Soaring house prices set to cool off, but big cities retain their premium

But, it was short lived: then, the global Coronavirus pandemic struck.

Despite confident expectations from economists and many other commentators of a consequent international property price dip as economies and building sites locked down, the opposite was the result – yet higher house prices, as well as shifts in location demands away from dense schemes to favouring homes with private and outdoor spaces, often in rural or coastal settings and places with good broadband, for the work from home paradigm shift.

Now, as 2023 winds down, there’s another price growth slowdown in train.

Unfortunately for today’s home hunters, it’s from a higher base level than pertained back three and a half years ago when it seemed prices were settling at a broadly ‘sustainable level’.

After several recent years of the market dodgily rewarming, the first real signs of a price levelling are once more in Dublin, where there’s an actual slight dip in values by 1.4%, while nationally the rate of price inflation had come down to 1.5% by July on an annualised basis, or 3.8% nationally excluding Dublin.

This is the lowest level of increase in three years, down from briefly-hit double digit percentage price surges, and chimed with the latest of nine ECB bank rate hikes, at a point at which the Central Statistics Office recorded a median price nationally of €320,000 for the year to July ’23, or over €435,000 in Dublin.

Commentators on the CSO’s Residential Property Price Index say demand outstripping supply, with population growth vs shortages suggest ‘resilience in the market’, and they predict prices are finding their equilibrium, likely to stabilise at or around current levels.

Estate agent Elizabeth Hegarty of Savills says there’s a very active market among potential buyers with the most active buyer in the new homes market being first-time buyers (FTBs,) noting “the incentives available to first-time buyers have resulted in an increase in the number of house hunters entering the market.” And, as their Cork office alone has registered over 800 FTB’s looking for new homes, she adds: “It’s imperative that, in conjunction with the delivery of affordable and cost rental homes through the Local Authorities, Land Development Agency and Approved Housing Bodies, that we also see an increase in supply to the private homes market to meet market demand.” Within the last month, the Banking & Payments Federation Ireland (BPFI) published lending figures which acknowledged a wider market slowdown of 9.7% in mortgage levels over a year, whilst also noting that first-time buyer (FTB) activity remained very buoyant in the year to July.

First time buyers represented 61.5% of approvals (anecdotally, Munster estate agents put the FTB quota at 65%-75%: see following pages) with 2,918 FTB approvals for July and mover-purchasers accounting for 1,148 mortgages, or 24.2% at a new high of almost €341,000, while mortgage values were €1.356m for FTB and €837m for mover purchasers. In contrast, remortgage/switcher activity took a dive of 78-80% in volume.

BPFI noted it was the fifth successive month in which FTB mortgage approvals had risen in year-on-year terms, with sustained growth seeing 29,754 FTB approvals (worth €8.4bn) in the 12 months to end July and “the highest annualised levels since the data series began.” In conjunction with c 22,000 Help to Buy applications in the year as reported by Revenue, “the figures demonstrate that the pipeline for FTB mortgage drawdowns remains very strong,” said BPFI chief economist Ali Ugur.

Against that backdrop, rising interest rates are going to continue to dampen enthusiasm and aims of existing mortgage holders, with average variable rate borrowers facing a €160 a month repayment hikes, while those coming off fixed rates could see increases of up to €400 a month.

Even if borrowers hope that there’s an end in sight to the ECB’s many recent hikes – as we may be at peak levels, in the short/medium term – rates are likely to remain in the 3-4% bracket beyond 2024, and first-time buyer will see their borrowing capacity cut from 2022 levels, unless they can show pay increases of €5,000 to €7,000 per annum.