House price inflation slowing, home building rising
Sharp slowdown in house price inflation
The most recent figures on Irish residential property prices indicate that the trend of slower price growth evident in 2018 has carried over into this year. CSO data shows that nationally, prices increased by 5.6% on a yearly basis in January. This compares to a 6.4% growth rate in December and is down from a recent high of 13.3% in April’18. The year-on-year growth rate has slowed now for nine straight months. On a monthly basis, prices have fallen modestly for the last three months. In terms of performance versus their trough, prices are now up 82% from their lows of March 2013 and are around 18% below their previous peak levels.
Geographic Breakdown of Markets
Looking at the geographic breakdown provides useful insights on the slowdown. The Dublin market has experienced the most significant easing in house price inflation. In the capital, the yearly growth rate was at just 1.9% in January, versus 4.2% in December and its recent high of 13% in April’18. It is also the case that ‘non-Dublin’ price inflation has moderated, although, not to the same extent as in Dublin. In January, non-Dublin prices rose by 9.5% y/y, compared to its most recent high of a 15.2% growth rate in June of last year.
Assessing the Dublin market in more detail shows a significant deceleration in price growth in all four housing regions. For example, in Dun Laoghaire-Rathdown, prices rose by 2.8% y/y in January (10.6% in April’18) and Fingal registered a 2.6% growth rate (high of 14.3%, Feb-18). It seems to be the case then that the Central Bank mortgage lending rules are having the greatest impact in Dublin, where prices are highest. The most up to date daft.ie data on ‘asking prices’ show that in Dublin prices averaged €372,000 in 2018. This compares to a national asking price average of €253,000 over the same period. Overall then, it appears that the Central Bank lending rules, especially the relatively restrictive loan-to-income multiple of 3.5 times, as well as affordability issues are impacting the Dublin market, in particular.
In this regard, the BPFI figures show that new mortgage lending increased by 20% in 2018 to €8.7bn, from €7.3bn in 2017. However, mortgage approvals (for house purchase) slowed in 2018 and have stagnated to just below 37,000 on a 12-month cumulative basis over recent months. However, they did rebound in February, rising by 8.6% in year-on-year terms, following a 5.7% y/y fall in January.
Supply continues to improve, but still well below required levels Home-building continues on an improving trajectory. The CSO’s ‘new dwelling completions’ increased by 25% in 2018 to over 18,000 units. This followed a 45% increase in 2017 to 14,400 units.
Housing going forward
Forward looking indicators of homebuilding activity suggest that the improvement in supply will continue. Housing starts, measured by commencement notices, rose by 28% last year, to 22,500 units. Meanwhile, housing registrations (regarded as an indicator of developer activity) recorded improvement in the last few months of 2018, after having spent much of the year below 2017 levels. By year end, registrations were up 8% in 2018 versus 2017. In another positive sign for future supply, planning permissions surged by 40% in 2018. In terms of more timelier updates, the housing component of the construction PMI hit a 10-month high in February, with a very strong reading of 64.3.
However, while various supply metrics are reflective of increasing supply, the level of building activity remains well below new housing demand, which is estimated at 35,000 units per annum. In this regard, it could be 2022 before housing output rises to 35,000 units. Furthermore, when the pent-up demand, which has been accumulating in recent years, is factored in, it could be well into the next decade before supply and demand are more closely aligned, based on the current uptrend in house-building activity.
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