as February, the Central Bank was flicking on warning lights. At the beginning of that month, it said that the rate at which private-sector credit is expanding had slowed in January to give the lowest credit growth rate since October 2004. The annual growth rate of residential mortgage books also continued to fall in January, dropping to 25pc from 25.5pc in December 2006. It was the lowest growth rate since October 2003.
Also in February, the European Central Bank continued to add to the homeowners' woes, raising interest rates for the seventh time since December 2005, to put the base rate at 3.75pc.
The slowdown had been also been noticed early in the year by major suppliers to the trade, such as cement maker Readymix, part of Cemex.
In April, Readymix chief executive Roger Gonzalez said orders for housing materials were down. Even at that stage, Goodbody was forecasting that 78,000 housing units would be built in 2007, having already slashed 10,000 units from its previous estimate.
Alarm bells had started ringing everywhere and there were already calls for property stamp duty to be reformed in order to help revive the market.
For the Government, the property tax had been a cash cow, swelling its coffers to the tune of €2bn in 2005. By the end of 2007, it would be given a sharp reminder of how reliant it had become on the property sector, as revenues from home sales contracted and the Government was left with a budget deficit of €1.62bn, compared with the €1bn that had been forecast at the start of the year.
Property prices, especially those for more exclusive homes in Dublin, were already falling as buyers turned up their noses at what were seen to be exorbitant valuations.
The Organisation for Economic Cooperation and Development (OECD), which as far back as 2005 had said the Irish market was over-valued by some 15pc, continued to rain on the parade.
It continued to issue numerous warnings about what it perceived to be the perilous over-reliance of the economy on the construction sector.
In November, it said that the demise of the Irish property boom could pose a major threat to the economy.
"Housing investment and real house prices are at present only falling in a few countries, with notably large falls in housing investment for the US and Ireland," said the OECD's report.
But like receiving bad news from a doctor, it wasn't really until the second half of 2007 that the downbeat prognosis really began to sink in.
By August, Goodbody Stockbrokers had become more pessimistic, cutting its economic growth forecast for 2008 from 3.5pc to 3.1pc and revising down yet again its projections for home completions for 2008, from 70,000 to 60,000.
Other institutions were equally as glum.
In a July report by Davy Stockbrokers, the firm said that there was "overwhelming evidence" that the peak growth cycle in the housing market had passed. Even at that stage, Davy was predicting 80,000 home completions in 2007 and 65,000 in 2008.
The Construction Industry Federation was also getting edgy. In September, it expressed concerns that the spend on homebuilding could drop by 14pc in 2008 to €15.5bn, and that as few as 50,000 homes could be built in 2008 -- the lowest amount in eight years.
"Negative sentiment has taken root in the market, although the basis for the negativity is overstated," the federation claimed at the time. "The challenge for government is to restore confidence in the housing market" by cutting taxes on home purchases and commercial land deals, it added.
The negativity, though, was hardly overstated. There was no escaping the fact that mortgage lending was trending downwards and that property over-valuations were being keenly felt by potential buyers.
In October, the price of new homes fell 1.3pc following a decline of 0.3pc in September, with second-hand homes falling 2.3pc. That month, the average national price of a new home was €295,469, compared with €309,963 12 months earlier.
Credit ratings agency Standard & Poor's was also sounding negative vibes, saying in September that Ireland's economy would slow "significantly" in 2008 as the construction boom fades and house prices fall.
The slowdown is "exactly what the market needs", said Rossa White, an analyst at Davy Stockbrokers. "If developers start to mark prices down properly, sales will pick up."
And some developers were beginning the big sell-off. At the beginning of December, much to the consternation of previous buyers, Capel Construction knocked up to 22pc off the price of apartments in a Dublin scheme. It began offloading unsold apartments for €335,000, while a year earlier similar apartments in the development had been for sale for about €405,000.
In November, Goodbody Stockbrokers chief economist Dermot O'Leary was also in negative mood, predicting that just 50,000 residential units would be built in 2008 -- a sharp reduction in his previous estimate of 60,000. He said that the drop in housing starts had taken him "by surprise", but added that "a rebalancing of the economy away from residential construction is an event that was inevitable". He estimated that house prices will fall 8pc in 2008.
"Confidence in the market has been shattered," said Friends First chief economist Jim Power in the same month.
But Finance Minister Brian Cowen was still trying to steady the tiller.
"There is an adjustment taking place against the background of the very high house-price inflation we saw over the last decade, which was not sustainable," he said in November, adding that there were "no indications" of an increase in bad debts and defaults by homeowners.
It was obvious that buyers were holding their fire.
Mortgage lending declined by 18pc in the third quarter of the year, with new loans totalling €8.98bn having been taken out by homebuyers, versus a figure of €10.96bn in the same period in 2006.
"The market is going through a period of adjustment and I don't think that's finished yet," said Irish Banking Federation chief executive, Pat Farrell.
And if it wasn't enough that the ECB had raised rates during the year, the credit crisis had also served to push up inter-bank lending rates -- the interest rates banks charge each other for borrowing money.
For weeks, Permanent TSB, the leading mortgage lender in the country, had been perceived to be under particular pressure on this front, as with a deposit base lower than banks such as AIB and Bank of Ireland, it was always in a position where it had to resort more to the inter-bank market to secure finance to fund its lending.
Then Permanent TSB announced at the beginning of December that it had raised its tracker rates for new customers and some existing ones by between 0.1pc and 0.15pc, despite the ECB having left its rates unchanged.
In his December Budget, Mr Cowen attempted to revitalise the market, making changes to the property stamp duty regime which had long been called for.
Mr Cowen said that the first €125,000 of any residential property purchase price will be exempt from stamp duty. The balance, for houses costing less than €1m, will be subject to a 7pc tax hit. Any amount over €1m will attract 9pc stamp duty.
The minister said that a couple buying a home costing the national average price of €370,000 would pay €5,000 less in stamp duty. Mr Cowen described the changes as "fundamental".
Others weren't so sure, with one property executive describing them as a "token gesture". It will take some months before Mr Cowen's assertion is really put to the test.
Just before Christmas, Bank of Ireland chief economist Dan McLaughlin said that the total value of mortgage lending for 2007 was likely to reach €34.5bn, compared with €40bn in 2006.
"The underlying demand for property will not necessarily change, but will show that the marginal buyer is currently a renter, who is dissuaded from purchasing by affordability concerns and uncertainty about the outlook for the broader economy and house prices," said Mr McLaughlin.
In the meantime, 2008 will prove an anxious year for homeowners afraid that they will enter the realm of negative equity, just as some other new buyers have done in recent months.
For those wishing to get a foot on the ladder, falling prices could be just the opening they need. But, of course, the silver lining has one pitfall: lenders are tightening their lending criteria, meaning it may be tougher for new homebuyers to get the finance they need.
All eyes are now on the ECB to see if it will drop interest rates in light of overall European economic concerns.