House prices to fall by 5pc but pick-up on the horizon
HOUSE prices have already plummeted by 10pc but they are set to fall by a further 5pc, due largely to a sharp decline in consumer confidence.
And the slowdown in the housing market could see as many as 30,000 people losing their jobs in construction companies, a top economist has warned.
But the property market could start to pick up by the end of the year, spurred on by two, possibly three, cuts in European Central Bank (ECB) rates.
IIB Homeloans economist Austin Hughes said that the ECB was talking tough but it would be forced to start cutting rates by the summer.
This was desperately needed as consumer confidence had declined dramatically in Ireland, due largely to pessimism over the property market.
Fewer people intend to buy a house this year, while not as many are planning home improvements.
Falls in house prices amount to between 10pc and 11pc in the past year, Mr Hughes said.
"The overwhelming majority (of consumers) view house prices having to adjust further," Mr Hughes said.
"The housing slowdown has been a good bit more severe than I had anticipated.
"While we think confidence is unlikely to improve rapidly, a clear turn in the interest-rate cycle and a drop in supplies point toward better market conditions later in 2008."
Some 74pc of consumers expect prices to fall in 2008, extending last year's estimated 11pc decline by about 5pc.
Consumers also expect prices to show no growth through 2012, according to the survey of 1,400 consumers conducted during the first two weeks of January.
Three out of four consumers expect borrowing costs to rise due to tighter lending conditions by banks and the dampening of expectations by the ECB.
Finance Minister Brian Cowen yesterday warned the Government would make "unpopular decisions" in the short term in order to keep the economy stable.
"Whatever can be done to keep the economy strong will be done," he said.
"If that means making short-term, unpopular decisions then we've no problem in doing that," he said.
"We're still going to grow this year greater than any of our European competitors and we're still going to create employment.
"Our growth rate this year, as we've already predicted, will be less than that seen in the halcyon days of the Celtic Tiger.
"But we will continue to focus on controlling the areas of the market that can be controlled in order to maintain Irish jobs and market stability," Mr Cowen added.
See Your Money: pages 34-37