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Rate of growth of house prices set to fall Back  
In the sixth annual Finance property survey, Ireland’s leading financial services sector economists predict that increases in residential property prices are set to fall growing by 7 per cent per annum on average over the next five years to 2006 assuming a bullish outlook.
A panel of eight of Ireland’s leading economists have predicted that house prices will rise by 36 per cent over the next five years and by eight per cent in 2002 assuming a bullish outlook. While this is down by 14 per cent on last year’s forecast, it is still relatively optimistic for continued growth in the residential property market when compared to the ESRI’s prediction in its medium-term review published in September 2001 that house prices would fall by up to 15 per cent in 2002.

The economists were asked to provide two scenario forecasts one bullish and one bearish. The bullish forecast is based on the market reaching its maximum potential growth and it based on such assumptions as growth in the Irish economy being of the order of approximately 5-6 per cent per annum, and interest rates remain relatively low. The rate of growth predicted under this scenario was 36 per cent.

The bullish forecast assumes the most pessimistic conditions such as supply exceeding demand and higher European interest rates, and this forecast predicts a rate of growth of just 0.3 per cent per annum.

Asked to weight the probability of either scenario, the consensus went for a bullish outcome, which got 67 per cent of the vote, while the bearish scenario got 33 per cent. The bears are gaining however as last year the average probability assigned to a bullish scenario was 73 per cent against 27 per cent for the bearish scenario, which is indicative of a slightly greater doubt about the economic scenario ahead.

Moreover, two economists, Eunan King and Dan McLaughlin, forecast net negative moves in house prices over the five years, by 3.2 and 5.3 respectively under the bearish scenario and two further participants Jim Power and Jenny Pollock predict flat growth. The largest annual fall envisaged in a deliberately pessimistic scenario is the prediction of minus 10 per cent for 2004 by Eunan King.

Participants are: Eoin Fahy, chief economist, KBC Asset Management, Bernard Feeney, manager, Goodbody Stockbrokers, Austin Hughes, chief economist, IIB Bank, Dr. Dan McLaughlin, chief economist, Bank of Ireland, Eunan King, senior economist, NCB Stockbrokers, Alan McQuaid, chief economist Bloxham Stockbrokers, Jenny Pollock, senior bond analyst, AIB and Jim Power, chief economist, Friends First. Their assumptions for each scenario are detailed below.

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