IIB Bank says that badly judged government intervention is the biggest risk for the Irish housing market in 2007, and that speculative pressures have not materially altered prices.
According to the IIB report 'Irish housing market outlook 2006/7', house prices will increase by 13% this year and 7% next year.
Austin Hughes, chief economist at IIB Bank, said that the recent acceleration in prices reflects strong demand and improved accessibility, and not speculation. He said improved accessibility has more than offset any squeeze on affordability but that this will change.
The report shows that Irish consumers are feeling pressure with 50% of them viewing higher energy costs as the biggest risk to the Irish economic outlook. A quarter regard rising interest rates as the key threat, with 1 in 8 Irish consumers citing inflation worries.
However, IIB Bank said budget policy could boost the economy and property market next year, and that the Government can afford to be generous as their finances are very strong.
The bank said house prices will rise by around 13% this year and 7% in 2007. The increases will take into account : continuing demand, a favourable population profile, a still healthy economy, appropriate government policy, the maturity of SSIAs and a limited rise in borrowing costs.
However, speaking at a Dublin seminar today Tom Foley, CEO of IIB Homeloans, said a number of factors suggest that house price growth is set to ease back through 2007and that the market was set to undergo some big chances.
'We are now entering a transition from a period of explosive growth. I'd be optimistic that we'll see a fairly gentle slowdown to a calmer pace of growth in both lending and in the property market', he said.
Mr Hughes said the biggest risk to the Irish property market in 2007 comes from the possibility of 'ill-judged, albeit well intentioned, government policy'.
He said the record of Government intervention in the Irish housing market is not particularly encouraging, with previous initiatives adding to the uncertainty and creating short-term volatility in the market.
He said there is a risk that fears of draconian measures could cause big problems for the property market in the run up to the Budget in December.
Mr Hughes said speculative pressures has not materially altered the recent trend in Irish house prices and that greater participation by investors has deepened a previously undeveloped rental market.
'Any measures which discourage investor participation could pressure the rental market and also have an unintended adverse impact on housing supply. Though an impact on construction activity, such measures could also dent economic growth in the near term. They might also have a very unhelpful signal effect in relation to the possibility of changes in other elements of Ireland's taxation policy', he said.
Mr Hughes said the European Central Bank will raise interest rates again twice this year and if rates were to rise to or through 4%, the ECB could be forced to cut rates later next year or during 2008.
The reports showed that although consumers are cautious in regard to the broad economic outlook, they remain confident in the Irish housing market with 89% expecting house prices to rise further in 2007.
