House prices set to rise at slower rate

CENTRAL Bank vigilance on lending for house purchase has been fully backed by a leading estate agent as fears over a house price bubble grows.

That fear was added to yesterday when the PermanentTSB index showed price increases continuing to ease for Irish homes.

House price increases in January and February were under 1% in each case, against a monthly average of 1.2% during the six months to December 2002.

House prices nationally grew by 0.9% during the month of February this year which represented a continuation of the slow down seen in January when prices grew by 0.8%, said PermanentTSB’s Niall O’Grady.

He dismissed fears of a bubble however, but warned that prices were set to rise much more slowly in the year ahead at a rate of between 5-7% well down on the 20% average seen during the boom years.

Marie Hunt, head of Research at estate agents Gunne, rejected the house price bubble scare as “too pessimistic,” while she “whole heartedly” backed the Central Bank’s determination to stamp out over lending by financial institutions where up to four times salary are being lent without any stress testing taking place on borrowers ability to meet their repayments if rates go up.

Gunne’s research shows a decline of 4-5% on average in rental income, not the 20% spoken of by some as a general measure of decline, she said.

Older type dwellings have taken a huge “hit in terms of the kind of incomes they can command” and a falling income of 20% is not unusual, she said.

But people with modern houses and apartments “certainly are not experiencing anything like that decline.”

People have confused a slow down in price increases with a fall in house prices.

Robbie Kelleher of Davy Stockbrokers was way “too pessimistic” about his forecast of a 20% fall in prices this year, she said.

“I completely disagree with anybody saying house prices will fall by 20%. That view is totally far fetched,” she said.

“There was nothing out there in the market to support that view at this stage,” she added.

“Even if supply and demand were in sync what about the eight or nine years when they weren’t ...those people who couldn’t afford to get on the property ladder when they wanted to and delayed their purchasing decision because they couldn’t afford it.”

That leaves a latent demand over the past few years that has to be met as well which will help underpin prices for the time being, she said.

Meanwhile house prices for both second hand and new houses increased by 0.9% in February 2003.

In January the relative price changes were 1.3% and -0.6%.

In February 2002 the respective changes were 1.2% and 0.7%.

House prices grew by 8.2% and 18.4% year on year to February 2003 for new and second hand houses respectively.

The average price paid for a new house in February 2003 was €202,391, while that paid for a second hand house was €215,630.

The equivalent prices in February 2002 were €187,060 and €182,129.

The average price paid for a house nationally in February of this year was €209,321. The equivalent price in February 2002 was €181,386.