New houses will be flat this year but the second-hand house market will remain buoyant, according to the latest research from Bank of Ireland.
In its latest review of the Irish property market, the bank says the sharp increase in supply of housing stock means the market for new house is close to equilibrium for the first time in a decade.
House completions amounted to 57,700 in 2002 rising to 62,000 this year compared to annual demand estimated at 45,000. But the pent-up demand for homes from the mid-1990s will be enough to support prices this year and prevent a crash forecast by some commentators, the bank said.
The bank expects second-hand prices to continue to rise by as much as 8 per cent this year as buyers may now be willing to pay a bigger premium for good transport links given the increase in road congestion.
The desire for access to DART and Luas links goes some way to explain the divergence in new and second-hand homes seen last year. In 2002 new house prices rose by 14 per cent in 2002, but second-hand prices jumped by 20 per cent .
Flat prices would leave the average price of a new home nationally at €207,000 at the end of 2003, and €267,000 in Dublin.
An 8 per cent increase would leave the average second-hand house price nationally at over €260,000 and around €344,000 in the capital.
Bank of Ireland also played down recent concerns about excessive borrowing to fund house purchases.
Dr Dan McLaughlin, Bank of Ireland's chief economist estimates that the average national house price is 3.2 times that of the income of an average couple which is not excessive.
Mortgage debt amounted to 66 per cent of household income in 2002, with total debt equivalent to around 90 per cent of income, again not excessive by international standards where ratios above 100 per cent are commonplace, according to Dr McLaughlin.
"The conclusion is the same, however, on both models - affordability improves in 2003, thanks to the ECB, which will help to underpin demand for loans and hence the housing market," Dr McLuaghlin said.
While not explicit advising mortgage holders to lock in the current low interest rates with a fixed rate mortgage, the bank said that fixed rates below 4 per cent and five-year fixed at around 4.5 per cent, represents "very good value."
Even though interest rates may fall again, one should remember that rates will eventually rise again, and when that time comes the fixed rates on offer will be a lot higher because the market will then be pricing in higher floating rates, the bank concluded. around 84,000 new mortgages predicted and gross lending of . 12bn. against . 10.8bn. in 2002.