House price growth - Little hope of cost hike slowing down

Depending on which side of the property market one may be, yesterday's house price index published by the Permanent TSB/ESRI made for alarming and perplexing reading.

Nationally, the rate of house prices increased by 9.3% in 2005, a year in which the country's economic competitiveness had under-performed, according to an ESRI economist who also warned that Ireland was losing market share on world markets.

In the same breath, the Central Bank revealed that in December alone, private sector credit grew a record €6 billion, of which €3.5bn was due to an increase in residential mortgage lending.

Those borrowing statistics, the overall figure for the month and specifically the mortgage lending which contributed to it, can each be described as a record.

Such a tag may be a dubious one, because that level of borrowing may contain a possible hostage to future stability, given that the day of account will always be looming.

While it is understandable that personal and household borrowing can fluctuate upwards in the run-up to Christmas, it has to be wondered for how long the country can tolerate the level of borrowings on a long-term basis.

To put it on a basis for the entire year of 2005, borrowing increased a total of €59bn, with household borrowing representing an alarming €25bn of that.

Possibly, if there was a modicum of solace emanating from the Central Bank figures, it may relate to credit cards which last year proved to be a slower-growing area of debt, although more cards were issued.

This category of debt growth, slower though it was, still returned an increase of 14.5%, indicating that there is still a considerable dependence on plastic credit, which can be disastrous if not controlled by the individual.

Although the important measure taken by the Government both in the removal and graduating of stamp duty for first-time buyers can make a positive impact, that category of purchasers still felt a heavier percentage increase than did their more settled counterparts.

While nationally house prices reflected a growth rate of 0.7% increase over 2004, the Permanent TSB/ESRI index showed that first-time buyers experienced a 50% price increase rate higher than second-time purchasers.

It is understandable that prices in Dublin would be higher than the rest of the country, but outside the capital the regional price increase swing is very considerable.

It moves from just 2% for a house in Leitrim to an increase of 15% in Kerry, mirroring property values as they are perceived on a county basis.

To translate statistics into real terms, the cost of the average house in Dublin last year was €368,576 (up €23,754) and outside the capital the average was €240,201 (up €20,223).

What it boils down to is that the average price of a house for a first-time buyer is realistically in the region of €250,000 outside of Dublin and the prospect for this year offering any mitigation is unlikely.