Irish House Price Inflation Continues To Ease Gradually


Residential prices up 0.3% in April and 7.1% in the past year.

Continuing increase consistent with healthy jobs growth.

Dublin prices outperform reflecting comparative economic strength.

Transaction levels still weakening emphasising problems for policymakers.

Irish residential property prices for April show another modest monthly increase that translates into a slight easing in annual property price inflation to 7.1% from 7.4%.  As was the case in March, the monthly gain was concentrated in Dublin property prices. This outturn suggests that generally healthy Irish economic conditions continue to be the main influence on property price trends, although, the picture remains significantly complicated by a shortfall in residential supply and the influence of CBI credit constraints.

We expect a gradual easing in the pace of annual price inflation to continue to around 5% by the end of this year. As monthly price changes were choppy through 2015, the slowdown in the year on year increases through the remainder of this year is unlikely to be a smooth process.

 While monthly changes in Irish residential property prices can be volatile, the broader trend has been generally consistent with the turnaround in Irish economic conditions in recent years. As diagram 1 below indicates, the sharp fall in prices between 2007 and 2012 mirrored a substantial drop in numbers at work. While Irish property prices lagged the initial pick-up in employment, there was a notable overshooting through 2014 followed by a fairly abrupt slowdown in property price inflation through 2015. With jobs growth expected to remain robust and unemployment below 8% in April, the economic underpinnings of the Irish property market remain solid.

The very recent outperformance of Dublin property prices relative to the rest of Ireland mirrors the comparative strength of employment gains in the capital. Yesterday’s first quarter jobs data showed employment in Dublin up 4.6% in the past twelve months and up 1.5% in the rest of the country in the past twelve months. As a result, an extra 29k people were working in the capital over the past twelve months compared to 19k extra jobs across the rest of the country. Set against just 2.6k housing completions in Dublin and 10k elsewhere in 2015, this gives a sense of the scale of the prospective imbalance between demand and supply for accommodation.
While today’s property price data for April appear consistent with a sustainable path for Irish housing inflation, a more notable feature of the Irish housing market of late is a marked weakening in transactions. As diagram 2 below illustrates, changes in transaction levels have been altogether more dramatic than changes in prices in recent years.

With 2015 housing market activity levels well below most estimates of what might be considered healthy or normal, the abruptness of the turnaround hints at some significant impact from CBI measures as occurred in a number of other countries following the introduction of macro-prudential constraints. While these developments highlight the scale of current problems, they also emphasise the importance of treading carefully with mooted further policy interventions in the Irish housing market (including the upcoming review of current macro-prudential settings)


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.