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No Let Up in House Prices

David Duffy, Economist, ESRI

17th May 2006

David Duffy is our guest blogger, analysing the Quarter 1 2006 figures.

House prices continue to grow. Not only have prices continued to rise at a strong pace but also each year we are seeing a record number of houses built. The Daft.ie survey provides detailed information on developments in the sales and rental markets. This latest report provides more evidence that the prices for purchasers continue to grow. By contrast the rental sector shows signs of levelling off, with indications that rents have come back in some areas.

The recently introduced Daft.ie House Price Index is based on the asking price for the property. The results this quarter confirm evidence elsewhere of a strong housing market with asking prices in April 2006 13.8 per cent higher than they were in April 2005 and 5.5 per cent higher than they were in January of this year. As the index is based on asking prices it provides some measure of people's confidence in the housing market. The increase suggests that people remain confident that house prices will continue to grow and expect to be able to realise a higher price for their house sale in the current environment. The report also provides information on the time to sell a property. On average it is taking 40 days to sell a Dublin City Centre dwelling. At present properties in West Dublin are selling fastest, taking an average of 35 days. When compared with average time to sell in quarter 4 2005 in most cases Dublin properties are currently selling by around a week faster. The data suggest that the most dramatic improvement in time to sell has been in the Dublin Commuter counties.

The Rent Index shows that rents are 4.6 per cent higher in April this year than April 2005. However the index also shows that rents have stabilised over the last couple of months. Additional information provided includes average time to let and average vacancy. Having spiked upwards in the latter half of 2005, presumably reflecting seasonal factors, the average time to let has come back towards more normal levels. A similar trend is observed in average vacancy. Concentrating on the recent data it shows that the time to let can vary from under 2 weeks in Dublin City Centre to around three weeks in Galway and Limerick. Similarly the average vacancy is just over a week in Dublin City Centre but around 2 weeks in the other urban rental markets.

Average rents by area and number of bedrooms show that in some locations rents have actually come back. For example it would now appear to be cheaper to rent a 3 bed in the Dublin City Centre than it was in the last three months of 2005. Across a range of properties rental levels in Cork would also appear to be lower. Given that the snapshot uses average rents it is necessary to wait and see if the trend is sustained over subsequent quarters.

One of the advantages of the Daft report is the information provided on the rental market in different areas of the country. There remains significant geographical variation. As would be expected average rents in Dublin remain substantially higher than in other areas of the country. In the other main rental centres Cork, Galway and the Dublin Commuter counties appear to have broadly similar rental levels. It is also evident that the stabilisation in rental levels in Dublin is being mirrored across the country.

Without a doubt one of the primary factors driving the Irish housing market in the immediate future will be demographic trends. Ireland has a growing population, mainly driven by a strong net inflow of people into the country. This has increased substantially in recent years as migrants are attracted to the Irish economy success story and movement between countries became easier with the entry into the EU of the Accession states in 2004. With inward migration flows forecast to continue, it seems likely that the home ownership and rental markets will remain strong over the short term.

In recent months, concerns have again been expressed about the outlook for the Irish housing market. Without a doubt, higher interest rates will have a negative impact on affordability and so should dampen demand. However economic forecasts suggest that employment and incomes will continue to grow. This year also sees SSIAs starting to mature. Surveys indicate that a sizeable portion of SSIA money will find its way into the property market. Overall economic growth is expected to remain strong at over 5 per cent per annum in both 2006 and 2007. Thus, the Irish housing market should continue to be driven by strong activity levels.