House price inflation expected to hit 12% before falling back in 2022

Covid spike is being driven by increased savings and ‘right-sizing’, DNG chief says

 

House price inflation is likely to climb to 12 per cent this year before falling back sharply in 2022 as supply comes on and affordability constraints kick in, the chief executive of DNG estate agents has said.

Keith Lowe said the current uptick in prices was being driven by Covid-related factors such as increased savings; the return of expatriates; and “right-sizing” .

There are also significantly fewer homes being advertised for sale, he said, noting that the number of houses available to buy nationally – as of August 1st – was 31 per cent lower than at the same point last year and 20 per cent lower in Dublin.

These factors were likely to push annual house price growth to as high as 12 per cent in the coming months, he said.

The latest official figures from the Central Statistics Office (CSO), which are based on actual transactions rather than valuations, put the annual rate of growth at 6.9 per cent in June, the highest level for 2½ years.

Mr Lowe said the official gauge was about three months behind as it typically took three months to close a house sale.

However, he said the Covid surge in prices was transitory and would unwind over the next two quarters, resulting in a significantly lower level of price growth next year. He predicted house price inflation in 2022 would be in the low single digits, 4-5 per cent.

The main moderating influence is likely to be the pick-up in supply, he said, noting new home completions are expected to be in the region of 21,000 this year, increasing to 23,000 in 2022 and 26,500 in 2023.

Second-hand market

Supply in the second-hand market is also likely to increase as confidence returns to the sellers’ market. He said many people, particularly older people, have been scared to put their homes up for sale during the pandemic.

The other check on house price growth is likely to be affordability, Mr Lowe said. “If you can only borrow 3.5 times your salary – noted there are exceptions – that is going to control house price growth,” he said.

Many had predicted property values would decline as a result of the pandemic but the exact opposite has occurred.

Property websites MyHome.ie and Daft.ie both recorded a major pick-up in headline inflation in their latest quarterly reports as the demand for homes outstripped supply.

MyHome, which is owned by The Irish Times, said the typical asking price for a home nationally rose by 13 per cent to €303,000 in the second quarter, breaking the €300,000 mark for the first time. In Dublin the typical asking price was €412,000, up 10.6 per cent year on year.

Daft also put the annual rate of house price inflation at 13 per cent, its highest since early 2015, noting the average price of a home on its website rose by €34,000 to €284,000 year on year in the second quarter.

The official rate of price growth – as recorded by the CSO – is significantly lower as it is based on actual transactions derived from stamp-duty data filed with Revenue and not asking prices.