[Article] House prices up 273pc in nine years

Victor

http://home.eircom.net/content/unison/national/3549902?view=Eircomnet

House prices up 273pc in nine years
From:The Irish Independent
Thursday, 8th July, 2004

New survey shows costs have risen faster than any other city in the world

DUBLIN house prices have risen by 273pc since 1995 - faster then any other city in the world, according to a new survey.

And new mortgage holders should ensure they can cope with what could amount to a near doubling of interest rates over the next two to three years, a leading economist warned yesterday.

House buyers should budget for monthly rates climbing to a possible six pc by 2006 rather than the prevailing 3.5pc variable rates available now, warned Friends First economist, Jim Power.

First-time buyers who have been granted discounted mortgages for their first year as an introductory sweetener by their lender will be particularly hard hit by the impending harsher interest rate environment, he predicted.

Mr Power was commenting on an international analysis which suggests the decision by the US Federal Reserve to increase interest rates marks the end of years of cheap money and poses a threat to property bubbles worldwide. Elsewhere, Amsterdam prices have peaked after doubling over the same period while Spain has experienced an almost 100pc increase over the past decade, the worldwide study, published in the current edition of 'Newsweek' found.

Analysts list Dublin with London and Barcelona as the European cities where property prices are "sky high".

The authors point out that many new home owners in property hot spots around the globe have been given access to easy credit for the first time and history cannot tell us how this group will react if interest rates rise significantly.

"Much of what is allowed now in home lending would have been unthinkable a decade ago," the authors state before singling out Ireland as one country where lending standards have slipped. A "once strict formula capped the amount a couple could borrow at twice the first salary plus half the second salary," they observed.

"That has loosened in recent years to four times both salaries."

Mr Power said he did not believe the Irish property market could be described as a bubble as there were solid reasons why house prices have risen, including demographics, economic growth, returning emigrants and low mortgage rates.

Even a shift in interest rates would not send house prices "hurtling down" but Mr Power said "people getting into the property market now should build a high interest rate scenario into their expectations".

The threat of an interest rate hike may generate an "air of realism in people's behaviour" which would be a positive thing, he added.

Mr Power also warned of the danger of interest-only mortgages for people who were relying on earning substantial capital appreciation on their house.

He said there could be price declines in the next few years in certain areas, particularly where there was huge supply and rising vacancy rates.

"We are going to see a more differentiated performance in the property market than we have seen over the past 10 years," he predicted.

Grainne Cunningham