Which way are house prices heading? Depends on the data

With extraordinary events continuing to unfold, divining trends from the usual data is becoming problematic. With rolling lockdowns in play, meaningful comparisons between this year and last are fraught. You may need some help to read the runes.

Apples and oranges

The CSO’s Residential Property Price Index published in March gives us a snapshot of where things stood at the start of this year. House prices rose 2.6 per cent in the 12 months to January, the data shows. There has been a world of change in that time period of course. Covid-19 has turned the property market and everything else upside down.

Lockdown compressed selling activity into the second half of last year. In fact, inverting usual patterns, estate agency Sherry FitzGerald experienced its strongest closing quarter of sales in a decade in the final three months of last year. With the prospect of a fresh lockdown fomenting throughout December, buyers were made even more decisive as the year closed.

Lockdowns have also further depleted the amount of stock for sale. There were approximately 29,100 recorded house sales between January and September last year – that's 25 per cent down on the previous year – according to the Central Statistics Office. Yet estate agents estimate there were an additional 18,000 to 20,000 transactions in the final quarter alone.

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Trying to draw comparisons between the first quarter of this year and the same months last year when the property market was open will be like comparing apples and oranges. In the first quarter of 2020 the “bad Brexit” bogey man haunting the end of 2019 disappeared with sales momentum continuing right up until the shutdown in March. This year, however, estate agents have been shuttered thus far. Some buyers will be brave enough to buy based on a virtual viewing, but it’s unlikely to be many.

Twin track

The pandemic has not only messed with the traditional property selling seasons, it is also impacting demand. Rural locations and high-end Dublin properties are benefiting. A shift in the preference of buyers can impact levels of price growth recorded by indices. This can make national averages less of a guideline for buyers.

In the capital, demand is outstripping supply for €1 million-plus homes. It's a mix of locals wanting more from their home and overseas buyers returning to Ireland realising they just want to be closer to home.

Concurrently, mirroring trends in the UK and the US, there is increasing interest in properties outside of the big cities. Across the water Cornwall has overtaken London as the most-searched location for UK movers on property website Rightmove. Here at home website Myhome.ie, owned by the Irish Times, reported that in September, property searches for cottages outside Dublin were stoking significant interest among visitors to the site with a four-fold increase in searches in Kerry. Searches in the Wild Atlantic Way counties of Mayo, Cork, Donegal and Galway trebled or doubled too.

Prices in Dublin, which had been declining, rose by 1.1 per cent year-on-year, according to CSO figures, but prices outside of Dublin have risen by 4 per cent.

Central Bank lending rules will have a more constraining effect on borrowers in the capital for sure, and there was still a lot of value to be had in the regions, but remote working ushered in by the pandemic is playing a role in demand too. Migrating workers are providing a shot in the arm for regional prices. As we enter a second year of working remotely, it's a practice that may be here to stay, at least in part.

So the headline figure of whether property prices have risen or fallen this year may well hide a mixed picture – not too much movement in Dublin apart from certain properties, but continuing rises elsewhere.

Good intentions

The number of people seeking mortgage approval provides another data point when trying to divine the market. But the pandemic could be having a skewing effect here too.

There were 43,151 mortgage approvals last year, according to the Banking and Payments Federation Ireland (BPFI). Almost half of them came in the last four months of the year. This buoyancy – at least in terms of approvals – has continued into this year, the federation says. Mortgage approvals in the first quarter of the year rocketed ahead by 24 per cent compared with the same period in 2020, figures show.

The pandemic has led to soul-searching. Couple this with the fact that households have accumulated record savings and it’s no wonder some seeking mortgage approval may be just tyre-kicking – testing how much a bank would lend should they decide to trade up to a home with space for an office or flee to their fantasy remote working life in the country.

Mortgage approvals and mortgage draw-downs have always been two very different things, of course.

“Just because it is approved doesn’t mean they are going to find a property and it doesn’t mean they are going to transact,” says Marian Finnegan, managing director of Sherry FitzGerald. Mortgage approvals may be an even less reliable indicator in this pandemic year.

Asking prices

Each data source you look at is based on a different stage of the buying process. Indices based on asking prices show us seller sentiment. But they don’t show what buyers are willing to pay.

Annual asking-price inflation nationally rose 6.3 per cent in the fourth quarter of last year and 4.8 per cent in Dublin, according to a report from MyHome.ie published in January. The report bases its findings on newly listed properties, which it says are the most reliable indicator of future price trends.

With housebound home-buyers continuing to save, the disbursal of vaccines, impaired home-building, and banks seeking lending opportunities, “too much cash chasing too few homes can only push prices higher”, the report predicts.

If you want data on what buyers are willing to pay, the Property Price Register, compiled by the Property Services Regulatory Authority, can shed some light, though the pandemic is playing a role in this data too.

The supply of existing homes coming to market has been falling by 10% a year for most of the last decade

The register includes the price of all residential properties purchased in Ireland as declared to Revenue for stamp duty purposes. Prices of new properties are shown exclusive of VAT.

There has always been a lag between when a house is sold and when it appears on the register. With the sales process further protracted by Covid-19, analysis of the gap or otherwise between an asking price and a selling price may take a little longer this year.

Disparities between asking and achieved prices may open up if there is an inflection point. If the speed of vaccination picks up pace, a return to more normal life, and to the office, may make dreams to move and work remotely recede. This may cool the rise in asking prices outside Dublin. Sellers of homes in desirable locations in the west of the country, for example, may do well to list and shift them sooner rather than later.

Stock

While prospective home-buyers, fuelled by savings, may be raring to go, finding a house this year may be the hard bit. Stock for sale was an issue before the pandemic and is exacerbated now. Whatever data emerges this year it may be based on lower volumes compared to the last year, making true year-on-year comparisons for some things tricky.

Based on data taken from property websites Daft and MyHome.ie, the number of homes available for sale in the State is now at its lowest in more than a decade. There were just 15,500 second-hand properties listed for sale in January this year. This is 24 per cent down on the same month last year – or 4,850 fewer properties.

The supply of existing homes – as opposed to new homes – coming to market has been falling by approximately 10 per cent a year for most of the last decade. However, the onset of coronavirus, which has disrupted sales and viewing activity, has accelerated this trend.

Disruptions to the residential construction sector in the first quarter of this year and the continued demand for new homes tells us that an imbalance between supply and demand will continue this year, according to the BPFI. Some first-time buyers approved to borrow may not find a property.

Comparisons are odious, the saying goes. When comparing property prices in one extraordinary pandemic year to another extraordinary pandemic year, prepare for the data, like everything else, to go a little bit haywire.