◆Home price decline will be poorest performance in the market since 2012
KBC Group sees house prices in the Republic falling by 12 per cent this year, as the economy deals with the coronavirus crisis, the Belgian banking giant signalled on Thursday.
The figure is described as a “base case” in an analyst presentation prepared by KBC Group for analysts as it seeks to map out potential bad loan losses across its markets.
It would mark the first decline in Irish residential values since 2012.
House prices are expected to rally by 8 per cent next year, according to KBC Group slides. However, a pessimistic scenario could see home valuations plunging by 20 per cent this year and a further 5 per cent in 2021, it said.
“Irish house prices and transactions increased at a modest pace in early 2020. However, property market activity is likely to remain weak until signs of a broader economic turnaround emerge,” it said.
“While the Irish economy began 2020 with substantial positive momentum, the Covid-19 pandemic is likely to have a large negative impact on activity reflecting the effects of a significant health-related shutdown on domestic demand as well as weaker export markets,” KBC said.
“In common with other countries, the Irish jobs market has suffered a major shock as a result of the pandemic. Although government measures have supported incomes and sought to maintain workers links with affected companies, unemployment could end the year around twice the 5 per cent rate seen at the start of 2020.”
Editors Note: Many property markets around the world were very overvalued prior to the coming financial and economic crisis. Ireland’s residential market had recovered and was edging towards the massively overvalued levels seen at the top of the market.
Dublin residential property prices were showing signs of overvaluation again having risen 93% from their 2012 lows. In the rest of Ireland,
residential property prices had risen 81.5% from the bottom of the market in May 2013. Housing and apartments had again become completely unaffordable to hardworking middle and working class people.
Both residential and commercial, retail and office, property markets globally are vulnerable now given the sharp global recession or depression that is coming. Incomes have fallen and will continue to fall sharply. Rents are falling and will continue to fall sharply. Banks will be more hesitant to lend to first time buyers and indeed to investors. Another banking crisis is likely and one need only look at the share prices of Irish banks and indeed of many international banks such as Deutsche Bank to see this. Therefore, for a period of time banks may stop lending again.
Price falls of up to 50%, as was seen in Ireland in the 2007 to 2012 period, are to be expected in the more overvalued markets.
As ever, we are optimists but it is important to consider the facts and the real challenges we will face in the coming months. Let’s hope for the best but be prepared for less positive outcomes.
NEWS and COMMENTARY