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News : Property Last Updated: May 15, 2014 - 1:36 PM

Irish Housing Affordability Index at 19.3% of net income in 2014; Peak was at 26%+
By Michael Hennigan, Finfacts founder and editor
May 14, 2014 - 12:34 PM

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Download EBS guide for First-Time Buyers

The EBS today released its latest EBS DKM Affordability Index showing that the Irish national housing affordability level for first time buyers remains stable at 19.3% of net income for a working couple purchasing the average property. This figure is forecasted to rise to 19.6% in the next month. While affordability is now at levels last seen by the end of 2008, it is still well below the peak level of 26.4% of net income for a working couple in December 2006, as falling interest rates and prices more than offset a rise in personal taxes.

DKM said that there is a noticeable difference between the Dublin housing market and the rest of the country. Dublin property prices rose 13.7% in the latter half of 2013, with the average price of a home in Dublin standing at €234,500. This resulted in a slight impact on affordability, with the average working couple requiring just over 24% of their net income to fund their mortgage. Although there has been an overall significant increase in house prices since the beginning of last year, affordability in the Dublin housing market is still some way off the peak reached in December 2006 (32.5%).

However, the housing market outside of Dublin contrasts with trends in the capital. After falling 4% in the first three months of 2013, property prices outside Dublin remained reasonably stable over the remainder of the year, dropping just 0.4% in the year to December 2013. On average, home buyers have to pay €155,000 for a home, which is 33% below the corresponding price in Dublin (€234,500). As a result, affordability levels have been relatively stable in the rest of the country currently at 16.7% for a working couple.

Annette Hughes, director at DKM Economic Consultants, said: “With property prices recovering in Dublin and other selected locations, confidence is beginning to return to the market. However a number of counties are a long way from the recovery phase. The key issue, however, appears to be supply in the Dublin region and with 1,600 units commenced in Dublin in the twelve months to January 2014, way below the estimated 6,000 units required immediately in the region. This needs to be addressed if first time buyers are to be accommodated at affordable prices. The supply issue is perhaps the single most important challenge facing the property market in 2014. It will undoubtedly remain so in 2015, given the long lead in time to delivering completed house building units to the market.”

Meanwhile the majority of potential homebuyers believe it is a good time to buy however they remain cautious in their approach, according to the latest AIB/ESRI Housing Market Index for Q1 2014.

The index is a measure of the perception consumers have in relation to the Irish housing market as well as their house price expectations. The survey shows the index weakened to 103.1 in March 2014 from 104.4 at the end of December 2013, based on a three month rolling average, meaning consumers were less positive about the market.

Some of the main findings of the index include (three month rolling average):

  • Those who believe house prices will be higher next year has fallen from 50% to 43%

  • In Dublin people believe house prices will rise by an average 4.3% over the next year compared with 1.5% in the rest of the country

  • A significant 68% said that the main reason for not buying a new house is that they are satisfied with their present home. Just 5.5% said that they would not buy because they are concerned about income or job security

  • When asked about the risks associated with buying 62% said they were worried about future income and affordability, while 15% said they were worried about increasing interest rates.

David Duffy, ESRI economist,  said: “The survey shows consumers becoming a little more cautious in their view of the housing market. This is probably due to the weakening in house prices recorded at the start of the year. However, the majority of consumers still expect prices to rise in 2014.”

Jim O’Keeffe, AIB head of Mortgages, said: This report shows strong demand with two out of three people surveyed (66%) saying it's a good time to buy. From a banking perspective, 62% of people are worried about future income and affordability, which shows the key role we have in supporting customers to get a mortgage that they can afford and meets their needs. The challenge for us all is the current lack of new housing stock in key locations to meet this demand. If this demand is realised it would get us to a normal 3% or 4% of total housing stock being transacted annually.”

Irish Government set to publish construction/ housing plan ahead of elections

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