House prices could fall by around 5% this year, according to a leading economist.

The COVID-19 crisis has seen the property market come to an almost-complete halt in recent months and KBC Bank has warned that prices could drop by a fifth when it reopens.

Meanwhile, the Construction Industry Federation has warned that virus-safety measures could add 5% or 10% to the cost of building.

Housing market

On Newstalk Breakfast, Conall Mac Coille, Chief Economist at Davy Stockbrokers said the number of house sales is likely to drop by 50% this year.

He said the virus will lead to some turbulence in the market – but nothing like what we saw in the last recession.

“At the extreme end, back in 2008, about 10% of first-time buyers were borrowing almost six-times their income or over,2 he said.

“We are nowhere close to those kinds of numbers this time around – on average people are borrowing just over three-times their income.

“I think if we do get a correction in house prices, it should be maybe a 5% fall, maybe even slightly more than that this year perhaps, that is certainly possible, but that is nowhere near the kind of 50% fall we saw ten years ago.

“So, while there will be a bit of turbulence and we will see a period of adjustment, it should not be as violent as we saw ten years ago.”

Housing supply

He said estate agents are prepared for a drop in prices when the market reopens properly, adding “really the only question is by how much.”

Mr Mac Coille said the virus will see a drop in new builds and supply issues into 2021.

“Many small builders had maybe a 5% profit margin which will be reduced quite significantly perhaps toward zero and then if you have the extra costs of COVID-19 in terms of build costs it just makes viability more difficulty which will lead to supply issues into next year,” he said.

He said he expects to see a drop in land prices which could see a return to profitability for new builds.