Rise in house prices to bring levels close to 2007 peak

Irish house prices are set to rise by 9.4% this year and by a further 20% up to 2019, bringing levels close to the peak reached in 2007.

Tue, 21 Apr, 2015 - 01:00

Dan Buckley

According to a forecast by Davy stockbrokers, the cost of houses will rise by 5.2% next year and by a further 4.5% in 2017.

Davy notes that house price growth slowed in the first two months of the year following the introduction of new Central Bank mortgage lending rules and the end of capital gains tax exemptions.

However, they believe these declines will not be sustained over the next five years.

“Our view is that Irish house price inflation will slow but that there will not be sustained declines in prices,” said Davy.

“We expect Irish house prices to rise by 9.4% in 2015, 5.2% in 2016, 4.5% in 2017 and 4.0% per annum thereafter. Our forecasts imply that Irish house prices will rise to levels in 2019 that are 26% below their pre-recession peak in 2007.”

At this stage, according to the report, less than 10% of homes will be in negative equity.

Davy said the full impact of the new Central Bank rules will not become apparent until later in the year and are likely to tie house price inflation to earnings so that the price to income ratio remains close to five times. As Ireland’s economy recovers and the unemployment rate falls, wage growth will slowly emerge, helping house price affordability.

Davy also cites recent data on asking prices from MyHome.ie that point to broadly stable prices through the first half of 2015. While transactions and lending have increased substantially, the housing market remains remarkably static. “Mortgage lending is still close to its lowest level since records began in 1970,” according to the forecast.

Davy said it expected €4.6bn of loans for house purchase in 2015, with mortgage lending to slowly rise to €11bn by 2019, up from €3.9bn last year.

The Davy forecast comes as a new study shows that the problem of housing shortage is now being felt outside Dublin, particularly in Cork where the price of a three bedroom semi-detached house in the county has risen by 2.3% to €110,000 in the first three months of 2015.

The same house in Cork City has risen by 3.77% to €275,000 according to a national survey carried out by Real Estate Alliance.

The REA average house index shows that it now takes 12 weeks to sell the average house in Bantry, compared to 18 weeks in September 2014, while it takes three weeks to sell a similar house in Cork City.

“There is a distinct lack of supply in Cork City and surrounding towns,” said Michael O’Donoghue from REA O’Donoghue Clarke in Cork.

“For this reason, properties that are on the market are attracting a lot of interest. We do not see supply volumes increasing and this will drive prices up even further.”