Ireland: further price falls

Property prices in Ireland could fall as much as 45% from the peak of the market in late 2006 due the economic downturn and increased costs of funding the banks, it is claimed...

Prices have already fallen 24%, according to Fitch Ratings and the average house is currently worth 7.5 times the average income, a ratio that is expected to fall to nearer 5.5 times the average individual income.
 
‘Tax rises, high unemployment, wage deflation and property supply overhang continue to undermine the country's property market,' said Alastair Bigley, Head of Irish RMBS at Fitch.
 
The ratings agency warns that despite almost three years of house price declines, prices have yet to reach a sustainable level of affordability.

Rising unemployment is a particular concern. Unemployment is predicted to reach 12.5% by the end of 2009 and rise to 15% in 2011.

The difficult market will be further pressured by a rise in the cost of funding to financial institutions, driven by a higher than expected cost of the European Union's guarantee of banks' debt issuance compared to the current Irish state guarantee and a rise in interbank lending rates, Fitch also says.

Fitch analysts also expect all lenders to increase their mortgage rates.

‘It seems certain that mortgage affordability will suffer against a backdrop of a generally higher tax burden, increasing unemployment and negative to zero wage inflation,' said Michael Greaney, associate director in Fitch's RMBS group.
 
‘Fitch therefore expects further house price declines and late stage mortgage arrears to rise,' he added.

The warning comes days after Brian Lenihan, Ireland's finance minister, admitted that the country was on the brink of a debt compound spiral that risks a further doubling of public debt to €160 billion by 2013.
 
While the European Central Bank has cut interest rates to 1%, the full benefits have yet to filter through to Irish households.

Fitch said interbank lending rates have risen substantially, ‘reflecting market concerns over the creditworthiness of Irish banks and the Irish Sovereign'.

Source: www.propertywire.com