Irish House Prices 2014: Dublin prices rose 24.4% in 12 months to June; Cash buyers dominate
By Finfacts Team
Jul 24, 2014 - 1:52 PM

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Source: Davy

Irish House Prices 2014: In the year to June, residential property prices at a national level, increased by 12.5%.  The CSO says this compares with an increase of 10.6% in May and an increase of 1.2% recorded in the twelve months to June 2013. Dublin prices rose 24.4% in 12 months to June. Conall Mac Coille of Davy says: "Cash buyers continue to drive the market, squeezing out first-time buyers who are clearly struggling to acquire properties amidst weak housing construction and low mortgage lending.

Finfacts 2014: Irish home mortgages paid in Q1 2014 at lowest since 1972 

Residential property prices rose by 2.9% in the month of June.  This compares with an increase of 2.3% recorded in May and an increase of 1.2% recorded in June of last year.

In Dublin residential property prices grew by 3.3% in June and were 23.9% higher than a year ago.  Dublin house prices rose by 3.1% in the month and were 24.4% higher compared to a year earlier.  Dublin apartment prices were 18.2% higher when compared with the same month of 2013. However, it should be noted that the sub-indices for apartments are based on low volumes of observed transactions and consequently suffer from greater volatility than other series.

The price of residential properties in the Rest of Ireland (i.e. excluding Dublin) rose by 2.3% in June compared with an increase of 0.7% in June of last year.  Prices were 3.4% higher than in June 2013.

Overall Decline: House prices in Dublin are 42.7% lower than at their highest level in early 2007.  Apartments in Dublin are 50.5% lower than they were in February 2007.  Residential property prices in Dublin are 44.5% lower than at their highest level in February 2007.  The price of residential properties in the Rest of Ireland is 45.8% lower than their highest level in September 2007.  Overall, the national index is 43.4% lower than its highest level in 2007.

The Society of Chartered Surveyors Ireland has called for the prompt implementation of the measures recommended in the Government’s Construction 2020 Strategy to address the current housing supply shortage and pace of increases in property prices.

The SCSI, the professional body for the property and construction sector made the call following the publication of the latest CSO Property Price Index results for June which showed an increase of 12.5% in average property prices in the year to June 2014.

Conor O’Donovan, policy director of the SCSI, said: “Average property prices have increased by almost a quarter since this time last year in Dublin and while property values still remain approximately 45% lower than in 2007, the current rate of price inflation is of significant concern and poses a challenge to levels of affordability and our economic competitiveness.

They key issue appears to be the shortage of supply of new properties. Last year we built just 8,301 new houses when we should be building up to 25,000 pa to meet demand. Clearly the pendulum has swung too far in Ireland and we now need a more balanced approach to building houses to meet the needs of our population and economy.

In May, Government published Construction 2020- A Strategy for a Renewed Construction Sector and some of the measures recommended in Construction 2020 including a more flexible approach to the planning process, ensuring development on vacant sites which are idle, streamlining the Strategic Development Zone (SDZ) process and removing other obstacles to development need to be implemented to try to improve the current housing supply shortages”, he concluded.

Conall Mac Coille, chief economist at Davy, commented: "The pick-up in prices remains concentrated in the capital. House price inflation is now 24.4% in Dublin, but just 3.5% outside the city. The decline from peak in house prices is now 41.8%: 54% for apartments and 43.4% for total residential property.

The underlying picture is of an illiquid housing market, with lack of supply driving up prices. Irish residential property market transactions look set to be broadly flat in 2014, at around 1.5% of housing stock, or a transaction once every 67 years. Cash buyers continue to drive the market, squeezing out first-time buyers who are clearly struggling to acquire properties amidst weak housing construction and low mortgage lending.

Our analysis of the Irish property price register indicates that 23% of transactions in Dublin so far in 2014 were above the €400,000 level – up from 16.5% of transactions in 2012, and indicative of the frothy nature of the market. But liquidity is little better in Dublin, with transactions accounting for 0.9% of the housing stock in H1, or once every 58 years. Dublin accounts for 528,000 of the total Irish housing stock of 2m homes.

New mortgage lending for house purchase was just €539m in Q1, of which €263m was to first-time-buyers. Rather than reflecting credit constraints, the lack of mortgage lending relates to the lack of properties on the market and competition from cash buyers. This is evident in the growing gap between mortgage approvals and actual lending. Cash buyers account for around 50% of residential transactions.

Several indicators suggest that the construction sector is slowly beginning to respond to the latent demand for housing. For example, the reading for housing activity in the Irish construction PMI survey has been above the 60 level through Q2. Housing starts surged in February to 4,343, their highest level since early 2007. However, many projects were fast-tracked to avoid the introduction of new building regulations introduced on March 1st. Housing starts will certainly fall back sharply in March. So the extent of the underlying pick-up in Irish housing construction remains unclear."

Dermot O'Leary, chief economist at Goodbody, commented: "Partying like its 1999 in Dublin? Dublin prices rose by 3.1% mom in June, resulting in an increase in Q2 alone of 11%. On an annual basis, prices rose by 23.9% in June. One has to go back to 1999 to find a comparable rate of increase. At that time, falling borrowing costs triggered by Ireland’s entry into the euro were fuelling lending and thus house prices. This time around, an acute shortage of property in the capital is the culprit.

Prices now 43% below peak: The growth in prices since March 2013 has resulted in the price drop from the peak moderating from 51% to its current level of 43%. Despite the superior growth in Dublin, it is worth remembering that the initial price crash was more severe in the capital, thus prices remain 44% below peak levels.

Transactions continue to trend higher from low levels: Transactions continue to trend better with the total number rising by 35% yoy in H1 (June data is incomplete) to reach almost 15K. On a rolling 12 month basis transactions are 26% yoy higher. Despite the positive trends, transaction activity remains low overall accounting for 1.7% of total housing stock and 2.2% in Dublin. This compares poorly to the UK where the equivalent is 4.3%.

Still not a quality housing recovery: Continued house price growth is likely given the supply situation, but we would repeat our view that this is not a 'quality' housing market recovery. That should be accompanied by substantially improved liquidity, increased gross mortgage lending and more supply. Nevertheless, rising house prices will help in terms of negative equity and ease collateral concerns at the banks."

Houses in Dublin increased more €220 per day or over €6,600 per month from April to the end of June 2014 according to the latest DNG Q2 2104 House Price Gauge.

However the second quarter increase of 5.9% dropped from a high of 8.9% in the first 3 months of the year reflecting an increase in the availability of properties which according to the Property Price Register saw a 36.8% jump*. DNG is now predicting an annual house price increase of 20% at the end of the year.

The year on year increase of 25.2% means that most homes still stand 51% below their peak value in 2006 but houses in certain areas of Dublin have now closed that gap to around 25% - 30%. The average house is now 44% more valuable than it was at the bottom of the market in Q2 2012. Despite the increases, Ireland still lags behind England, Scotland, Wales and Northern Ireland in house transactions/sales per 1,000 according to an analysis by the estate agency.

The average cost of a Dublin home now stands at €349,000, a rise of €6,666 per month since the beginning of April or €71,000 since June 2013.

In addition houses in West Dublin increased at almost twice the rate of houses in the north and the south of the city at 9.6% versus 4.1% and 5.6% respectively. This appetite for starter home was also reflected in the three month 10.9% price increase in houses in the sub €250k mark or 36.6% over 12 months. According to DNG as the value of the property rises so the rate of increase during quarter two slows down, with the lowest rate of increase evident in the most expensive sector of the residential market at 3.3% during the second quarter.

Commenting on the results Keith Lowe, CEO, DNG said “Property prices in Ireland fell too far and too fast and it was inevitable that prices in the greater Dublin area in particular were going to rebound strongly. The fact that property prices in the capital have risen at a more realistic and sustainable level this quarter than that experienced in the first quarter of 2014 is to be welcomed. We would anticipate that house prices in the capital will show further growth in the second half of the year but at more moderate levels.”

He also added “The sharp price rises experienced at the entry level price bracket and properties located in west Dublin, in particular, is good to see. These have been slower to recover than other areas and price categories and are now playing catch up with the rest of the market.”

Speaking on the overseas investor interest in Ireland Lowe also said “There is currently very strong interest in Ireland from international funds, many of which have now turned their attention to the residential market and which will also continue to assist market recovery in the coming 12 months.”

House prices increases were also evident in certain areas throughout the country with Lowe adding “Whilst recovery is strong in the greater Dublin area we have also noted strong evidence of recovery in market conditions in the areas around Dublin including counties Kildare, Wicklow and Meath. We also noted modest signs of recovery in large population urban areas such as counties Cork, Galway, Sligo and Kilkenny. Some more provincial areas of Ireland will take longer to recover but it would appear at this stage that most areas in Ireland have reached or are close to the price floor.”

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