The latest data on Irish house prices confirm that the rate of decline accelerated in October, according to the permanent tsb/ESRI index. Nationally, house prices declined by 1.3% mom in October, dragging the annual rate of decline from -2.8% to -4.7% in the process, with the monthly movement the largest such decline since the index began in 1996.

In our recent report entitled Housing: An International Perspective, Goodbody Stockbrokers put forward the view that house prices would fall by 5% by the end of 2007 and by a further 8% by the end of 2008. This was based on the view that the index was yet to pick up the scale of price declines actually being witnessed in the market.

In this light, the index is starting to reflect the reality. Were we to see further monthly declines of this magnitude over the final two months of the year, this would leave the annual rate at -7% by December. Within the index, the price movements seen in the year to date are consistent across the country. Prices nationally fell by 4.9% in the first ten months of the year. The price of second hand homes fell 7.7% in the year thus far, while new homes prices have held up somewhat better and were down by 3.2% in the first ten months. The latter is a reflection of the incentives used by developers in the new homes market, which would not get reflected as a price cut.

While the extent of the monthly decline in house prices in October seems particularly large relative to the movements over the previous three months, it is not overly surprising given the evidence on the ground. The inherent lags involved in the data mean that it is reflective of price movements over the summer. Given that activity in the recent autumn selling season was also weak, further monthly declines are also likely in the months ahead. Nevertheless, our expectations for a 13% cumulative decline in house prices from the peak, while erasing the gains of 2006, will ensure that affordability and rental yields are returned to more normal levels.