At the end of Q2, national residential property prices in Ireland continue to rise in double digits. The year on year average property transaction price now stands at €273,530 nationally, up 10.2% from €248,330 at the same period in 2017. The number of transactions also continues to rise with just over 55K transactions in the past twelve months. This compares to a low of 17,940 transactions in the twelve months leading up to October 2011.
Though increases are visible in every county in the state, the rate of increase is not uniform across the country. Counties such as Westmeath (+20.7%), Offaly(+18.8%) and Roscommon (+14.9%) show high year on year percentage gains, while Monaghan (+3.4%), Sligo (+4.2%) and Kilkenny (+5.2%) show the lowest percentage gains.
With a year on year percentage growth of +6.6%, Dublin sits unassumingly in the middle of the price increase league. However, when it comes to Irish property prices, there is nothing unassuming about the capital. As a world leading financial and technological hub, Dublin is the engine of the Irish economy. When Dublin grows, the rest of the county benefits, though the impact is more trickle down than tidal. The first shootsof a fledgling property recovery were observed in Dublin in 2013, and by the end of 2015 prices in all 26 counties were back to black.
Even the dogs on the streets of Ballyhaunis know about the current property prices - they are going up ... and up ... and up again. But like all things that go up, they have to stop going up, or at least take a breather for a few minutes. To try and see if its full steam ahead or careful now, we have to do some forensic analysis on the core, looking for cracks rather than taking a light touch approach. Before revealing our own analysis, here are some extracts from industry experts at the end of Q2.
From the REA Property Alliance Q2 2018 Average House Price Survey
"The increase in supply of new homes in Dublin and commuter counties is having an effect on second-hand prices in some areas, the Q2 Irish Independent REA Average House Price Index has found. The rate of increase in second-hand three-bed semi-detached home prices in Dublin city and county was just 0.8% in the last three months, with prices falling slightly in one suburb. After rising by 12.5% in 2017, the average priceof a second-hand semi-detached house in the capital has increased by just €5,000 so far this year and now stands at €443,000."
Similarly, Ronan Lyons in Daft.ie's Q2 Report says
"Scratch a little bit beneath the surface and there are hints that the picture is slowly changing. Compared to a year ago, prices are just 5.6% higher. Granted, this is well ahead of inflation, which is - give or take - zero. But 5.6% is the lowest rate of inflation we've seen nationally in over four years, since the first quarter of 2014.And that was when inflation was on the way up, not the way down."
So, lets do a little analysis on current average price of a house in Dublin - €426,690. What would it take to afford a house at this price? For starters, a deposit of €85,338 would be needed which sends most of us average Joe Soaps tumbling at the first hurdle. If you do have a spare €85K tucked away under the mattress, then that leaves a mortgage of €341,352. We used KBC's mortgage calculator to see what it would take to be eligible to borrow this amount. If you are a married couple, both aged 30 with no children and no personal loans, and possess a combined income of €100K, they will give a maximum mortgage of €343K. For most this is not going to be the case.
Savills director of research John McCartney highlights the issues with affordability
"Affordability problems have intensified in recent years due to house price inflation and rental growth outstripping earnings. To put figures on it, average gross weekly earnings rose by 7.3 per cent between the start of 2013 and end-March 2018, whereas house prices have risen by 67.4 per cent and rents have risen by 39 per cent.”
It begs the question, “Are property prices in the capital going to keep increasing at the current rate?” (10.7% if you believe the made up figures in the Irish Times). The short answer is NO. As we have pointed out already, the current property prices are barely affordable, there is not a lot of room for an increase. Also, while supply is still outstripped by demand, it is increasing all the same. In the longer term, ECB interest rates, which are still at a record low of 0.25%, will also become a factor. When - not if - this rate increases, it will have a further impact on affordability.
Making our prediction for the second half of the year, we are expecting further property price increases of an average of 2k to 3K per month for the remaining six months of the year. On January 1st 2017, the average property price in Dublin was €390,342. This increased to €400,430 by July 1st 2017, to €418,910 on January 1st 2018 and to €426,690 on July 1st 2018. Our prediction for the remainder of the year would result in an average price in the range of €438,690 - €444,690 for Dublin, a year on year percentage growth of 4.7% - 6.2%. We will publish monthly to indicate if the market is tracking ahead or behind this estimation.
After the housing market collapse of 2008, Michael Burry was asked how he saw the collapse coming, yet nobody else did. His answer was as alarming as it was simple - because nobody else looked at the figures. Due to the foresight of the central bank, lending has been moderated, there is no collapse coming. However, there is an affordability issue, and its already here.
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