Irish house prices will rise at the fastest rate in Europe for the next four years, even as the pace of increases slows from the double-digit rise of last year, S&P Global Ratings has forecast.
In a new report, the ratings firm said house prices will rise 9.5% this year, the highest level along with Portugal in Europe, following the near 12% prices surge in 2017.
Irish house prices will then continue to increase at the fastest rate in Europe, including the countries that make up the eurozone, the UK, and Switzerland, to 2021.
Home prices will rise 8% next year; by 7% in 2020; and increase by 6% in 2021, as the pickup in supply of new homes lags rising demand driven by an expanding economy.
With employment levels rising, the fundamentals of the economy and continuing shortages will continue to drive price increases even as the ECB weighs its decision to start to increase interest rates late next year, it said.
Citing the 20% of transactions completed last year, S&P said that purchases by Irish and foreign institutional investors have also “underpinned house price growth”.
S&P said the significant ramp-up in new home supply is, however, from such low levels that it will take four years for supply to catch up with demand here.
“Even if house completions were to continue to grow at their extraordinarily strong current rates of 30% annually in the first half of this year or an annualised 7,950 units it would still take until early 2021 for supply to meet demand [estimated at 35,000 units per year].
“Nevertheless, as supply improves, excessive pressure on house prices should gradually subside,” it said.
“Ongoing supply shortages will continue to be a factor underpinning house price inflation. The homebuilding sector all but vanished in the aftermath of the financial crisis. Legacy capacity constraints, in terms of investment and staff, continue to restrict how many homes can be built, even as the sector is now seeing a rapid recovery,” it said.
S&P predicts the ECB will start increasing interest rates in the third quarter next year.
“For the eurozone housing markets this means buyers and sellers are more likely to anticipate a rise in borrowing costs, albeit a very gradual one,” it said.
The report, Europe’s Housing Markets Are Staging a Soft Landing, said UK house prices are “stagnating this year” and the outlook remains “softer in the coming few years”.
It sees zero house price inflation in the UK this year before prices rise 2.5% in 2019; 3.5% in 2020; and increase by 4.5% in 2021.
Read the full report here.