Momentum still strong but 11.6% price rise marginally down on October (11.8%)

Have we passed peak imbalance between demand and supply?

Mortgage approvals data hint at further easing in price pressures

Irish house price inflation eased marginally for the second month in a row in November to 11.6% from 11.8% in October. While some cooling in property price inflation is needed to move to a more sustainable trajectory, the current easing is still very modest relative to the recent near term peak of 12% seen in September.
 
A monthly gain of 1.1% in November (up on October’s 0.4% rise) suggests there is still significant positive momentum in Irish property prices.  However, seasonal influences as the summer/autumn purchasing period ends may prompt a softer monthly trend in coming months.
 
It is still unclear how far and how fast Irish property price inflation will moderate. Residential demand remains strong while supply is still constrained but we may have passed the peak imbalance between the two. A further hint at a calmer trend in Irish housing price inflation in today’s numbers might be seen in fractional downward revisions to previous monthly figures for October; 11.8% v 12.1%, and September; 12% v 12.2%, but it will take several months’ data to confirm its true extent.  
 
The easing in house price inflation in November was seen in price trends both in Dublin and elsewhere in the country. The slightly slower pace of house price inflation in the capital (11.3% v 11.7%) was accompanied by a slightly faster increase in transactions (filings by household buyers were up 10.1% in Dublin compared to a 4.7% rise in the rest of Ireland) that may hint at some improvement-even if it is fairly modest- in supply conditions.
 
There is little question that the major logjam in the Irish housing market relates to inadequate supply. However, as the graph below emphasises, sharp swings in demand (as captured by trends in mortgage loan approvals) have been hugely important to the momentum in Irish house prices in recent years.

A dramatic pick-up in demand in 2014 saw an acceleration in prices that peaked at a 20.4% increase in October of that year. The introduction of macro-prudential loan limits was among the factors prompting a subsequent easing through to mid-2016. Improving domestic economic conditions and supportive policy measures in the shape of the Government’s ‘Help to Buy’ scheme and some easing in macro-prudential rules contributed to sharp pick-up in demand that prompted a renewed acceleration in prices that now appears to have peaked in September 2017.
 
As the diagram indicates, November mortgage approvals data saw a further easing in the growth in purchase approvals to their most modest gain in a year and a half. The smoothed 3 month average increase is still a healthy 11.7% from a year earlier but it is notably calmer than the year to date average of 30%. Similarly, the increase in average loan size approved at 7.7% continues to fall significantly short of the pace of property price inflation (now 11.6%).As a result, credit conditions are not contributing to faster property price inflation at present.
 
With signs of some improvement in new residential construction, a slower pace of demand growth may prompt a further easing in Irish property price inflation in the coming year. However, this may be an extended and uneven process.         
 
 
 
 

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