Property prices are firmly on the ascent once again.
Having slowed last year on the back of a rapid succession of interest rate increases, the pace of price growth is showing signs of renewed momentum.
It comes against the backdrop of an ongoing shortfall in the supply of properties, a recent decision by the ECB to start trimming rates, wage growth across the economy, and the move by the Central Bank to raise the earnings threshold at which borrowers could qualify for a mortgage.
So, how sharp are the price rises and is the momentum expected to continue?
Turnaround
As 2023 drew to a close, Irish property prices had, by and large, stabilised.
Prices in areas outside of the capital were still rising - albeit at a slower pace than previously - and the cost of a property in Dublin was on the decline.
Householders - as well as aspirant property purchasers - had endured more than a year of steep interest rate increases which saw the cost of servicing a mortgage rising sharply.
Many analysts had expected that market stability to persist through 2024, but it hasn't turned out to be the case.
Far from it - prices are rising again with the rate of increase looking quite pacey.
The property websites, MyHome.ie and daft.ie - which compile reports based on asking prices for properties - did signal this exact outcome.
The momentum that they saw coming through some months ago is now being reflected in the official figures from the CSO, which are based on completed property transactions.
And the websites are now seeing a continuation of that sustained increase in prices.
Asking prices
According to MyHome's latest report, which covered the late spring into early summer, prices being sought by vendors were up 7.3% in the year, which was the fastest pace of price increase in almost two years.
The report from daft.ie captured a similar trend, with the annual rate of increase running at 6.7% nationally.
Both reports put the median asking price for a property nationally at around €350,000 with the price in Dublin at over €450,000.
What's more, vendors appear to be achieving well in excess of what they are seeking for properties.
According to MyHome, in May of this year, properties were going for 6% over the original asking price, at the median.
"This is a stark change to 2023, when the median premium was just 1%," the report noted.
Converging forces
As is so often the case with the property market here, there is a multitude of factors at play in driving prices higher.
One perennial issue is the supply of properties. There were just 12,500 properties listed for sale on MyHome.ie at end-June.
That's close to the historic low hit earlier this year and down around 11% on last year as more people may have decided to hold off on putting their properties on the market.
Daft.ie noted a similar trend. It had just 11,350 properties listed for sale on its website on June 1st.
That was down 18% year-on-year and less than half of the average between 2015 and 2019 of 25,000 properties listed at any one time.
"The only other time the market has been as tight, in a series extending back to 2007, is the period January-May 2022," Ronan Lyons, Trinity College Economics Professor and author of the reports from daft.ie noted.
"Availability in the sales market has been consistently tight since the start of the year and thus it is not surprising that prices nationally recorded their largest three-month increase since 2020," he added, referencing the website’s latest report.
Another factor at play has likely been the growth in the labour market and wages in recent months.
More people with the means and stronger earnings chasing fewer properties is a recipe for steep price rises.
"The 4.7% rise in average earnings to €50,300 in the year to the end of the first quarter was always likely to push up house prices," Conall MacCoille, chief economist with Bank of Ireland and author of the reports for MyHome.ie said.
"Indeed, the average mortgage approval in April was €313,000, also up 4.6% on the year," he added.
The relaxation of the Central Bank mortgage lending rules for first-time buyers also appeared to have played a role.
The share of first-time buyers with a loan-to-income ratio on their mortgage between 3.5- and 4-times income jumped from 6% in 2022 to 36% last year, Mr MacCoille noted. (The rules came into effect in January 2023).
Completions
While the second hand market is an important source of properties, the critical supply arguably comes from the new build sector.
While in excess of 32,000 units were completed last year, the market is on course for a similar number this year.
35,000 was once regarded as the 'magic number' of completions per year to keep pace with demand, but those goalposts appear to have shifted somewhat in recent months.
That target has moved closer to the 50,000 mark, according to an increasing number of analysts, and research from the Government's Housing Commission suggests it may even be as high as 62,000 new homes required every year.
A report published in recent weeks by the ESRI, however, muddied the waters slightly on that front.
Their analysis of the market concluded that between 35,000 and 53,000 completions per year would be needed to keep pace with demand, with the large differential accounted for mainly by migration patterns and different scenarios for economic performance.
The ESRI averages out the projected demand at around 44,000 units per year for the rest of this decade and 40,000 per year from 2030 to 2050.
It raises the question as to whether we could end up in a potential oversupply situation should policymakers opt for the higher number.
Ronan Lyons - a member of the Housing Commission - suggested that outcome was unlikely as the report had set aside considerations around household formation, for example.
"As we age as a society and live longer, marry later and have fewer children, there are more of what we call pre-family years in the typical adult life and they require different kind of homes for smaller households," he noted.
"That means we need a lot more homes for smaller households," he added.
Mind the deficit
Dermot O'Leary, chief economist with Goodbody and also a member of the Housing Commission, pointed out that the ESRI report had also not taken account of the current 'housing deficit'.
"The Commission’s view was that a deficit had built up over the past decade in particular due to a shortage of new supply in the aftermath of the financial crisis in Ireland that amounted to 212,000-256,000 units," he said.
One thing that is clear is that more units need to be constructed and at volume, as Pat Davitt, CEO of IPAV, the Institute of Professional Auctioneers & Valuers, points out.
He believes excessive focus is being placed on the minutiae of the housing and property markets.
"Far too much of the current debate centres around numbers such as the size of the housing deficit, housing need into the future, the effect of the recent changes in the Central Bank mortgage lending rules, and higher salaries pushing up prices," he said.
"There is, and has been for nearly a decade at this stage, a consensus on the need to substantially increase housing supply.
"We can continue to argue about the semantics or we can coordinate and make far more efficient the whole system of developing and delivering homes," he added.
Outlook
The bright spot in the market may well be that new-build sector where output has been enhanced and is continuing to gain momentum - albeit not to the required levels.
As far as the stock of older properties is concerned, there appears to be something of a blockage in the supply chain.
There are several reasons behind that. Firstly, the 'trading-down conundrum'.
For older couples or individuals wishing to vacate a larger property, they may have difficulty finding a suitable property for their needs - given the overall dearth of supply in the market - resulting in them remaining in their current property.
In addition, the interest rate environment may have prompted existing homeowners, who would ordinarily have moved, to sit out the period of rising rates.
Now that rates have started their descent, there may be scope for some additional existing homes to come to market, but there's little sign of movement so far.
"To some extent this appears to reflect a hangover from 2023, when reports of falling house prices, stretched affordability and ECB rates led many would-be vendors to incorrectly fear demand was soft. This trend may reverse but will take time," Conall MacCoille said.
If supply does come on stream towards the latter part of the year, it could conceivably see the pace of price increase levelling off once again.
But given the pent up demand at the moment, the spike in price growth that we saw heading into summer will have an overall impact on pricing for the full year.
Conall MacCoille says the current momentum in the housing market would likely see 'high single digit gain in the order of 5-6%' for the full year.
However, the property market always has the capacity to surprise.
Unfortunately, for those waiting for the opportunity to hop on the property band wagon, the surprise is rarely to the downside.
Prices look as if they're going in only one direction for the time being and it could be some time before they reverse course to any serious extent.
