Irish property prices to ‘cool off’, Central Bank governor says
Price growth will dampen as housing supply picks up, Philip Lane says
Central Bank governor Philip Lane said the global economy was resilient enough to withstand current trade tensions. Photograph: Nick Bradshaw
Central Bank governor Philip Lane said on Tuesday that he expected property prices in Ireland to “cool off” over time as supply increased, although he pointed to the continuing “strong fundamentals” of the market here.
Irish house prices have risen by 76 per cent from the post-crash trough, with Dublin residential property prices up 90.1 per cent from their February 2012 lows, while a recent survey from Knight Frank placed Ireland as the fourth fastest growing property market in the world.
Speaking on Bloomberg TV from Portugal, Mr Lane, a European Central Bank governing council member, said that given continued price growth, the Central Bank was keeping “a close eye on the housing market”.
Noting that price growth is happening in correlation with an economy that’s also growing quite quickly, with employment increasing strongly and wages picking up, he said there were “some strong fundamentals there”.
He added: “It’s also the case that we’re far below the peak prices.” He pointed to the presence of the macroprudential rules, which limit lending, as offering a “cushion” or “buffer” in the event of a downturn in the future.
However, he expects price growth to dampen.
“What we have now a strong market, but we think over time, as house supply increases, some of this will cool off,” he said.
Looking to the global economy, Mr Lane said it was resilient enough to withstand current trade tensions, although he warned that any escalation could threaten growth prospects.
Current trade disputes probably “aren’t enough to derail the world economy,” said Mr Lane, who is tipped in some quarters to be the next ECB chief economist. He added that if tariffs became widespread and persistent, that would represent a “big concern”.
Trade tensions between the world’s two biggest economies had intensified, with China vowing to retaliate “forcefully” against US president Donald Trump’s threatened tariffs on another $200 billion in Chinese imports.
Mr Trump ordered up identification of more Chinese imports for additional tariffs of 10 per cent – with another $200 billion after that if Beijing retaliates.
“Those numbers are big and they are really important for the sectors in the front line, but compared to the size of the world economy they are still relatively contained,” Mr Lane said.
He added that the ECB needed to “keep a close eye” on how the trade tensions unfold.
Former US treasury secretary Lawrence Summers recently warned that developed countries are badly equipped for another recession, both economically and politically, and central banks should be wary of raising interest rates just to control inflation.
“What Larry didn’t focus on is that interest rate policy is just one of the tools, and the range of tools that central banks can use to maintain its inflation target even during a slowdown is wide,” Mr Lane said. “It is a challenge; the question is how to respond? I don’t think the answer is for central banks to sit on their hands and say we can’t do anything.” – Additional reporting: Bloomberg