Ireland: Central Bank Hid Property Crash Forecast
June 14th, 2010Via: Independent:
THE Central Bank buried sensational data forecasting a crash in the property market months before the housing market began to crumble in early 2007.
Last week’s report into the banking crisis by Central Bank boss Professor Patrick Honohan revealed that minutes from the bank’s financial stability group had shown that predictions of a crash in the market were deliberately left out of a crucial report in 2006.
“It was decided in 2006 to exclude from the main text of the report data and references to a likely 15 per cent house price overvaluation that was contained in a themed research paper,” according to Prof Honohan’s report.
The explosive report entitled Assessing the Role of Income and interest Rates in Determining Irish House Prices was produced by Central Bank economists Kieran McQuinn and Gerard O’Reilly in 2006 as the housing market appeared to be booming.
The housing report is highly technical but crucially it suggests that Irish house prices were being overvalued by as much as 15 per cent.
“After 2002, the chart shows a divergence between predicted and actual prices, with actual house prices being higher than that predicted by the model.
“As of 2005 Q4, this gap is about 15 per cent,” the report warns. The bank did not publish the findings of this research in its key Financial Stability Review report for the year — its key temperature reading for the Irish economy in 2006.
It was included as one of four separate documents released with a report in November 2006.
A spokesman for the bank declined to release minutes of the meeting where the extraordinary report was excluded from the main review document and declined to make any further comment. The Honohan report also found the bank probably watered down the language of its financial stability reports, fearing adverse market or government reaction.
