Bank thinks house prices may level out

THE Central Bank has softened its position on the threat of a house price bubble. Dr Michael Casey, deputy director general of the Bank, said he was "hoping for a soft landing" in the years ahead.

House prices could be over valued by up to 20% but the deputy governor thought the most likely scenario was that prices would peak and stay at that level for a long time.

That would mean a fall in prices in real terms, he said.

Dr Casey said he expected prices to fall by around 6% in the coming years, as supply and demand come together and to trend lower thereafter.

"The most likely thing is that they will plateau out for a long number of years," he said.

That has tended to be the pattern in the past.

"We are hoping for a soft landing and it is our aspiration. The longer they go up by 10% a year the greater the probability of a harder landing," he said.

But overall, though mindful of the pressures in the market, Dr Casey said:

"I think we probably have moderated our view on the bubble situation."

Overall, the houses and apartments built to date have been driven basically by demand.

That has been fuelled by favourable demographics in the key segment of the population of 25-40 year olds, he said.

"I think we're more on the fundamentals. We'd be more on that tack now," he said.

He warned however that 30% of residential property bought in recent years looks to have been snapped up for speculative or semi-speculative purposes.

"That would be a worry," he added.

It may be that the market is overvalued by between 15 -20%. That would be the maximum, due to the fundamentals already referred to, he said.

"We haven't had the ups and downs of the London property market and that would be my finger in the air hunch."

He agreed there was no logical reason why we could not face a situation similar to London in the past.

"We hope for a soft landing. It is an aspiration and our worry is that, and this is what the governor John Hurley said too, that the longer house prices go up by maybe 10% a year then the greater the probability of a harder landing.

"We would prefer to see them slowing down now, so that we can get a soft landing. That would be the crucial thing."

Some of the recent figures of 12% average house price growth were a bit higher than the Bank would have liked.

Dr Casey and his colleagues questioned the fundamental value that €300,000 apartments in Dublin and elsewhere are offering. "Could you raise a family in them? I don't think you could," he said.