House prices are likely to fall sharply over the next year, a leading think tank has predicted.
The Economic and Social Research Institute (ESRI) has warned that prices are set to plunge by 12pc by the end of next year, with the property market likely to be sluggish over the next year and a half.
Economic impacts from the virus will have a huge dampening effect on house prices, particularly the drop in household income and the surge in unemployment.
The new research paper suggests the economic uncertainty caused by the pandemic will also likely lead to a decline in private investment in housing.
A shortfall in supply in the future will result from this.
Sellers of new and second-hand properties will be forced to reduce their prices due to demand dropping.
House builder Ballymore told Virgin Media TV this week it will be selling homes at cost, or very close to cost, for the next 12 months, as it struggles with reduced demand and a fall in output of housing units.
In paper by Kieran McQuinn and Matthew Allen Coghlan of the ESRI, it is stated: “The scenario analysis presented here indicates that Irish house prices are set to fall over the next 18 months as a result of the Covid-19 downturn.
“The contraction in prices is due to the decline in household disposable income and the sharp fall-off in mortgage market activity which will inevitably result from the administrative closedown implemented by the Irish authorities.”
The analysis indicates that a quick bounce back in the economy is unlikely, with a sluggish recovery more realistic for next year and the following year.
Prof McQuinn said it is very clear that a second surge of the coronavirus could have a more significant impact on property prices.
He said that all the new conditions imposed on the construction sector will have an impact on both the supply and demand side of the market.
Disposable income drives demand and as long as that is subdued it will affect demand for properties, he explained.
Lenders are already tightening conditions on mortgages.
As the number of non-performing loans increase due to the impact of the pandemic, lenders are likely to restrict the number of loans and size of mortgages they issue, the ESRI paper states.
The analysts note that any decline in house prices “would have been significantly worse if the Irish Government had not introduced the significant welfare payments to address the substantial increase in unemployment.”
“The recovery of housing demand in the Irish economy will depend on how long these payments remain in place and at what stage the authorities decide to remove them,” the authors added.
Last week KBC Bank House said prices in Ireland could fall 20pc this year and continue to decline in 2021.
In a presentation to investors, the bank said the base case for Irish house prices is a 12pc fall in 2020 followed by a rise of 8pc last year.
However, the Construction Industry Federation has warned that Covid-19 safety measures could add 5pc to 10pc to the cost of a house.
CIF Director General Tom Parlon said house builders forecast that implementing the measures, including social distancing, could add €10,000 to €15,000 to the cost of a house.