| 8°C Dublin

House price rises ‘cannot continue’ says ESRI as it predicts slowdown in 2023

Close

House prices were over-valued by at least 7pc last year but will cool in future. Photo: Niall Carson

House prices were over-valued by at least 7pc last year but will cool in future. Photo: Niall Carson

House prices were over-valued by at least 7pc last year but will cool in future. Photo: Niall Carson

Spiralling house prices “cannot continue into the future” and are set to moderate next year, according to the Economic and Social Research Institute (ESRI).

House prices were over-valued by at least 7pc last year but will cool in future, the leading think-tank has predicted.

Rising interest rates and a running down of household savings should ease the house price spike, the ESRI said in its latest economic commentary.

House prices jumped more than 14pc, year on year, in June, but slowed to 13pc in July, according to the Central Statistics Office.

“That doesn’t necessarily mean that house prices are going to fall by that amount,” said ESRI research professor Kieran McQuinn.

“But what it does suggest is that, really, the kind of substantial increases in house prices that we have witnessed cannot continue into the future, and you are likely to see a significant moderation in terms of house price growth in the coming quarters and over the next year.”

The ESRI is predicting a slowdown in the Irish economy next year – but it expects jobs, spending and investment to hold up due to strong growth in the pharmaceutical and technology sectors.

Modified domestic demand – a measure of growth that strips out the effects of aircraft leasing and patents – is forecast to drop by more than half, from 7.5pc this year to 2.5pc next year.

Inflation is expected to hit 8.1pc this year and fall only slightly to an average of 6.8pc over 2023, as high energy costs persist.

The Central Bank predicted this week that Ireland could enter a “technical recession” in 2023 – defined as at least two successive quarters of negative growth – although it said growth will be positive on average for the year.

Mr McQuinn said there is “definitely evidence of a slowing down in the economy” but said there was “enough of a dynamic there for the economy to continue to grow strongly”.

Export growth will continue into next year, the ESRI forecasts, although it will drop from 10.5pc in 2022 to 6.2pc in 2023.

Business Newsletter

Read the leading stories from the world of business.

This field is required

Consumer spending is expected to remain positive, growing 3.2pc this year and 2.5pc in 2023, while overall investment will rise to 7.4pc next year from 3.1pc in 2022.

Bumper tax receipts mean the budget will be in surplus again next year, Mr McQuinn said, leaving the Government with “some capacity for further initiatives if needed” to contain rising energy prices.

ESRI associate research professor Conor O’Toole said the upbeat forecast was because the pharmaceutical and technology sectors “appear to be insulated” from global volatility.

However, he said the growing importance of the two sectors to the economy – their contribution to Irish growth has almost doubled in a decade, the ESRI estimates –  feeds into the State’s over-reliance on corporation tax receipts from a small number of large multinationals, which is set to “get even greater”.

The ESRI predicts tax gains of between €675m and €2bn from a new 15pc minimum corporate tax rate agreed last year at the Organisation for Economic Co-operation and Development ( OECD).

But losses could amount to between €2.4bn and €5bn if multinationals were to re-home their patents or withdraw investment as a result of the changes.


Related topics


Most Watched





Privacy