Fitch: House prices to fall by extra 10%

HOUSE prices are likely to fall a further 10%, according to one of the world’s leading rating agencies.

Fitch expected Irish house prices to drop in value by 45% from their peak.

The latest Permanent TSB/ESRI index said house prices have already plunged by just over 35% and Fitch said this probably understates the full decline.

The ratings agency earlier this week downgraded Ireland’s rating from “A+” to “AA-”. It said the full effect of the mortgage market stress is yet to be revealed and said that while arrears levels continue to rise, very few houses have been repossessed to date.

Head of residential at Savills, Ronan O’Driscoll, said while asking prices are showing a reduction from the peak, actual selling prices are down significantly more as final selling prices are almost always well below asking prices.

Mr O’Driscoll said Savills has seen values fall by at least 50% on average and up to 66% below peak prices in some cases based on actual selling prices.

“This represents a massive drop. Clearly, prices at the peak were significantly inflated way beyond their true value, driven by an abundance of credit, an explosion in the rent-to-buy market and overconfidence amongst purchasers.

“With prices now back to 2000 levels, there appears to be a bottoming-out of prices, certainly for lower and mid-priced houses in the traditional city suburbs,” he said.

As Fitch has put a negative outlook on Ireland’s rating, this means a further downgrade is likely to follow in the future. They said the negative outlook was attributed to uncertainty about economic recovery and efforts to cut the budget deficit.

Earlier this week property website MyHome.ie said Ireland’s housing market slump has yet to trough in the wake of the recession.

It said home values dropped almost 4% in the three months to the end of September from the second quarter, when they fell 3.4%.

Economic consultant with DKM Jean Goggin said: “It is clear that we have not yet reached the bottom. We will have to see an improvement in the labour market and the general economy before the property market picks up.”

Daft.ie estimates that the average cost of a home in Ireland has fallen 37% from its peak to €195,000. It said the total housing stock on the market remains at about 60,000.

Daft however said average selling times have shortened to 8.4 months from 9.1 months at the start of the year.

Daft economist Ronan Lyons said: “Many would-be first-time buyers still lack either the confidence or the finance to enter the sales market. As a result, the total supply on the market still remains very high.”