The CSO’s Residential Property Price index for March showed prices still accelerating nationally, with the annual change at 12.7% from a downwardly revised 12.5% in February and 12.1% at the end of 2017. Property price inflation in the capital slowed, to 12.1% from 12.6% the previous month, but picked up strongly over the rest of the country, to 13.4% from 12.3% . Prices were particularly strong in the mid-West (Clare, Limerick and Tipperary), rising by an annual 16.4% but fell for the second consecutive month in the Border counties, reducing the annual gain to 8.8%. Within Dublin, house prices in the city rose by an annual 14.2%, with South Dublin lagging, showing a rise of 9.6%.
The housing market is generally perceived as characterised by chronic excess demand although the exact amount of new supply (house completions) is subject to some doubt. The number of housing transactions is available though, through the CSO, and the figure for the first quarter is actually down on the previous year, at 13,967 versus 14,500. The decline in turnover was particularly acute in Dublin, with transactions down 10% to 4,500.
The number of mortgages drawn down for house purchase in q1 , at 6,400 , was up by some 10% on the previous year, but that still implies that over half the transactions in the quarter (54%) were financed by non-mortgage buyers, a persistent feature of the market. First time buyers account for more than half of loans but are clearly competing against investors, both corporate and individuals, as well as each other, for the limited supply available.
Moreover, the approvals data, a leading indicator of drawdowns, indicates that lending is actually slowing, and quite sharply; approvals in q1 were down on the previous year, by 4%, and by 13.7% in March alone. We have noted before that the Central Bank’s latest modifications to their mortgage controls, which took effect this year, was an effective tightening, as only 20% of FTB loans can exceed the 3.5 LTI limit , as opposed to an actual 25% last year. Indeed, new mortgage lending was offset by redemptions and repayments in the three months to March. In other words net lending was negative and with new lending slowing and accounting for less than half the transactions in the market it is hard to argue that prices are being fuelled by credit. Rental yields in excess of 5% is obviously attracting buyers in a QE driven environment of zero short rates and 10 year bond yields of under 1%.