Irish Property Price Inflation Continuing To Trend Higher
09 August 2017
June increase of 11.6% is the fastest in two years and twice the pace of a year ago
Supply shortfall a key issue but recent pick-up in demand more dramatic
Dublin property prices accelerating again relative to rest of Ireland
Eventual easing in pace of property price inflation may be uneven and extended
Irish property price inflation continues to move higher with the annual increase in June 2017 at 11.6%, the fastest in two years and just over twice the 5.5% pace recorded in June 2016.
While revisions to previous data mean the rate of increase is marginally softer than previously thought (May 2017’s increase has been revised to +11.1% from +11.9%), the trend remains towards firmer property price inflation.
The upward pressure on property prices continues to reflect the growing imbalance between modestly increasing supply and surging demand
. In the first five months of 2017 market transactions increased by 6.4% suggesting a slight improvement in supply. However, the number of mortgage approvals for house purchase increased by 42.7% over the same period underlining how dramatic the pick-up in demand has been of late.
Reflecting the particular strength of economic conditions in the capital and the impact of the easing of loan to value limits that tend to be more binding on higher priced Dublin properties, whereas the past few months have seen
a marked convergence of property price inflation
with the rate in Dublin picking up notably
of late and running at 11.1% in June 2017 against 6.6% six months earlier. In contrast, property price inflation in the rest of Ireland appears to be stabilising, albeit at elevated rates +11.8% currently against +11.2% at the end of 2016.
We continue to expect some eventual easing in the pace of property price inflation as affordability constraints restrain demand and higher prices incentivise stronger supply
. This process could prove lengthy and uneven.
However, some signs of an easing trend in the pace of growth in average loan sizes approved in recent months may provide some encouragement. As diagram 2 indicates, the increase in loan size consistently ran ahead of that in house prices in the second half of 2016 and early 2017. However, more recently, average loan size growth has fallen below that in house prices
Given increasing lags between mortgage approval and purchase completion, it may take some time for the softer trend in approval size to have an impact on property price inflation. Moreover, the sharply increased volume of demand will continue to underpin prices. However, we think a somewhat easier trend in property price inflation could become established by the end of the year.
Today’s June property price release contains a revision to data stretching back to January 2010. The main difference is the inclusion in the index of the prices of new dwellings where the buyer chooses a site and a specific building option from plans but the site and construction costs are priced separately. While this leads to a material change in the volume and prices of new builds, the impact on the overall property price index is very limited as the diagram below, taken from the CSO release, indicates.
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