S&P: Surging house prices to abate next year

Surging house prices in Dublin and other urban centres will moderate from 2015 onwards as supply constraints becomes less acute and mortgage arrears work their way through the market, according to a report by the ratings agency Standard & Poor’s.

Dublin has experienced the biggest increase in demand for housing over the past 12 months. However, because of the low level of completions over the past five years, this has put upward pressure on prices.

“We nevertheless don’t expect the recent strong increase in house prices to stay as strong beyond 2014. This is, first of all, because the Government has a medium-term economic strategy to address the ‘over-correction’ in the construction sector and help increase activity in that sector. This should limit supply shortages over the medium term,” said S&P.

“Second, financing conditions remain difficult and mortgage lending low. The latest data from the Central Bank of Ireland indicate that lending for house purchases declined by 4.2% year-on- year in October after falling by the same amount in September.

“According to Sherry FitzGerald, 54% of all transactions were bought with cash in the first nine months of the year, highlighting that households still face difficult lending conditions.”

The continuing problem of mortgage arrears will act as a brake on bank lending, it notes.

The level of mortgage arrears over 90 days peaked at €18.9bn, or 17% of all mortgages last year.

S&P argues that based on the experiences of housing crashes in the US, the most effective way of dealing with arrears will be to increase the amount of repossessions and debt writedowns.

Overall, S&P expects the economy to recover, which will support the residential property market this year. It expects national house prices to increase by 3.5% in 2014, following a 6% rise in 2013, before falling back to an 2% increase in 2015.

A separate survey completed by the Society of Chartered Surveyors Ireland found that property prices increased across all regions as did the volume of property sales and sales instructions in 2013.

“According to a survey of 400 estate agents for the report, prices in Dublin are estimated to have risen by 15.7% in 2013.

“While the recovery in Dublin has been broadly recognised, the SCSI survey suggests that prices grew in all regions and in almost all categories last year, with prices estimated to have risen by 5.7% outside the capital, albeit that they were coming from a very low base.

Its estimated prices increased by an average of 8.1% in Munster, 4.6% in Leinster and went up 3.9% in Connacht/Ulster.

The report was compiled by Amarách Research for the SCSI.