Irish property price inflation up in March but approaching the peak?

  • Irish house price inflation hits new seven year high of 15.2% in March

  • Tentative signs of easing pressures in slower monthly rise and marginal y/y drop in sales?

  • Wide gap between increases in prices of new (+6.2%) and existing (+17.8%) properties underlines intensity of post-pandemic demand pressures…

  •  But newer influence on demand in form of cost of living pressures and looming ECB rate rises likely to act to curb property price inflation as 2022 progresses 

Irish house price inflation edged higher again in March to 15.2% y/y from a downwardly revised 15.1% increase in February (previously +15.3%). The March reading represents the fastest pace of increase in house prices in seven years (April 2015 +15.4%).

Upward pressure on Irish property prices remains substantial but there are some tentative signs in the March data that the ‘heat’ in the housing market may be easing slightly. As the diagram below illustrates, the pace of price increase on a monthly basis has eased markedly of late, with the 0.6% increase between February and March the slowest monthly rise in a year. While this slowdown is partly seasonal, adjusting for this factor, prices are currently increasing at a slower pace than at any time since last summer.

A further tentative indicator of a slight cooling in the property market climate is a marginal 0.8% drop in transactions in March from a year earlier. Although the latest number could be depressed by delays in filings of sales, it does represent the first year on year drop since January 2021. Moreover, as the diagram below illustrates, it continues a trend slowdown in transactions growth evident since last autumn.


Temporary ‘surge’ factors may be starting to fade

The surge in Irish property price inflation through the past year and a half owes much to a longstanding in new supply relative to demand but it was notably amplified by pandemic effects that boosted demand and constrained supply. These factors have been extremely forceful in their impact on property prices but these impacts should also prove finite.

On the demand side, many prospective homebuyers were able to bolster their spending power by drawing on increased savings. Arguably as influential was the focus the pandemic placed on the home as a place to work, rest and play. The resultant ‘race for space’ was further amplified by pent-up demand because of inadequate market activity through the past decade.

With new construction curbed by Covid-related restrictions, the surge in property demand was seen most forcefully in the pick-up in prices of existing dwellings relative to new builds. In the first quarter of 2021, the rate of inflation in the two property types was broadly equal (new +2.5%, existing 3.2%). However, in the first quarter of 2022, the increase in property price inflation roughly doubled from a year earlier to 6.2%  but inflation for existing properties was almost six times higher than a year earlier at 17.8%.

This surge reflects both the incidence of ‘bidding wars’ among prospective purchasers as well as a marked shift in purchasing to areas of the country where new supply is negligible. At the same time, new supply has been concentrated in more expensive areas where affordability constraints are more significant, thereby dampening the pace of increase.

While sharply rising input cost inflation may put upward pressure on new housing prices, affordability constraints will remain an important counterweight in this area. In spite of recent notably faster increases in the price of existing properties, the median 'new' property purchased in March 2022 cost €348.5k whereas the median existing property price at €275k remained some 21% cheaper.

As the diagram below indicates, the pace of increase in Irish property prices has run well ahead of the increase in the average new mortgage loan size in the past year which has continued to trend around 5% through the past five years (the pick-up in Q1 2022 partly reflects a weaker figure in Q1 2021). This suggests Central Bank macroprudential rules act as an anchoring influence on mortgage lending and, eventually, when the pandemic related boss to house purchase deposits fades, this should prompt an easing in house price inflation.


A further small acceleration in Irish house price inflation in the next month or two can’t be ruled out but the March data show tentative signs that recent pressures may have peaked. More importantly, as the stock of pandemic-related deposit savings is used up, the capacity to boost property-focussed savings will be curbed by cost of living pressures.

In addition,  affordability and buyer sentiment are both likely to be adversely impacted by looming ECB rate increases as well as increased economic uncertainty.  As a result, we continue to see a bumpy path towards notably lower Irish property price inflation through 2022.

This non-exhaustive information is based on short-term forecasts for expected developments in the economy and financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalised investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a judgment as of the date of the report and are subject to change without notice.