House price growth set to continue in Ireland in 2018 but at a slower pace

House prices are expected to continue to rise in 2018 in Ireland but at a slightly slower pace due to a tightening of the Central Bank lending rules according to the latest house price report.

Prices are set to rise by 8% overall in 2018, split between double digit growth outside the capital and a rise of 6% or 7% in Dublin, says the report from MyHome which is published in association with Davy.

While asking prices fell back by 1% nationally in the final quarter and 0.4% in Dublin, this is in line with normal seasonal trends, and the report points out that overall 2017 was a year of robust inflation, with prices rising by 10.2% nationally and 11.1% in Dublin.

The median asking price for new sales nationally was €242,000 in the final quarter of 2017. In Dublin the median price was €330,000 compared with €195,000 in the rest of Ireland.

For the entire stock of properties listed for sale on the website prices rose by 6.2% nationally and by 6.3% in Dublin during 2017.

Report author Conall MacCoille, chief economist at Davy, said the tighter Central Bank rules will serve to slow house price inflation in Dublin. ‘Asking prices have fallen in the final quarter of each of the last five years before bouncing back in the Spring and we see that pattern continuing in 2018,’ he said.

‘However due to the Central Bank tightening its mortgage lending rules we believe house price inflation in more expensive areas, like Dublin, will slow somewhat to around 6% or 7%,’ he added.

He pointed out that buyers in Dublin have been taking out higher levels of mortgage debt, but with the availability of credit constrained, further price increases will also be curtailed slightly in 2018. However double digit price gains are likely to continue outside the capital where the recovery began later, prices are cheaper and there is still scope for leverage on mortgage lending to rise.

For example, the median first time buyer in Dublin during the summer had an income of €77,000, a deposit of €52,800 and purchased a home worth €321,000. This meant in Dublin the median house price to income ratio for first time buyers was 4.2. However, prices are less stretched in other areas of the country. The median first time buyer in Leinster had an income of €56,000, deposit of €22,000 but purchased a house worth €179,000, implying a house price-to-income ratio of just 3.2.

‘One of the benefits of rising house prices is a reduction in the number of people in negative equity. Many Irish households have been unwilling to move home due to their stretched finances, specifically their lack of housing equity,’ MacCoille explained.

‘Looking forward to 2018 rising house prices have now dragged all but 9% of owner occupiers out of negative equity, a stark improvement from the 36% at the end of 2012. With greater equity in their homes, more Irish households will seek to move home, helping housing market activity,’ he added.

According to Angele Keegan, managing director of MyHome, while a 10% or 50,000 rise in sales in 2017 was a positive development, the overall picture is that of an illiquid market hindered by the lack of fresh housing supply. ‘If the Irish market was functioning properly we would be seeing around 90,000 transactions per year,’ she said.

She pointed out that at the end of 2017 the number of properties listed for sale had fallen to just 18,900, a record low and down 9.4% year on year, representing less than 1% of the housing stock.

‘The average time to sale agreed was just 3.8 months nationally and 2.8 months in Dublin. These figure show that whatever stock is for sale is sold ever more quickly,’ she added.