Irish Property Prices Edge Higher In March But Annual Inflation Still Easing


Modest monthly gain in March likely reflects seasonal uptick.

We expect year on year rate to ease towards 4-5% by end 2016.

Solid Irish economy supporting housing demand but supply and borrowing constraints producing significant drop in transactions.

Slight tilt in prices towards Dublin may reflect stronger economic conditions in capital of late.

The latest official housing price data seem to confirm a picture of a market in which prices continue to be underpinned by healthy domestic economic trends but the pace of property price inflation is gradually easing as affordability and borrowing constraints bite even in conditions of significantly limited supply in key segments.

Broadly similar circumstances should prevail through the remainder of 2016. However, an increasingly ‘noisy’ economic environment framed by international concerns such as ‘Brexit’ and domestic political uncertainty could make for choppy movements in monthly property price data.

Irish residential property prices rose marginally in March (+0.3% from February), the first monthly gain since December. As we noted previously, there is some seasonal influence on Irish property prices and monthly price increases tend to be the norm through the spring. Indeed, the rise in March 2015 (+0.9%) was the strongest monthly increase recorded in the first half of last year. As a result, the annual rate of property price inflation eased from 8.0% in February to 7.4% last month. We expect this moderation to continue to around 4-5% by the end of the year, although the monthly path could prove uneven.

While we would highlight the on-going easing in the annual rate of housing inflation, the monthly price gain in March still points towards solid underlying demand for housing which is entirely consistent with positive momentum in the Irish economy as well as supportive demographics and some measure of pent-up demand from recent years.

Last month saw the first monthly gain in Dublin properties since October, leaving the annual increase effectively unchanged at +3.9%. Relatively strong economic conditions in the capital coupled with supply constraints are supporting prices. In this context, employment data show a significant outperformance in Dublin job gains relative to the rest of Ireland through late 2015. However, the critical role played by housing supply constraints in the capital may be suggested by National Property Register data which show the level of transactions is now running around 10-15% lower than in early 2015.

Property prices outside Dublin fell by 0.2% between February and March, their first monthly drop since January 2015. The annual rate of inflation eased to a still very strong 10.5% from 11.5% in February. Again, there has been a double digit decline in the number of transactions compared to early 2015, likely reflecting supply constraints in prime locations as well as some impact on demand from the sustained strength of price gains through the past couple of years. While we would urge caution in not overplaying one month's data, at the margin, price momentum outside the capital might be more sensitive to any notably increased degree of uncertainty about Irish economic prospects.

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