Dublin’s house price inflation will moderate
On a national basis, prices rose 2% in July. This was the fourth consecutive month of large price gains, with an increase of 9% over this period.
Meantime, the yearly growth rate accelerated to 13.4% in July, the fastest pace of annual house price inflation since April 2007. Prices are now 17.5% up from their low point in March of last year.
On a regional basis, Dublin continues to lead the way, with prices 23% higher in July compared to a year earlier. Recent price gains have been particularly strong, with prices up 14% in the four months to July.
While prices outside of Dublin continue to lag behind, the recovery there does seem to be gaining some traction. As of July, residential property prices excluding Dublin were up by 5% on a yearly basis. This represents their strongest annual growth rate since September 2007. Much of this gain has been recent, with prices up by over 4% in the three months to July.
While the strong year-on-year increases in house prices are attracting plenty of headlines, it is important to remember that prices fell by over 50% between late 2007 and early 2013. Thus, prices are still well below their peak levels.
Nationally, prices are still 42% below their peak, and are currently at around levels that pertained in 2002. Within the Dublin area, prices are 43% below their previous highs, while outside of Dublin, prices are 45% lower than their peak, according to the CSO data.
The recent strong upward momentum in prices is predominantly being driven by the fact that demand is outstripping supply. Demand is being supported by positive cyclical factors in the economy, including healthy jobs growth and rising consumer confidence. However, turnover activity in the market remains very low.
Potential housing demand is estimated to be in the region of 25,000 units per annum. However, over the three-year period 2011-2013, a cumulative total of just 27,300 residential units were completed.
While there remains an overhang of unsold properties in some parts of the country, supply needs to pick up in areas where this is no longer the case, most noticeably in Dublin. This would help ease the upward pressure on prices. The shortfall in supply is also reflected in the rental market. There has been a marked fall in the number of properties being advertised for rent. Overall, rents have risen by 20% from their lows.
Residential building activity is experiencing some improvement and supply is beginning to rise. House guarantee registrations, regarded as a good leading indicator of developer activity, were over 60% higher in the year to August compared to the same period last year.
In terms of actual completions, the data show completions at 5,824 units in the seven months to July. This represents an over 30% increase compared to July 2013. If this rate is maintained for the rest of this year, completions could total around 11,000 units in 2014. However, this would still be a very low figure.
Mortgage lending has also picked up this year. However, again in absolute terms, it remains at very low levels, even though the share of property purchases being financed by cash is declining.
We expect the very strong house price inflation in the Dublin market to moderate during the next couple of years. The supply of new homes is set to increase significantly in the Dublin region, which should help dampen price pressures.
Furthermore, affordability will become a more challenging issue as prices recover and the market moves away from cash buyers. This should also see price growth moderate. Outside Dublin, house prices generally should see modest growth as the economy improves.
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