Wednesday, January 14, 2009

The Irish Dr. Doom... or Just an Exaggerating Economist?

Professor Roubini has nothing on Professor Morgan Kelly from the University College Dublin. Back in February 2007, Prof. Kelly predicted:

The expected fall in average real house prices is in the range 40 to 60 per cent, over a period of around 8 years. Such a fall would return the ratio of house prices to rents to its level at the start of the decade.
By January 2008, Professor Kelly felt this 50% decline was overly optimistic:
Writing in this newspaper a year ago, I suggested that, in the light of past property booms abroad, Irish house prices were at risk of falls of around 50 per cent in real terms. At the time I imagined, again based on what had happened elsewhere, that selling prices would stabilise at their peak values for a year or two, and then fall slowly by a few per cent a year for up to a decade.

My forecast has turned out to be wildly optimistic.
And now? According to the Irish Times (bold mine):
Ireland will see more demolition than construction of houses over the next decade, as the economy struggles to recover from the collapse of the housing market and the emergence of “zombie” banks, UCD economist Morgan Kelly told the conference.

In a presentation that drew several collective intakes of breath, Mr Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.

An 80% decline in nominal terms would be extreme (it would bring home values back to levels seen in 1993), but Professor Kelly's 80% decline in real terms means home prices will drop to a level not seen since.... well I can't find data going back that far, if it even exists.