Housing market uncertainty to continue

UNCERTAINTY in the housing market is set to continue until late this year, despite the clarification from the Government on stamp duty.

The latest Bank of Ireland property review also predicts that house prices will remain flat this year, with a 2% gain next year. This gain however is less than the bank’s predicted inflation rise next year of 2.5% meaning a house price fall of 0.5% in real terms.

The bank predicts one more interest rate hike from the European Central Bank (ECB) in October and said the market is unlikely to pick up momentum again until there is clarity with regard to the peak of the interest rate cycle.

They said that certainty in the market will be restored once people feel interest rates have peaked and confidence in the market is regained.

The bank’s quarterly analysis of the Irish property market also shows that the Irish housing market is experiencing a slow down, which they say is a predictable result of a rising interest rate cycle and record growth in supply.

BOI group chief economist, Dr Dan McLaughlin said: “The impact of the rate cycle is clear when we look at the relationship between rents and prices.

“The rental market was soft in 2004 and 2005, reflecting the fact that the marginal house hunter could afford to switch from renting to buying given the interest rate backdrop. House prices were also expected to rise at that time, so encouraging people to buy.

“The reverse is now true: the marginal buyer is now renting given the additional cost of servicing the average mortgage.

“The result has been a rapid rise in rents, an 11% increase over the past year, and static house prices.”