Cantillon: IMF gives little credit to housing market

Award yourself a pat on the back if you think the situation in the residential property market is out of kilter. You’re absolutely right.

On the in-tray we find the latest Global Housing Watch from the International Monetary Fund, a regular update on the outlook for international and national housing markets. The days of sickening pyrotechnics in the Irish market may be behind us but the IMF document shows were still far from normality.

In terms of real house prices in the year to June, the IMF charts suggest the advance of prices in Ireland was second only to Qatar in a selection of more than 60 countries. In the same period, the contraction in real credit growth in Ireland was second only to Ukraine.

That takes some doing, and it suggests that constraints on credit supply and on the supply of new and second-hand homes for sale are feeding off each other. The IMF data covers the period in which the Central Bank tightened mortgage lending in a bid to prevent runaway prices. But the market is still pretty dysfunctional.

The latest Central Bank lending survey shows credit extended to Irish households fell again in October, with deposits rising sharply. Despite the recovery, consumers are continue to save and pay down legacy debts rather than borrow.

“From a long-term perspective a greater level of credit will need to flow into the economy to maintain the positive GDP growth momentum we’ve seen over the last year or so,” said Merrion economist Alan McQuaid

“However, the fact is that many Irish consumers/households are still burdened with a huge level of outstanding debt and are in no hurry to add to that load.”

Still, Ireland is far from the IMF’s prime concern on housing. It points to “overvaulation” in the Australian market.

Watch out Aussies.