Friends First welcomes slowdown in house prices

The slowdown in house prices was welcomed yesterday by Friends First chief economist Jim Power. Presenting the financial services group's latest economic commentary, Mr Power said recent signs of moderation in the housing market were "desirable", adding that this provided an opportunity to reform stamp duty.

Mr Power also criticised the Government's record on inflation and warned that Government spending growth would be higher than expected.

In its latest forecast, Friends First predicted that the economy will grow by nearly 5 per cent next year. Strong consumer spending will keep the economy strong despite growing risks to Ireland's economy from the US housing market, it said.

"Despite rising interest rates, a significantly higher cost of living in general and the high levels of personal indebtedness, consumer spending looks set to be the key driver of growth once again," Mr Power said yesterday.

He added that the recent decline in house prices was not grounds for concern. "If the market were not starting to show some signs of slowing down, I'd be astounded."

According to the latest house price index from Permanent TSB and the ESRI, the average price paid for a new home fell by €1,200 in October, the first fall in two years. Describing the fall as modest, Mr Power said a collapse in the housing market was not imminent. "Vendors who came into the market with what you might say were greedy expectations were disappointed. It's a very different thing from saying the market is going to hit a brick wall and is going to die."

While not supporting the outright abolition of stamp duty, Mr Power said first-time buyers accounted for only €70 million in revenues and called for them to be exempted. "In the overall scheme of things, it's a tiny amount of money," he said.

He added that it would be most appropriate to cut stamp duty at a time when house prices were showing signs of a slowdown.

"If you are going to do it, this is the kind of environment you should be doing it in."

Criticising the Government, he said inflation had risen much faster in the public sector than in the economy overall. Figures quoted in the commentary indicate that healthcare and education costs rose by 57.2 per cent and 58.6 per cent, respectively between January 2000 and October of 2006, compared with a general price rise of 29.6 per cent in the overall economy.

"The fundamental fact is that the State has been and continues to be a key driver of price increases. If you want to point the finger, that's where you should point it and not at the producers of goods and services."

Mr Power predicted next week's Budget would push the planned rate of increase in Government spending considerably higher than the 8 per cent announced in the recent Estimates.

"It is going to be greater than that, 12 perhaps 13 per cent. The imperative has to be ensuring that we get better value for money."