House prices set for moderate climb in 2002 - Bank of Ireland


Modest growth in house prices will mirror the rise in consumer prices for 2002, according to Bank of Ireland. The bank expects a nominal increase in house prices of 4-5 per cent. This equilibrium or real price flatness in the housing market will be primarily due to the balance betweeen supply and demand, according to the bank's quarterly analysis, The Irish Property Review.

There was a record 52,600 house completions in 2001, representing a 4 per cent rise in housing stock, despite the industry's estimate last year that there would only be 40,000 completions.

The increase in supply has been offset by the surge in demand from both first-time buyers and investors after the budget, according to the bank.

Mr Dan McLoughlin, chief economist with the bank, said the estimated 3 per cent rise in house prices earlier this year was welcome but he did not see it resulting in growth rates above those forecast for the current year.

The bank believes affordability - the cost of servicing a mortgage relative to income - will improve during 2002 as pay rises will offset increases in mortgage size. But it also believes affordability will disimprove during 2003 as a result of rising interest rates, with a cycle high of 6 per cent being predicted.

"Bank of Ireland suggests that this level [of deterioration in affordability]\ will be some distance from the danger levels associated with falling house prices and would not be expected to have a significantly negative impact on mortage demand."

The number of new mortgages fell sharply during 2001, to 66,783, about 10 per cent below the 2000 total. The average mortgage size rose by 12 per cent, to €115,000.

The review says that on average house prices have doubled since 1997, when the average price was about €103,000.

Since 1990 house prices have risen by 230 per cent.

First-time buyers took a greater share of the market in 2001, according to the review, basing this view on the fact that owner-occupiers accounted for 52 per cent of new mortgages, a decrease of 4 per cent over 2000. The proportion of new mortgages going to single people has soared from under 30 per cent in 1997 to more than 67 per cent in 2001.

Value and returns for industrial and office investments are likely to remain under pressure in the near term, according to the bank. The retail market remains robust with rents and yields holding.