‘House prices may start to fall and we must be ready,’ warns Central Bank
HOUSE prices could be on their way down over the next two to three years, and we have to be prepared for it, according to the Governor of the Central Bank.
Speaking before the Oireachtas Finance Committee yesterday, Philip Lane said there was a ‘material risk of a reversal in house prices’ in the next three years, and warned that anyone thinking of investing in a property now needed to bear this in mind.
‘If you are planning to live in that house for a substantial period of time, then that should not be a matter of overriding concern,’ he added.
Mr Lane said he believed the deposit and income rules for taking out mortgages were ‘beginning to bite more severely’ which will help slow down the house market.
‘Over a two- or three-year horizon, more and more houses are being built. Remember in the mid-2000s there was a very big house building response here, and that was part of the reason why house prices eventually tumbled so much – the overhang of so much supply.’
Mr Lane said in an economy where prices were rapidly rising, a combination of factors could lead to a reversal.
And while he said he was not expecting it, he believed it was ‘a material risk’ and was something for which there should be planning.
While facing questions from TDs and Senators, he said: ‘I consistently say, “I do think there is a material risk in a reversal of house prices”.’
Mr Lane said that a number of factors could prompt a reversal in the direction of house prices, including the increase in supply, the construction of student accommodation units which will offer some relief to the rental market, as well as the negative consequences of Brexit.
He told the committee: ‘We should all be far less concerned about trying to forecast and more concerned about trying to manage the risks.
‘The market is expecting single-digit increases in house prices. But what we have to think about is, “what if the market is wrong, what if there is a reversal?”’
Mr Lane said this risk could emerge over two or three years, rather than this year.
‘If you relieve pressure on the rental market, that will feed in,’ he added.
‘Then, more basically, we have seen a very strong increase here in incomes in recent years – the Irish employment story has been really strong.
‘And as we get towards lower levels of unemployment, that will slow down.
‘And then if you add into that, that kind of natural slow down, you have Brexit risk, trade risk, and more broadly, the end of the cycle in the US, and so on.
‘There are multiple reasons why this kind of positive momentum now may go into reverse,’ he said.
Mr Lane also said that he fully recognised the current ‘affordability’ crisis in the housing market.
He said there is ‘only one answer’ to that issue, which is to ‘further increase supply of affordable housing, and that partly depends on the market to deliver and partly depends on the choices made by the political system’.
Mr Lane also reiterated a message the Central Bank had already relayed to the Law Reform Commission that there needed to be a ‘changed approach to individual accountability’.
He was responding to questions from Sinn Féin’s finance spokesman Pearse Doherty about financial accountability, – particularly in relation the tracker mortgage scandal which is set to cost as much as €1billion.
‘Keep it in mind if you’re investing’
‘In the mid 2000s, prices plunged’