Ireland-Construction Downturn

There is increasing evidence of a downturn in the building industry. House prices are overvalued by about 20% . Some optimists forecast that the moderate fall in house prices would have run its course by early 2008. It is more likely that the correction underway will continue for some time. The spectre of negative equity looms for some.
There are several reasons for the decline in house building:

• The 2% rise in interest rates has impacted strongly on repayments.
• Many builders were over optimistic in their assumptions in relation to future demand. They are now left with unsold houses.
• There has been an unsustainable rise in house price inflation.
• The Government takes 30%-40% of the cost of a new house in tax.
• The Stamp Duty issue has not been resolved.
• Unemployment has begun to rise.

There is a tendency to scapegoat economists -like David McWilliams- who have forecast choppy waters ahead. Some have gone so far as to blame them for the fall in house prices. This is of course nonsensical.

There are indications that on average builders have up to 10 new houses unsold in some parts of Ireland. In 2008 a more conservative approach will be adopted. Forecasts for 2008 vary widely.It is likely that new house starts will drop from 90,000 to 60,000 in 2008. There is a danger that it could drop to 50,000 as builders must first off load large numbers of unsold houses.

The growth rate for the economy will drop to 3.5%-This is the benign scenario. Government cutbacks rising oil prices and a housing crisis could drag the rate down to 1% or less.