HOUSE PRICES plummeted in April as developers began to offload a glut of unsold houses at knock-down prices. But potential buyers grew more nervous about committing to the plunging property market, new figures show.
The drop in the price of new homes was almost twice the national rate, as builders were forced to discount prices in an effort to sell a backlog of houses and apartments rather than wait for a bounce in the market.
But figures from the Central Bank show that consumers have so far proved reluctant to take them up on the offer in great numbers, with the growth in mortgage lending last month falling to its slowest rate since 1992.
The monthly drop in house prices accelerated from 0.7 per cent in March to 1.1 per cent in April, making it increasingly unlikely that the housing market will turn around this year.
The average price paid for a house nationally during the month was €278,500 - some 9.2 per cent lower than the average price paid in April 2007 - according to the latest house price index published by Permanent TSB and the Economic and Social Research Institute (ESRI).
The chances that the housing market will stay subdued for some time increased yesterday, as new data showed inflation in the euro zone surged to a record high of 3.6 per cent in May. This makes it extremely unlikely that the European Central Bank (ECB) will cut interest rates in the near future - a move that would have boosted demand for houses and helped stabilise prices.
There were further signs that the Republic's housing boom has turned to bust at the High Court, as a provisional liquidator was appointed to two related property development companies.
The court heard that houses built by Denis Finn Ltd (DFL) were "simply not selling". The company, which has a number of unfinished sites in the Howth and Sutton areas of Dublin, was experiencing serious cash-flow problems and had been unable to raise further financing.
Banks are now reluctant to lend vast sums of money to the beleaguered property sector, leaving developers with unsold stock exposed to cash-flow problems. Lenders have also imposed stricter lending criteria on individual mortgage borrowers.
Alan McQuaid, an economist at stockbroking firm Bloxham, said the increasingly sluggish rates of mortgage lending were "more evidence of a slowing Irish economy".
House prices fell 3.3 per cent in the first four months of 2008, exacerbating a 7.3 per cent decline in prices in 2007. The trend has left thousands of homeowners in negative equity, where their home is worth less than the value of their mortgage.
However, not all properties are falling victim to the decline. Average prices of three-bedroom semi-detached houses rose slightly in March and April.
