Irish House Price Report Q1 2023 | Daft.ie

Daft Reports

29th Mar 2023

A change in market conditions

This latest Daft.ie House Price Report shows just how much conditions have changed in Ireland's housing market over the last 12 months. A year ago, listed prices nationally rose by 2.9% in the first three months of 2022 ‐ the seventh consecutive quarter that prices had risen. It continued a pattern that extended all the way back to the early 2010s, which saw listed prices jump in the first quarter following a relatively quiet final quarter of the year.

Prices continued to rise in the second quarter ‐ and indeed by more, by 3.6%. But the invasion of Ukraine and the associated shift in macroeconomic conditions, especially the rise in inflation and in interest rates, has completely altered conditions in the market. Prices were effectively static in the third quarter of the year and fell by 0.5% nationally in the last three months of the year.

As I noted in the commentary three months ago, on the face of it, a final-quarter fall in prices was not that unusual. Just as prices tended to rise in the first quarter, they tended to fall in the last three months of the year, as the sales market wound down ahead of a new calendar year. But sentiment had changed: survey respondents no longer expected strong price growth in the next 12 months (or beyond).

The figures from this report confirm this change. Listed prices nationally fell by 0.3% in the first quarter of 2023. This is the first time since 2013 that prices have fallen between December and March and the largest Q1 fall since 2012. The figure accompanying this piece confirms just how unusual a fall in listed prices is in the first quarter: it shows the Q1 change nationally every year over the last twelve years, back to 2012.

We can see this not only in listed prices or in the sentiment survey, but also in transacted prices and the relationship between listed and transaction prices. We include in this report a measure of "market heat", the typical difference between a property's listed price and the ultimate price recorded in the Property Price Register.

Back in 2011 and 2012, the typical property sold for about 10% less than its listed price. Much of this reflected the timing effect: a property listed in January may go sale agreed in June and ultimately sold in October. During the intervening nine months, prices will have fallen and this will typically be reflected in the price. For most of the period 2015-2019, though, and indeed into the covid19 market of 2020 and 2021, there was little difference on average between the listed price and the ultimate transaction price. The pattern was a little different for Dublin than elsewhere ‐ there were typically premiums above the listed price between 2017 and 2019, for example ‐ but on the whole, little difference existed.

By early 2022, though, the typical transaction closing at that point was recording a price 4% above the initial listed price. This was the same process as a decade earlier, just in opposite market conditions. With prices rising rapidly, this meant that a non-trivial difference in prices existed between the date of initial listing and the date on which the transaction was closed.

But in the last 12 months, that premium has largely disappeared. Nationally, transactions closed in 2022 Q1 had a premium of 3.7% over the listed price. By the first three months of 2023, that had fallen to just 1.3%. In Leinster and in Connacht-Ulster, where the typical mark-up had been 3% and 2.5% respectively a year ago, there is now no difference at all, on average, between listed and transaction prices. While mark-ups still exist in Dublin (2.6%) and Munster (2.2%), they are roughly half what they were a year ago.

On the face of it, then, with demand weakening, prices should fall this year. The other side of the equation, however, is supply. The stock of homes available to buy is indeed higher than it was a year ago ‐ 13,000 compared to 10,000 ‐ but that is still barely half the level of supply that prevailed before covid19. Between 2015 and 2019, when the market was tight in most parts of the country, there were an average of 25,000 homes to buy at any point in time.

Second-hand supply responds to prices while new supply responds to costs. Costs have risen and the general expectation is that completion of new homes this year will be well below the 30,000 new homes finished last year. And if prices continue to fall, that is likely to impact second-hand supply.

Ultimately, even in a cyclical downturn, it is hard to escape the overall lack of housing that has emerged in Ireland since the early 1990s.