Irish house prices will have declined by around 40 per cent from their peak in February by the end of next year, according to ratings agency Standard and Poor’s.
Its report on the European housing market said the Irish economy was suffering from a "very deep recession".
While house price falls had led to an improvement in affordability – with the report saying affordability as measured by the OECD was close to the 2000 level - “what continues to drive the downturn in the Irish market is excess housing supply”.
According to S&P there was an oversupply of around 250,000 properties at the start of the downturn and noted that a drop in the number of immigrants here could make the problem worse.
S&P calculated its oversupply estimate by looking at the 370,000 new houses and apartments built between 2002 and 2007 and comparing this with the rise of 130,000 in the cohort of people aged between 24 and 34, the prime age group for new residential property purchases.
The report also quotes an Ibec estimate that 100,000 immigrants could leave the country this year resulting in a severe slump in the buy-to-let market.
According to S&P house prices fell 21 per cent between February 2007 and April this year and will decline by 13 per cent overall this year. This will be followed by a further 10 per cent drop in 2010 bringing the overall fall to approximately 40 per cent, according to the report.
Central Bank data reflects the dire conditions in the Irish housing market. The value of residential mortgage loans declined in April for the first time since records began in 1990 as the pace of repayments outstripped the value of new lending. In April last year just under €1 billion worth of mortgage loans were issued.
The report said almost all housing markets had experienced a housing boom between 1999 and 2007 during which average prices doubling in real terms. Germany and Switzerland were notable exceptions in not having a boom.
The duration and severity of the housing market decline would be different in each European country, the report said, noting that countries with the highest levels of personal debt were likely to see the longest downturn.
