Market view

 

All will be well - if politicians don't meddle in the property market, says Marc Coleman.

Last week I promised to write about planning issues this time around but two events that occurred since then warrant kicking that issue to touch for a week or so. The first is the publication last Monday of the latest serious property market survey, from Irish Intercontinental Bank (IIB).

If true, it is evidence that all will be well with the Irish market in the coming year, provided politicians don't screw things up. The second is Enda Kenny's decision to finally embrace stamp duty reform as an election policy - further evidence that we should never underestimate the ability of politicians to screw things up.

Don't get me wrong; the move is welcome but what about his coalition partners? As survey author and IIB chief economist Austin Hughes put it when explaining the torpor that began last October: "Then we had the stamp duty fiasco. When we gave our outlook in August, we said the main risk then was of a Government mishandling of the market and that's what we've had."

Hughes was here rightly pointing out that by signalling reform so far in advance of the election - and, crucially, before budget day, McDowell created the expectation that stamp duty would be reformed in the Budget.

Prices fell as sellers and buyers delayed activity hoping to gain, respectively, from price gains and absence of stamp duty.

Kenny's intervention further confuses matters; will the Labour Party and the Greens back the stance? If yes, will they win the election? If not and they do win the election, how hard will FG bargain for a cut in stamp duty during coalition negotiations? And if they don't win, what will FF do? Thankfully, like lethal chemicals that neutralise each other when mixed, this uncertainty is mixing with other "bad" events in ways that have fortunate results.

Take recent interest rate increases: collectively booed at last year, they have, according to Hughes, come at just the right time. "You could argue that the ECB has been more in tune with the needs of the Irish economy than anyone could have anticipated."

And then there was the silliness of those who thought they could keep adding zeros to the guide prices on their houses. According to the IIB survey, the market is finally wising up: when asked last year whether they thought house prices would rise "a lot", 34 per cent of survey respondents said "yes". This time it was just 12 per cent.

Last year 14.5 per cent thought house prices would remain unchanged. This time the figure had risen to 31 per cent. Whereas last year 3.6 per cent thought the market would decline "a little", some 11 per cent now think that.

Just like 1987, we have made so many mistakes at once we have shrunk back to common sense, and not before time. And just in case you think we've become too timid, fear not: according to the survey, a mere 1 per cent think property prices will fall significantly.

To end as I begun, let me address those who read last week's column: you may recall my saying that the market had temporarily lost the run of itself, that prices were a little overvalued as a result and that cool heads and stable prices would eventually prevail.

After a year in which house prices grew by 12 per cent and expectations went wild, the IIB's prediction this week is for a gentle correction in the early year before a recovery brings full year growth to a credible 5 per cent growth; fully in line with economic growth.

Now and again, it's fun to be right.

Marc Coleman is Economics Editor of The Irish Times