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Navigating the Winds of Change: Irish House Prices in 2023

As we pass the halfway mark of 2023, the Irish housing market finds itself amidst a mix of tailwinds and headwinds.

The first quarter of the year witnessed a 0.3% decline in asking prices,driven by changes in the capital city. Dublin experienced a sharper fall compared to the rest of the country of 0.8%. The rest of Ireland saw a marginal rise of 0.2%. This adjustment in prices is attributed to the cooling off of frothy valuations that accumulated during the pandemic.

Furthermore, the Central Statistics Office’s Residential Property Price Index (RPPI) indicates a continued decline in transaction prices, particularly in Dublin. In this article, we will explore the factors shaping the Irish housing market in 2023, both positive and challenging.

Vulnerable Valuations and Price Corrections

Dublin’s average housing price, as of January 2023, is €541,000.

This represents nine times the average income for most buyers, and highlights the vulnerability of stretched valuations to correction. The correction is necessary to restore balance and sustainability to the market.

However, it is important to note that while significant house price declines are anticipated in countries like the United Kingdom and the United States, Ireland is unlikely to follow suit.

Resilient Economy and Buoyant Demand

One of the key factors supporting the Irish housing market is the buoyancy of demand. This, in no small way, is driven by the ongoing resilient performance of the Irish economy.

The performance of the economy is good news. However, the OECD does sound a note of caution, saying that “while the fiscal position is currently strong, with buoyant revenues, a number of pressures arising from ageing, housing, health, and climate change create fiscal risks in the longer term.”

Despite the challenges, the demand for housing remains robust. This contributes to the market’s stability and prevents a free-fall scenario.

Limited Housing Supply

Another favourable factor for the pricing element of the Irish housing market, though a political and social concern of note, is the acute shortage of housing supply.

With only 13,600 properties listed for sale on MyHome in April 2023, significantly lower than pre-pandemic levels of over 20,000, the market remains tight.

Additionally, the average time to sale agreed is at a historic low of three to four months. These constraints on supply provide support for housing prices throughout 2023.

Moderate Interest Rate Environment

Compared to the Bank of England or the Federal Reserve, the European Central Bank (ECB) is expected to maintain a less aggressive approach in raising interest rates. This relatively moderate interest rate environment helps mitigate potential downward pressure on Irish house prices.

Easing of Mortgage Lending Rules

The surprise decision by the Central Bank of Ireland (CBI) to loosen mortgage lending rules will gradually exert upward pressure on house prices.

The regulatory threshold adjustment for first-time buyers’ loan-to-income ratios (LTIs) has already had an impact, with a significant increase in average first-time buyer mortgage approvals in February.

The CBI estimates that this rule change will eventually add 8% to house prices. This possible effect may become more evident in the second half of 2023.

Uncertainties and Conclusion

As the housing market does not exist in isolation, the future of Irish house prices remains uncertain. Small price falls cannot be entirely ruled out.

The weak start to 2023 in terms of asking prices and the ongoing correction in certain areas indicate potential further adjustments.

However, as the year moves into the peak of summer, the tight housing market, the resilience of the economy, and the easing of the CBI’s mortgage lending rules are expected to provide support to Irish house prices.

In conclusion, while the Irish housing market faces both challenges and opportunities in 2023, the overall outlook suggests a measured and cautious approach.

With a revised forecast of 1.5% house price inflation for the year, we anticipate a possible divergence between declines in the capital and modest price gains in other parts of Ireland.

Please note that the content of this blog does not amount to professional advice. Legal advice should be sought in respect of specific queries. This update is provided on the basis of information available as of June 2023. For further information, please contact any member of the McKenna and Co Property Team.

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