Finance minister denies policies to 'cool down' overheating housing market have backfired
Cowen: house slump is not unwelcome
Bullish Finance Minister Brian Cowen has said that the current turmoil in the property market is "neither unwelcome nor surprising" despite plummeting house prices around the country.
In comments which will renew questions over his stewardship of the nation's finances, Mr Cowen has rejected claims that his policy of "cooling down" the property market has badly backfired.
This is despite emerging evidence that house prices, particularly in the greater Dublin area, are falling faster than anticipated, that the number of repossessions is growing and that the prospect of negative equity is looming.
In July Mr Cowen introduced the abolition of stamp duty for first-time buyers, in what many property experts now say was an inadequate measure.
At the time, Mr Cowen said: "I believe that these proposals before you today to introduce targeted stamp duty reform aimed at benefiting first-time buyers will restore stability and certainty to this market."
If anything, there is now even greater instability and uncertainty in the property market here, and the credit squeeze is making loans difficult to get.
The difficulties in the Irish property market were highlighted last week at a new housing development in Delgany, Co Wicklow, where people who bought houses for €700,000 have been shocked to learn that new houses of similar design on the same estate are now being sold for €595,000 -- a drop of €105,000.
But in a provocative defence of his policies, Mr Cowen told the Sunday Independent that prospective buyers should not be discouraged by those who seem to portray easing in house prices in a negative way.
He declined to talk about individual cases but dismissed the grave disquiet over the property market.
"For most people, the value of their house is a constant factor. It is a home to live in, not an investment to be tracked like price changes on the stock market," he declared.
Mr Cowen claimed there is now much better value both in the new and secondhand market than a year ago.
"A climate of price moderation is a far more comfortable place for buyers than a market driven by hype.
"Even home owners trading up or down who may take longer to sell will be in a better position as buyers than in an overheated market," he asserted.
What many householders regard as a drastic and frightening decline in the property market is a good thing, the minister insisted.
"The recent turnaround from unsustainable house price escalation in 2005/2006 should be neither surprising nor unwelcome.
"We are now seeing a transition to a more balanced and mature market.
"It is in everyone's interest that the housing market should evolve to an orderly and sustainable growth pattern, in terms of prices, lending and output," he added.
Mr Cowen added: "The positive overall view is, indeed, reflected in the Central Bank's most recent quarterly bulletin, which sees recent data as pointing to a better balance between supply and demand in the market over the medium term and stability in the market.
"Easing in prices should bring more buyers into the market, helping to ensure its continued strength.
"Housing demand is strongly underpinned by economic performance and a range of demographic factors -- population, age structure, reducing household size, immigration and a housing stock that is still below EU norms," Mr Cowen said.
He added that housing output figures for the first seven months of 2007 were showing over 44,000 completions.
"While recent trends clearly suggest an easing back on recent record levels, the final out-turn will depend on activity by builders through the rest of the year," he added.
Latest figures from the Central Bank show that growth in residential mortgage lending was the slowest for five-and-a-half years in July.
The annual rate of growth was 17.9 per cent, down from 19 per cent in June.
The €1.6 billion increase in mortgage lending in July was down more than 30 per cent on the same month last year
"The figures confirm that the slowdown in the property market continues," said Ulster Bank chief economist Pat McArdle.
Meanwhile, Fine Gael TD Charles Flanagan has warned vulnerable house buyers to steer clear of troubled sub-prime mortgages.
It follows last week's report in the Sunday Independent that thousands of householders are facing difficulties paying back mortgages -- including many vulnerable people who took out sub-prime loans at high interest rates.
Mr Flanagan said that the Independent Mortgage Advisers' Federation confirmed that sub-prime lenders are increasing interest rates on home loans.
Interest rates of 8 per cent and over are now the reality for some families.
He said hard-pressed families look to sub-prime "predators" to help solve their loan or debt problems, but the very high interest rates can leave people worse off than ever, and sometimes without even a roof over their heads.
The head of the Financial Regulator, Patrick Neary, has called for sub-prime lenders to be brought under the control of the Consumer Protection Code (CPC) .
On Thursday, Mr Cowen said he was aware that some lending activities fall outside the scope of the CPC so borrowers do not benefit from the additional safeguards which the code provides.
Mr Cowen promised action in the next Dail term.
In the US, President Bush said he would help those sub-prime borrowers who are in trouble. He will allow the Federal Housing Administration, which insures mortgages for low-income borrowers, guarantee loans for borrowers not meeting their repayments.
ECB Governor Jean-Paul Trichet has now been summoned by the European Parliament for a hearing this month about the recent chaos in the financial markets.
The hearing will take place on September 11 before the Parliment's Economic and Monetary Affairs Committee.
