The property market is undergoing "significant cooling" as house buyers become much more cautious about property values, a new survey of the housing market revealed yesterday.
In its latest Housing Market Outlook, Irish Intercontinental Bank (IIB) predicts that house prices will stabilise and growth resume later this year in line with the economy.
However, IIB said yesterday that the Government had mishandled the property market.
Compared to an estimated 12 per cent last year, the IIB predicts house prices to rise by 5 per cent this year. Added factors behind the slowdown included increased housing supply and the reversal of excessive expectations concerning house prices.
These combined to dampen prices late last year, according to chief economist Austin Hughes.
"We had the stamp duty fiasco. When we gave our outlook last August we said the main risk then was of a government mishandling of the market and that's what we have had," he said.
"The market is in transition. Towards the end of 2006, a combination of factors such as rapidly rising borrowing costs and uncertainty about stamp duty meant this process was not as smooth as might have been expected," chief executive of IIB Homeloans Tom Foley said yesterday.
Survey analysis suggests that house price levels are currently mostly justified by higher after- tax incomes, higher employment and migration and lower interest rates. While ruling out any collapse in the market, Mr Hughes said that prices would continue to experience a "correction" as buyer sentiment continued to moderate.
Only 12 per cent of survey respondents expect house prices to increase "a lot", compared with 34 per cent expecting such an increase in February 2006. Some 31 per cent expect house prices to remain unchanged, compared to only 14.5 per cent of respondents to last year's survey.
The share of respondents expecting prices to fall "a little" has risen from 3.6 per cent last year to 11 per cent.
However, the numbers expecting a major fall remains an extremely low 1 per cent.
"Consumers have wised up. They expect that the property market will not do an awful lot this year, but they are still positive . . . the underlying demand for housing remains strong with strong population and employment growth underscored by record levels of inward migration," Mr Hughes said.
According to the IIB, European Central Bank (ECB) interest rates will rise by one quarter of 1 per cent in March, but Mr Hughes said falls in oil prices had reduced the case for any subsequent falls.
"Fortuitously, it seems the timing of the ECB interest rate cycle could be ideally suited to the Irish property market. Borrowing costs are set to peak when spending power is at its strongest."
