S&P forecasts Irish house prices to rise 5% this year

Home prices here will rise at a modest rate for the next two years, Standard & Poor’s has predicted, as the Central Bank lending rules, home shortages, high household debt, and relatively high mortgage rates weigh on the market.

Prices will rise 5% this year — down from the 6.6% expansion last year and sharply lower from the huge 16.2% jump in prices recorded in 2014, the ratings agency said in its Europe-wide housing report.

Irish home prices will then rise 4% in 2017.

The economy is recovering, but “we nevertheless don’t expect the recent increase in house prices to stay as strong this year as in 2015,” S&P said.

“Although volumes of approved housing loans picked up again in the third quarter of 2015 after falling in the first half of last year, the revival in the Irish mortgage market still has some distance to go,” it said.

Irish mortgage interest rates that are 1% percentage point above the eurozone average, indebted Irish households, and increased immigration could also influence the market.

A year on from their introduction, Central Bank rules limiting the amounts of credit available to home and buy-to-let purchasers have slowed rapid price increases, analysts have said.

The shortage of new housing supply after the crash had raised concerns that home prices were again in parts of Dublin accelerating at a dangerous pace.

While the Central Bank wants to avoid any return to the market overheating, many home sellers and brokers have claimed the inflexible rules have shut out potential buyers from gaining a foot on the property ladder.

At most, however, the Central Bank is expected to tweak the rules when it starts its first review late this year.

Shortages will determine the market for some time. Only 15,000 homes may be built next year “which is still far below the estimated demand of 25,000 units”, it said.

“Given current depressed levels of housing supply, expected strong economic performance, and positive demographic trends, we think that it will be some time before the mismatch between demand and supply is rectified, hence we see house price growth staying relatively robust over the medium term,” S&P said.