Monday, June 26, 2006

End of the Housing Boom?

Is the inflated housing boom in Ireland about to come to a halt? Reports in the Irish media today speak about record numbers of houses being completed, but a "significant" reduction in the number of projects being started in the last six months is being seen as a possible peak in the property boom.

On it's own it's not very significant but add to that the fact that banks like AIB and Bank of Ireland, who provide a significant chunk of Irish mortgages to the general public, have decided that now is a good time to offload some of their own property and you begin to see that there may finally be some genuine doubt creeping into the market.

With 250,000 people directly employed in the construction industry in Ireland, and a further 80,000 indirectly employed that makes 20% of the work force. I wonder where is the tipping point for the industry. What percentage reduction in construction work would start a self fueling cycle of redundancies followed by a decrease in demand for property followed by more redundancies. Add to that the idea that many migrant workers who live in rented accommodation may move to other countries once the work here starts to dry up. Again that could dump some investment property on the market and further reduce the demand for new construction.

Throw in a couple of new interest rate increases from the EU central bank and it could make for interesting times ahead. However the boom has been so great that the bust may not really hurt. A man I know who worked in Bank of Ireland Finance once explained a simple fact to me. A 20% reduction in house prices would be a pretty serious bust, but it just reflects the last couple of years of price increases. It wont really impact most people, at least not in real terms. They may feel worse off, but it's all virtual money unless they bought in the last couple of years or they were planning on buying an investment property. Still, it should give first time buyers a long over due break.

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