Storm clouds gather over housing market

WHATEVER way one looks at it, the Irish housing market is in serious difficulty at the moment. Prices are still falling, buyers are still not buying, and house builders are building little other than one-off housing. New home registrations in May were 61% down on a year earlier. This is a collapse by any standard.

This awful housing market background is now costing lots of jobs and economic activity in general, and tax revenues are under serious pressure. Against this background the last thing in the world the Irish market needs is an interest rate increase, but such an eventuality now seems highly likely.

Last Thursday ECB president, Jean Claude Trichet, sent a strong signal he might be tempted to increase interest rates at the July ECB meeting. In a world where the sub-prime crisis is still having a detrimental effect on economic activity, particularly in the US and Britain, such a suggestion seems ludicrous. Indeed, the Americans are not happy about the impact such a move might have on the already extremely weak dollar and are probably also feeling a bit aggrieved that the ECB might not be playing its part in sorting out the sub-prime mess.