House prices are expected to increase by 5% this year, with the growth strongest outside of Dublin.
According to the latest quarterly report from MyHome.ie in association with Davy, rising incomes and the continuing economic recovery will be key price drivers.
Asking prices fell by 0.8% nationally over the last three months of 2015 but were up 7.4% on the year.
In Dublin, asking prices fell during the second half of the year — a 0.1% decrease was recorded in the last quarter but prices were up 2.6% on the year.
However, prices increased by 16% in Meath, 12% in Galway, 10% in Kildare, Clare and Louth, and 8% in Cork and Laois.
Report author and chief economist at Davy, Conall MacCoille, said house price inflation — largely driven by unsustainable Dublin prices, had slowed from double digit levels. He said Ireland’s housing market had “normalised” over the last three months of 2015.
“The Central Bank’s mortgage lending rules appear to have prevented home-buyers from taking out ever higher leveraged mortgage loans, thus limiting the pace of house price inflation,” he said.
Mr MacCoille said housing market activity was artificially inflated towards the end of both 2013 and 2014 by a number of factors.
Expiring mortgage interest reliefs, capital gains tax exemptions and a rush of transactions and mortgage approvals were blamed for increasing the inflation rate.
However, the usual summer peak for activity re-asserted itself so that both housing transactions and movements in asking prices towards the end of the year were always likely to be relatively modest.
Looking to the future, Mr MacCoille said he expected the growing divergence between the pace of price rises in Dublin and the rest of the country to continue.
“The median asking price for a three-bed semi in Dublin is €275,000, which is six times the average income of €45,600,” he said.
“In contrast, house price to income multiples in many other areas are still in the range of three to four, so looking forward, there is probably more room for prices to catch up outside Dublin.”
Mr MacCoille said Irish banks, having squeezed credit availability late last year, will now have a fresh allocation of high loan to value mortgage loans and this could help increase activity in the housing market early this year.
He said Ireland’s economic recovery had continued at a rapid pace and forecasts for gross domestic product — the county’s total economic activity — move move towards 5% during the year, up from 4% currently.
“So, although affordability is stretched in some areas and households will be constrained from increasing their leverage by the Central Bank rules, rising incomes will help drive prices upwards,” said Mr MacCoille.
He said income growth was now accelerating, driven by public and private sector wage increases, tax cuts and the introduction of a higher minimum wage.
“The lack of supply in many urban areas also remains acute,” he said. “So a single digit gain in Irish house prices, close to 5%, seems likely through 2016.”
Managing director of MyHome.ie, Angela Keegan, said that while the low level of house building was a concern, it was encouraging to see the recovery in property prices spread to many parts of the country.
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