Betting the house.

(From Irish Independent)

Betting the houseTHE world economic downturn which began three years ago was exceptionally short-lived, especially in Ireland. By the beginning of2004 the good times were rolling again, not at the same pace as in the 1990s but still perhaps too fast for comfort.

Our growth rate for 2003 recovered to 3.3pc. This year it could reach 4pc. The figures are reflected in our patterns of spending - and borrowing, at a rate approaching 20pc per year. And with increased borrowing goes increased cumulative debt.

Most of the debt is manageable. But there is one possible, and dangerous, exception. At the end of February, a total of [euro]56.4bn was outstanding in residential mortgages. Thefigure had risen by [euro]938m in one month. The adjusted annual growth in this category of debt was 21.6pc.

At the same time, property prices have risen apace. In the last year, the average house price rose by [euro]30,000, to [euro]237,000. The annual increase comes to 13.3pc, more than six times the overall inflation rate.

Is that sustainable, or is the intense overheating of the property market the one big threat to the Irish economy? Lenders predictably deny that there is a housing bubble, liable toburst, but all experience suggests that growth on that scale cannot continue indefinitely and that purchasers eventually may risk the misery of "negative equity".

Unfortunately, remedies are few. The simplest and most obvious would be a rise in interest rates. But we expect, instead, a cut in rates by the European Central Bank.