With house prices continuing to rise sharply, some buyers may be tempted to sit out the pandemic-induced bull market. In waiting to see what the new year may bring, some putative buyers might be hoping for a better balance of supply and demand, which may mean more subdued pricing.
The danger in waiting, however, is even higher prices.
This is what the economist Dermot O’Leary, of Goodbody, sets out in his latest report on the Irish housing market.
O’Leary is forecasting continued price growth not just in the year ahead but in the years ahead. For 2021 he expects prices to rise by a significant 12.5 per cent, followed by a further 5 per cent in 2022 and 4 per cent in 2023.
Such projections would add €63,366, or 22.5 per cent, to the cost of an average home in Ireland, bringing it up to €343,729 by 2023, up from €280,363 at the end of 2020.
To secure the average home a potential buyer would need their salary to grow by about €17,000 by 2023, to reach an income, combined or otherwise, of €88,387
For a first-time buyer this would add €6,336 to the average deposit – or double that for a trader-upper, who’ll need a 20 per cent deposit. Not only that, but to secure the average home a potential buyer would also need their salary to grow by about €17,000 between now and then, to reach an income, combined or otherwise, of €88,387. This is based on the Central Bank of Ireland’s multiple of 3.5 times income.
So a salary of almost €90,000, plus a deposit of at least €34,300, just to buy the average house in Ireland.
It’s just a forecast, and forecasts can be wrong, but it’s worth noting that O’Leary’s price estimates are based on a sharp increase in supply.
Many of those who suggest waiting out the current bullishness of the current market say that when supply increases, prices will drop – but this report suggests only a slowdown in growth, not a fall in prices.
In 2020, for example, 20,535 homes were built, but by 2023 his forecast is for an annual outturn of 30,752, an increase of 33 per cent. And he notes this is likely despite clear cost pressures in the sector due to the price of labour and materials.
“Demand conditions remain strong, home prices continue to rise, and Government policy is supportive through homeowner supports and increased public housing output,” he writes.
This means that although more supply will exert a downward pressure on price growth, it doesn’t appear to offer any relief to those hoping for prices not just to stop growing but actually to fall to a level they can afford.