House prices are likely to rise by 6 per cent this year, signalling the end of an era of double-figure growth in residential property values, a leading economist predicted yesterday.
Bank of Ireland group chief economist, Dr Dan McLaughlin, said yesterday that the bank believed that 75,000 new houses would be built in the State by the end of year, a 5 per cent increase in housing stock supply. “It is clear that 2004 will set yet more records in terms of activity in the property market, be it measured by completions, the number of mortgages granted or the total amount borrowed by the Irish public,” he said.
“At the same time, we are witnessing a watershed in house prices in that the era of doubledigit percentage price gains may be over, as supply finally catches up with demand.”
However, he said that while increased supply would drive a slowdown in the rate of growth and introduce more equilibrium to the market, prices were still likely to increase by a total of 6 per cent in 2004. An estimated one in four of all new homes built is an apartment.
Dr McLaughlin said the increase in their availability had led to falling returns for landlords, with private sector rents down 5 per cent year-on-year.
Dr McLaughlin was speaking at the launch of Bank of Ireland’s Quarterly Property Review yesterday. It shows that Irish people are borrowing €1.2 billion a month to buy houses. It predicts that gross mortgage lending for the year will reach €16.6 billion, as against ¤13.4 billion in 2003.
According to the review, this implies that the average new mortgage issued by Irish banks is ¤170,000, up from€159,000 in 2003.
“To put this in context, the average new mortgage in 2,000 was around €100,000, and less than €75,000 in 1998, illustrating the scale of debt accumulation in recent years,” it says.
However, Mr Joe Larkin, director of Bank of Ireland personal lending, made it clear yesterday that the financial institution does not believe that the growth in credit is dangerous.
“Concern about debt alone is misguided, as householders in Ireland have built up considerable assets on the other side of the balance sheet, thanks to the rise in property values,” he said.
“For example, the value of housing stock in Ireland in 2003 exceeded€380 billion on our estimate against outstanding debt of under €60 billion, giving net housing wealth of €320 billion or over four times disposable income.”
In common with his fellow economists, Dr McLaughlin said he believed that a rise in interest was likely late this year, or early next year.
The US Federal Reserve increased its rates in June and may announce another rise next week. The European Central Bank (ECB) is likely to follow suit.
Dr McLaughlin said that EU growth has been stronger than expected this year, and if this continued, it would prompt the ECB to increase the rate at which it lends to other banks, which would trigger an increase here.
