House Prices Continue to Slow

The ESRI/Permanent TSB survey on house prices has made for some interesting summer reading as it tracked a steady downward trend in house prices. Is this a slowdown or is it going to snowball into a meltdown? Well it seems that there is a drop in prices evident (in the region of €5,000 for new and €9,000 for second hand) since December of 2006. This represents a fall of around 3% since December. Certainly it is a slow down but the question remains whether this is as bad as it gets or the beginning of a more substantial drop in house values.

Builders being good at making money are mopping up supply but it seems likely that the next two months reports will tell a great deal more about how much of a slow down there will be. Anecdotally there are tales of ‘For Sale’ signs that aren’t coming down, house prices that are dipping by a bit more than 3% but nothing in the figures. So when the market is due to get going again, this month and next, the indicators will be a vital signal of how things stand.

I suspect it is unlikely that there will be a rush back into the market in September, for as others on this site have written consistently it is not about Stamp duty in the market but about affordability and the Irish consumer is heading towards completely spent-out. Interest rates, inflation in household bills and the level of debt-financed consumption point to a consumer less able to splash on houses in the near term and an economy that will have to adjust for that. There is little or no money left to lend to consumers to keep them going (as there was since 9/11) and soon government may be required to do more than sit back and watch a bubble inflate.