Beware those who think they have the truth

ONE of the attributes that separates the business person from the rest is an ability to see beyond the seemingly obvious.

Great stock market investors have always had that gift as well.

Those who pulled out of the hi-tech sector prior to the bubble are a good example. When everyone else was betting their house on it, the likes of Warren Buffet was nowhere to be seen.

The point is that what looks obvious and given is not always so. Which brings me to the latest Central Bank report. Its latest revised figures for 2002 show that even in GNP terms the economy grew. It did not grind to a halt as some top economists had claimed.

This latest revelation stands by my claim that the obvious is always not as valid as it looks.

But one thing I could never figure when some were talking us into recession in 2001 was that the evidence on the streets and in the construction sector simply did not look to bear out that point. If it was a recession, it was the first one in my living memory that increased employment while it was going on.

The argument was that the Government was playing tricks to prove a point and cynically employed more in the public sector to make the figures look good in the face of a huge economic slump. Slump there was. The figures cannot be disputed in that sense, but it was not as dramatic as the sceptics insisted, in their usual self-righteous fashion.

Beware those who think they have the truth. In that context it was also interesting that at its press conference this week at the launch of its autumn quarterly bulletin, the Central Bank said they were less concerned than they had been about the prospect of a serious price bubble in housing.

It believes the fundamentals of the economy are probably enough to sustain the property market in the medium term. These are the same fundamentals that sustained this economy as the US buckled after the hi-tech bubble imploded and the impact of 9/11 struck at the heart of global economic confidence.

In reality, those who have believed in the economic boom have based their arguments on the growth in population.

Up until 2007, the prospects on the population front are still good.

The key age bracket of those between 25-40 will continue to grow until 2007, leading the bank to conclude that the medium term economic outlook is still pretty solid. On house prices, though, it is still circumspect.

It believes that house prices are more likely to plateau in the next few years and stay at that level for an indefinite period.

Though it has lowered its concern about a bubble, the bank is still saying emphatically that prices cannot be sustained at current levels. They are now more likely to plateau without falling.

That scenario, however, paints a picture of declining house prices if the plateau period was to be sustained for five to 10 years.

Whatever the time-span of such a phenomenon, those buying property now for investment need to bear that in mind.

On another point, it was inadvertently reported by me that the Central Bank says it sees prices declining by 6% in the year ahead.

That is not so. What it believes is that by the end of next year the level of house price increase may have fallen to around 6% against a projected 12% in 2004.

While the bank is quite positive about the economy, its views on housing, though changed somewhat, are still a warning to those who think that buying an inner city apartment for €300,000, in which you could not swing a cat, will bring them great riches. Buying property now is riskier than it was.

That point is in danger of being lost in the arguments about Celtic Tiger growth and the state of the economy in the post boom environment.

But it is also important to stress that the economy, despite its health crisis and its strong tendency to marginalise the weakest, is still soundly based.

Estimates suggest up to 30% of all housing bought recently has been for speculative or semi-speculative purposes. Should the market soften, this is the one area that may be vulnerable.