“The heavy slump in the Irish housing market appears to have bottomed out. House prices posted their first quarter-on-quarter increase in 22 quarters in Dec 2012 and we forecast that prices will stabilise this year and next, after falling 6.1% in 2012.”
S&P cited a tight credit supply and excess capacity for a slow recovery in prices, although the low levels of new house construction is helping stabilise the market.
There were only 8,488 new units completed last year, which is down 19% compared with the previous year and well below the 90,000 units built in 2006.
However, price increases were registered in cities such as Dublin, Cork and Galway as there is less of a supply overhang in these regions.
“The Irish property market will likely continue to stabilise for the next two years, in our view.
“Price-to-income and price-to-rent ratios have returned to their long-term average, indicating that prices have reached an equilibrium. Economic recovery in 2013 and 2014 should also support demand for housing.
“Still, while momentum appears to be building in the housing market, the rate of increase in transactions and house lending this year may not exceed 2012, as mortgage interest relief has ended.
“What’s more, a new local property tax coming into force later this year may also drag on the price upturn,” the report concluded.
A stabilisation in the housing market is seen as one of the pre-conditions for putting a floor under the mortgage arrears crisis.
The timing of the forthcoming stress tests of the banks still has to be decided. Finance Minister Michael Noonan favours next March to coincide with EU-wide bank stress tests. The IMF said it would like the stress tests completed before the country exits the bailout programme in November.
Speaking at an event yesterday AIB chief executive, David Duffy said he would like the stress tests carried out next March.
“We are engaged in meeting the Central Bank targets this year on the restructuring of debt. It would be useful from a prudential capital assessment review perspective to have facts based on a number of quarters of work rather than based on models,” he said.