Housing market could fall sharply

ANOTHER warning was issued yesterday that house prices could fall sharply if the economic downturn leads to a further rise in unemployment.

The new warning comes from PriceWaterhousehouseCoopers (PWC) in its outlook on the Irish economy saying that the housing market could ‘unwind sharply’ if the economy deteriorates.

‘Prolonged global economic weakness would undermine the Irish export recovery, with an associated downward impact on investment and the labour market.

‘There is also the possibility that the strong growth in house prices over the past few years could unwind sharply, particularly if unemployment rises further,’ the PWC report said.

PWC are the latest to express concern about the housing market, which has seen double-digit price rises since last year.

Last week, the Central Bank said in its autumn commentary on the Irish economy, that there was a risk of prices falling and it warned lenders to be prudent. It also expressed concern about the housing market saying soaring prices were fuelling excessive wage demands, adding to the economic woe.

But PWC say despite the risk to house prices, the fundamental outlook for the economy was positive after a marked slowdown in growth, investment and exports last year. It added that Irish growth will remain comfortably ahead of the EU average.

PWC said slower growth in output, together with the appreciation of the euro during the first half of 2003, has helped subdue price pressure with inflation falling from 5.1% in February to 3.9% in July.

It expects gross domestic product (GDP) this year to come in at 2.75% with gross national product (GNP) rising at 1.5%. However, it expects the economy to gain momentum next year with GDP expanding by 4% and GNP by 3.25%. This is well above PWC’s forecast for Eurozone growth of 1.75% next year.

However, it says while exports and consumer spending growth should start to pick-up later this year, investment is likely to continue to contract in 2003 due to ongoing overcapacity in the technology sector.

‘The risks to our main scenario are currently weighted to the downside, with the principal concern relating to the shape and timing of the world recovery.’

The PWC report says that the Eurozone economy will remain sluggish this year, but has the potential to grow faster than the US for the rest of the decade. But this can only be achieved if member countries make effective reforms to labour markets and pursue a pro-growth economic policy.