House prices in Ireland drop for first time since February

National property prices dropped by half a per cent in November, the first decrease since last February, according to the Central Statistics Office.

The CSO’s monthly Residential Property Price Index (RPPI) has revealed that while prices at a national level increased by 6.5% compared to the same period last year, the cost of buying a home decreased by 0.5% in the month of November.

Prices had, however, increased by 1.6% over the month of October.

The overall month- on-month decrease comes despite a 0.2% increase in property prices outside the capital, with the national decrease driven by a 1.3% drop in Dublin.

Dublin prices are 3.3% higher than a year ago, whereas in the rest of the country prices were 9.6% higher than in November 2014.

Residential property prices in Dublin are 35.8% lower than at their highest level in February 2007, while prices in the rest of the country are 36.2% lower than their highest level in September 2007.

Conall Mac Coille, analyst with Davy Research, said that the decrease in Dublin prices was not surprising given the Central Bank rules on lending introduced earlier this year.

“Given that the Central Bank’s rules on high loan-to-value mortgages apply only to first-time buyers in homes over €220,000, their impact has been felt most sharply in the capital where affordability is most stretched,” Mr Mac Coille said.

“The recovery outside the capital began almost one year later, so that affordability is less stretched, and there is probably more room for catch-up. Today’s data clearly show Dublin house price inflation lagging behind the rest of the country,” he said.

Despite the decrease, Mr Mac Coille said Davy expects property prices to rise by some 7% through 2016 as wages grow and tax cuts take hold.

“A welcome development is that the Central Bank mortgage lending rules have prevented Irish households reacting to the lack of housing supply by taking out ever more highly leveraged mortgage loans,” he said.

“New data released this week showed the average mortgage approval levelling off at close to €190,000 — having risen sharply in recent years. However, wage growth in the private sector is now 3.6%, and jobs growth and income-tax cuts will help disposable incomes next year. Hence, we expect residential property prices to rise close to 7% through 2016 despite today’s weak figures,” Mr Mac Coille said.

Meanwhile, Investec’s chief economist for Ireland Philip O’Sullivan cited the new Central Bank rules and “nascent affordability issues” as reasons for November’s decrease. He said 2015 property prices will more than likely fall short of expectations.

“November’s result means that the RPPI has increased by 6.1% in the year to date. Barring a strong result when the December data are published, it seems our estimate of 8%-9% residential property price inflation for 2015 is likely to prove a little ambitious,” Mr O’Sullivan said.

While the CSO figures state that Dublin prices are 3.3% higher than a year ago, the findings of survey issued by the Real Estate Alliance earlier this week claimed the average prices of a three-bed semi-detached house in the capital are down 6% on last year.