Some comforts as we face property correction
Davy Stockbrokers, which has been negative on the outlook since mid-year, on Thursday said GNP growth this year would be no more than 2.1%, the most negative forecast to date.
Before Christmas the ESRI, also on the conservative side when it comes to forecasting, said it was anticipating growth of 2.3%.
Credit to Davys for sticking to its guns and taking the accolade for being the most pessimistic among forecasters.
Both the ESRI and Davys are well below the Government’s 3% prediction made in the December 5 budget.
One of the worrying things is the credit crunch, which has persisted well beyond what experts had anticipated, has pushed the US economy into recession.
That’s the view of Bill Gross, managing director of Pacific Investment Management Company, the investment operation he set up in 1971 and which manages $750 billion (€508bn) in assets. Recently he said the US needed to inject demand into the economy if it is to avoid a full-blown recession in 2008.
Despite his grim view there is still optimism that the global economy is on course to deliver strong growth in 2008 as the world economy, driven by strong demand in China and India, enjoys the most sustained growth period since the 1950s.
While the US has a question mark hanging over it as it works its way through its subprime crisis, the general view is it may manage to avoid a full-blown recession and achieve growth of 2% this year and next. That is below trend but it’s better than recession, which analysts say will be avoided as the US cuts rates to 3% from their current 4.25% level.
In Ireland the view is similar. While house completions will fall by as much as 40% to 45,000 this year down from 72,000 in 2007, improved output by farmers, the services sector and a better showing from exports than has been the case since the start of the new millennium should be enough to keep the economy from being dragged under by the housing correction.
Housing accounts for about 10% of the economy and the slowdown will bite hard this year.
On the plus side, the cat has been belled finally and it is accepted that Irish builders face a trying 12 months as oversupply and falling prices restore power to the buyer.
How the builders respond will, to a large extent, determine how the housing market pans out in 2008.
The ESRI says it expects prices to stabilise having fallen 15% in 2007.
Davys expects prices to fall about 7% in the case of new homes this year, which is similar to last year.
The reality is that no one is certain about the extent of the decline and the man in the street does not accept the 7% figure, believing it is closer to 30% in many instances.
In this hostile climate, if some builders are forced to slash prices to shift stock this market could be undermined and a fall of up to 30% could be on the cards.
Whatever the final outcome, buyers are sensing they are no longer under the lash of builders who can charge whatever they want for houses and apartments.
They are likely to hold off for several months to see how far prices will fall.
In that sense it would probably be better, if there is to be a blood bath in the market, that it should happen quickly so buyers can start re-entering the market with confidence.
A strong belief exists that the global economy will continue to deliver growth even if housing is making life difficult for some of us in the short term.
