Housing market expectations are starting to heat up

Ronan Lyons, Economist

1st Apr 2014

Ronan Lyons, Daft's in-house economist, commenting on the latest Daft research on the Irish property market.

Housing market expectations are starting to heat up

Dublin still dominates developments in the housing market. This latest Daft.ie House Price Report shows that annual inflation in Dublin list prices rose to 15% in early 2014, compared to a rise of just 0.5% 12 months previously. The rate of inflation is also accelerating - the average list price in the capital rose by 5.7% in the first three months of 2014, equivalent to the entire increase between July and December last year.

But it would be wrong to assume that house prices are still in decline throughout the rest of the country. While the year-on-year change outside Dublin remains negative, at -3.3%, this 12-month figure hides an increase between January and March of 2.3%. This quarter-on-quarter rise in list prices is the first one since mid-2007, ending a run of 26 straight quarters of falling values outside the capital.

The end of price falls around the country is unsurprising when taken together with the figures on supply. The total stock of properties sitting on the market fell from 54,000 in March 2012 to 43,000 in March 2013 and to 33,000 in March 2014. To put the last two years into perspective, between early 2008 and early 2012, that figure had been stuck persistently above 50,000.

What makes the last twelve months different to the year to March 2013 is which parts of the country are contributing to the fall in stock. Munster, Connacht & Ulster (outside the cities) made up just over 40% of the fall in stock in the year to March 2013. In contrast, these three provinces have made up almost 60% of the fall in most recent twelve months.

This does not, however, mean that conditions in Dublin are easing. Quite the opposite, as it happens. There are currently fewer than 2,300 properties listed in the capital, the lowest since June 2006. Currently, less than 800 Dublin houses are coming on the market each month on average or 10,000 homes over the course of a year. In a city of roughly half a million households, this translates to just 2% for sale - a healthy market would see at least three times this amount coming on to the market each year and perhaps as much as six times.

Annual change in property listings, from start 2012

Unsurprisingly, the market in the capital is incredibly tight, with roughly 1,000 transactions a month in the second half of 2013 - well above new supply. One glimmer of hope for hard-pressed first-time buyers is the increase in fresh, mostly second-hand, supply that has emerged particularly in Dublin in the last nine months. The figure shows the annual change in property listings, for Dublin and for the rest of the country, from the start of 2012.

The total number of properties listed in Dublin rose from 6,900 in the year to March 2013 to 9,200 during the most recent 12 months. Hopefully a positive side-effect of rapidly rising prices will be to bring extra second-hand supply on to the market. As mentioned above, the Dublin market may need as many as 30,000 listings a year to meet the various sources of demand - first-time buyers, trader-uppers and trader-downers.

There does appear to be one side-effect already evident from the rapidly rising prices in Dublin. Starting in this report, a quarterly survey of housing market expectations will be included along with the other market metrics. The survey for this report, carried out in March 2014 with over 1,000 respondents, shows that expectations about future house price movements - which are key in driving demand - have become more optimistic in recent months.

In late 2012, the typical Dublin respondent expected prices to fall 4% over the coming 12 months. By late 2013, that had changed to an increase of 4% and by March the expected increase in house prices over the coming year had risen to 6%. Elsewhere, expectations have nudged upwards, from a fall of 1% in late 2013 to an expected rise of 1% in March 2014.

While one-year expectations influence the decision to buy now or wait, five-year expectations are probably a better reflection of how realistic - or indeed worried - those active in the housing market are. Currently, those in Dublin expect prices to be about 20% higher in five years than now, while those elsewhere expect a rise of 10%. The Dublin figure in particular is at the bounds of healthy increases - if the expected price increase rises even further over coming quarters, those who have been crying "bubble" since prices turned in the capital may have justification.

Ultimately, expectations may be the spark but credit is the fuel. Currently, the survey indicates that people are looking to buy a house worth about four times their income (4.5 in Dublin). This is in line with prudential lending. But currently, no regulation exists in relation to lending standards. An obvious step for the Financial Regulator would be to introduce a minimum deposit (i.e. a maximum loan-to-value). Experiences from other countries suggest that this simple tool can work wonders in stemming demand that is fuelled by expectations about prices rising in the future.

With more than half of all respondents worried about a lack of properties available, however, the supply of houses should be as much a concern for policymakers as the supply of credit.


Sale Index
Asking Prices, Residential Sales

Stock and flow of properties
Stock and Flow of Sale Properties


Snapshot of Asking Prices Nationwide
Snapshot of Asking Prices Nationwide

Discuss This Article

  • Re: The Daft Sale Report Q1 2014

    Posted By: Marty Date: Tuesday April 1, 2014 @11:00AM

    If you look at the supply side of the market there is a real danger that it will stagnate at very low levels for the foreseeable future.

    The difficulty for developers are many not least the lack of capital but also in the types of planning permissions they were given.

    To put it in context,any permission given by local authorities were extortionate in nature, looking for inordinate amounts of money from house levies to capital levies etc.
    Add this to part five clauses and vat you get a picture of the government fleecing developers.
    The boom safeguarded this activity in that the costs could be passed on to buyers but at today's prices they are unrealistic.

    The government has indicated that they are to look at freeing up the planning process and reducing costs but unless it is retrospective it will only further delay construction.

    All in all the seeds of this mess were sown at the end of the last and this government have found it easy to blame developers for all ills, now desperately need them to start building again.

    And I am only talking about the private market.

    The social housing market requires a minimum of 15,000 per years separate from the private market if you consider that 90,000 are on waiting lists.

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  • Re: The Daft Sale Report Q1 2014

    Posted By: Eamonn Moran Date: Tuesday April 1, 2014 @12:47PM

    Hi Ronan Great well balanced article

    I am looking at this from the point of view of young people in general.
    I am thinking about some of the anomolies in the market.

    In my opinion there are a lot of vested interests desperately trying to increase prices despite lack of wage increases in general in the economy (The IT sector concentrated in Dublin is an exception).

    There are now as many people over the age of 35 working in the economy as there were in in 2007. Young people have born the brunt of the job losses that happened since 2007 and there are 300,000 less under 35s working in the economy. Since first time buyers are usually younger people isnt first time buyer demand likely to be a lot lower than previous Norms?

    Another large constraint on the Supply side is a natural phenomenon. The very low death rate. In the last few years life expectancy has risen dramatically and therefor fewer houses are being vacated due to someone dying. Eventually this factor will reduce after the new norm for life expectancy stabilizes.

    It seems to me the only realistic chance of increase on the supply side will come from foreclosure.

    Where are all the Buy to Lets that were in arrears. Why are we not seeing them come on to the market.
    I heard reports banks a re sitting on over 1000 homes that have been repossessed but not put up for sale. The banks must care more about maintaining price rises than selling those assets.

    Perhaps the Sale of Nama's Private home loan book and the sale of the Irish nationwide loan book will release supply. Then again maybe the buys of these will be Reits who will then look to rent these houses out thus squeezing the younger generation out of the housing market and force them into a lifetime of renting.

    Your 4.5 times figure for average mortgage size is worrying. The old norm before the bubble was 3 times. Cementing a new norm of 4.5 increases house prices for everyone and reduces families disposable income for 20-30 years in order to increase the level of debt in Irish Housing. The only winners are the banks.

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  • Re: The Daft Sale Report Q1 2014

    Posted By: Istabraq2000 Date: Wednesday April 2, 2014 @01:32PM

    The mortgage/income ratio is dependent on interest rate levels. the reason it's 4.5 now rather than 3 is because interest rates are much lower now than they have been historically. If interest rates trended upwards then you would expect the ratio to trend downwards, and vice versa.

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  • Re: The Daft Sale Report Q1 2014

    Posted By: Greg Date: Wednesday April 2, 2014 @01:52PM

    Are Irish banks ripping us off?

    ECB rate is 0.25% - I can get a mortgage paying 4.5 - 5%.
    Offical cash rate (Australia) is 2.5% - I can get a mortgage for 4.5 - 5%

    Our banks are so stuffed that they have to rip off new mortgage holders in order to subsidised the massive short fall in bad loans and badly conceived tracker mortgage deals which are costing them a fortune.

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  • Re: The Daft Sale Report Q1 2014

    Posted By: Eamonn Moran Date: Thursday April 10, 2014 @11:19AM

    Shouldnt the rate be based on what they think the interest rates will be over the next 25-30 years. Not just at the point at which the mortgage is sold. We are now at historic lows.

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  • Re: The Daft Sale Report Q1 2014

    Posted By: Allen Date: Wednesday April 2, 2014 @10:42AM

    The housing market was fed on cheap credit between 1997 and 2007 which resulted in month on month price increases for a decade. The unsustainability of this has left us with a current economic forcast which will be stagnant for the next 20 years at best and leaves us as the most endebted nation in Europe.

    The current situation sees us with no supply of new housing and an absloute drought of adequate housing for families with month on month price increases. The unsustainability of this will reach a point where a certain ceiling is reacheddue to economic factors such as lower incomes higher taxes lack of lending and people will be stretched to the limit again. Remember interest rates set by the ECB are currently at historic lows, something that will rise as larger European economies start to perform.

    People are in fear of being priced out of the market again and bidding wars have been something of the norm in Dublin, absolute madness.

    What this daft report does very well is look at statistics and print those statistics.
    I feel this though is not telling the full picture. As these types of reports are done by Economists where then is the economic factors in these reports?
    Anyone can take statistics and arrange them into graphs and numbers.

    Nowhere does it mention the impending stress tests of banks which are looking more and more likely to happen sometime in the near future, these tests when they happen will expose Irish banks for the basket cases that they are, the era of kicking the can down the road will be no more and they will be forced to deal with the elephant in the room as regards unperforming mortgages and loans or else we the people of Ireland will be faced with a situation similar to Cyprus.

    I found it shocking that Enda Kenny bragged about the fact that if you had 30,000 houses up for sale in Ireland you would sell them in a week, as if this was a good thing.
    It is not due to a performing economy Enda that this would happen,its not a positive thing. It's shows a government with no understanding of what is happening in this country and that the road we are currently on regards property will end up just as bad as before. What we need is a properly functioning market with a construction industy which supplies housing to the demand year on year with regulated lending. Price increases would then be in the reagon of 1-2% annually which we as a population could manage with our current economic situation, basket case banks and lower incomes.

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  • Re: The Daft Sale Report Q1 2014

    Posted By: Martin Date: Wednesday April 30, 2014 @05:28PM

    As the early sunshine of the property recovery sparkles across Dublin city , many are dazed by the new reality and unable to see clearly. As with shock of the banking crises that rolled out into a property crash many are in denial but through gritty realism rental prices explores the hidden needs that drive often baffling human behaviour. Many rental judgements are open ended but we draw fundamental truths from the lack of supply , shining a searchlight into the dark corners our lack of understanding . The builder /developers are gone, housing need remains in Dublin for families who want homes. Noonan talks about 30,000 houses that need to be build each year , realistically that is not going to happen in the next 5 years. House prices going to rise by 30% - 35% in Dublin in the next 3 years .. I am talking year on year cumulative effect

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