House prices jump by almost 12% in the year to May

The rate of house price inflation has accelerated sharply with a jump of almost 12 per cent recorded by the Central Statistics Office (CSO) in the year to the end of May.

Some areas have recorded price increases of almost 20 per cent in a single year.

In its monthly update the CSO said prices nationwide had gone up by 11.9 per cent in 12 months compared with a year-on-year increase of 10 per cent in the year to April and an increase of 5.4 per cent in the twelve months to May 2016.

The CSO figures are based on the sale price of a house.

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The CSO's latest report is likely to spark fresh fears that the market is overheating with the increase most likely explained by strong economic recovery, a shortage of supply, the Government's help-to-buy scheme and a loosening of Central Bank mortgage lending rules.

In Dublin, residential property prices increased by 11.2 per cent in the year to May with house prices in the capital going up by 11.5 per cent and sale prices for apartments increasing 8 per cent in the same period.

The highest rate of house price growth was in south Dublin, at 12.4 per cent while the lowest growth was in Fingal, with house prices rising 6.8 per cent.

Residential property prices in the Rest of Ireland were 12.8 per cent higher in the year to May.

The south-east region showed the greatest price growth, with house prices increasing 18.6 per cent. The Mid-East region showed the least price growth, with house prices increasing 8.7 per cent.

Overall, the national index is now 29.5 per cent lower than it was at its highest level in 2007. Dublin residential property prices remain 29.5 per cent lower than their February 2007 peak, while residential property prices in the rest of Ireland are 34.7 per cent lower than their May 2007 peak.

From the trough in early 2013, prices nationally have increased by 54.8 per cent. In the same period, Dublin residential property prices have increased 72.5 per cent whilst residential property prices in the Rest of Ireland are 50.2 per cent higher.

Addressing the dramatic price increases, the Institute of Professional Auctioneers & Valuers (IPAV) urged the Government not to be “forced into panic measures such as ending the Help-to-Buy scheme”.

Its chief executive Pat Davitt said prices were still around 30 per cent lower than their peak. “The CSO figures also show that a massive 91.5 per cent of the dwelling purchases filed with the Revenue Commissioners in May were for existing rather than new buildings and of course the Help-to-Buy scheme as currently constituted applies only to first-time-buyers of new homes.”

Mr Davitt said what “is needed is a whole of Government approach to deal with “the absolutely chronic issue of the lack of supply”.

The research director at Savills Dr John McCartney said the rapid acceleration of house price inflation was due to several factors. “Firstly it reflects Government policy changes. The easing of loan-to-value restrictions last January, along with the introduction of Help-to-Buy, have been a greater stimulus in Dublin where high deposit requirements were previously more of a blockage. Allowing for time lags in the data, we are only now beginning to see the true effect of these policy changes in the figures.”

He also noted that “relatively sluggish price growth” in Dublin over the last two years means that the recent pick-up in prices was translating more readily into rapid year-on-year percentage gains.

With population growth and household formation continuing to outstrip house building activity, and with easier lending and wage growth prospects likely to impact positively on affordability, Savills said it was sticking with its December forecast that house price inflation will be between 8-12 per cent across all regions of the Republic this year.

“The bulk of this acceleration has come in the past six months as policy measures in the shape of the Governments ‘Help to Buy’ scheme and an easing of the Central Bank’s loan to value limits boosted demand relative to supply,” a spokesman for KBC Bank said.

“Our sense is that the key contribution of these initiatives has been to alter sentiment in relation to the outlook for the property market particularly in regard to prices. In that sense these measures are likely to have augmented and brought forward demand. Our sense is that this effect is substantial but that it is essentially once-off in nature and should eventually ‘wash’ through the market leading to an eventual easing in the pace of property price inflation. “

He said that if no further policy initiatives are taken to boost demand it might be expected that the rate of property price inflation would slow later in 2017. “However, this is unlikely to be a smooth or speedy process. Moreover, if the ‘Help to Buy’ scheme were to be ended, this might trigger a short lived spike to beat the closing date.”

He said 2018 could see a material easing in the pace of property price inflation as demand ‘normalises’ to a calmer pace of increase and supply improves further