Property prices: How far off boom-era highs are they, and will they climb all the way back?

What’s that they say about investment products? “Past performance is no guarantee of future results.” When it comes to the Irish property market, it might also be an apposite adage. Just because a house once sold for a particular price in 2007, it doesn’t mean it will do so again.

Nonetheless, as the Covid-19 pandemic shows signs of receding, attention has returned to issues in the property market, and the difficulties would-be buyers are facing.

A historic shortage of properties, combined with heightened demand, is putting pressure on prices. But as they inch ever upwards, some might wonder how far off their boom peak are prices now.

Boom versus now

First, recent price growth in Ireland should be seen in a global context; the pandemic has appeared to set off a multitude of markets around the world. Second, although prices are back on an upwards trajectory, they still dwarf the peaks of the years 2006-08.

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Yes, while prices have risen nationally at an annual rate of 3.7 per cent in the year to March – the sharpest rate of growth since the first quarter of 2019 – and by 2.5 per cent in Dublin and by 4.9 per cent outside of the capital, prices are still significantly lower than in the peak years.

Property prices peaked in Dublin in February 2007 and fell to a trough in February 2012, according to the Central Statistics Office. Prices in the rest of the country hit a record high in May 2007 and fell to their lowest in May 2013. On a nationwide basis, prices hit a peak in 2007 and fell to the lowest level in early 2013.

Since then they have been steadily recovering – but are still considered off their former record levels. Indeed, as of March 2021, prices in Dublin are 20.1 per cent lower than in the 2007 peak; outside the capital, prices are 17.3 per cent below the peak of May 2007.

Areas closest to peak

But, as CSO figures are based on the overall market, one would expect to find distinctions within the data, based on type of property, location and so on. Although pre-2010 CSO data is limited, Ronan Lyons, assistant professor of economics at Trinity College Dublin, has his own analysis, based on the Daft reports, comparing average listed prices across the country at their peak with the first quarter of 2021.

In general, as Lyons notes, urban areas tend to be closer to peak prices than the overall market figures might suggest. Within Dublin, for example, it’s the 6W postcode, incorporating Terenure, Kimmage and Harold’s Cross, where prices have recovered faster than anywhere else in Ireland, as they are now only 12.3 per cent off their peak; this is the smallest margin of any location.

At peak, this postcode had average house prices of €673,008, according to Lyons’s figures, before they dropped to a low of €321,359. Since then, however, they have risen by 83.6 per cent, to €589,951.

AREAS CLOSEST TO BOOM-ERA HIGHS
Peak = 2006-08. Trough = 2011-14

Dublin 6W
Peak: €673,008. Trough: €321,359. Latest: €589,951
Now 12.3% below peak

Limerick city
Peak: €259,847. Trough: €118,787. Latest: €225,093
Now 13.4% below peak

Galway city
Peak: €379,611. Trough: €160,627. Latest: €325,534
Now 14.2% below peak

Dublin 14
Peak: €670,645. Trough: €309,667. Latest: €575,070
Now 14.3% below peak

South Co Dublin
Peak: €747,095. Trough: €346,154. Latest: €625,713
Now 16.2% below peak

Local agent Pat Mullery, of Mullery O'Gara in Terenure, puts the continued price gains down to a mismatch in supply and demand, which has driven prices up in the area. As he notes of a return to peak prices: "It's not there, but it's going in that direction."

He points out, for example, that there are about 90 properties for sale in the area – this time last year there was double that amount. Given demand, some properties are attracting multiple bidders and making “significantly over the asking”. This is particularly true up to prices of €600,000-€700,000, where most of the interest is, with fewer buyers chasing properties in the €1 million-plus category, which means less pressure on prices.

Dublin 14, which includes Churchtown and Dundrum, is second closest, at 14.3 per cent off peak, followed by south Co Dublin, including Blackrock and Glenageary (16.2 per cent), and then Dublin 5, which includes Artane, Kilbarrack and Raheny (16.4 per cent).

Outside Dublin, Limerick city is the second closest to peak overall, with prices 13.4 per cent off their peak prices. It is followed by Galway city (14.2 per cent off) and Cork city (16.5 per cent off) in the locations coming in above national averages. In Limerick city, average prices fell from a high of €259,847 to €118,787, before recovering to €225,093 in the first quarter of this year.

According to Lisa Kearney, head of residential and new-home sales with Rooney Auctioneers in the city, recent price growth is down to "a massive increase in demand, and a huge decrease in supply". And the big demand driver in the city is its relative affordability compared with other urban areas.

“Houses are reasonably priced and affordable compared to rents in Dublin,” she says, noting a big uptick in people moving from the capital, with those selling up also sometimes managing to buy not just a property in Limerick but also a holiday home in nearby Co Clare or Co Kerry with their proceeds.

The ability to work from home most days and commute to Dublin once or twice a week is evident in the three main questions she now hears from potential buyers: what’s the broadband speed? Does it have home-office potential? And what amenities are close by?

First-time buyers are also feeding into the second-hand market, notes Kearney, as construction timelines got pushed back by the pandemic, which means fewer new homes coming to market. But she expects supply to increase in the coming months, which may help ease pressure on properties.

Areas still way off peak

Outside of Dublin and other main urban areas, however, prices remain significantly off their peaks. In Cos Roscommon, Donegal, Cavan, Sligo and Leitrim, prices are still at least 40 per cent off their boom-era highs.

In Leitrim, where prices peaked at €251,450 before slumping to €85,913, prices in the first quarter of the year hit €132,977 – or 47 per cent less than peak.

According to Lyons, the experience in the northwest may be a factor of construction levels. “The northwest also saw the highest per-capita levels of construction in the 2000s, showing just how critical supply is in determining house prices,” he says.

Indeed, local agent Declan O’Carroll, owner of Countryside Properties in Carrick-on-Shannon, says that the value of some Section 23 homes, built in large numbers in the region in the run-up to the boom, fell to as low as €25,000 to €30,000 in the aftermath of the bust, as swathes of investors looked to offload their assets, and most of these were acquired by owner-occupiers. They have since recovered to about €90,000-€100,000.

As in other parts of the country, stock remains low, but O’Carroll notes that the supposed work-from-home revolution hasn’t yet fed into demand. He says that the trend was more evident after the first lockdown but has since eased off.

Transaction levels are also muted in Connacht's smallest county, with just 36 sales a month in 2020, according to the Residential Property Price Register.

AREAS WHERE PRICES ARE STILL WAY LOWER
Peak = 2006-08 Trough = 2011-14

Leitrim
Peak: €251,450. Trough: €85,913. Latest: €132,977
Now 47.1% below peak

Sligo
Peak: €275,454. Trough: €105,086. Latest: €152,225
Now 44.7% below peak

Cavan
Peak: €282,553. Trough: €102,733. Latest: €162,079
Now 42.6% below peak

Donegal
Peak: €264,558. Trough: €113,655. Latest: €155,542
Now 41.2% below peak

Roscommon
Peak: €252,133. Trough: €91,636. Latest: €150,833
Now 40.2% below peak

Source: Ronan Lyons, based on Daft reports

Elsewhere, unlike their urban counterparts, Cos Galway, Limerick and Cork are all 25 per cent or more off peak prices, while Dublin 10, home to Ballyfermot and Cherry Orchard, is the part of the capital where prices are most off peak. Having reached a record high of €333,933, they slumped to €106,426 before recovering to €236,538. It means that prices here are 29.2 per cent off peak.

Dublin 11, 13, and 17 all have prices that are 25 per cent or more off boom-era highs.

First-time buyers versus prime market

As well as regional variations, there is also a distinction when it comes to the particular properties being sold. "Up to €1 million it's very busy, and that's where we're seeing most of the increases," says Peter Kenny, director of prime residential with Knight Frank. Indeed, he recently opened bidding on a home in Killiney at €460,000, and within 24 hours it had risen to €521,000.

“But as you move up to prime and superprime houses, in the €1 million to €5 million range, there are a lot less transactions going on, and the distance from the peak is much greater,” he says.

He gives the example of Wellington Road in Dublin 4. In the boom, prices would have reached €2,000 per square foot, or €1,800 square foot for a mews “without any problem”. At this level of the market, boom-era highs were “unrealistic” and “absolutely crazy”, he says.

Now, however, prices are about €800-€900 per square foot, or about 60 per cent less, while on Clyde Road, just around the corner, prices are just under €1,000 per square foot. This is despite a crunch on supply at this end of the market, as potential sellers wait it out. “Your need to sell or buy is less pressing at that level of the market,” he says.

This has fed into prices. Last year, according to Joan Henry, chief economist with Knight Frank, prices in this level "pretty much flatlined", but they are back growing again, with growth of 1 per cent in the first quarter of this year.

Will they recover fully?

If prices continue to grow at current rates, then prices – in some areas at least – may get back to their peak. For example, if prices were to grow by 4 per cent a year in Dublin 6W, it would take five years to get back to 2006-08 levels.

But there is much that is different this time around. "It was madness then, pushed on by easy credit," says Henry, adding that the introduction of Central Bank lending rules has helped to keep the market in check.

Indeed, while credit is available today, it is far from “easy”, with strict lending rules now limiting the amount people can borrow to 3.5 times their income, with limited exceptions up to about 4.5 times their income.

However, what’s also different this time around is the number of cash buyers, who have more flexibility when it comes to price. Household cash buyers are not so dominant; figures compiled by Davy Stockbrokers, for example, show that in 2020 house sales funded with a mortgage accounted for 59 per cent of transactions, with some 9,333 household cash buyers, or about 20 per cent of the total. This is down on 2015, when the level of cash buyers hit 15,721, and on 2006, when cash buyers accounted for about 25 per cent of the 151,000 or so annual transactions.

But what also needs to be considered is the increased presence of non-household buyers, such as institutional investors and Reits, which may be giving rise to a two-tier sector, particularly in the apartment market.

For example, 90 apartments in Herbert Hill in Dundrum were sold to a German fund for about €547,500 each, according to the Residential Property Price Register, in 2019. But the register would suggest prices of less than €400,000 for individual apartments sold in the area at that time.

Non-household buyers accounted for 10,574 sales in 2020, up from just 2,828 in 2011. This means that, when combined, cash buyers accounted for almost 20,000 purchases, or 41 per cent of total sales, in 2020.

What this means is that the mortgage rules can constrain the market only so much: cash buyers can and do have an inflationary impact.