House price inflation is predicted to moderate further and by the end of the year could be down to 5% or below, a new report on the outlook for the Irish housing market from AIB Global Treasury says.
The report, prepared by the AIB Global Treasury Economic Research Unit, says that prices may rise by less than 3% in 2006.
'With the threat of a price blowout diminishing, continuing low interest rates and a robust labour market, AIB see little risk of a market crash and continue to believe that the housing market will achieve a soft landing,' the report states.
AIB says that output in likely to remain relatively strong in the near term and completions could again reach some 75,000 this year. It points out that 30% of current output may be accounted for by second homes.
'The demand for second homes has been, and should continue to be, supported by the increased wealth in the country,' comments John Beggs, AIB Global Treasury's Chief Economist. He adds that SSIA monies should also provide continued support to the second home markets in 2006 and 2007.
However, he feels that the sector may be nearing saturation levels and said the bank expects a lower level of demand for second homes in the medium term. 'Any significant downturn in the sector could have consequences for the whole housing market if developments do not respond quickly to such an eventuality by reducing supply,' he warned.
The continued robustness of the labour market is still underpinning the strong housing market, and the bank is expecting the interest rate outlook to remain relatively benign.
'Given the strength of the market supports and despite the lingering risks, we remain of the view that there is little prospect of a housing market crash and that a soft landing is achievable,' Mr Beggs said.
But he cautioned that the return to price stability in the housing market would be derailed if the Government were to entertain any notions of taxes on second homes.
'The impact of such a move would be very damaging for the sector and risk undermining the strong growth performance of the economy,' he said.
