Property market - Soft landing to cushion fall in prices

Latest property figures published by the Government do not auger well for the housing market, with the result that the recent uncertainty is likely to continue to cloud the Irish economy. In the past couple of weeks 12 construction-related firms have gone into liquidation, including a huge housing development company in Co Kilkenny.

Reporting what is happening in a realistic way should not be confused with talking down the economy. There are distinct signs of a downturn, but there are also indications that this may just be a realistic adjustment.

The latest figures show that a total of 21,181 mortgages were drawn down during the first three months of 2007 in comparison with 28,000 in the last quarter of 2006. This amounts to a precipitate decline of 24.5%.

There was an even steeper decline in the value of those mortgages, which fell to €4.8 billion from more than €7bn. This translated into a 31.5% decline in a mere three-month period.

Housing loans approved, though not yet drawn down, appear to be somewhat contradictory.

The 24,600 loans approved saw an increase of 7% on the last quarter of 2006, but there was an 8% reduction in the average size of those approved by the lending institutions.

The statistics would seem to suggest that the era of soaring housing prices is at an end, due not only to the fall-off in mortgage activity but also the likely continued rise in interest rates.

Jean Claude Trichet of the European Central Bank last week forecast a further interest rate hike next month.

The expected rise of 0.25% would be the ninth interest rate increase in the past two years. It would bring the annual rate of interest to 4.25%, the highest it has been since 2001.

The average price of a new house in Dublin fell slightly during the first quarter of 2007 from €419,330 to €417,800, but at the same time the average price of a house in the rest of the country rose to €320,969 — a rise of 9% on the same period in 2006. At the same time, the market for second-hand homes rose by a similar 9% nationally but also recorded a similar increase in Dublin over the same period in 2006.

This would suggest that the price of houses is stabilising with a more realistic difference between second-hand and new houses. Hence the appeal of a new house has lost a little of its shine.

Goodbody stockbrokers revised its housing output estimates downwards for a second time this year. Almost 39,999 new housing units were completed in the first six months of 2007, while work began on a further 31,600 homes.

Housing Minister Batt O’Keeffe admitted indications of an easing of activity in the housing market, but he was particularly upbeat about the health of the overall market, because he contends that the trend is developing towards more balanced and sustainable growth, especially in regard to house prices.

The demographic trend, with the great influx of people from abroad, has underpinned the need for extra housing, and the Government has taken realistic steps to assist affordability with the increase in mortgage interest relief. These factors would suggest the desired soft landing in relation to property prices.