A turn in the property market but will it lead to a correction in prices?

A pattern of deceleration in house prices is now clearly evident. Headline inflation appears to have hit a cycle high point of 15.1 per cent in February and March before falling to 14.5 per cent in April, 14.1 per cent in May and 14 per cent in June, with the latest figures for July pointing to a year-on-year increase of 13 per cent.

The modest decline in price growth is mostly linked to cost-of-living issues and higher interest rates. Anecdotally estate agents are reporting longer sale closing times. It’s not much (15 per cent versus 13 per cent) to hang your hat on if you’re a prospective buyer.

Prices are still rolling forward and average or median prices remain a steep multiple of average incomes.

[ House prices show fresh signs of slowing as annual rate of increase falls to 13% ]

Nonetheless we can detect the end of the pandemic element in the market when prices were fuelled by factors such as increased savings and remote working and the beginning of a new cost-of-living/higher interest rates phase with demand dampening as a result.

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Where the latter phase goes is anyone’s guess at this stage. To a lower rate of headline growth? Almost definitely, But to a correction in prices? The jury is still out. Industry experts expect annual house price inflation to fall to 8-10 per cent by December and lower in Dublin.

Higher interest rates — the European Central Bank has begun a sequence of rate hikes — will probably drive the rate of increase lower again next year but the acceleration in population growth — one of the traditional drivers of housing demand — combined with the ongoing and perennial issue of supply work in the other direction, propping up demand.

Ireland has one of — if not the most — volatile property markets in the world. It had the fastest growth in house prices in the run-up to the bust of 2008, the biggest post-crash collapse in property values and subsequently the most rapid recovery.

Nobody predicted the pandemic-fuelled mini boom, so don’t bank on the current suite of predictions being right.