Recession wipes €85,000 off wealth of every family
THE wealth of each Irish family has dropped €85,000 on average in the recession, virtually wiping out all their gains since 2003, the Sunday Independent can reveal.
In 2008 alone, a particularly devastating year, average household wealth fell a staggering €73,000, as reflected in the fall of the value of property, pensions, savings, possessions and other stocks and shares.
Average household wealth dropped from €399,200 to €326,200 by December 2008, effectively decimating gains made between 2004 and 2008, the prime years of the Celtic Tiger.
The subsequent surge in unemployment was another factor in the stark fall in the wealth levels of the average Irish family.
Such wealth was primarily contained in the value of property at the time and was, therefore, relative. The significant drop, however, is bound to have had an impact on the confidence of the average family.
Last year saw a further €11,000 drop, which brought average wealth down to just €315,000. The total drop in 2009 was lower because pension funds recovered somewhat from the unprecedented 35 per cent fall in 2008.
The slump in the market, which fell dramatically during September and October -- after the Lehman Brothers collapse in 2008 -- could take several years to recover. However, on a positive note, pensions recovered 22 per cent last year.
Since 2007, the domestic Irish economy has shrunk by almost 25 per cent, largely caused by the collapse of the construction and property sectors.
Since the market peak of late 2006/early 2007, house prices on average have fallen between 30 and 40 per cent, nationally, with far higher falls seen in places. According to the ESRI/Permanent TSB index, the average price for a house in Dublin and outside Dublin in December 2009 was €278,767 and €189,643 respectively. The equivalent prices in December 2008 were €351,096 and €223,984.
Commenting on the figures, National Irish Bank Chief Economist, Ronnie O'Toole said the survey reflected how exposed the Irish had become to the property sector.
"The lesson here is, that if you are going to invest money make sure you diversify. Far too many of us, put all our eggs into one basket, property, and we as a country are suffering as a result," he said.
The huge €85,000 drop in Irish wealth levels compare to drops of £16,000 (€18,213) in Britain in 2008. Charles Davis, economist, said: "These figures reflect very well that this was a balance sheet recession.
"For those who kept their jobs, it had a big impact not on their income but on their financial well-being. The credit boom had encouraged everyone they could keep on increasing their mortgages. The recession has changed that mentality."