A report by Fitch Ratings says that Ireland is just halfway through our property slump and we are likely to see house prices fall 45% from their peak – bringing them back to 2000 levels.
Fitch Ratings is a global rating agency that provides the world’s credit markets with independent and prospective credit opinions, research, and data.
The report also said that “the poor state of public finances has left the government no room to use fiscal measures to support the economy.” They also forecast the jobless rate to climb from 12.5pc this year to 15pc by 2011.
After the recent admission by Brian Lenihan – that Ireland was on the brink of a debt compound spiral that risks a further doubling of public debt to €160bn by 2013. At the annual dinner of the Dublin Chamber of Commerce he said “We need to stabilise our public finances , we need to reduce the national debt, otherwise we are on the road to ruin”
Some people see these panicky soundbytes as softeners for the 2010 Budget due in December this year.
More bad news from Goodbody Stockbrokers – who said on Monday that Ireland’s private sector debt will reach 225% of GDP this year, up from 86% in 1999 . Combined public and private debt will soon top 300% of GDP, which will not help recovery.
Price deflationin Ireland was 6.5% in September, which is steeper than during the Great Depression.
The average Irish household faces negative equity of €43,000. Further property price falls would leave large numbers of people with crippling debts
House prices have dropped 24pc since peaking in late 2006, but at they are still at 7.5 times the average income. More drops are inevitable. Fitch expects the price/income ratio to revert to 5.5 eventually . Price deflation and wage stagnation means that the adjustment will have to be achieved by adjustment of house prices instead.
With ECB interest rates cut to 1pc, the full benefits have yet filter through to Irish households. Fitch said interbank lending rates have risen substantially, “reflecting market concerns over the creditworthiness of Irish banks and the Irish Sovereign”. The agency said the scale of house price declines has raised “particular concern” about arrears on sub-prime debt and it is reviewing all Irish residential mortgage bonds that it rates.
There was some good news – Ireland was the only EU country to show a small rise in exports this year. The continued strength of the Euro will not help future exports though.