Stable Irish house price inflation in October, signalling a change in trend?


Strong annual increase of 12.1% but effectively unchanged from September (12.2%)

October ends 5 month sequence of accelerating property price inflation

Too early to be definitive but October data may hint at start of move to a  more sustainable trajectory in Irish property price inflation

Demand remains buoyant and supply sluggish but gap between two may be diminishing

Momentum in Irish house prices remains strong but October data suggest that the surge in prices seen through the summer may be moderatingAnnual property price inflation eased marginally to 12.1% in October. While the October reading is effectively unchanged from September’s 12.2% increase, it breaks a sequence of accelerating Irish property price inflation stretching back to May. The October data hint at the possibility that a transition to a more sustainable pace of increase could be beginning but we will need to see a more modest pace of increase continue for at least a couple of months to confirm it as more than a monthly blip.
A range of influences are combining to underpin rapid rates of Irish property price inflation at present and these factors look set to remain reasonably supportive in the year ahead . However, at some point, increasing supply and affordability constraints should help move Irish property price inflation onto a more sustainable path. It remains to be seen whether October data mark the beginning of this process.  
Improving domestic economic conditions and returning confidence have prompted the emergence of pent-up demand from homebuyers through the past year or so. The associated ‘bulge’ in demand of late has been further boosted by very supportive policy settings in the shape of low interest rates and the Government’s ‘help to buy scheme.  The peak impact of these factors has probably been seen at this point. Indeed, at the margin, the recent tweaking of Macro-prudential regulations may restrain affordability somewhat and hence contribute to a more sustainable pace of house price growth in the coming year.
While demand is likely to remain strong, it is possible that we have moved beyond the peak pace of demand growth of late. The number of mortgage approvals in the three month period August-October is a robust 16% higher than a year earlier but the average increase in the first half of the year was 31%. Moreover, the average loan size approved was 9.5% higher in the August-October period than a year earlier. So, growth in loan size continues to lag the increase in house prices.
Of course, the impact of demand pressures would be far more modest but for a continuing marked shortfall in supply. We may have moved past the low-point in regard to the latter. Encouragingly, housing transactions were 10.5% higher in October than a year ago (measured on the basis of filings by household buyers) with Dublin transactions up 18.9% while the volume of new dwelling purchases nationally was up 40.8% albeit from a low base. Although these numbers imply some progress in this area, new construction remains well below ‘normal’ levels of 30-35k new homes per annum, much less the amount needed to clear the build-up in demand of recent years.
While we would caution against over-interpreting one month’s data, there are hints at what might be the beginning of a process of ‘normalisation’ in the pace of Irish property price inflation in these price figures for October.
The likelihood is that the move to a more sustainable trajectory for Irish housing prices will not be an entirely even process as the current strength in demand and shortfall in supply will not change markedly in the coming year and this imbalance might be expected to continue to support increases Irish property prices. However, the likelihood is that the gap between the demand and supply will diminish rather than increase implying some prospect of a gradual moderation in Irish house price inflation.


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