No real threat to housing market ... yet
Speculation can be endless and even this column falls into the trap by raising the issue again.
To get a perspective, one friend of mine was arguing back in the early 1990s that house prices would come back, and he has argued the same point since.
However, the question is difficult to ignore, when somebody like John Beggs, chief economist of one of the country’s leading banks, AIB Group, raises doubts about the investor end of the market.
That has to be watched, warned Mr Beggs in his recent assessment.
But let’s not get overexcited. In his view, the elements needed to cause house prices to slump dramatically in the Irish market do not exist.
As AIB accounts for one in five mortgages in this country, one can assume he knows what he is talking about. House repossessions on a grand scale is not something the banks want, and many are extending mortgages to up to 35 years to make it easier for borrowers to service their loans.
With all of the banks tweeting merrily from the same choir loft on this, it would be too easy to brush off concerns. With Irish credit levels expanding rapidly, caution is advised.
And that has been addressed many times by several key economists.
Even Davy Stockbrokers, part of Bank of Ireland, and generally on the more sceptical wing on the Irish economy, could not argue for a bubble in its recent study, published this week.
Using international comparisons, Davy concluded that even as consumer debt continues to rise sharply, the ability of most borrowers to service their loans is not under strain.
That we are borrowing over e1 billion a month to buy homes, for speculative as well as residential needs, is indicative of a changing economy, not a nation that has lost its senses.
Justification for the house price surge exists.
Nearly 800,000 people have joined the labour force in the past 10 years, almost doubling employment.
The majority are still at work. Meanwhile, unemployment is at historic lows.
What cannot be argued however, and Beggs acknowledged this, is there are thousands excluded from the housing market.
This is a serious social issue that needs to be addressed.
However, that is a social argument and not further evidence of a sector about to crash.
What Beggs was at pains to point out was lack of affordability for some does not imply a bubble for those fortunate enough to buy into the high price market.
This isn’t a one-way street, and some time back, Colin Hunt, senior economist with Goodbody Stockbrokers, a subsidiary of AIB, warned of the dangers to the market if prices did not slow down to reflect the easier pace of economic growth and the corresponding dip in wage increases.
If prices continued at the current rise of 13%, there would be trouble ahead, Hunt warned.
Signs the boom is losing its fizz can already be seen in Dublin, where in the sought-after inner city, “apartment to let” signs are replacing “sold” signs.
And even though price performances this year have been higher than forecasted, it looks as if the annual rate of increase will have dipped to about 7% by year end, almost half the rate of increase seen in the first quarter of the year.
Those convinced the market is doomed will take comfort from a softening in the rentals market, and investors with serious exposure are getting anxious.
The real threats to the market are higher unemployment and higher interest rates. Right now neither looks like a real danger.
