David Duffy: consequences

Many buyers who bought their homes in the last decade will have to wait until 2030 to see any return on their investments, new forecasts by the prestigious Economic and Social Research Institute (ESRI) have revealed.

The figures, prepared for the Sunday Tribune, suggest that many first-time buyers who bought in the recent boom years will carry negative equity in their homes for a generation.

First-time and investor purchasers who bought apartments in the Dublin region in the years up to the height of the bubble in 2007 will have to wait until well after 2030 to get what they paid for their homes, said ESRI housing expert David Duffy.

But the figures show that the outlook is even bleaker when consumer price inflation is accounted for because the housing-price slump will pull boom-time prices back in real terms by 45% to levels last recorded in 1998 and 1999.

People who bought as long ago as late 2003 will only nominally be back in the black in 2013 but will have to wait several more years before their purchases show any return after accounting for inflation, the ESRI figures show.

The ESRI, which assumes prices will drop by an average 35% from their early 2007 peak, warns that apartments across the Dublin region could fall by as much as 50% from their peak. Prices will continue to retreat in the next two years before reaching a trough in 2012. They will then only slowly recover at just above the rate of inflation for the next decade, it forecasts.

"The consequences of this downturn will be with us for a long time," said Duffy.

After dropping 35% from their peak of €311,000 in February 2007, average Irish house prices in the next three years will slide back to levels last seen in autumn 2002, the ESRI forecasts.

Dublin prices officially hit a record of almost €430,000 in April 2007, while house prices outside the capital hit a record €267,500.

Duffy said that international experience showed that confidence in the housing market tended to lag by years behind a return in confidence in the economy as a whole.

"If the economy were to recover, a recovery in the housing market depends on how people react to that recovery and on whether there is pent-up demand," he said.

But the Irish housing slump is unlikely to be the largest recorded in recent decades. The house-prices slump in Sweden and Finland in the early 1990s is still likely to be greater than here, the ESRI believes.