Increases in Irish house prices to be biggest in EU

Irish house prices will see the biggest increases anywhere in Europe this year despite the Central Bank’s hotly debated interventions to curb inflation in the market.

According to two reports into the housing market, the sector is in a period of sustained recovery. Goodbody Stockbroker’s economist Dermot O’Leary says it will take until the end of this decade before housing supply matches demand.

Supply levels are 88% below peak levels and at 11,000 units completed last year, fewer than half of the 30,000 units needed to meet supply. The new Central Bank rules on loan-to- income and loan-to-value will cause a moderation in mortgage lending in the near term but will lead to medium term stability, he added.

Mortgage lending is €4bn, although the reasonable ‘normal’ target of €8bn will not be reached until the end of the decade. Moreover, Mr O’Leary believes that house prices are close to fair value, “and will see strong, albeit moderating growth over the next two years.”

House prices are expected to rise 7% in 2015 and 5% in 2016. The cost of buying a home here is set to rise by almost 10% in the coming year, according to global rating agency Standard & Poor’s (S&P) which yesterday released its overview of the European housing market.

From an investment perspective, residential yields offer much more compelling returns than government bonds. Rents are forecast to increase 9% in 2015 and 8% in 2016. The agency’s prediction of a 9% rise for the Irish market is in contrast to some of the eurozone’s major economies including France and Italy which are anticipated to see a drop of 3% and 2% on the back of weak economic growth, high unemployment and subdued consumer confidence.

“Nevertheless, we believe the ECB’s large quantitative easing programme, the resulting weakening euro, as well as falling oil prices could arrest market declines or spur a further recovery in most markets next year,” said S&P economist Sophie Tahiri.

S&P says the nascent economic pick-up has released pent-up demand in the Irish market which along with a supply shortage is likely to see house prices rise significantly this year.