Home-buyers paying out almost eight times the average wage for a home 

Average mortgage approval in October was €280,600, up 4.3% on last year. Picture: Denis Minihane

Home buyers are being stretched to pay prices not seen since 2009, with the average transaction now costing almost eight times the average income.

The price inflation will not be helped by worrying trends in the construction sector which, it is feared, could lead to new developments “drying up”.

The latest quarterly housing report for MyHome.ie found inflation in asking prices for homes dropped in the last three months of 2022, as is typical for Q4 of a year, but 3% of homes listed for sale actually dropped their price.

Over the year, asking prices rose by 6% to a national median of €330,000. In Dublin, median asking prices rose 3.6% to €436,000, while they rose 7.6% outside of Dublin to €283,000.

The median asking price in Cork City rose 5.3% in the year to €279,000. A typical two-bed apartment in Cork, meanwhile, rose 5% to €205,000.

Davy chief economist Conall MacCoille, who authored the MyHome.ie report, warned the figures show buyers are being stretched to a degree not seen since 2009.

“The average residential transaction in Q3 2022 was €370,000, now 7.7x the average income of €48,000,” he said. “This is a similar valuation multiple to the UK, where house prices are now falling due to a surge in mortgage rates above 6%.” 

Mr MacCoille said already stretched valuations of homes in Ireland could be exacerbated by the Central Bank’s decision to ease mortgage lending rules to four times’ income.

Describing it both as a “key development” and a “surprise decision”, the economist said the Central Bank estimates it will eventually add 8% to Irish house prices over three years. But he said this 8% could all come in just one year.

“It is quite possible that first-time buyers could act more quickly to take on more leverage on their borrowing as they compete for the limited pool of homes listed for sale,” Mr MacCoille said. 

“This poses an upside risk to our forecast for 4% house price inflation in 2023.” 

Elsewhere in the latest MyHome.ie report, it says 15,000 properties were available for sale on the platform in Q4, which is still below pre-pandemic levels. The average time to sale agreed in Q4 was 2.7 months, indicative of a “very tight” housing market.

The average mortgage approval in October was €280,600, up 4.3% on last year, while the statistics show that, “for those who can get on the ladder, there is an incentive to buy over renting”.

Recent trends in the homebuilding sector, however, are described as worrying, with the construction PMI indicator pointing to the flow of new development potentially drying up.

Mr MacCoille said the Government’s new First Home scheme “will help overcome viability concerns on housing developments arising from build cost inflation”.

But the pick-up in funding costs could well impede apartment development, he added, which has been reliant on institutional investment into the private rental sector.

He said it remained the case the market for apartment blocks built for ordinary home buyers just is not there. He said an opinion remains  apartments cannot be built and just sold off to ordinary home buyers, as they are expensive to build and difficult to secure finance for.

“We still expect housing completions will pick up to 28,400 in 2022 and 27,000 in 2023,” he said. 

“However, the outlook for 2024 is far more uncertain. The Government’s ambitious plans to expedite planning processes are welcome although, as ever, the proof will be in the pudding.”