THE FALTERING Irish property market may turn into one of the worst housing crashes in European history, with Friends First predicting drops of up to 45 per cent during the current downturn, writes Fiona Reddan.
At the launch of the financial services group's quarterly economic outlook yesterday, Jim Power, chief economist with Friends First, said official statistics on house prices are misleading because houses have not been selling in great numbers.
He said prices have actually fallen by 25-30 per cent in the last year, far in excess of the permanent tsb/ESRI House Price Index estimate of a 9.5 per cent decline. Moreover, he added there is potential for a further 10-15 per cent drop, as the global credit crunch continues and mortgage availability declines.
He blames the subprime crisis for being the main driver behind the price drops. "If that hadn't happened, then an adjustment would have been of the order of 15-20 per cent," he said.
He added that once the credit crunch ends, which he predicts might occur around the second half of next year, the market could see a quick rebound, but that "between here and there it will be a very difficult environment".
With every 10,000 less houses being built knocking 1 per cent off GDP growth, Mr Power is more bearish than many of his peers. He is predicting a GDP decline of 1 per cent in 2008, and an increase of the same amount in 2009. "A recovery is unlikely before 2010," he added.
Rising interest rates have exacerbated Ireland's economic misfortunes, and Mr Power described July's interest rate rise by the European Central Bank (ECB) as "bizarre".
"It is inconceivable in the current environment to be talking of increasing interest rates," said Mr Power. "If the ECB is to act rationally, it will do a U-turn on its July decision."
Mr Power said an additional 50,000 people could be made redundant by December, and he expects job losses in construction, financial services, manufacturing, real-estate services and retail.
