Warning of second housing ‘bubble’

By Jennifer Hough and Ed Carty

Wednesday, January 25, 2012

There is a danger of a second "bubble" if house prices fall too far below boom-time peaks, an expert has warned.

Ronan Lyons, an economist with Daft.ie, said that while buyers would welcome falling prices in the short term, the knock-on effect would be to create another boom to bust cycle as prices would eventually start to increase again.

"If the market falls too much, then it will further increase the negative equity of those who bought at the boom and increase mortgage arrears," he said.

"If prices fall and then rise again, we would worry about another bubble which would negatively affect people. There would be a rush to buy — which we saw about 10 years ago — and that could create the next bubble."

House prices in Dublin have fallen below the €200,000 barrier for the first time since early 2000.

Values fell by almost 17% last year, the fastest annual decline in almost two years, COS figures showed. The average cost of a home is now about €165,000, while in Dublin prices have fallen to €198,260. Mr Lyons said in Dublin house prices had fallen by about 55% from their peak. Elsewhere it is about 45% to 50%.

"Looking at rent levels and income levels, a fall of about 60% from the peak would be the place to level off at, so you could argue there is still a little way to go," he said.

Daft’s in-house economist said the Government was penalising banks with stress tests, which was leading to a decrease in lending.

"Houses are increasingly more affordable, but the only way that this will help the market is if the banks lend," he said.

"The problem is that because people are being given less than they thought from the banks, they are bidding less and the market is becoming more depressed."

Ronan O’ Driscoll, director of residential at Savills Ireland, said given that values were down so much, and house affordability was so good with low interest rates and cheap property, a big new entrant in to the banking sector was needed.

Return to the 1970s

* Fewer houses were built in Ireland last year than at any other time over the past 42 years.

Department of Environment statistics show 10,480 homes were completed in 2011, a 28% fall on the 14,602 homes completed in 2010. At the height of the boom in 2006, 93,419 homes were built.

The closest total to last year was 1970, when 13,887 homes were built.

Since records began that year, the number of house completions has dipped below 20,000 on only eight occasions.

— Gordon Deegan

This appeared in the printed version of the Irish Examiner Wednesday, January 25, 2012