10
Apr |
Economic Interpretation
Much has been written in recent times about the current housing situation and the prospects for the market in the future. It is very difficult to separate fact from fiction, and genuine information from vested interest information. This has been further exacerbated by the need for the newspapers and T.V. to make shocking headlines as a means to increase sales.
It can be hard to interpret what is going on in the market at present. And even the experts will agree that it is impossible to predict what the future holds in economic terms. If the experts cannot predict, then the ordinary citizen, will use feelings rather than fact to make their decisions. It is incumbent on us, the professionals, to present the facts as we see them, to help people have a positive feeling about the property market and to demonstrate our confidence in the market at every opportunity
From an international perspective, the world economy is broadly in balance at the moment with strong growth in Asia balancing slower growth in the West. Nationally, our economy is performing very well with a rate of growth which would be the envy of many other European countries. The main drivers in the Irish economy are manufacturing, construction and the services sector. Both the manufacturing and services sectors are experiencing strong growth. The construction sector is having its share of difficulties. However, it is composed of 3 sectors; residential, commercial and civil construction. Again, the civil and commercial sectors are performing very strongly, but the residential sector has experienced a sharp slowdown. (Incidentally, the last time this happened was in 2001, where we had 5 months of price decreases, prior to the government re-introducing mortgage interest relief for investors - the rest is history). We must remember that the average number of new homes per thousand of population in Europe is 470. But in Ireland we only have a housing stock of 415 homes per thousand. So there is still room for growth.
The debate on further interest rate increases seems to be almost over - the majority of forecasters now believe that significant increases are behind us with an ever increasing number believing that rate cuts are possible in 2008.
House prices may be down nationally by an average of 3-3.6%, but we must keep in mind that this follows a 300% increase in the previous 10 years. New home construction activity has declined sharply, but the positive in this is, that by reducing supply sharply the builders have maintained price levels, so doing the residential market a favour. Affordability, which has been a major talking point over recent years, is now improving due to reducing prices and inflation, currently at 4.0%.
There is little evidence in the unemployment figures of a significant non-seasonal increase. This may be due to an increasing number of tradesmen becoming self-employed, transferring to either commercial or civil construction or to foreign workers returning home and maintaining an employment balance.
In addition, we still have very strong fundamentals underpinning housing demand in Ireland. Inward migration into the country, the number of young people between the ages of 19 - 25 (the future purchasers), the still low interest rates, and the full employment - all combine to build a pent up demand for housing.
The present climate also favours the investor. The continued resilience of investor demand is perhaps reflected in the positive rental inflation in the private rented market - the CPI index of private owned rents rose by over 12% in the twelve months to August 2007. Anecdotally, we also see evidence of strong increases in rents nationally, due to people opting to rent instead of to buy and due to the uncertainty and to the tightening up of credit available to purchasers for house loans.
Overall, the fundamentals underpinning this market remain sound. We have a sound economic base with a young dynamic population operating in a strong European economy, factors which will underwrite the performance of the property market in the medium term, and we remain absolutely confident in the fundamentals underpinning the market.
Paul Mc Loughlin
Franchise Development Manager
Coldwell Banker Ireland
087 6736677
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