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Gradual easing in property price inflation continuing
Irish property price inflation softer in June
June data show a further slowing in the year on year increase in Irish residential property prices as increased uncertainty about economic prospects and affordability issues offset the effects of shortfalls in supply and improving employment amid generally robust domestic demand.
The June data reflect completed transactions. Reflecting the normal lag between the initial offer and the transfer of keys, they likely reflect buying conditions in the aftermath of the general election at home which was also a time of increasing nervousness about the global economy.
A further easing in house price inflation is likely over the remainder of the year. Importantly, we expect this process to remain choppy. Our sense is that concerns regarding possible ‘Brexit’ impacts as well as a measure of uncertainty about the implications of the Government’s new housing plan and the Central Bank’s review of its macro-prudential regulations will act as counterweights to robust jobs growth and a significant measure of pent-up demand.
The array of important and countervailing influences now acting on the Irish housing market makes it unlikely that we will see an entirely smooth glide path to a sustainable pace of property price inflation which we estimate lies in the region of 3-5%. We expect an end year inflation rate of around 4-5% which represents a modest further slowdown from June’s 6.6% reading.
Irish housing prices fell marginally month on month in June as a result of softer prices for Dublin houses while prices outside Dublin reported the strongest monthly increase thus far in 2016. This outturn is slightly surprising in view of the significant imbalance between demand and new supply of houses in Dublin but it is entirely consistent with significant volatility in these data on a monthly basis. Prices in the capital also fell in June 2015 before rebounding sharply through the summer months. As a result, we wouldn’t exaggerate the significance of the 0.1% decline between May and June but it does tend to emphasise a clear softening in house price inflation through the first half of this year.
The CSO also indicated today that the methodology for measuring changes in Irish house price will change from September. The new series will differ from the existing data in several respects. First of all, unlike the current approach, it will include cash based transactions as well as those funded through mortgages. Second, it will match stamp duty returns to the Revenue Commissioners to Building Energy Rating data to get details on the type of building. This means the CSO will have notably more information on the nature of each transaction, allowing for a better means of adjusting results to a norm of the ‘average’ house.
Unfortunately, the new data series will only go back to 2010 and, consequently, there may be some consistency issues in making historical comparisons. The inclusion of ‘cash‘ purchases may also alter reported trends since 2010 because of a greater likelihood of discounted prices for quick or distressed sales. It might also be argued that in many instances the nature of the transaction is likely to be different with a greater propensity to fund purchases of primary dwellings through mortgage purchase and a greater likelihood of investment purchases through cash. The significance or otherwise of such variations will only become clear when we see the new CSO data in September.