House prices to fall in big economies 'but crisis on scale of 2008 unlikely'

ESRI says ECB interest rate hikes will affect prices but that the supply shortage will exert upward pressure in Ireland this year

The price of homes in major economies such as Canada and Britain are set to fall but shortage of stock will push against that trend in Ireland. Stock picture

House prices will fall in major economies, including by 20% in Canada and between 5% and 10% in Britain, but there will be no repeat of the 2008 crisis, a leading economics consultancy has predicted.

Capital Economics also forecast house prices will fall by 15% in Australia and by 10%-15% in Sweden as central banks around the world hike interest rates.

“The good news is that banks and households look better placed to weather a downturn in the housing market compared to the mid-2000s,” said chief economist Neil Shearing in a research note. 

A crisis on the scale of 2008 is unlikely. 

The research doesn’t cover smaller economies like that of Ireland where house prices have continued to rise sharply, by over 14% in the year to April, according to the latest CSO figures.

The Economic and Social Research Institute said last month that anticipated interest rate hikes by the European Central Bank in the coming months will weigh on house prices, but that huge supply shortages “will continue to exert upward pressure on Irish house prices over the coming year”.

Meanwhile, major Irish housebuilder Cairn Homes reiterated in a trading update its warning about rising building costs, but said its profitability has helped it to keep building on 20 sites.

'New homes output would materially reduce without the sensible Government interventions for first-time buyers,' said Cairn Homes CEO Michael Stanley. Picture: Shane O'Neill, Coalesce

Ahead of the budget, the builder said it supported the continuing subsidies for buyers, which some economists have criticised for adding to house price inflation during the supply shortages.

“In the present environment, new homes output would materially reduce without the sensible Government interventions for first-time buyers, including the First Homes initiative and Croí Cónaithe,” said chief executive Michael Stanley.

Cairn Homes shares closed slightly higher at €1 to value the builder at €699.6m. However, the shares have fallen from €1.13 since the start of the year.

In a research note, broker Goodbody said the builder “is expected to return a significant amount of cash to shareholders over the next few years”.

“The current dividend yield is circa 6% and our forecasts imply circa 50% of the group’s market cap will be returned to shareholders via dividends and buybacks between 2022 and 2024,” Goodbody said, adding that it has a price target for the company of €1.65.