Housing market ‘has stabilised’ with price growth set to stay weak

The State’s housing market has stabilised with price growth in Dublin and other urban areas likely to remain weak for the foreseeable future, a senior analyst has claimed.

While asking prices are still a significant multiple of average salaries, John McCartney, director of research at Savills, said the gradual improvement in supply has resulted in a major slowdown in inflation.

He noted that in Dublin, where supply pressures were most acute, annual house price inflation fell from more than 13 per cent to just 0.6 per cent in the 12 months to May this year.

This level of price growth is considerably less than the current pick-up in earnings, estimated at 3 to 4 per cent, making homes more affordable for prospective buyers.

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Speaking ahead of the latest house price numbers, which are due out today, Mr McCartney said: “House price inflation has slowed considerably over the last year. This has affected most locations, including cheaper areas where loan-to-value ratios are unlikely to make tighter lending rules the limiting factor. So my view is that we are simply seeing a gradual improvement in the supply/demand balance.”

Housing completions

Mr McCartney predicted even slower house price inflation later this year. “Firstly, although supply growth has been going through a soft patch, housing completions are set to re-accelerate later this year,” he said. “This view takes into account the bounce-back in building starts from the second half of 2018 and the fact that units under construction reached a new cyclical peak in March.

“Secondly, and partly because of this increased supply, monthly price increases will be hard pressed to match the very strong baseline growth that was achieved in the autumn of 2018.”

The latest official figures show annual inflation nationally fell to 2.8 per cent in May, the lowest level recorded in six years, and down from 12.4 per cent a year ago.

While several analysts have linked the slowdown to the Central Bank’s mortgage lending rules, Mr McCartney said the pick-up in supply is the more likely anchor.

According to Central Statistics Office data published last week, 4,920 new homes were completed between April and June, a near 12 per cent increase on last year.