Double-digit Irish house price increases unlikely

House prices grew by almost 5% nationally in the first quarter of the year, but a return to spiralling double-digit hikes appears remote thanks to the introduction of new Central Bank mortgage lending restrictions.

The price rise seen across the country consigned a late-2014 slump to the history books as an aberration, with the market now said to be functioning better as a result of the new lending caps.

With the new mortgage rules, aggregate house prices can in the future only grow as fast as incomes rise, making double-digit inflation in the housing market, particularly in Dublin, “incredibly unlikely”.

Trinity College professor of economics Ronan Lyons, author of the Q1 house price report, says the return to house price growth is not something we need to be overly concerned about as a number of factors caused the increase.

Firstly, there may be some element of a “sigh of relief” driving demand from some homebuyers as the Central Bank chose not to require a 20% deposit from first-time buyers, particularly in lower-price areas, while those with mortgage approval from before the regulations were introduced have a strong incentive to purchase before their approval runs out.

Added to those factors, the housing market that has emerged at the beginning of 2015 as a result of the mortgage loan-to-income and loan-to-value is in stark contrast to that of last year with house price increases excluding those in the capital outpacing the Dublin market, with Munster recording its largest quarterly increase since early 2007.

“It is clear that the Central Bank rules have had an impact on the market,” said Mr Lyons. “Dublin prices are now anchored to real economic conditions, with survey respondents expecting significantly slower house price growth now than a year ago. Similarly, compared to a year ago, a far higher proportion of respondents, in the capital and elsewhere, indicated the need to save for a deposit as a key reason for delaying buying a home.

“Outside Dublin, the Central bank rules that link mortgages and incomes seem to have had, if anything, a positive impact on prices. The fact that house prices vary across the country by far more than incomes does mean demand should reshuffle from Dublin to elsewhere in the country.”

The average asking price nationwide is now €201,000.

This compares to a low of €170,000 in mid-2013 and a high of €378,000 in mid-2007.

Prices in Dublin are now 2.9% higher than in late 2014, whereas outside Dublin prices rose by 5.9% in the same three-month period.

This substantial quarterly increase in average prices was consistent across the country. In Cork, prices rose by 7.2%, while in Galway and Limerick they rose by 6.8% and 6.7% respectively. In Waterford, the increase was 4.9%, while outside the cities the average hike was 5.8%.

The average price of a three-bed semi-detached home in Dublin stands at €323,000 with a near 6% quarterly increase pushing the price of an equivalent house in Cork City to €163,000.

In Galway, the same home costs €149,000 on average with similar in Limerick City commanding €109,000, compared to €93,000 in Waterford City.

According to the survey, by mid-2014, the transaction price in Dublin was 7% above the listed price — a gap which has halved in the early part of 2015.

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