Draw Breath

I see that Maria Farrell has posted some depressing news on the Irish economy over on Crooked Timber. It seems that 2006 final quarter net exports fell 10% year on year, with housing stalling too.¹ Even though I'm a person who, to coin Nick Cohen's phrase, has forecast ten out of the last three recessions, I suspect Maria's spot on. An economy reliant on equity-lead consumer demand is in very deep shit indeed.

How deep is a difficult question though. And this question matters very much for Belfast too.

On the down side, there is absolutely no doubt that Dublin's property market is a pretty fragile bubble. Rents are well below the costs of servicing mortgages. So investors have been keeping property on the basis of the increases in year-on-year equity. Once those increases stall, then its hard to justify the costs for investors to keep property. And if they all jump ship at once (as it would be individually rational to do) we're screwed.

Anyway, if you're not happy with speculation, just consider a market where the banks offload their properties.

On the up side, the economy is relatively diversified. That is, it's fed by a range of American industries. And this ought to keep going for the next while given our low corporate tax rate (yes: the one Sinn Féin want to increase). Unless the American economy goes belly up (not impossible if shocks translate into downturns), the amount of money coming into the economy ought to continue more or less as is.

My guess is that we're in for tough times but not to a total return to the bad old days.

The issue matters very much for Belfast partly because the latest Agreement is being bankrolled from Dublin but more because Belfast and Newry's housing markets were driven by surplus equity from the south throughout last year. About a 3rd of demand came up the M1 I read somewhere (sorry: I've forgotten the source). Hence the doubling of property prices.

My guess is that that ain't going to continue: there is very little in the way of surplus equity in the south and NI doesn't have immigration and other drivers for property in the way that Dublin does.

Nevertheless, one thing is certain. All those people who think that property is a sure-fired short term bet for profits are in for a difficult period.

And for all of us who, you know, want to buy houses for the niche purpose of living in them, well...

¹ I think these figures are drawn from page 2 of this report (pdf) but can't for the life of me get them to tally with the Irish Times's figures. Mine say that the merchandise + services balance for 2006 fell by 28% of the 2005 level. My sums are here (pdf). So that can't be right. There must be something fishy about my maths. Anyone with more skills than me out there?