Lane hasn’t explained why he is certain the property market isn’t going to overheat again
IT IS all going to be fine. There is nothing to panic about. That was the general tone of remarks yesterday by Central Bank governor Philip Lane when asked about the raging property market in this country. Speaking in Portugal, he said the property market is set to cool down in time.
His comments come as another surge in prices has stirred up concerns about a new housing bust. Prices here are rising at the fourth fastest pace in the world.
Property prices surged by 13pc across the country in the year to April, according to the Central Statistics Office (CSO). But Prof Lane said: “What we have now is a strong market, but we think over time as housing supply increases some of this will cool off.”
His comments come at a time when house prices have now risen by 76pc from the low they reached a few years ago. Dublin residential property prices are up by 90pc from the trough they hit in 2012.
Prof Lane, who is widely tipped to be the next European Central Bank chief economist, said he was keeping a close eye on the housing market, which is no more than you would expect.
He explained that the price surges we are seeing correlate with an economy that is growing quickly, with employment growth and wage rises picking up.
The governor stressed that behind the strong growth in property prices are “some strong fundamentals”.
And he stressed the Central Bank’s mortgage lending limits were operating as a buffer and should offer a cushion to borrowers in the event of another downturn.
His comments echo those of Bank of Ireland chief executive Francesca McDonagh last week, who insisted we are not in the middle of an overheating housing market.
Just what evidence Prof Lane is relying on to arrive at a conclusion that the property market is slowing down is not clear.
The Central Bank had no comment when asked what was the basis for his assessment.
Remember that just last week the Central Bank hinted that it may have to revise its housing supply forecasts for this year and next in reaction to CSO figures showing the Government has overstated the supply of new homes.
The Central Bank had predicted that 23,500 housing units would be delivered this year and 28,000 next year. However, the CSO figures show only 3,500 new dwellings were completed in the first quarter of this year.
Turbulence
Prof Lane, speaking during a Bloomberg TV interview in Sintra, Portugal, said it was taking measures to protect the banks if the housing market hit new turbulence.
“We are putting riskmanagement parameters in place so if there were any downturn in the future, there are cushions.”
Few other economists are as sanguine about the prospects for the housing market as Prof Lane.
Property prices are now rising at the fourth fastest rate in the world, according to figures from the Knight Frank global house price index for the first quarter of the year.
And employers’ body Ibec said the housing market is now dysfunctional and it is damaging the country’s economic prospects.
Economist with Investec Philip O’Sullivan said that housing “remains the biggest domestic issue in the economy”.
He forecasts that it will be 2021 or 2022 before supply rises to meet demand.
And the State-backed think tank, the Economic and Social Research Institute (ESRI), has also cut its forecast for homes to be built next year from 31,000 to 23,200.
The massive shortfall of about 14,100 properties comes amid the controversy over “phantom homes”, after it emerged last week that Department of Housing figures on new homes were hugely overstated.
Lending risk was being managed much better by the banks, compared with the Celtic Tiger, but this could quickly unravel, the ESRI warned.
Prof Lane’s seemingly positive view of the housing market is in marked contrast to many of the rest of us, still singed from the blow-up that began a decade ago.
Let’s hope it was a slip-up, possibly coloured by a desire not to come down hard on his own country when abroad.
Cynics will point out that he can hardly admit we are in the middle of a housing bubble if he wants to land the job of being the next ECB economist.
We need the Central Bank to act far more effectively this time to the signs the property market is overheating.