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Property prices rise strongly in September but annual inflation eases.
Increase in prices outside Dublin becoming more pronounced.
Stronger spending power and supply shortfall underpinning price gains.
Irish residential property prices rose strongly in September reflecting an improving economy and limited supply in key segments of the market. As has been the case in six of the past nine months, the monthly change was stronger outside Dublin than in the capital.
There is a clear tendency for strong monthly gains to occur during the summer. This is continuing in 2015 but the pace of increase is more moderate than in previous years. As a result, the annual rate of inflation is continuing to ease, reaching 8.9% in September from 9.5% in August. We expect this to continue in the months ahead. On current trends, the annual increase could be in the region of 6% to 7% by end year, a little stronger than we previously envisaged largely reflecting strong gains in residential property prices outside of Dublin.
The improvement in domestic economic conditions that is reflected in these property price data for September is also evident in today’s release of retail sales figures for the same month. These show an 8.6% rise year on year. The sense of improving consumer sentiment that supports the property market is clearly seen in the trend in areas such as furniture and lighting where the volume of spending was 22.1% higher than a year earlier (a monthly decline in this category in September (-2.6%) probably reflects the end of summer sales as the three month average change is still a striking +9.3%).
The strength of the Irish economy should continue to underpin the property market although the interplay of supply shortfalls and macro-prudential constraints on credit hugely complicate the picture for 2016. We continue to believe a sustainable pace of house price inflation is likely to run in a 3-5% range in a healthy Irish economy in coming years but the path to such an outcome may remain quite bumpy.
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.