House prices to fall 17.4% in 2011

THE Central Bank is assuming house prices will fall 60% from their 2007 peak in an “adverse” scenario used in their planned stress testing of the debt-laden Irish banks.

The bank expects house prices will decline by 17.4% and 18.8% in 2011 and 2012 respectively, before stabilising, consistent with a 60% fall from their 2007 peak.

GDP would fall by 0.5% on average over the three years 2011-2013.

In its baseline scenario, prices are forecast to fall by a more modest 55%, with GDP growth estimates averaging 2.5% for the three years 2011-2013 — less than the Government’s projected average of 2.75%.

The bank published the figures yesterday ahead of its 2011 Prudential Capital Assessment Review of the funding needs of the Irish banks.

Anglo Irish Bank and Irish Nationwide Building Society are excluded from this exercise because they are in the process of being wound down.

Details of the stress test will be published on March 31 and should pin down the amount of fresh capital required to bring the banks’ ratios into line with stricter European Central Bank guidelines.

In the case of commercial property, the bank says the peak to trough decline is estimated at 70%.

It projects the commercial sector may show a modest rise in 2013 having declined by 22% in 2011.

The macro-economic estimates disclosed yesterday reveal nothing of how many more billions in taxpayers’ euros will be needed to prop up the banks.

Under the EU/IMI bail-out, €35bn of the €85bn was set aside for emergency funding for the banks.

Up to €10bn is due to go into the banks shortly but analysts suggest the entire €35bn will be absorbed after the results of the new stress tests have been made public on March 31.

Brian Devine of NCB Stockbrokers told Bloom- berg yesterday, Irish banks could need the full amount to get them back functioning as normal banks.

The scenario “would swallow the entire €35bn if Ireland fails to reach some sort of burden-sharing agreement with the European Union and International Monetary Fund,” Mr Devine said.