Economists differ - but no need to cry

One of the great things about the property market is that there is never any shortage of economic research on hand to help us make informed decisions on managing our own particular housing empires, writes Una McCaffrey

There is of course a touch of the poisoned chalice about this heavy flow of data, with prospective buyers or sellers never quite sure which study to believe before diving into a transaction. In the past few weeks, three particular snippets of research each offered significant food for thought for those considering their next property-related move.

For residential investors, the most alarming one of these came from Mr Robbie Kelleher of Davy Stockbrokers. Mr Kelleher calculates that the number of houses built in the Republic over the whole of 2003 came to about 69,000, or 17 houses per 1,000 people. He has worked out that this amounts to about 30,000 or 35,000 more than the State needs to cater for the formation of new households.

The frightening result is, according to Mr Kelleher, that as many as 15,000 of the new houses built last year were purchased by "buy-to-let" investors who have been left with empty investment properties because of a shortage of tenants looking for a home.

"That is a trend which is clearly unsustainable, even at low interest rates," is Mr Kelleher's conclusion. He finishes by observing that the economy could be heading for "a significant volume adjustment in this very important sector of the economy". Before investors panic and launch furious attempts to extract themselves from deals already in motion, they might like to peruse, just for a moment, the latest house price numbers to be released by Permanent TSB and the Economic and Social Research Institute.

As we have by now come to expect, the full-year 2003 results showed that the average house price rose by a healthy 13.7 per cent over the course of last year.This was slightly higher than the rate of growth in 2002 and, according to Permanent TSB, it was stronger than most economists had expected.

The mortgage provider remarked that the supply of new houses seems to be leading to moderation in the rate of price growth in new houses (note that they are still likely to grow, rather than decline) but said second-hand houses looked to be well-placed for further substantial increases. In conclusion, Permanent TSB said it was "cautiously optimistic" that price growth would moderate a touch this year. The bank's best forecasts for increases are in the order of 8 or 9 per cent, a level which would remain comfortably ahead of the economy's average inflation rate, even in a worst-case scenario such as a lack of tenants.

A more logical consequence of all of these price increases is that thousands of seasoned homeowners in the Republic are finding themselves ensconced in properties that have doubled or tripled in value since purchase a few decades ago. Given that the owners in question will often hope to continue living in their properties for some time to come, the obvious way to unlock this "hidden value" at their fingertips is to remortgage the house.

Results posted by IIB Bank a couple of weeks ago showed that the institution's homeloans division advanced some €1 billion to remortgaging customers last year. This represented about half of the firm's total new lending for the year. The bank's economist believes the housing market is "well-supported", with strong demand for mortgage finance unlikely to cool off any time soon.

Similar trends are in evidence at Bank of Ireland, where remortgaging loans amounted to €350 million last year, up 20 per cent on 2002. The average remortgaging loan was €53,000.

Ms Olive Moran of Bank of Ireland Group Mortgages says three quarters of these equity release loans are used to finance home improvements. Bank of Ireland expects demand for equity release to continue growing this year because it is the cheapest form of long-term asset purchase and/or improvements. "It also offers customers great flexibility as they can choose any repayment term from five to 20 years," she says. Perhaps it's time to build that conservatory rather than leap into an ill-advised investment move? The (well-informed) decision is yours.