West of Ireland knocks Dublin off the most expensive houses table
HOUSE prices are now more expensive in the west of Ireland than in Dublin, it has emerged. The pace of house-price growth is likely to slow and interest-rate increases will make houses less affordable over the coming months, a report published yesterday predicted.
In an analysis of the Irish housing market, Goodbody Stockbrokers economist Dermot O'Leary found that housebuyers in the west of Ireland are paying more as a percentage of their income to purchase a home.
House prices have almost tripled since 1996 with the biggest hikes recorded in Dublin.
The Goodbody economist said that this had raised concerns that house prices in Dublin were overvalued.
However, he said when house-price increases were compared to incomes in other regions around the country it was the west, particularly Galway, which stood out as the most expensive area. The analysis showed that when incomes are considered, house prices in the south-east were also more expensive than Dublin.
The report advised that houses are likely to become less affordable later this year as interest-rate rises begin to take affect - Mr O'Leary predicted that the European Central Bank would add another 0.75pc to lending rates over the coming year.
He said that while longer mortgages had helped make houses more affordable for first-time buyers, in the long term this would merely fuel prices even further.
"First time buyers are increasingly taking up the option of longer mortgage terms to ease their monthly cashflow situation."
As houses became less affordable, he said, demand for credit would likely fall and the pace of house price growth, currently running at 12pc, would also come down.
He said that in 2007, higher interest rates would lead to a slowdown in house price growth to just 3pc.
However, his assessment is at odds with that of IIB Bank economist Austin Hughes, who said the rise in house prices would continue to accelerate this year and in 2007.
Speaking at the annual general meeting of the Irish Homebuilders Association in Waterford, Mr Hughes argued that while Irish house prices had risen significantly in recent years, the increase was far from exceptional by international standards.
"Indeed, when Ireland's rapid economic growth and supportive age profile are taken into account, Irish house prices seem to have risen relatively modestly," he said.
He added that house prices here had risen by just under 10pc on average each year, well below the rates of increase experienced in countries such as Spain, France and the UK.
While Mr Hughes agreed that higher interest rates and rising monthly loan repayments will act to dampen Irish house price growth, he said other factors will act to support prices and he predicted an increase of 10pc this year and again in 2007.
Factors which have helped fuel house price inflation include the 1970s baby boom, inward migration, more women joining the labour force and cheaper loans.