House prices may have hit bottom, say builders

HOUSE PRICES in Ireland may have already hit bottom, according to the building industry, which says the level of unsold housing stock is being exaggerated.

The Irish Home Builders' Association (IHBA) Property Market Review and Outlook 2009indicates that the price of new homes across the country has already been reduced by over 40 per cent on average, reaching levels which "most commentators" believe represents the bottom or close to the bottom of the cycle.

The report also suggests the level of unsold housing stock is being exaggerated.

It notes that the number of unsold houses in Dublin and the Greater Dublin Area represents less than eight months’ supply in more normalised market conditions.

Nationally the supply of new houses averages one year’s supply, although there is a significant regional dimension in this figure.

Nationally the level of unsold new housing stock is estimated to be between 35,000 and 40,000 units, with approximately 9,000 unsold new homes in Dublin.

According to IHBA chairman Dominic Doheny, most commentators, including the ESRI and AIB, believe the peak to trough fall in house prices in Ireland will be of the order of 40 per cent.

Amongst IHBA and CIF [Construction Industry Federation] member companies, which build the overwhelming majority of private, multi-unit residential developments, reductions of this magnitude, and more in many cases, have already occurred.”

He said a similar picture had revealed itself throughout the rest of the State.

“The Permanent TSB/ESRI House Price Index points to a 25 per cent fall to date in house prices but this relates to the second-hand as well as new homes market, and is based on mortgage drawdowns and is, therefore, more likely to be telling us about what happened in the market three to nine months ago rather than today.”

Mr Doheny pointed to feedback from builders that houses were now available for sale at prices below what it would cost to build a replacement property.

“Current prices are not sustainable in the medium and long run. Companies will not resume building new houses or apartments until market prices reflect all cost inputs and a reasonable return for the investment, that is a greater return than available in relation to a less risky investment.”

He added that the halt in residential construction activity in the main urban areas would likely lead to supply pressures within a relative short period of time.

He said the construction of nearly 90,000 new homes in Ireland in 2006 had not been sustainable in the long term. However, he added that the reverse was now the case.