A significant increase in housing supply since pandemic restrictions were lifted together with recent interest rate increases have contributed to a substantial moderation in property price growth, the Banking and Payments Federation concludes in its latest Housing Market Monitor.
The most recent property price data from the Central Statistics Office for April showed the annual rate of property price growth slowing to 3.6% from 4% in March.
It’s down from double digit percentage increases last year.
Significant price rises in the market between 2013 and 2018 moderated following a surge in housing supply until the Covid-19 pandemic disrupted output with a cessation of most house building projects for a period.
However, as housing supply has increased significantly since the pandemic, a repeat of that earlier moderating trend is now being witnessed.
Close to 30,000 units were completed in 2022 and 6,716 new completions were recorded in the first quarter of this year, an increase of almost a fifth from around 5,640 completions in
the first quarter of 2022, the report notes.
“This is actually the most completions seen in any first quarter since the data series started in 2011 and it is 36% higher than the levels observed in the first quarter of 2020, prior to the pandemic,” Dr Ali Uğur, Chief Economist of the Banking & Payments Federation Ireland points out.
“A good indicator of future housing supply is the number of units commenced. In 2022, nearly 27,000 residential units were commenced. The most recent data shows that 27,542 units were commenced in the twelve months to April 2023 which is a healthy sign of the pipeline for completions,” he added.
He concluded that if the current trend in construction were to continue, up to 28,000 units could be completed in 2024.
However, that would still be below official estimated requirements of around 35,000 units completed per year.
On the interest rate side, rates are continuing to climb with the European Central Bank lifting its main borrowing rate to 4% last week.
Speculation is gathering that the bank may opt to increase rates by a further quarter point in July and some members of the ECB governing council are understood to be keen on further rate hikes in the autumn.
While overall activity in the mortgage market remains robust, there was a reduction in the volume of mortgage approvals in April.
Switching activity – which surged last year in anticipation of interest rate increases – fell by almost two thirds in the year.
At its peak in October last, switching accounted for about a third of mortgage approvals.
“We expect the switching approval activity to continue to fall especially in the second half of 2023, compared to 2022,” Dr Uğur noted.
Overall, he concluded that increased supply should provide better affordability for potential home buyers as average prices start to moderate.
“At the same time, existing and further cost pressures, as well as the changing interest rate environment could affect the viability of some of the housing projects currently planned, particularly in the institutional investor market, which could affect output in 2024 and further,” he added