House price inflation subdued, supply edges higher
Sharp deceleration in house price inflation
Nationally, house prices increased by 0.9% in the month of July. This represented its strongest monthly gain since September 2018 and marked the fifth successive month of increases after registering some modest falls towards the end of 2018 and early part of this year. The bigger picture, though, is that there has been a marked deceleration in house price inflation in the past 18 months. On a year-on-year basis, the rate of growth stood at 2.3% in July. This is well below its recent high of 13% in April of last year.
Dublin Housing Market
From a geographic perspective, it remains the case that the Dublin market is the biggest source of the slowdown in house price inflation. Indeed, in July, prices in the capital fell in year-on-year terms, (albeit marginally, by 0.2%) for the first time since October 2012. Within Dublin, Dun Laoghaire-Rathdown and Dublin City saw house prices fall in July on a yearly basis, by 6.3% and 1%, respectively. Both of these areas have recorded annual price falls now for four straight months. The trend in recent years of non-Dublin price inflation outpacing the Dublin market continues. In July, prices outside of the capital rose by 4.8% compared to a year earlier. However, this is a significant slowdown versus the 14% rate in May 2018.
The slowdown in house price growth comes against a backdrop of constraints on potential buyers in getting access to the required level of finance. This is in the context of the central bank mortgage lending rules, especially the relatively restrictive loan-to-income multiple of 3.5 times. This issue appears to be having the greatest influence on the Dublin market where prices are far higher. For example, the most recent daft.ie asking prices showed prices in Dublin averaged €373,509 in the third quarter of 2019, whereas the national figure was €257,114. Indeed, excluding Dublin, the asking price was €212,417. The weakening trend in prices in Dublin has also been accompanied by a slight rise in unsold stock on the market, with the daft.ie figures on stock available for sale showing a 2% year-on-year increase in September.
Housebuilding continues to rise, but pace of growth has slowed
The level of homebuilding continues to rise, although, the pace of growth has slowed. In terms of new supply, the CSO’s ‘new dwelling completions’ rose by 11.8% in quarter two versus a year earlier. This compares to a 23% increase in quarter one and the 25% rate of annual increase registered for the full year in 2018. The four quarter cumulative number is now at 19,300 units and based on its current trajectory, completions may total close to 22,000 units this year.
Forward looking indicators paint a somewhat mixed picture for future supply. Data on housing starts (measured using commencement notices) showed a fall of 7% in Q2 on a year-on-year basis. Although, it may be the case that the second quarter of last year was boosted by activity delayed from the first quarter due to bad weather. Comparing the first half of this year to the same period in 2018, housing starts are up 17%. Notwithstanding this though, commencements appear to be levelling off in recent months at just above 24,000 units.
Registration data, which are regarded as a indicator of developer activity, recorded a 14.5% y/y fall in Q2. However, similar to the commencement data, these figures may be distorted by weather impacts from last year. On a H1’19 vs H1’18 basis, registrations were up 7%, which still represents a significant slowdown in the rate of increase. Meantime, planning permission, which can be quite volatile from quarter to quarter, are now running at a four quarter moving total of around 32,000 units. The rate of growth here has also slowed somewhat in recent quarters.
Meanwhile, the housing sub-component of the construction PMI, with a reading of 58.4 in August, remains at a level consistent with a strong pace of expansion. Overall, supply remains well below the estimated annual demand of 35,000 units. Given recent trends, it may take longer to reach this level than previously envisaged.
New Mortgage Lending
Meanwhile, new mortgage lending rose 11% y/y in the first half of this year (+22% in FY’18). Elsewhere, mortgage approvals have picked-up recently, with the 12 month total rising to just below the 39,000 mark, having spent much of the last year pinned below the 37,000 level.
In summary, the general softening trend across the key housing metrics of prices, supply and lending continues. As a result, the return to a more ‘normal’ residential property market where supply and demand are closely aligned could take even longer to achieve than previously anticipated.
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