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Housing Market Study
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Are Irish Consumers Less Confident About the Housing Market And More Cautious About Their SSIAs?
28/03/2007 A new study jointly undertaken by IIB Bank and the ESRI reveals:-
On House Prices;
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Irish consumers are more cautious about the outlook for house prices but still see a small increase in 2007 and further gains in the next five years.
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The expected increase seen in 2007 is 3.5% while average gains of 7.3% are envisaged in each of the next five years. So, sentiment is still broadly positive but has become notably less bullish in the past 12 months.
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1 in 2 consumers expect house prices to rise this year, while 1 in 6 think prices could fall.
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Compared to 2006 results, far fewer expect sharp house price increases (1 in 3 compared to 1 in 9).
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Not surprisingly changes in interest rates have emerged as the key influence on house prices, with 27 per cent citing this as the most important factor compared to 23 per cent indicating population and migration trends as most important.
On SSIA’s;
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Changes in spending plans in the past year suggest Irish SSIA holders have become notably more cautious.
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23 per cent of account holders are still undecided as to what to do with maturing SSIA funds.
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While the changes are not dramatic, more SSIA holders intend to save or pay down debt while fewer will invest in the property market or make major consumer purchases.
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There seems to be some greater tendency to spend more money on home improvements rather than move home.
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Those whose accounts mature in 2007 are more likely to spend and less likely to save than those whose accounts matured in 2006.
On Interest Rates:
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8 out of 10 Irish consumers expect borrowing costs will rise in 2007.
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Irish consumers are notably more pessimistic about interest rates than a year ago and also expect rates to rise faster than do financial markets. So, it seems most borrowers are prepared for the worst.
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Higher interest rates will clearly hurt borrowers but the extent of problems may be less widespread than is often thought. Only 1 in 10 consumers sees a significant impact on spending power. This likely reflects the concentration of high borrowing among recent house purchasers as well as the important offsetting influence of budget tax concessions.
- We think as many as 150,000 borrowers will face some degree of adjustment because of higher interest rates. We reckon more significant difficulties may be faced by 40,000 borrowers who will see a notable squeeze on their spending power if interest rates continue to rise.
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