Property market headed for ‘perfect storm’ of rising costs and flattening or falling prices

Experts, estate agents give verdict on ESRI’s latest assessment of market and whether house prices are 7% overvalued

The Irish property market is headed for “a perfect storm of rising construction costs and flattening or falling house prices,” an industry expert has warned.

Lorcan Sirr, a lecturer in housing studies at Technological University Dublin, was responding to a report by the Economic and Social Research Institute (ESRI), suggesting that house prices were now overvalued by at least 7 per cent.

The ESRI also warned that the market here was likely to experience a significant slowdown in the coming months on the back of wider inflationary pressures and higher interest rates.

What the ESRI analysis shows is that “there is a greater correlation between interest rates and house price movements than supply and price movements,” Dr Sirr said.


DNG chief executive Keith Lowe said it was noteworthy that the ESRI did not suggest that because prices were overvalued “there will be a correction in property prices”.

“We look at the value of property based on supply and demand. At the present time there is very strong demand for a limited supply of property. Most houses we sell have multiple bidders and supply continues to lag demand,” he said.

“As the ESRI correctly states in their report, the high rates of inflation seen in the market since 2020 were in part, Covid-related, and that level of price growth is not sustainable over the medium term,” Mr Lowe said.

“We also agree with the ESRI that property price inflation is moderating due to factors such as increasing supply, interest rate increases, inflation impacting on real incomes and the unwinding of the additional savings and wealth, some of which undoubtedly found its way into the residential property market over the last two years,” he said. Mr Lowe said he expected house price inflation to drop to 5 per cent to 7 per cent this year, falling to in or around 2 per cent in 2023.

Marian Finnegan, managing director of Sherry FitzGerald, said while demand remained robust, the frenzied bidding activity that was a feature of the post-pandemic period has eased.

The average value of second-hand homes in Ireland increased by 1.1 per cent in the third quarter of this year, with values rising 5.5 per cent over the first nine months of 2022. This compares to growth of 7.1 per cent in the same period in 2021.

She played down the prospect of a house price correction. “I would expect this trend to persist in the fourth quarter and into 2023 but remain confident that the overall imbalance between demand and supply will underwrite the stability of prices overall,” Ms Finnegan said.

Ciarán Mulqueen, who operates the online platform Crazy House Prices, noted that he had been getting messages from people “in a panic over interest rates”.

“Lots of buyers are being forced to pull out of their ‘sale-agreed’ stage as their lender has either given them less in the loan offer, or withdrawn it completely,” he said. Mr Mulqueen also noted that there were a remarkable number of “asking price drops” on property website MyHome.

John McCartney, head of research at BNP Paribas Real Estate Ireland, said he expected price growth to taper from the current level (13 per cent as of July) to 8-10 per cent by December, and to a lower rate in Dublin.

Mr McCartney said the latest macro projections point to a fairly supportive economic and labour market outlook for the housing market, even allowing for a marked slowdown in the global economy and rising mortgage rates. He also noted that Government measures such as the First Home Scheme and Help to Buy would support prices.

“So, balancing everything and conditional on the macro forecasts being broadly correct, my expectation is for a continued gradual tapering-off of house price inflation in 2023,” he said.

Pat Farrell, the chief executive of Irish Institutional Property (IIP), said: “Sadly the old canard about a definitive link between institutional investors and house price inflation continues despite no hard evidence to support the assertion.”

“Neither does ESRI report published today and reported in the media support this assertion. Rather the report speculates on a range of four possibilities one of them being purchase of homes by non-households. The latter includes among others, institutional investors, approved housing bodies and local authorities, the latter two being the largest component and effectively proxies for the state in acquiring homes through the private market,” he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times