Warnings about rising house prices and debt

There is no early end in sight to house price increases and it will take several years for new housing supply to come anywhere near to meeting the demand, the Economic and Social Research Institute has warned.

The think-tank’s housing assessment came on the same day that the Central Bank’s deputy head Sharon Donnery gave warnings about households taking on more debt, saying that forecasts for further house price increases had increased, while rents had already climbed above levels before the 2008 property crash.

The latest CSO figures showed house prices continued to climb rapidly in the past year, at 12.1%.

Both the ESRI, in its latest quarterly report, and the Central Bank in its so-called Macro-Financial Review — which weighs the risks facing the financial system, households and firms — reaffirmed that the regulator’s mortgage lending controls were working to help prevent the property market and the country from facing any new market crash.

ESRI research professor Kieran McQuinn told reporters that though mortgage credit was growing rapidly, there was no evidence of a bubble in the housing price market.

House prices could, however, continue to rise “for the next five, six, seven years”, Mr McQuinn said, as lack of supply drives the market. Housing supply was unfortunately an issue that takes “a long time [to catch up] in the Irish context”, he said.

Its new build estimates based on ESB power connections projects home completions will rise to 24,000 units next year from 19,500 homes this year.

However, that would still leave the market being short of 10,000 houses a year even before taking into account the pent-up demand arising from the many years of undersupply, Mr McQuinn said.

The ESRI also said there was a potential threat down the road of what could happen to indebted households when the ECB finally starts to ease its so-called quantitative easing programme of bond buying which would signal the start of an upturn in interest rates.

Noting that Irish interest rates for Irish home borrowers and SMEs were already the highest in the eurozone, the think-tank said “while not necessarily on the immediate horizon” that banks would likely quickly pass on any rate hikes, rapidly leading to a reduction in “consumption of goods and services as well as moderating the investment activity of firms”.

On Brexit, the ESRI said concerns about the “marked slowdown” in the UK economy reflected the fact that a significant number of Irish SMEs still rely on exporting goods and services to the UK.

The think-tank has also tracked a sharp fall in investments by the key indigenous food and beverage industry in recent years.

It revised down its forecasts for export growth but projects GDP will nonetheless rise 5% this year and continue to grow strongly, by 4.2%, in 2018.

Ms Donnery at the Central Bank said households were still heavily in debt. “A large share of that debt, including mortgage debt, is susceptible to increases in interest rates, including ECB policy rates. The number of mortgage arrears cases continues to decline but remains large, at just under 100,000 in June 2017. A high share of those cases, 47%, are in long-term arrears,” she said.


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