• Irish houses prices 2.6% higher in January 2021 than a year earlier.
• Prices outside Dublin continue to lead the way increasing 4% y/y
• Transactions slide on renewed mobility restrictions in late 2020
• Demand looks underpinned by recovering economy and overhang of mortgage approvals…
• While new supply likely to be curtailed by restrictions and slowdown in starts

Analysis by Austin Hughes

The positive momentum evident in Irish house prices in late 2020 has continued into data for the start of 2021 with residential property prices for January 2.6% higher than a year earlier, up from +2.2% in December and now at the fastest pace of growth for twenty months (April 2019 +2.9%). Following a modestly softish trend in prices from spring to autumn, a similarly moderate firming has prompted a clear pick-up in annual property price inflation through the past three months.

The recent pick-up in house prices remains broadly based but, partly reflecting base effects from January 2020, as well as affordability issues and perhaps some shifting of demand because of increased working from home, the pace of property price inflation has picked up markedly outside Dublin from 3% y/y in December to 4% in January whereas the increase in property prices in the capital slowed marginally to 1.0% from 1.4%.

Reflecting the significant time-frame from start to completion of a property purchase, the  January property data likely primarily reflect sales concluded in November and December when level-5 health-related restrictions were re-introduced. Together with a pre-existing supply shortfall, this  meant that the number of property sale transactions filed in January fell sharply, reversing the strongly positive trend of previous months.

This pull-back was particularly pronounced in Dublin transactions where the impact of renewed restrictions on viewings, valuations and various other elements of transactions completions may have been aggravated by affordability issues and particular supply constraints leading to particularly disruptive conditions for many prospective home-buyers.

As the diagram below illustrates, the stability of property prices through the past year stands in stark contrast to the sharp swings in activity prompted by changes in restriction levels. We can expect to see further volatility in activity coming months and sharp changes in transaction levels may make it harder to properly assess the underlying dynamics in prices and volumes.

Abstracting from near term volatility, the coming year is likely to be affected by a continuing imbalance between demand and supply. As it is generally expected that health-related restrictions will gradually ease through 2021 and domestic economic conditions will correspondingly improve, home-buyer demand should remain robust with significant support emanating from elevated mortgages approved but not drawn down in late 2020.

At the same time, new supply will likely reflect the impact of current restrictions on construction and reduced housing starts through 2020.This could dampen completions for some significant time.   

While the demand supply balance in the property market is of central importance and the Central Bank’s macroprudential regulations are also a critical sector-specific influence in calming fluctuations, in broad terms, the health of the Irish property market should reflect the health of the broader economy.

In this context, the resilience of the economy overall to a substantial shock is a notable positive support for the property market although like the broader economy, particular forms of ‘scarring’ may impact some property segments as the economy ‘normalises’. Marked variations in economic conditions across sectors, regions and age cohorts suggest the possibility of distinct differences in temperature across the property market in the coming year.