Irish house prices could fall 20% - 'Economist'

House prices in Ireland are "seriously overvalued" and could fall by as much as 20 per cent over the next five years, according to Pam Woodall, the economics editor of the Economistmagazine.

Ms Woodall was speaking today at a debate on Irish house prices which featured her and David Duffy, economist with the ESRI.

She claimed that a "global property bubble" is being fuelled by unsustainably low interest rates in the main economies, arguing longer this bubble persists the greater the pain will be when it inevitably bursts.

While not denying that favourable economic conditions have driven the market higher, Ms Woodall claimed the surge in house prices was now out of line with economic fundamentals.

Ms Woodall referred to falling rental yields and stretched affordability to support her arguments that a correction was imminent. She warned that investors were more likely to sell in a weaker market than owner occupiers.

She cited Ireland alongside the United Kingdom, United States, France, Spain and Australia as being most at risk.

House prices in the UK and Australia have fallen 10 to 15 per cent from their peaks following a series of interest rate rises. Ms Woodall claimed that even a short sharp increase in borrowing costs could have a similar effect on the Irish market.

Interest rates, at an historic low of 2 per cent, are expected to rise by a quarter point next month but the overall cost of borrowing is still well the level of UK rates when the property market slowed.

According to Mr Duffy, however, the key to understanding the Irish housing market was to appreciate that it was not operating in isolation and was part of a wider economy - "which has clearly been very buoyant over the period of rapid growth in house prices".

Mr Duffy pointed to strong demographics, significant levels of immigration, GNP growth, employment growth and rising personal disposable incomes as the key drivers of the property market. He said that he expected these factors to remain positive over the next few years.

But Ms Woodall was less sanguine, insisting that despite strong economic growth Ireland will not be exempt from correction. "Every time people say 'this time it's different' but it never is," she said.

The debate was hosted by mortgage specialists Simply Mortgages to mark their fifth year in business.