Updated 11:44 am, August 21, 2013
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August 20, 2013 by David Murphy
By Business Editor David Murphy
When it comes to residential property, many people are understandably sceptical of any talk of a recovery.
The sight of a smooth-talking estate agent telling them prices are on the up is little comfort for those who bought at the peak of the boom.
However the reality is that the cost of buying a home is rising in Dublin, and has been for some time.
The latest property index from the Central Statistics Office shows houses in the capital have increased by a surprising 7.5% over the past year.
Apartments are rising faster at 11.6%, albeit on the basis of a very small number of transactions.
There are a number of positive economic effects from higher prices.
The most obvious one is that a rising market lifts some people out of negative equity; this means some trapped homeowners can move house. Unfortunately prices would need to continue to increase for many more years to remove those who bought at the peak from negative equity.
In recent years the availability of credit from banks has been a problem for potential buyers, however rising prices could give lenders more incentive to offer mortgages as the risk of negative equity is diminished.
For people hoping to buy, however, rising prices in Dublin is unwelcome news – and in three yearsâ€™ time the freeze in property tax will expire, so we can presume the levy will go up in Dublin in line with higher prices.
But increasing property costs should not be confused with a recovery.
Lecturer Rob Kitchin of NUI Maynooth points out that while prices have been rising in the capital the number of transactions has remained at very low levels.
He has analysed sales data from the State’s Residential Property Price Register and information from the Irish Bankers Federation regarding the number of mortgages issued to buyers.
Both datasets show the same pattern.
Aside from a surge of buyers who took advantage of a mortgage interest relief incentive to buy at the end of last year, sales have remained very low since 2010. They are running at less than one third of pre-boom rates.
But rising prices do have a beneficial psychological effect. A home is the biggest investment most people will ever make; the fact it is rising in value might make them feel a little more optimistic. And that canâ€™t be bad.
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