Warning: curb house prices or market will crash

THE property market will crash unless the spiralling pace of growth in house prices begins to slow immediately, a top economist has warned.

Property experts, including Goodbody Stockbrokers, Sherry FitzGerald and Douglas Newman Good, have already radically revised upwards their estimates for house price hikes this year from single digit growth of around 6%-8% to 12%-13%. Estate agent Sherry FitzGerald is even predicting growth rates as high as 15%. Last year, house prices grew by almost 14%.

Research director with Goodbody's Colin Hunt said unsustainable house price increases were the biggest domestic threat to the economy.

"Unless house prices moderate to 5%-7% over the next year then we could see a property crash which would have major implications for the Irish economy," Mr Hunt said.

He said early indications suggested house price increases in the first quarter of this year are running "far in excess" of this moderate growth.

Speaking at the Irish Association of Pension Funds investment conference in Dublin yesterday, Mr Hunt said the housing market is the only area that has not adjusted to post-Celtic Tiger economic conditions.

"Inflation was running at 7%, now it's expected to average at 1.9% this year. Wage inflation in the private sector has fallen from 11% to 4% and Government spend has even fallen from 20% growth to an anticipated 6% for the year. Everything has fallen back in pace with a country that is no longer clocking up 10% economic growth, except housing.

"If prices fail to drop we are heading for an 'unpleasant adjustment'. That's an economic euphemism for a crash," Mr Hunt said.

He said outstanding mortgage debt in December 2001 was €34 billion. By December 2003 it had soared to €54.7bn. The average price paid for a house nationally in December was €234,066. The equivalent price in December 2002 was €205,898.

"People are buying houses because they are afraid they won't be able to afford one. Prices have to start growing moderately, if they don't, I promise you there will be a property crash," he said.

Economist with Sherry Fitzgerald Marian Finnegan originally forecast house price growth of between 8%-10% this year, but has revised this to 10%-12%. However, she said it could possibly be as high as 15%.

While she agreed the current pace of growth cannot be sustained, she didn't believe a bust was on the way.

"While 10% growth is still high, it is not that high when compared to the 20% and 25% growth we saw only a few years ago," she said.