House prices in Ireland will buck the European trend and fall this year, according Standard & Poor's (S&P).
In a report on housing across Europe, the ratings agency predicts house prices in most markets are likely to rise further in 2020 despite the Covid-19 lockdowns and the unprecedented fall in economic activity.
However, it pinpoints Ireland, Spain and Portugal as exceptions, suggesting prices in these countries will decline, albeit by a small margin.
“In Ireland house prices had been softening already ahead of the crisis, which now adds to the downward pressure,” it says.
Property price inflation in Ireland has declined in recent years, falling from nearly 12 per cent in 2017 to 7.2 per cent in 2018 and to 1 per cent in 2019.
The underlying trend combined with the fall-off in economic activity and consumer demand arising from the pandemic will see prices here decline by 1.6 per cent this year and 1.1 per cent next year, S&P says.
However, house price growth is forecast to pick-up again to 4.6 per cent in 2022 and 4.2 per cent in 2023.
Besides Ireland, Spain and Portugal, S&P says housing markets in other countries have proved remarkably resilient.
"Accumulated pent up demand for homes, the need for home space, resilient household creditworthiness, and low financing costs have all contributed to a fast recovery of transactions and a dynamic property market in the latter part of the year," said S&P global ratings senior economist Marion Amiot.
He said the agency expects housing prices to rise most in the Netherlands (6.1 per cent), Germany (4.6 per cent) and Sweden (3 per cent) in 2020 year-on-year, while only Ireland, Spain, and Portugal could see small price declines.
The lockdowns squeezed housing supply because construction activity dropped by 32 per cent year-on-year in the euro zone in the second quarter. The contraction in construction here was even sharper with activity declining by a record 45 per cent.
The Central Bank is now predicting just 16,000 to18,000 housing completions this year, instead of 26,000.
“Spending more time at home and having to work from home, households have reassessed their need for space. For those who can afford it this means they have brought forward their decisions to upgrade,” S&P said.
“In this context we expect price increases to soften only a little this year, while we foresee a more pronounced slowdown next year as government support through the pandemic is phased out and labour market developments become less supportive of household income,” said Ms Amiot.
She said the return to pre-pandemic levels of activity in 2022, and potential structural changes in housing demand post-Covid-19, should lead to a renewed acceleration in housing demand and prices.