Tuesday 23 July 2019

House prices to rise 20pc over the next three years but 'market is not overheating'

  • ERSI report finds prices are likely to rise by 20pc by 2020
  • Surge due to 'strong economic growth and the slow pace of house building'
  • A rise of another 20pc would see average prices at close to €320,000
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Stock photo
Charlie Weston

Charlie Weston

HOUSE prices will keep rising over the next three years, but the property market is not overheating, according to the State’s leading think tank.

Prices are likely to rise by 20pc by 2020, the Economic and Social Research Institute (ESRI) said in a new report.

The price surge it predicts is due to strong economic growth and the slow pace of house building.

But it has dismissed suggestions the housing market is overheating.

The research finds that prices are broadly in line with the level suggested by current economic and demographic variables in the economy.

“Therefore, the analysis suggests that the Irish housing market is not overheating at present,” the ESRI said.

The average price paid for a home was €266,000 in the year to September, the Central Statistics Office said last week.

A rise of another 20pc would see prices at close to €320,000. The rise is calculated in real terms, or by taking account of inflation.

The analysis also compares Irish house prices with prices in other markets.

A cross-country comparison of price-to-income ratios and price-to-rent ratios supports the finding that the housing market is not currently overvalued relative to the demographic and economic context, according to the report’s author, Professor Kieran McQuinn.

But he warned in the new study that continuing house price increases would pose competitiveness pressures.

This made it imperative that Government policies should focus on increasing supply.

The think tank also said there should be no easing of the Central Bank’s lending restrictions. Any change risks stoking demand further.

Those taking out a mortgage are restricted to borrowing only three-and-a-half times their income, while first-time borrowers have to have a 10pc deposit, with a requirement of a 20pc deposit for other mortgage borrowers.

"As economic growth continues and the banking sector recovers, it will be critical to monitor credit provision to avoid fuelling house price inflation," Prof McQuinn said.

His new economic paper comes as the latest figures from the Central Statistics Office show that property prices surged by close to 13pc in the year to September. The surging property prices are also forcing buyers to borrow more.

The average amount borrowed by all those taking out a mortgage has shot up by €20,500 in the past year, according to figures from the Banking and Payments Federation.

So many people want a property that there are now two buyers ready to buy for every property that changes hands.

There are some 110,000 people ready and willing to buy a home, despite a chronic shortage of properties to purchase, the latest KBC Bank Homebuyer Sentiment Survey shows. Movers account for a large number of those with purchasing plans.

The number of homeowners is expected to run ahead of any improvement in property supply over the next year or two, keeping pressure on prices.

The 110,000 who are ready to buy in the market is twice the number of property sales expected in the next two years, according to the KBC survey.

People intending to move home make up a third, or around 40,000, of those with plans for home buying.

This is from the figures recorded in the previous KBC Bank Homebuyer Sentiment Survey in April.

The survey highlighted that "natural" demand from those of house-buying age or whose family size has changed is the dominant driver of the increase in prospective homebuyers.

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