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Property Seminar hosted by UCD Smurfit School - the first of its kind in Ireland

Date: 20 Nov 2007

Pictured at Property - The Shape of Things to Come (l-r) Thomas Dowd, Quinlan Private & Prof Robert Van Order, University of Michigan

A leading US economist and expert on sub-prime markets has indicated that the Irish Market is poised for a decline although nothing like the tech bubble of the 90’s. Professor Robert Van Order was addressing an audience comprising of experts from government, property, finance and academia at a seminar ‘Property: The shape of things to come’ hosted by UCD Michael Smurfit Graduate Business School.  

Speakers at the seminar included Thomas Dowd, Partner, Quinlan Private, Michael Scollard, Development Director, Mountbrook Homes “Jurys Ballsbridge”, Colm McCarthy, Economist, UCD and Geraldine Tallon, Secretary General, Dept. of Environment who gathered to discuss the critical issues facing the Irish property market.

Ireland poised for a decline

Key note speaker Professor Van Order commented on how rapid growth in the housing market is always likely to be risky and that the best protection going forward is to maintain high down payments to keep borrower equity strong.

“Yes the rise has been very rapid, if you consider that ten or fifteen years ago housing costs in Ireland were well below the European average, and now its becoming one of the most expensive places in Europe - if not the world - in terms of housing. There’s always a risk of that being fragile.”

Given the length and breadth of house price rises in Ireland a slow down or drop off is inevitable and that it is “extremely unlikely” that house prices will go back to where they were five or ten years ago. Although a ‘housing bubble candidate’ the underlying strengths of the Irish economy that led to high housing prices are still in place and that is a “real power”.

Sub-prime crisis and lessons to be learnt for Ireland

Professor Van Order informed the gathering of the importance of not eliminating or regulating the small but growing sub-prime market in Ireland out of existence and “not discourage sub-prime markets but instead manage them better”.

“Its not easy expanding loan markets to riskier borrowers. You can’t expect to do it without mistakes and lots of defaults.”

Van Order believes that overreaction to the much discussed sub-prime crisis is possible and dangerous. The sub-prime market in the US has made a valuable contribution in providing credit and home ownership to borrowers who would not otherwise have received loans.

“The sub-prime market is very private and competitive. Exit is easy and the only thing lenders or investors have is pricing and equity in the property. Even the worst estimates that twenty percent of recent originations will end up in foreclosure imply that eighty percent will be in some way successful”.

According to Van Order, Irelands sub-prime market is not big enough to do any damage but advised that Ireland should express concern if the sub-prime market grows too rapidly as rapid expansion can be dangerous considering that the “Irish property market is more volatile than the US market”.

Coping with losses of confidence

Van Order has faith in the resilience of markets in crises such as these: “The problem with financial markets is that you just don’t always know, but I don’t believe that this is a long term problem. Housing almost everywhere does fairly well, and financial systems around the world are pretty good at coping with losses of confidence”.

Overall the key is that the financial system be solid enough to keep any risky financial instruments from bringing down the banking system, with Van Order adding “If consenting adults want to do stupid things then sometimes you have to let them.”

With calls for possible policy intervention towards losses of confidence in this market, Van Order was direct in his response adding: “In general, you should direct monetary fiscal policy towards general stability of the economy and Ireland needs to be extremely careful about directing policy towards particular industries. Sometimes you just have to let things run their course.”

Advice to Irish Consumers / Property buyers

Van Order advised Irish Consumers and Property Buyers to “listen” but “never act solely on advice from realtors or lenders” and to get legal advice on your mortgage agreements as they are the most important transactions in your life.”

Importance of the property seminar

Professor Tom Begley, Dean, UCD School of Business who chaired the session said:

“The seminar was one of the first of its kind in Ireland and provided a much needed platform to discuss the major issues facing this key sector from a planning, economic and development perspective.”

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