Supply constraints will likely continue to drive home prices higher at a time when pay increases will rise at a modest rate, Central Bank forecasts suggest.
Amid a shortage of building starts, home prices will rise as “demand supported by the more favourable labour market” places “upward pressure on prices”, it said.
The latest CSO figures showed residential prices across the State rose 6.5% in the year to November, and rose 3.3% in Dublin.
Many analysts say that the controls the Central Bank brought a year ago on the amounts of home loan credit that households can borrow and the amounts that banks can lend in any single year have helped curtail the housing market from overheating again.
The Central Bank said yesterday that its review of the mortgage lending limits, which it will complete late this year, will be based on evidence and hard data of the workings of the housing market.
It also suggested that they would not automatically loosen the controls, as some commentators have suggested.
In its report, the Central Bank cited Department of Environment statistics that showed 10,052 houses were built in the year to last October.
Experts have said that that number is well short of the minimum 20,000 new homes that the Irish market will require each year over several years to meet the demands of a growing economy and the demand after the crisis years when the construction industry was on its knees.
Meanwhile pay increases are expected to average 2.5% this year and in 2017, it said.
“Coupled with the outlook for employment detailed above, economy-wide compensation is forecast to increase by 4.9% this year and by 4.5% in 2017,” the bank said.
© Irish Examiner Ltd. All rights reserved