Can we finally escape the house price roller coaster?

House price growth in Dublin is cooling as Central Bank rules and affordability kick in

House price growth is now clearly slowing across much of Dublin. The Central Bank’s mortgage borrowing rules – and straightforward affordability issues – appear the obvious reason. But house prices still rose in south Dublin by 5.9 per cent over the past year and in Dublin overall by an average of 8.4 per cent. That’s below the national average of 11.5 per cent, but is still a significant increase measured against overall inflation or average wage increases.

Looking at shorter-term trends, the slowdown seems even more evident, albeit patchy. Comparing the three months to June with the previous quarter, prices in south Dublin are up just 0.1 per cent. And, in Fingal, prices are down 0.6 per cent. But the evidence is still a bit mixed. For example, prices in Dún Laoghaire-Rathdown seem to be still rising relatively strongly.

But it does seem that more and more borrowers are hitting their own affordability limits, or those imposed by Central Bank rules. Little wonder, with the data showing median prices in Blackrock and Dublin 6 – a measure of what the average buyer might pay – coming in not far shy of €600,000.

So with people on decent enough incomes struggling to buy, or rent, prices in the areas of the State that recovered most rapidly after the crash, although not quite coming off the boil, are at least not rising as quickly. And, no doubt, in some cases the same type of house on the same road may now sell a bit more cheaply now than a similar one a few months ago. The CSO publishes breakdowns of the figures by Eircode, but – while providing an indicator – there is not really enough data to be sure about local trends.


But the overall picture is reasonably consistent.

Perhaps a bit of Brexit uncertainty may be a factor here, too, as it seems to have shown up as affecting sentiment in some recent consumer sentiment surveys. Certainly the Border region is suffering. It has been identified by economic studies as most vulnerable to Brexit because of its exposure to the food sector and SMEs – even before account is taken of the specific Border issues.

Prices there are down 2.6 per cent quarter on quarter, and the annual rise of 4.9 per cent means the Border region is the only part of the State showing a single-digit percentage rise.

Third of income

But more generally, affordability is the key factor, underpinned by the Central Bank rules. An analysis by DKM consultants last year found that couples who were first-time buyers and on average incomes were already paying a third or more of after-tax income in mortgage repayments in more expensive areas of Dublin.This showed that a year ago limits were already being reached. A single buyer in the same areas would face repayments over half of income.

With 38-40 per cent of income considered the outer limit of affordability, the price increases in the interim will have led to more and more potential buyers hitting the buffers. The Central Bank rules are ensuring that people are not being granted loans on the basis of hopes for bonuses or pay increases, or on the basis of crazy salary multiples. So with some more supply likely to come on the market, and affordabilty hitting demand, we can probably expect the current trend to continue. Also, economic growth here has been very strong and will probably ease, another factor arguing for some moderation in price growth.

One unknown to watch, certainly in areas of Dublin 4, will be the possible arrival of the Brexit bankers. There has been an increase in investment in financial services in Dublin as firms prepare to Brexit, but many are still hedging their bets. If there is a surge in hiring as fears grow of a hard Brexit, we could see a flood of arrivals – and some housing and rental demand from a well-heeled group.

This trend of inward migration is a key factor not only here but in many international cities, increasingly the hubs for economic development. Not far off four in 10 Londoners were born outside the UK, for example, and Ireland’s biggest landlord, Ires Reit, has said that just 40 per cent of its tenants are Irish.

Cooling markets

A recent analysis by the Economist showed that in 35 of 44 cases, house prices in major international city markets had exceeded their pre-crash levels, in some cases by significant proportions. With interest rates on the rise and more supply, many of these markets are already cooling.

While house prices here remain below 2007 boom-time levels, in some areas of Dublin they are now just off the pre-crash peaks. The Economist calculates, looking at long-term income trends, that prices here have not got out of line with average incomes. Other analysis by the ESRI and Central Bank suggested that prices have not yet headed back into bubble territory. But they are now fully valued relative to incomes in many parts of the State.

Of course, the difficulty in forecasting house prices reflects the overall challenges to economic forecasting. Future growth and income levels remain uncertain. We don’t know how Brexit will fall and, while interest rates can only go one way, it is not yet certain when this will rise, or how quickly.

But as more and more parts of the market hit affordability barriers, we should see the overall rate of growth slow further, despite the ongoing shortage of supply. Stockbroker Davy expects national price growth to slow from 12 per cent now to 8 per cent by year end.

It would be good to think we can escape the old house price roller coaster of sharp and destabilising ups and downs, moving us relentlessly from a position where many are priced out to one where those who did manage to buy get into trouble. Maybe this time it will be different – but you wouldn’t bet on it.