Monday, January 24, 2011

House prices to fall for two more years | The Post

House prices to fall for two more years
23 January 2011 By Gavin Daly

House prices will fall for at least two more years as people focus on reducing their debts rather than investing, a leading analyst at Merrill Lynch has predicted.

‘‘It will be 2013 before the housing sector in Ireland will really begin to see meaningful signs of recovery," said Bill O’Neill, chief investment officer at the company’s wealth management unit in Europe Middle East and Africa. ‘‘The housing sector will be constrained for an extended period of time, there’s no doubt about that."

O’Neill said that people would be dealing with ‘‘the largest downturn in living memory’’ for several more years.

He predicted that the ‘‘period of deleveraging’’ - when consumers are more focused on reducing debts than spending money - would last up to five more years. By that measure, the downturn will last as long as the economic boom lasted.

‘‘From the point of view of asset prices and real wage growth, there are four to five years to go in the deleveraging story," said O’Neill, a Trinity educated economist who is based in London.

‘‘Deleveraging cycles tend to take about six to seven years, which would fit in with the length of the bubble cycle for Ireland, from 2001 to 2008."

However, he said there were signs that the downturn could be shortened by an export-led recovery and falling costs in the economy.

‘‘A substantial part of the competitiveness that was lost during the crazy period of the bubble has been clawed back.

You’ve got an incredibly flexible labour market, you’ve got very strong FDI, and it’s extraordinary the extent to which wages are deflating," said O’Neill,. He described the recent investment announcement by Int el as ‘ ‘ve r y important’’.

He said that the target of 2.75 per cent economic growth in the government’s four-year plan was ‘‘credible and sustainable’’ based on the strong performance of exports.

He also raised the possibility that the timeframe for Ireland’s bailout from the IMF and EU could be revised, resulting in lower payments but over a longer period.

‘‘The term [of the bailout] is a very important and a very neglected issue," O’Neill said. ‘‘I think there will be flexibility in the term and that refinancing will come as the term is extended."

However, he warned that Things would ‘‘get worse before they get better’’ in the eurozone.

‘‘There will be a need for further bold measures in the next year," he said.

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