House prices may rise by 8%, says report

HOUSE prices are rising again and could hit 8% on average this year following an increase of more than 7% in 2005.

The latest report into the economy and the housing market suggests the level of debt, that has doubled in the past decade, is not a problem.

Housing assets have become the new pension for thousands of people, according to IIB Bank chief economist Austin Hughes.

In a new report, Mr Hughes says those who bought an average house in 2001 will have seen its value rise by a massive 110,000 by the time the first SSIAs mature in May.

Analysts have also failed to take into account the immigration factor in the housing equation.

To date, 164,000 PPS numbers have been applied for from EU nationals from the states that signed up to the EU in 2004, he said.

Mr Hughes said: “Ireland has emerged from being an island behind an island and has moved to the centre of Europe.”

He said there had been an “astonishing build-up in property wealth in the past 10 years, which represents a major support for the Irish housing market in the future”.

IIB Homeloans chief executive Tom Foley said: “The property market remains the people’s pension of choice at present.”

Last year, the Irish housing market saw a record 81,000 completions and that figure is likely to be repeated this year, he said.

Irish housing assets have exploded since 1996 and have gone up by 350%, pushing up the value of the housing stock from an estimated €83 billion back then to €375bn today, when the €97bn debt is deducted.

Put another way the total amount borrowed for house purchases in Ireland reached €97bn in 2005, while the market value of housing stood at €473bn.

Mr Hughes said on the basis of the figures, a strong case can be made for Irish people borrowing substantially more against their assets.

Like other forecasters, Mr Hughes is predicting a 0.75% hike in ECB rates to 3% by the year end, but that will not be a problem.

If the ECB adds a further 0.75% to rates the overall 1% hike since December 2005 would add €1bn to mortgage repayments, he said.

“Were rates to go up by 2% or more, then some borrowers would find themselves in trouble, but that scenario is unlikely,” Mr Hughes said.

Mr Hughes also said a ‘Ryanair factor’ was at play in the case of migration into Ireland, given the access to low airfares.

Statistics show the flow of people into Ireland is higher than to other EU countries because people know they will get work here, he said.