Property prices fall for first time in nearly three years as interest rates bite

Property prices in the State fell for the first time in almost three years in January as higher interest rates and broader cost-of-living pressures curbed activity in the market.

The Central Statistics Office’s (CSO) latest Residential Property Price Index shows prices fell on a monthly basis by 0.6 per cent. This was the first monthly decline since May 2020.

The figures show the annual index in property prices fell to 6.1 per cent in January. This was down from 7.7 per cent in December and from a high of 15.1 per cent in February and March last year.

Year-on-year inflation in Dublin fell to just 4.3 per cent in January while on a monthly basis prices were down by 1.1 per cent. Prices in the capital have been falling – on a monthly basis – since October.

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Soaring interest rates combined with one of the sharpest cost-of-living squeezes in living memory have dampened demand in the market. Mortgage rates are now near where they were in 2008. Industry professionals believe the mismatch between supply and demand will continue to keep pressure on prices with the annual rate of inflation likely to stay positive while others insist higher borrowing costs will eventually lead to a contraction in prices like those seen in other countries.

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The latest figures highlighted a decline in monthly transactions. The CSO said the number of dwelling purchases by households fell by 29 per cent to 3,519. The total value of transactions filed in January was €1.3 billion.

The European Central Bank (ECB) has raised interest rates five times since last July in a bid to tame inflation. ECB policymakers are expected to announce another half-point rise at their monthly meeting on Thursday, putting further pressure on mortgage holders here.

The latest property data show households in the State paid a median price of €305,000 for a home in the 12 months to January.

The Dublin region had the highest median price (€430,000) in the year to January. Within the Dublin region, Dún Laoghaire-Rathdown had the highest median price (€630,000), while South Dublin and Fingal had the lowest (€400,000).

The highest median prices outside of Dublin were in Wicklow (€421,500) and Kildare (€370,000), while the lowest price was €151,500 in Longford. Overall, prices of new dwellings have risen by 100.1 per cent from their trough in the middle of 2013, the agency said.

Goodbody economist, Dermot O’Leary, noted that price momentum has slowed over recent months, led by more expensive areas in Dublin.

“Looking at the past three months, the most notable slowdown is in houses in Dublin city, where prices are falling at double-digit annualised rate. Apartment prices are also falling [albeit modestly], possibly reflecting the recent increase in yields,” he said.

Trevor Grant from the Association of Irish Mortgage Advisors (AIMA) said: “While the rate of house price growth continues to slow, at 6.1 per cent the rate of increase in national house prices is still strong.

“House price growth outside the capital continues to outpace that of Dublin, which is worrying because many people are now being outpriced of the areas which they had turned to after Dublin house prices climbed beyond their reach,” he said.

Separate figures from the CSO show production in manufacturing industries increased by 20 per cent in the calendar year of 2022, compared with 2021. The increase was led by the modern sector, which includes the pharmaceutical, computer, electronic and medical instrumentation sectors, which recorded a 21.6 per cent.

The latter is dominated by US multinationals, which have continued to export strongly despite a global slowdown.