Houses overvalued by 10%

HOUSES are overvalued by up to 10%, according to a leading economist.

Goodbody chief economist Colin Hunt warns that unless house price inflation slows a dramatic fall in house prices is inevitable.

Mr Hunt said the positive economic climate which sustained the massive house value increases of recent years no longer exist, adding that house price inflation of 15% is not sustainable.

“House prices are being fuelled by speculative fervour rather than economic fundamentals.

“The Central Bank of Ireland has revealed that private sector credit growth, adjusted for securitisations, stood at 24.2% in the year to July.

“This steamy outturn took place against a backdrop where house price inflation is standing at 15.6% and where property valuations increased in the first seven months of 2003 at their highest rate in three years.

Mr Hunt said houses are currently overvalued at between 8% and 10%.

“It is best for the economy in the long run that assets are fairly valued. If house prices continue to grow at their current rate of 15%, then there will be a disorderly correction to the market, an increase of between 5% and 7% can be sustained but not 15%,” he predicted.

Mr Hunt said he could not say when or even if house prices will fall.

“All I can say is that there is no economic justification for current house price levels. The longer this goes on the greater the correction will be. It is one of the great myths that house values in Ireland have never fallen, they have and will again,” he warned.

Meanwhile, Labour Party spokesperson on the environment and local government Eamon Gilmore has called on the Government to explain why house prices are continuing to soar at a time when the cost of building materials increased by just 0.6% in the last twelve months.

“According to the Quarterly National Household Survey published by the Central Statistics Office this week, the cost of building and construction materials increased by just 0.6% in the past year.

“Over the same period, however, house prices rose by 15.6%. Why is there such a huge margin between these two figures? “The Government should explain the reason why such low building material price increases are not reflected in spiralling house prices,” fumed Mr Gilmore.

And yesterday, auctioneers CB Richard Ellis Gunne said the office market continues to be difficult, although there is hope that the bottom of the depressed cycle has been reached.

The auctioneers said in the investment market the outlook for the last quarter of 2003 looks positive, with evidence of confidence resuming in the occupational sectors.