House price inflation slows again as higher borrowing costs cool market

House price inflation continues to cool as higher interest rates and cost-of-living pressures dampen demand. The latest Central Statistics Office (CSO) figures show the rate of increase in prices – in annual terms – fell to 12.2 per cent in August, down from 13 per cent the previous month, extending a pattern of deceleration seen in recent months.

Year-on-year inflation in Dublin fell to 9.7 per cent, down from 10.4 per cent, while price growth outside the capital fell to 14.2 per cent from 15.2 per cent in July.

The CSO’s latest figures also detected a decline in transactions. According to the agency, there were 4,295 dwelling purchases by households filed with Revenue in August. This was down 3.3 per cent on the previous month. The total value of transactions for August was €1.6 billion.

Price growth in the State’s property market had been on a steep upward trajectory during the pandemic, fuelled by factors such as increased savings, remote working and lower-than-anticipated supply.

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However, wider inflationary pressures and the prospect of higher borrowing costs on the back of European Central Bank interest rate hikes have halted that trend. Increased borrowing costs are expected to trigger a rapid cooling down in property markets across the world and a potential painful correction in some of the more overpriced markets.

The CSO data indicated that households here paid a median (midpoint) price of €295,100 for a property in the 12 months to August this year. The Dublin region had the highest median price (€420,000) and, within the capital, Dún Laoghaire-Rathdown had the highest median price of €615,000. The highest median prices outside of Dublin were in Wicklow (€415,000) and Kildare (€357,500), while the lowest was €149,500 in Longford.

The CSO said the value of its residential property price index in August, at 167.2, was 2.2 per cent above the peak of the property boom in April 2007. However, actual property prices are not yet at the level recorded in 2007 before the market crashed.

“We expect to see a further slowdown in price growth in the coming months as the volume of houses for sale finally starts to increase,” Trevor Grant, chairman of the Association of Irish Mortgage Advisors, said, noting there were 15,300 second-hand properties for sale nationwide in July, representing an annual increase of 1,800 properties.

“It should be noted, however, that a reduction on house price growth is a millions miles away from house prices falling. We’ve only really had one period in living memory, during the finance crisis of 2008, where we saw real reductions in the value of property,” Mr Grant said. “This was driven by a sustained period of easy credit, followed by an extremely severe recession, when unemployment spiked. We haven’t had free-flowing credit of that sort since and no one seems to be predicting an unemployment spike, so it’s difficult to see what could cause house prices to fall in the coming months.”