Irish house prices expected to rise 8% in 2017

Davy stockbrokers expects house prices to rise by 8 per cent this year fuelled by the Government’s help-to-buy scheme and a loosening of the Central Bank’s mortgage-lending rules.

The firm predicted the level of home-building and mortgage lending could also potentially double or triple over the next five to 10 years.

“Our base case is that new mortgage lending will expand to €10 billion by 2020. However, should residential transactions return to historic averages, similar to current UK levels, mortgage lending could triple to €15 billion by 2020,” Davy said in its latest economic outlook.

The Government’s new scheme for first-time buyers and the Central Bank’s decision to ease its lending rules would spur inflation this year and see an expansion in new mortgage lending for house purchases from €5 billion to €6 billion this year, it said.

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Market demand is also underpinned by the resumption of net inward migration, which means household formation is now likely to exceed 30,000 per annum.

Growth forecasts downgraded

In its report, Davy downgraded its growth forecasts for the Irish economy as a whole, citing softer export and manufacturing data linked to Brexit.

It is now predicting gross domestic product (GDP) to expand by 3.7 per cent this year, a slight revision on the previously forecast 4 per cent.

Despite the reduced rate of growth, Ireland is still likely to be the fastest growing economy in Europe once again, it says.

Davy said its key message was that Ireland’s “increasingly domestically-driven recovery remains robust” with consumption expected to grow by 3 per cent and employment by 2.3 per cent in 2017, which is roughly in line with the previous two years.

The impact of Brexit on the Irish economy remains muted, the brokerage said, noting that while some macroeconomic indicators such as consumer sentiment softened in the second half of 2016, Ireland’s main manufacturing and services barometer bounced back in December.

A big question mark hangs over how markets will react to the UK invoking Article 50, the formal EU exit mechanism, which is expected in March.

“A sharp depreciation of sterling remains a risk for export competitiveness, albeit offset by the dollar’s strength,” Davy said.

"Although not our base case, a key risk is that a 'hard Brexit' will emerge with the UK potentially facing a disorderly exit from the single market in early 2019," authors Conall Mac Coille and David McNamara said.

“Such a scenario could lead to severe disruption for Ireland’s export sector - potentially leading to tariffs being imposed together with regulatory and legal uncertainties on trade with the UK,” they said.