Irish House Price Report Q1 2024 | Daft.ie

Ronan Lyons, Economist

26th Mar 2024

Prices return to trend

The figures in this latest Daft.ie Sales Report indicate that prices rose by 1.8%, on average, in the first quarter of 2024. This followed a fall in the last quarter of 2023 ‐ but, as discussed in the commentary on that report - a fall in listed prices in the final three months of the year is the norm, albeit one missed during the covid19 years.

While prices fell in the final quarter of 2023, they had risen ‐ relatively strongly, across the country as a whole ‐ in the preceding two quarters. Overall, prices in the first quarter of 2024 are, on average, 5.8% higher than a year previously. This represents a more-than-doubling of the inflation in a year: this time last year, the annual change had fallen to just 2.7%, its lowest rate since 2020.

An increase of almost 2% in three months suggests something of a reversion to the mean. In the 40 or so quarters since 2014, the average quarter-on-quarter increase nationally has been 1.7%. In the most recent quarter, it was 1.8%.

Prices Have Increased By 1.8 Percent In One Year

This suggests that ‐ after an extraordinary couple of years, marked by a pandemic, war, inflation and interest rates increases ‐ inflation in housing prices is settling back to the level it had become used to.

What has been noticeable throughout the last ten years is that ‐ with a temporary exception during 2017 ‐ inflation has been higher outside Dublin than in it. Some of that reflects timing: Dublin saw significant increases in prices in 2013 and 2014, even as prices fell elsewhere.

But the main factors driving the trends seen over the last few years ‐ and resuming in 2024 ‐ are an overall shortage, together with the impact of the Central Bank rules.

It is a feature ‐ not quite a bug but certainly not an intended result ‐ of the Central Bank's mortgage rules that they shift housing demand out of more expensive areas like Dublin and, effectively, down the motorway network.

On the one hand, this seems a sensible outcome and directly follows from incomes varying geographically a lot less than the price of housing. But commuting costs, which are outside the mortgage rules, are equally capable of stretching a household's finances.The working-from-home revolution that followed the covid19 pandemic relaxes that pressure a bit, at least for desk-based jobs. But it doesn't change the fundamental underlying issue: people would like to live near their work and, perhaps just as importantly, near their families and friends. The lack of building in and near Ireland's main cities shows up ‐ in a system with these mortgage rules ‐ as inflation exported to new markets.

But the Central Bank's mortgage rules wouldn't have these side-effects if the market wasn't characterised by a chronic, and worsening, lack of supply. The on-going inflation is, ultimately, the symptom. The lack of homes to buy is the root cause.

During the 2010s, this was principally an issue of not building enough. But since the covid19 pandemic and its associated lockdowns, the issue has changed from being one related to new homes to the second-hand market.

And, unfortunately, the problem is getting worse. Taking the period 2015-2019 as a whole, there were on average over 24,000 second-hand homes on the market at any one point. The critical year was between April 2020 and April 2021, as lockdowns effectively closed the second-hand market.

During this year, the number of second-hand homes on the market fell from over 20,000 to just 11,600. It recovered in 2022 ‐ rising from just below 10,000 in February to over 16,000 in November. But 2023 saw a reversal in the trend, most likely driven by interest rate increases.

And that trend has continued into 2024. On March 1st, there were just 9,700 second-hand homes on the market. That's down one quarter on the same date last year. It's also the lowest total in a series that goes back to 2007. In 207 months of data, there have only been four occasions when there have been fewer than 10,000 homes on the second-hand market: February 2022 and each of the first three months of 2024.

National Average Is 326469 Euro

Interest rates are expected to level off and indeed maybe even fall later in the year. As that happens, and as existing homeowners come off their fixed rate mortgages, the supply situation ought to improve. Perhaps then, coupled with far higher rates of construction, a decade-long trend of rapidly rising prices may come to an end.