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Strong monthly gain in October but continued easing in annual property inflation
Prices growth twice as fast outside capital as in Dublin
Details highlight influence of supply shortages and Central Bank guidelines
October residential property price data show a monthly increase of 1.6% suggesting that improving domestic economic conditions and a shortage of property in key market segments continue to outweigh the influence of credit constraints. Indeed, as diagram 1 below indicates, the increase in house prices is entirely consistent with the improvement in the jobs market.
In recent years, property prices have tended to rise rapidly in October- the monthly rise has been the joint fastest in both 2013 and 2014. As a result, there has been a further moderation in the annual rate of increase to 7.6% from 8.9% in September. We continue to expect this to ease further to between 6% and 7% by end year.
We view annual rates of increase of somewhere between 3% and 5% as being sustainable in a strongly growing Irish economy but there is no automatic tendency nor are there policy levers in place to ensure such an outcome.
As has been the case in five of the past six months, the October data show monthly increases continue to be notably faster outside Dublin than in the capital (+2.1% against +1.0%). As a result, the annual rate of increase in Dublin at 4.5% is now less than half that elsewhere (+10.7%). Supply considerations and macro-prudential rules may be leading to some tendency towards a reduction in the price gap between properties in Dublin and elsewhere. This movement is at odds with that seen between London housing prices and those elsewhere in the UK or suggested by the relative intensity of the economic recovery in Dublin and elsewhere.
Some sense of the influence of the new macro-prudential rules as well as broader issues in Ireland's residential property market are hinted at when today’s data are compared with recent BPFI data. Today’s data show a 7.6% annual increase in the price of residential properties purchased with a mortgage in October while BPFI data that show the average loan size funding home purchases increased by just 1.9% between the third quarters of 2014 and 2015. Difficulties in finding the extra ‘equity’ for home purchases are likely contributing to the current pace of increase in rents (+10.3% in the year to October on CSO figures) and a still depressed level of housing transactions which we reckon will be under 2.5% of the housing stock in 2015.
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.