Builders cut supply of houses as prices fall

BUILDERS are reluctant to reduce the price of houses despite having cut supply.

This is according to Davy economist Rosa White who said builders have reacted to a drop in house prices by cutting supply rather than price.

“Many developers can afford to sit on the sidelines due to significant retained earnings built up over recent years,” he said.

Average national house prices dropped 0.6% in March compared with February. That was the first sequential fall since January 2002.

The price of new homes slipped 0.7%, and the value of existing homes was down 0.6%.

Mr White said: “We expect that further prices declines will show up in the April-June data. We now assume that price growth will be 2.5% on average in 2007. The year-on-year (yoy) growth rate is currently 7.4%. But prices may be down yoy by August.”

“Selling prices are unlikely to decline sharply here. Irish builders have cut supply immediately and radically. That may help prevent a debilitating overhang of unsold stock.”