AIB: House prices to keep rising

STRONG demand is pushing the price of houses higher than expected, according to a major new study by AIB.

It warns house prices will increase 7% this year, driven by strong economic growth, low interest rates, inward migration and full employment.

Up to 77,000 houses will be built again in 2005, equalling last year's record, and the reports says the demand will not let up until 2008.

The report also argues we are not building enough houses, given the pent-up demand.

Prepared by AIB Capital Markets, it argues the evidence on the ground left it no choice but to revise upwards its projections for the Irish housing market.

AIB Capital Markets economist John Beggs said many factors were underpinning a positive outlook for the housing market.

"Average house prices could rise by 7% in 2005 and again in 2006, compared with our previous view of a slowdown in the annual rate to 5% at end 2005 and to 2% at end 2006".

Addressing risk factors to its projections, AIB Capital Markets said the group has become "more confident than previously about the near term outlook for the housing market, and sees little or no chance of a crash" while it warns of some risks further out.

Overall Mr Beggs concluded the property market is on "firm foundations", based on factors such as:

Affordability remains comfortable despite a likely hike in ECB interest rates of 0.5% in 2006

While personal debt levels are 150% of disposable income, assets have risen to seven times that

No major risks are on the horizon provided the government keeps out of the market

Particularly strong demand from first time buyers and strong population growth are the key factors driving housing demand at this stage, said Mr Beggs.

"The soft landing to price stability that we envisaged in our last report could be postponed until 2008", he said.

Mr Beggs said the current level of demand clearly depended on inward migration and sustained growth in the economy.

On the long term future of the construction sector, he said fewer people were employed per house produced now than was the case back in 1990.

While the high boom levels cannot go on forever, he noted a recent report from A&L Goodbody indicating basic infrastructure work costing €120 billion is required to keep the economy going over the next 15 years.

That kind of demand is sufficient to sustain a high level of employment in the sector for years to come, he said. Fears of a downturn are overdone, he added.

AIB also predicted Irish GDP will grow by about 4.5% this year, accelerating to 5% in 2006 and to 5.5% in 2007. Unlike the previous two years, the growth will come from domestic demand rather than exports.

The bank expects consumer spending to grow by more than 5% this year, speeding up to 6% in 2006 and by as much as 8% in 2007, with SSIA money accounting for much of the impetus, according to the bank.

More in this section

Puzzles logo

Puzzles hub

Visit our brain gym where you will find simple and cryptic crosswords, sudoku puzzles and much more. Updated at midnight every day.

Lunchtime
News Wrap

A lunchtime summary of content highlights on the Irish Examiner website. Delivered at 1pm each day.

Sign up
Revoiced
Newsletter

Our Covid-free newsletter brings together some of the best bits from irishexaminer.com, as chosen by our editor, direct to your inbox every Monday.

Sign up