Wednesday 21 August 2019

New analysis of house prices shows significant slowdown in increases for first time

Double-digit growth widespread outside of capital

File photo
File photo

Fran Power and Mark O'Regan

A new analysis of house prices nationwide shows for the first time signs of a significant slowdown in increases in certain key market areas, the Sunday Independent can reveal.

The study of prices actually achieved reveals that increases have slowed dramatically in Dublin 4, where an affordability threshold seems to have been reached in the second half of last year.

Price inflation has also fallen to around 1pc in two other areas of north Dublin where supply is starting to meet demand.

But in five other areas of Dublin and in 12 regional counties there have been double-digit increases in the same period, an indication that the property market is still wildly out of kilter.

However, the fact that price increases have significantly slowed in Dublin 4, traditionally the country's most expensive area, and in north Dublin, where a large number of new houses are being built, is the first sign that the property market may be starting to stabilise.

Yesterday, a leading economist predicted that price increases would continue to slow this year. "It will certainly slow, and slow considerably," said AIB chief economist Oliver Mangan.

Overall, though, the trend emerging in the Residential Property Price Barometer is of a complex market that still has some way to go before it corrects.

Escalating house prices have stalled in Dublin 4 because the typical salary will not fund the huge mortgages required to finalise a sale.

The research by the Institute of Professional Auctioneers and Valuers (Ipav) also shows price rises in certain parts of the capital over the second half of 2017 were negligible, hovering at around 1pc.

The study was based on average sales for three types of housing - two-bed apartments, three-bed and four-bed semi-detached houses.

In the second half of last year, one of the slowest rates of price increase for three- bedroom semis in the capital was in Dublin 4, up only 1.27pc compared with the first half of 2017.

A similar house type in north county Dublin rose by just 0.99pc and the same sort of property in Dublin 15 increased by 1.99pc.

While still the fourth most expensive location in the capital, prices for four-bed semis and two-bed apartments in south county Dublin have also fallen back. For instance, two-bedroom apartments rose by just 2.5pc - increasing to €348,750.

Read more: 'House prices to fall here if UK fails to get Brexit deal'

In contrast, city areas served by the Luas green line are experiencing strong demand. This is reflected in continued strong double-digit growth for three-bedroom semis in Dublin 2, up 17.95pc.

Meanwhile, prices in Dublin 6 jumped 13.93pc, while in Dublin 7 they went up by 12.5pc. Dublin 1 had a bounce of 10.8pc.

In January, a report found 2017 was a "year of two halves", with an 8.8pc surge across the country in the first six months while the latter half recorded increases of just 2pc.

Mangan said prices at the upper end of the market were moving further out of reach of buyers.

"Because of the level prices have risen to - particularly in Dublin - we are running into constraints in terms of people's ability to fund certain properties, in terms of the loan-to-income ratio," he said.

"It's not an issue in the rest of the country, where house prices are much lower.

"We would expect, particularly in Dublin, a deceleration in house price inflation next year.

"This is primarily because affordability is becoming an issue in the capital; a buyer can only get three-and-a-half times their income," Mangan added.

"Because of the level house prices have risen in Dublin, in particular, it's hard to see the level of house price inflation we saw over the course of 2017 be sustained in 2018.

"It will certainly slow, and slow considerably.

"Rather than rising between 11pc and 12pc, we would expect house prices to go up between 5-6pc this year.

"But in the parts of Dublin where house prices are lower, you would expect house price inflation to be stronger.

"However, we expect slower house price inflation in the more expensive areas."

Mangan said the combination of strong employment growth, a pick-up in wages and the continued influx of foreign investment would keep fuelling demand for housing in Dublin.

"So the market is fairly well underpinned from that point of view, but it's hard to see it keep going at the rate it has been over the last couple of years," he added.

He said Brexit was likely to also have an impact on Dublin's housing market.

"That will increase demand for both the rental market and the home purchasing market," he added.

"But it's not on the scale that was originally envisaged."

KBC Bank chief economist Austin Hughes said a variety of factors had led to prices tapering off in parts of the country.

"Undoubtedly we are seeing affordability issues bite," he added.

"That's due to Central Bank rules, and a broader issue about affordability, in certain areas.

"Salaries are only going up between two and three per cent.

"Unless you're a tech worker, for instance, whose salary is going up 10 or 20pc, you're going to be more constrained in how much more you can now pay for a house now, compared to six months ago."

Sunday Independent

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