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House prices to rise by 5 per cent per annum over next 5 years Back  
Economists are less bullish in their forecasts for 2002 and predict that residential property prices will rise by an average of five per cent per annum for the next five years or by 27.4 per cent over the next five years compared to an average forecast of 8.6 per cent given last year.
Ireland’s leading financial services sector economists predict that house prices will rise by 6.2 per cent in 2002, and that the rate of growth will then slow to 5.8 per cent in 2003 and approximately 4 per cent per annum for the next three years. These figures are compiled from a composite of predictions the economists gave for house price growth under bullish and bearish scenarios.

The economists predictions are much more bearish this year compared to last when they predicted that prices would rise by 8.6 per cent per annum over the five years. This is due to the fact that they were particularly bullish for 2001 predicting that house prices would rise by 14.6 over the year. According to the permanent tsb/ESRI review of house price movements, house prices actually increased by just 2.9 per cent in the year to January 2002 and the economists did not foresee the slump in house prices that hit at the end of 2001.

Responding to two different scenarios - bullish and bearish, the economists predicted that house prices would rise by 41.2 per cent over the next five years under the bullish outlook and by 1.3 per cent assuming the bearish outlook. Overall, the economists were more bullish than bearish with the chances of the bullish outlook happening given a 67 per cent chance.

Commenting on the outlook for the residential property market, Bernard Feeney of Goodbody Stockbrokers said, ‘The boost to the residential market occasioned by the Budget changes is assumed to lead to price increases in the first half of the year, with relative stagnation thereafter. The longer term prospects are for price increases to stagnate, as the economy slows down further through 2003, real income growth falters, and employment growth and net immigration cease.’ This comment is borne out in his predictions and he forecasts flat growth for 2004 and 2005.

Eoin Fahy is the most bullish of all the economists, and he predicts that prices will increase by on average 10 per cent per annum over the next five years. He says that demographic factors will also continue to support the housing market, so a combination of strong economic growth and demographic support should be sufficient to produce house price increases of 10 per cent to 12 per cent per annum over the next few years.

The most bearish economist is Eunan King of NCB Stockbrokers, who predicts flat growth in 2003 and then negative growth for 2004 and 2005 under the bearish scenario. The central assumption behind this he says is that the market gets to an over supply position as builders and investors assume the current buoyant market will continue into the 2003 and 2004. Since more than 50,000 houses per annum are now being built the risks are increasing that a speculative over supply could be generated. This would result in an overhang in the rental market and falling rents could be the early signal.

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