Central Bank report - House prices warning can’t be ignored

WITH Irish people borrowing like mad, the Central Bank risks being portrayed as ‘crying wolf’ following yet another warning that the housing market is in danger of overheating.

Yet, it would be folly if homeowners and prospective buyers turn a deaf ear to the bank’s repeated warnings that the market could collapse. Though people are borrowed to the hilt, the bank says there has been little or no slowdown in the rate of personal credit growth.

And while Ireland’s economy is burgeoning, the body responsible for overseeing our financial wellbeing continues to counsel caution, unlike the major lending institutions which are throwing money at borrowers like confetti.

With property prices here among the highest in the developed world, the Central Bank’s dire prediction is that ultimately there will be a sharp fall in prices. If that happens, many people will find themselves in a negative equity scenario with the cost of repaying their mortgages higher than the market value of their homes.

Doubtless, the bank’s doom-laden prophesy may one day be fulfilled but the $64,000 question lurking in the back of every borrower’s mind is when will the financial chickens home to roost?

According to leading economists, especially those working for the commercial banks and building societies, the economic boom is set to run without any sign of a let up. Overleaping the Central Bank’s positive growth forecast of 4.5%, they predict a significantly better performance with an expansion rate of over 6% in the next year.

But despite the prospect of a bonanza from SSIA saving schemes, if the ominous warnings of the financial watchdog turn out to be true, tens of thousands of homeowners could end up mired in serious financial difficulties.

There is no disguising the blunt admonition in the bank’s latest financial stability report which warns that despite having slowed down somewhat in recent months, the growth in house prices is escalating once again.

Even though building costs are more or less stable, the price of houses continues to soar. In effect, mortgage credit is up 26% on last year and overall borrowing is rising at over three times the income rate.

Another aspect of the bank’s financial review that gives cause for concern is the slowdown in national productivity growth. In a worrying portent of things to come, productivity increased by only half a percentage point last year.

Unless there is greater competition in the market, income levels could fall. Inevitably, that would trigger a domino spiral which, in turn, would have a negative impact on the cost of living, setting off a downturn in people’s lifestyles.

The dramatic slowdown in productivity is all the more worrying since competitiveness is such a vital ingredient of a healthy economy. Because of Ireland’s high-cost reputation, jobs are increasingly being lost to the low-cost economies of Asia.

Contradictions abound, however, as unions are battling for a better deal for migrant workers here. Yesterday, for instance, 100 workers staged a protest at the headquarters of the National Roads Authority, accusing it of taking advantage of hundreds of migrant labourers who are operating under abysmally poor pay and conditions.

Simultaneously, in a grim reminder of the GAMA and Irish Ferries controversies, MEPs yesterday briefed the Congress of Trade Unions on next week’s EU vote on the controversial Services Directive which workers fear will start a “race to the bottom” by clearing the way for low pay and working conditions in Ireland.

With unions ready to lock horns with Government and employers over wage and tax demands, international labour trends look set to dominate the upcoming national pay talks.