The latest data on the housing market contains some mixed signals, with signs that higher interest rates are affecting asking prices, but also that demand from first-time buyers remains strong. The increase in interest rates is a fundamental change and it is clear that it is only starting to feed through to the market. Whether it will affect the level of demand from first-time buyers will be interesting to watch in the months ahead, but it will certainly have an impact on the prices they can afford to pay.
The latest figures from Daft.ie show that asking prices in the second quarter of the year were just under €310,000, slightly down on a year earlier though up slightly on the previous three months. The quarterly increase, at a time when interest rates are rising, is perhaps surprising, though it is clear from separate data published today by the Banking and Payments Federation that demand from first-time buyers remains strong.
The Government Help-to-Buy scheme and the new First-Home scheme, in which the State takes an equity stake in the home, are both likely to be factors supporting demand for new housing. Covid savings, by homebuyers and their families, are also continuing to have an impact. But as the year goes on, it is likely nonetheless that higher interest rates will price some more aspirant buyers out of the market.
A stagnation, or some decline, in house prices would provide some relief for new buyers. As the trend plays out, a key policy goal needs to be to keep supply coming into the market and continue to address the vital blockages in areas such as planning that cause delays. A lack of supply of second-hand properties is intensifying problems. Finding ways to boost the supply of construction workers, meanwhile, remains a vital challenge.
Figures from consultancy Turner & Townsend show that building costs in Dublin are the second highest in the EU after Munich. The high cost of doing business in Ireland continues to threaten the outlook for housebuilding and the upward march of interest rates will not help either, affecting demand and investor incentives.