Irish house prices are not particularly overvalued and are not likely to crash in the next few years, according to a new analysis from PricewaterhouseCoopers (PwC).
The housing market is instead headed for a "soft landing", with price growth easing to low single-digits between now and 2006, PwC concludes.
The accountancy firm is also expecting the Irish economy to grow solidly over the next few years. PwC's economist, Ms Rosemary Radcliffe said yesterday that she had some "sympathy" with Bank of Ireland's Dr Dan McLaughlin, who believes the economy is entering a second period of tiger growth.
"I think it may not be much of a bouncing tiger but growth expectations for the Irish economy are reasonably good," said Ms Radcliffe at a briefing in Dublin.
She is expecting a "well-balanced recovery" underpinned by exports and business investment, with growth in gross domestic product (GDP) to rise from 4.5 per cent this year to 5 per cent in 2005. This leaves PwC slightly less optimistic than the Economic and Social Research Institute (ESRI), which is forecasting GDP growth of 5.2 per cent this year and 5.4 per cent in 2005.
Ms Radcliffe warned, however, that the open nature of the Irish economy leaves it more exposed than most to external shocks such as sustained high oil prices or large terrorist attacks.
She acknowledged that a very negative economic outcome could filter through into the housing market, producing price growth of zero or less.
A number of commentators, including Davy and Merrion Stockbrokers, are expecting zero per cent growth in 2005.
PwC is more bullish, predicting that house-price inflation will slow from 13 per cent in 2003 to around 10 per cent in 2004, 3.5 per cent in 2005 and 1.5 per cent in 2006.
"The outlook would appear to be soft landing rather than crash," said Ms Radcliffe.
PwC has analysed the relationship between house prices and incomes in five EU countries, finding that prices are only slightly "overvalued" in the Republic.
This overvaluation, which stood at less than 10 per cent at the start of this year, could be attributable to a simple margin of error, Ms Radcliffe said.
It compares well with results for the UK, where a 30 per cent overvaluation was found.
Higher mortgage costs in the UK, where interest rates stand at 4.75 per cent, help explain much of the difference between the two markets, according to Ms Radcliffe.
