S&P: House prices have hit bottom

HOUSE prices have hit bottom, according to one of the world’s leading credit rating agencies — but it will be a few years before the market picks up.

Standard and Poor’s (S&P) said property prices “have completed their correction”. It said, however, this does not mean the market will pick up again soon.

S&P said in its latest report that house prices in Ireland at the end of 2010 were down 33% from their peak — the largest price contraction in western Europe since the beginning of the current crisis.

However, director of residential at Savills, Ronan O’Driscoll said house prices have fallen by about 45%.

“That said, in broad terms, our views would be in line with the S&P view that Ireland has pretty much corrected the excess of the housing bubble but depending on the location and type of property in question.”

Savills see evidence prices have “reached the floor” for three and four-bedroom houses in main cities. However, Mr O’Driscoll said it is likely there will be some further drop in the prices for trophy homes, apartments and rural housing.

S&P said it will take a couple of years before there are any “tangible signs” of market activity resuming in Ireland. “We anticipate the British and French housing markets will likely fall back in the coming quarters, while the Spanish and Irish markets confront continued sluggishness.”

The agency said affordability in Ireland is back to its pre-2000 level, which it said, suggests that unlike other markets, Ireland has more or less fully corrected the excess of the bubble.

“We continue to see uncertainties about the extent of supply overhang that still needs to be absorbed. Besides, Ireland’s overall economic situation... combined with the likely gradual rise in eurozone interest rates, does not call for much optimism regarding the short-term housing market outlook,” said S&P.

The Permanent TSB/ESRI house price index shows the average house price in the last quarter of 2010 was €191,776, compared with €215,086 a year earlier and €311,078 in 2006.

Director with the Professional Mortgage Brokers Association, Rachel Doyle, said the S&P findings are not surprising.

“The biggest impediment to the property market bottoming out or stabilising is the lack of a functioning banking system. And unless the issue is sorted out in the foreseeable future, the housing market and indeed the entire economy will be at further risk.”

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