The Irish housing market has slowed in recent months on a variety of metrics, including turnover, mortgage lending and prices. Research published by the Central Bank indicated that its mortgage controls, introduced in early 2015, would likely depress lending and dampen prices, albeit modestly in the latter case, and the evidence of late would indicate that the measures are indeed biting. The Dublin market has been most affected, with prices falling in four consecutive months, by a cumulative 3%, although the annual change is still positive, at 4%.
Turnover in the Irish market as a whole, as measured by the Property Price Register, picked up sharply in 2014, with the number of transactions rising to over 43,000 , and last year saw a further increase, to over 48,000. That masked a pronounced change in trend , however, with the final quarter witnessing a 12.7% annual decline. In December alone transactions were some 27% below the same month a year earlier, and the available figures for January show a 24% annual fall. That figure is likely to improve somewhat as more January sales are added but the general picture is unlikely to be materially altered.
Credit has not played a defining role in the housing market over the past few years ( mortgage drawdowns accounted for 47% of transactions in 2014 and 50% last year) but a significant change in lending would obviously have some impact. The number of mortgage loans for house purchase rose by 20% last year, to over 24,000, but again the later part of the year saw a marked slowdown, with the final quarter recording an annual decline. That fall was very modest but data on approvals points to a much sharper decline in the months ahead; approvals for house purchase fell by an annual 20% in the final quarter of 2015 and the data for January shows a similar pace of change.
House prices are still rising on an annual basis, but the more recent data points to a slowdown, and not just in Dublin. Prices excluding the capital rose very strongly in the latter part of 2015, by 4.8% in q3 and 3.6% in q4, perhaps indicating a switch by prospective buyers from Dublin to outlying counties, but prices rose by just 0.2% in the first two months of 2016. Nevertheless, the gap between prices in the capital and the rest of the country is continuing to narrow; on our estimate, Dublin prices exceeded those elsewhere by over 70% in late 2014 but that premium has now fallen to 55%, which is still above the long term average (48%) but converging.
The Central Bank may well welcome the slowdown in house price inflation but it might be concerned if mortgage lending did indeed fall sharply, particularly as the ECB is now offering euro zone banks money at zero or even negative rates, so desperate has it become to generate credit growth.