House buyers ‘jittery’ in 2007

FOUR years ago, almost two-thirds of consumers expected house prices to rise each year until 2012, according to an ESRI report.

One-in-10 people expected prices to increase by “a lot” between the years 2007 and 2012, while half said they would increase “a little”. Just 18% expected prices to drop during this time, according to a survey conducted by the Economic and Social Research Institute (ESRI) in January 2007, one month before house prices peaked.

Since the start of 2007 house prices have plunged by around 40% and are still falling.

The survey asked consumers to give their perception of the outlook for the housing market over the next five years. It did note, however, that Irish consumers were becoming “more cautious” about the outlook for house prices but most still expected a small increase in 2007 and further gains over the following five years.

The expected increase for 2007 was 3.5% while average gains of 7.3% were envisaged each year until 2012.

Director of the Irish Mortgage Corporation, Frank Conway said nobody expected what happened in October 2008, when the entire global financial system came close to collapse.

“Irish consumers were jittery entering 2007. And, while according to the Permanent TSB/ESRI house price index, house prices peaked in February of that year, in reality, all of the ingredients for a house price fall were already in motion.

“We had seen a significant drop-off in attendees at our first-time buyer seminars. In hindsight, it is now clear what was going on but at the time, we were not sure.”

The survey also asked people what they planned to do with their SSIA money. Just 4% intended to purchase property and 2% planned to purchase foreign property. One-in- 10 said they would pay off debt, while one third planned to save.

The ESRI also said at the time they thought as many as 150,000 mortgage holders would face some degree of adjustment because of higher interest rates.

“We reckon more significant difficulties may be faced by 40,000 borrowers who will see a notable squeeze on their spending power if interest rates continue to rise,” they said.

The latest figures show that more than 45,000 homeowners have now failed to pay their mortgage for three months or more.

It is estimated that up to 80,000 people are now struggling to repay their mortgage and up to another 40,000 have had to do a deal with their lenders to reduce their monthly repayments.