Housing crash on horizon, says report

HOMEOWNERS are facing a property market crash where the value of their house will be worth 20% less than what they paid for it, an economic report has warned.

A survey of house prices in Europe and the US predicts that within four years several countries, including Ireland, could experience a housing crash more serious than the recent stock market collapse.

The Economist magazine eport says thousands of Irish homeowners face the prospect of negative equity in the near future, where the value of their house is less than the money they borrowed to buy it. This scenario is particularly likely if there is no upswing in the global economy, the report adds, and many economies will be plunged into recession.

It maintains that the recent rapid pace of house price inflation in countries like Ireland is clearly unsustainable and that house prices here could be overvalued by up to 44%.

The survey, which is based on a set of global house price indices in 13 countries, says the price of homes in several developed countries, including Ireland, will drop dramatically in the near future. The report warns that a similar collapse could also occur in the US, Australia, the Netherlands, Spain and Britain.

“At some stage in the next few years, house prices in those countries will fall and when they do the consequences will be far nastier than the stock market burst, ” said The Economist’s economics editor Pam Woodall.

She recommended that prospective house-buyers should hold off on purchasing property until prices have fallen. She also urged people selling their homes to consider renting until house prices drop.

However, the report was dismissed by Paul Murgatroyd, economist with estate agents, Douglas Newman Good, who claimed low tax and interest rates in Ireland plus demographic factors made a dramatic fall in house prices unrealistic.

“The market will level out nicely. There is no sign of a price collapse ,” Mr Murgatroyd said.

However, Friends First chief economist, Jim Power said The Economist’s findings made some sense on the basis that a lot of investors had switched from stocks to property in the last few years.

“We could be in trouble if there was a sharp increase in unemployment figures,” Mr Power said. He claimed a house price crash was possible but unlikely.