Category: Irish Housing Market

The widely accepted narrative about the Irish housing market is that it suffers from a chronic lack of supply, which in the absence of a major demand shock (such as a big hit to employment),results in upward pressure on prices. That certainly seemed to play out in 2024, although prices rose more than generally expected, and by more than forecast in our price model, while the supply of new homes actually fell on the previous year , an outturn significantly at variance with official projections.

Private sector residential rents also continued to rise , increasing by 5% on the CSO data (which captures rents actually paid as opposed to asking rents on new lets). However, this represented a slowing in momentum from the 8% recorded in 2023, and more in line with our rent model. Employment growth in 2024, although strong, was actually slower than the previous year, which acts to dampen demand, and was skewed away from the higher paid multinational jobs and towards lower paid indigenous firms. The fiscal support given to potential FTB’s also plays a part, diverting rental demand, with rent controls also impacting ( maximum annual change set at 2% or annual HICP inflation, whichever is the lower,applicable in large parts of the market).

On the CSO’s index national residential prices picked up momentum in the final months of 2023 and accelerated strongly over the following summer, with the annual change reaching 10.1% in August. Since then momentum has slowed somewhat, with the annual change easing to 9.4% in November, although prices still rose 2.3% over three months, so there is no evidence there of a sharp slowdown.

Dublin prices also accelerated strongly from late 2023 after falling modestly over the previous few months, with some pointing to more increased remote working dampening demand for houses in the Capital. That proved less convincing as Dublin prices rose sharply in 2024, with the annual change in the county peaking at 10.9% over the summer and reaching over 12% for houses in the City. By November, momentum had eased a little, with price inflation in the City at 11.7% and 9.6% in the county.Price inflation excluding Dublin has also eased modestly, to 9.2% in November from a peak of 9.5%.

On the CSO index national prices are now 16% above the pre-crash high recorded in April 2007 and have risen by 160% from the post-crash low in 2013.

Household income growth is a key determinant of housing and mortgage demand and in 2024 disposable income probably grew by around 7%, judging by the data over the first three quarters of the year. This was boosted by another very strong increase in employment, which picked up strongly through the year, rising by an annual 99,000 or 3.7% in the third quarter. Consumer price inflation slowed appreciably, averaging 2.1% last year from 6.4% in 2023 so supporting real income growth.

Government policies are also geared to supporting demand, although it seems obvious that is not an issue, and that support focuses on FTB’s , with the impact very clear from mortgage lending; FTB drawdowns for house purchase rose to over 26,000 in 2024 , to a record 73% of all purchase mortgages, crowding out and offsetting a fall in drawdowns for movers. Total loans for house purchase in 2024 rose marginally to over 36,000, with the average new mortgage rising by 6% to €308,000 so giving a total loan purchase drawdown of €11.1bn, 6.3% above the previous year. Total lending, including top-ups and switchers, amounted to €12.6bn , 4% up on 2023.

Mortgage rates were higher on average in 2024 , so dampening price inflation in our model, but in truth the pass-through from the ECB rate tightening was modest, at 1.7% at the high, reflecting the huge level of excess deposits in the Irish banking system,allowing those lenders to absorb higher market rates, which hit the supply of credit from non-bank lenders. Rates are falling now and that is likely to continue given the prospect of further ECB rte cuts, an expectation evident in the increase in the number of borrowers opting for floating rates, which has risen to 30% of total loans.

Much political and media attention is given to the various initiatives the Government has announced to boost public sector housing supply and spending is now substantial ; €6bn capital investment in housing was announced for 2025, made up of €3.1bn exchequer funding, €1.25 allocated to the Land Development Agency and €1.6bn for the Housing Finance Agency . The private sector builds and funds the majority of housing, nonetheless, and that supply will be determined by the cost and availability of funding and the expected profit on any Development. Consequently expectations on future price and government policy on housing is important, with the existing rent controls and political and social hostility to foreign capital for housing acting as a major dampener on private sector supply. Foreign non-bank capital was a big factor in the pick up in completions in 2022 and 2023, with the latter exceeding 30,000 for the first time, with expectations of a 2024 figure of some 35,000 , with 40,000 seen by some in Government. In the event completions proved disappointing as the year unfolded , prompting the Government to announce a temporary waiver on Development levies and a rebate on Water levies.This resulted in a surge of commencements in 2024, to over 60,000, but not in actual completions, which emerged at 30,300, some 2,500 lower than the 2023 outturn.

This is not only well below the generally accepted annual housing figure required (50,000 is the latest Government target) but also means that the housing stock per head is still falling, such has been the growth in the Irish population, and this metric plays a key role in our price model, acting to constrain price increases when the stock is rising but adding to the upward pressure on prices when falling, as it has been for the past fifteen years.Official expectations about a steady rise in supply over the coming years appears to be based on a structural shift in housebuilding, while the evidence shows the housing market to be cyclical. These projections also have no regard for the trend in residential prices or expectations on price and demand, which would be of course a key factor in any decision on housebuilding from the private sector. Little attention is also given in these projections to the availability of labour as Ireland is at full employment.

Commencements are a reasonable lead indicator of completions in normal circumstances but the distortion last year makes that it less useful in the short term, although implying higher completions over the next few years. On the negative side, planning applications have been trending down, running at an annual rate of under 37,000, but that is less useful as a shorter term indicator of actual supply. On balance we expect perhaps 35,000 completions this year , which may translate into a stabilisation in the housing stock per head.

On the demand side mortgage rates are likely to be lower but in truth it is the availability of housing and not the cost of a mortgage which is the main issue for borrowers, as only those on relatively high incomes can access a loan. The relaxation of mortgage controls , with a LTI limit of 4 rather than 3.5 for FTB’s has also had a big impact, as has the Help to Buy scheme, which is no doubt a factor in price inflation emerging higher than our fundamental model forecast.

The main risk for housing and mortgage demand in 2025 is on the employment side, and to expectations, if a significant trade war develops between the EU and the US stemming from higher tariffs. A modest tariff rise on Irish exports might have a limited impact but it is clearly very uncertain as to what may emerge. Trump has also talked about a lower tax rate on US profits, at 20% from 21%, and 15% for on profits from goods made in the US, but that excludes Corporate tax levied by the various States and would have to be passed by Congress. It is also unclear why that might prompt a significant change in the business model pursued by the US multinationals currently in Ireland.

For the moment we are assuming no major hit to the Irish economy and to employment, which alongside our assumption of higher completions leads to an increase in mortgage loans for house purchase, with a forecast of over 40,000 drawdowns, with a value of €13.4bn.

In terms of prices, the assumption of lower mortgage rates and limited impact from supply leads to another year of steady price gains. Employment growth is likely to slow ,however, as it is constrained by the available labour force, which may increase at a slower pace given the already high participation rate.As a result we expect a 7% outturn for the year on the national index. Uncertainty about the prospects of a global downturn in economic activity, even if not materialising, may dampen expectations ,which would act as a constraining factor on mortgage lending, prices and actual supply.On rents, we expect a 4% national increase in 2024, with slower employment growth impacting demand, while low inflation will kick in in terms of rent control.

The latest release of the CSO’s residential price index, for April, shows a further acceleration in annual house price inflation, to 7.9%. The index has risen by 144% from its 2013 low and is also 9.5% above the previous cycle high in 2007. The latest release is also notable in that Dublin prices (+8.3%) are now rising at a faster clip than in the rest of the country (+7.5%)for the first time in seven years.

It is the case that house prices did fall in real terms in 2023 (i.e CPI inflation outstripped the rise in residential prices) but that followed a strong real rise in 2022 and real prices are now rising again, although there isn’t much evidence supporting the view that households see things in ‘real’ terms anyway. This has also played out against a backdrop of monetary tightening, which saw ECB policy rates rise by 450 basis points, albeit from historically low and negative levels.The tightening cycle was also unusually rapid , starting in July 2022 and ending 14 months later, so the impact on the Irish housing market has been limited, at least to date, and the ECB has now begun an easing cycle, following a quarter point rate cut in early June.

One factor at work has been the limited pass through from ECB rates to mortgage rates; the average new loan for house purchase in April was 4.24%, or 1.61% higher than in July 2022, the onset of the tightening cycle.This in turn reflects a combination of massive excess savings held by Irish households and the competition landscape in the banking sector. The three remaining domestic banks had seen a slippage in mortgage market share to non-bank lenders in the period of very low market rates and so sought to regain share as market rates rose by using the cushion afforded by the scale of excess deposits largely held in current accounts; in April households deposits in the Irish headquartered banks amounted to €154bn and total deposits in the banks exceeded their loan books by €75bn. In that environment the banks had little incentive to raise deposit rates and used that cheaper source of funding to regain market share from non-banks, who of course were dependent on market rates. In effect then savers subsidised borrowers and bank shareholders gained also via a significant rise in bank net interest margins and hence higher equity valuations.

Affordability did deteriorate as a result of higher mortgage rates but not to a degree that materially impacted demand for mortgages. The average FTB loan in 2023 was €285k , up from €269k the previous year, paying an average rate of 3.9% against 2.6%, but the income of the average buyer also rose , from €85k to €88k. The average term on these loans was unchanged at 29 years, meaning a monthly payment of of €1370 in 2023 against €1100 a year earlier, or 18.7% of income against 15.5% in 2022.

The number of new mortgage loans for house purchase did fall modestly in 2023, by 2% to 36k, but FTB loans rose marginally in volume terms to 25.6k. Net mortgage lending had fallen in 2022 but , surprisingly, picked up sharply through 2023 and in April this year recorded annual growth of 1.6%, with a mini lending boom evident in consumer credit, which is rising by 8.8%, in marked contrast to the picture in most other euro states.

Another factor impacting house prices was the rather odd decision by the Central Bank, in terms of timing, to effectively loosen monetary policy at the same time the ECB was tightening. This was via a change to the mortgage controls,originally introduced in 2015, with the LTI limit on FTB loans raised in 2023 from 3.5 to 4.0. The impact of that decision is clear from the data on lending, showing that 40% of FTB loans in 2023 were above an LTI of 3.5, against 13% in 2022. Government policy also plays a role here, geared as it is to supporting FTB demand via a large tax subsidy (buyers can reclaim up to €30k in income tax for a deposit) and it is notable that the average LTV for FTB loans in 2023 was virtually unchanged at 80.3%.

Most analysts had expected housing supply to fall last year but in the event completions rose to 32.6k, the highest since 2008, but this is still lagging population growth, so the housing stock per head is still falling. In our housing model the supply effect is anyway dwarfed by the impact of rising household incomes, the main driver of demand, in turn largely fuelled by changes in employment and wages, both of which have risen strongly; household disposable income rose by 10% last year on the latest CSO data, following a 7% increase in 2022. This remains the key fundamental driver of the market , rather than supply or interest rates. Employment growth is slowing,in part a reflection of the limited supply of labour, and that may dampen house price inflation to some extent, regardless of any interest rate boost . Finally, expectations can play a significant role especially in the short term, be it on interest rates or the perceived impact of government policies but are difficult to capture effectively in any model, although over time the demand fundamentals tend to reassert themselves as key.

Residential property prices in Ireland have picked up markedly over the past few months, supported by rising real incomes (given the fall in CPI inflation) and the expectation that ECB rates will fall this year, with the June policy meeting likely to see the first cut . More mortgage borrowers are certainly of that view, with 26% opting for floating rates in January, a significant change from the 5% or so seen over recent years.

The CSO’s house price index for January confirmed the more buoyant trend, with residential price inflation nationally accelerating to 5.4% from 4.1% in December. The national index has been supported by price gains excluding Dublin but that appears to be changing; Dublin prices were weak in 2023 and last summer were down an annual 1.8% but have picked up strongly of late, rising by 3.5% in the three months to January. Houses in Dublin City have seen the strongest recovery, up by 3.9% in three months, taking the annual increase to the past year to 6.2% from 2.8% in December. In county Dublin the annual change also accelerated strongly to 4.6% from 2.5%. The annual change in Dublin is flattered by base effects (as prices fell in January last year) and this is likely to remain a feature up to mid-year, with even modest monthly gains leading to a 9-10% annual figure.

That base effect will be less of a feature in the rest of the country, albeit still present, and prices have also picked up on a monthly basis, by 2.7% in the past three months. That has boosted annual price inflation excluding the capital to 6.2% from 5.3%. Annual property price inflation is strongest in the Mid-West (Clare, Tipp and Limerick) at 9.5%, followed by 9.3% in the Midlands ( Laois, Offaly, Longford and Westmeath)

Our expectation for the Irish housing market in 2023 was for a slowdown in annual price inflation rather than an outright fall in prices, based on the view that employment growth would continue to boost demand , albeit dampened by higher mortgage rates and the impact of inflation of real incomes, alongside a continuation of steady bank lending, supported by the easing of mortgage controls. That forecast has proved broadly right, although the last few months has actually seen a sharp pick up in prices, in Dublin and across the country.

The national price index, as published by the CSO, had shown modest monthly price increases over the summer but that changed in the final quarter, with prices rising by 3.6% in the three months to December. As a result the annual change in prices has accelerated again, ending the year at 4.4% . This is weaker than the 7.7% recorded in 2022 but represents a recovery from the 1.1% seen in August.

The Dublin market has been softer than elsewhere in the country, perhaps due to the interest rate impact on higher mortgage loans , and prices in the capital fell for seven straight months to May last year, with the annual inflation rate also turning negative. Again, though, prices picked up markedly from the autumn, rising by 3.8% in the final quarter, so pulling the annual change back into positive territory at 2.7% in December. House prices in Dublin City had suffered most, down by over 4% at one point, but again ended the year positive, at 2.9%.

The market excluding the capital proved more resilient, with prices still generally rising on a monthly basis, albeit at a slower pace than the previous year. The final quarter also saw stronger price growth, at 3.4%, and the annual inflation rate in December rose to 5.7% from a low of 3.3% in August. The Midlands (Laois, Offaly, Westmeath and Longford) saw the strongest price gains over the year( 7.9%) marginally outpacing the Mid West (Clare Limerick and Tipperary) with 7.6%.

Why the pickup of late? A key factor may be interest rate expectations. New mortgage rates in Ireland peaked in September and more borrowers are opting for floating rates on the belief that ECB rates will fall this year, Most borrowers still fix of course, but the prospect of lower rates no doubt helps boost buyer sentiment and Builder confidence. Consumer price inflation has also slowed , which means real incomes are now rising again after a significant hit over the second half of 2022 and the first six months of last year. Finally, the supply of new housing did rise last year , by some 3,000 to 32,700 but the housing stock per head of population is still falling,so absent a big employment shock demand will continue to outstrip supply.

With a few months data still to emerge for 2023 it appears that the Irish housing market has performed broadly as we expected earlier in the year, with housing supply the main exception. We had shared the consensus view that completions would fall , following some weak commencement data in late 2022, but in the event the published completion figures have held up well, exceeding 22,000 in the first three quarters of the year, and we now expect a figure around 31,000 for 2023 as a whole , which would be the strongest since 2008.

Housing and mortgage demand in our model is strongly influenced by real income growth, with the change in employment a key driver. On that score the labour market proved very resilient, with employment growth likely to have averaged over 90,000 in 2023 or 3.7%. As a result household income growth was an estimated 7.5%, hence outpacing CPI inflation (6.3%) to give a modest rise in real incomes.

The strength of employment also supported mortgage demand despite a rise in new mortgage rates rates, to 4.22% at end -October from 2.60% a year earlier, with lenders finally passing on higher market rates after initially using the huge volume of excess deposits to absorb the ECB’s monetary tightening. We expect the number of mortgages for house purchase to emerge at 35.650, or 3% down on the 2022 outturn, with the average new loan rising by over 5% to €290,000 so giving total lending for house purchase of €10.3bn, marginally ahead of the previous year. Total mortgage lending, in contrast, is estimated to have fallen by €2bn, to €12bn, as a result of a collapse in switching.

The weaker growth in real incomes allied to higher mortgage rates was expected to lead to a fall in house price inflation, rather than an outright fall in prices, and that duly emerged; national house price inflation slowed to 1.1% in August, while Dublin prices were down 1.8% at that point. However prices have picked up momentum in the last few months and we expect Dublin prices to end the year in marginally positive territory, with the national index up 3%, against a 7.7% rise in 2022.

Expectations also play a role in the housing market and the perception that the next ECB rate change will be a cut may well be supporting the market now- it is noticeable that over 15% of new mortgage loans in October were at variable rates rather than the 5% or so seen in recent years. Policy measures also remain supportive, notably the Help to Buy scheme, while the Central Bank effectively admitted to a policy error by increasing the Loan to Income limit from 3.5 to 4. We also expect the supply of new housing to pick up further in 2024, to 33,000, and that should help to boost new lending for house purchase to 38,000, with a value of €11.5bn. Overall mortgage lending is forecast at €13.5bn.

Employment growth is expected to slow next year , which impacts housing demand, and with increasing supply we expect prices to remain subdued, rising by around 4% by end-2024. As noted , employment is a key driver in our model and if that were to fall the price and mortgage outlook would be very different.

Following the release of recent data on housing supply, mortgage lending and residential prices we have updated our models and forecasts for the Irish housing market, including projections for 2023, summarised on the website.

We are revising up our estimate of house completions this year, and now expect a figure around 29,000, which if broadly right will be the strongest supply figure since 2008. Annual completions have been in a 20,ooo-21,000 range for the past three years and as such well below the 33,000 figure deemed by the Government to represent annual demand. Completions this year have picked up and the 7,500 figure for q3 brought the four-quarter total to just shy of 28,000, prompting our upward revision. Some analysts had reduced their completions forecasts earlier in the year, in response to the surge in housing construction costs, but that is more likely to impact supply next year.

We have also revised up our estimate for new mortgage lending. For house purchase we expect 36,500 new loans, 6% above the 2021 figure,and again another 14-year high. The double-digit rise in house prices is reflected in much higher average mortgages, and we expect that figure to be around €279,000, up from €250,000 in 2021. The resulting total figure for house purchase is €10.2bn against €8.6bn last year. Total new lending has been boosted by very strong growth in switching, which amounted to a third of mortgage loans in the third quarter. This has no effect on net lending, nor on the housing market , but is substantial now, and we expect total lending this year to rise by €4bn, to €14.3bn.

House prices are still rising but at a slower monthly pace than last year, so the annual inflation rate in residential prices is slowing, to 12.1% on the latest CSO figure (for August) from a high of 15.0% in February. We expect this trend to continue, with a December forecast of 8.0%. This would give an average figure for the year of 12.5% which is in line with our model forecast- falling real incomes act to dampen prices but offset by strong price momentum, low interest rates and the lagged impact of weak supply,as the growth in the housing stock has not kept pace with the growth in population.

The interest rate impact this year has been surprising, in that the average new mortgage rate has actually fallen since the turn of the year, despite the significant rise in market rates, which has led to significant increases elsewhere; the average new rate in the EA in September was 2.40%, 111bp higher in the year, against 2.58% in Ireland, which is 11bp lower.Consequently, although affordability has deteriorated in response to the rise in the average new mortgage it is still below the long run average on our affordability model.

Expectations play an important part in short term house price movements, albeit hard to adequately capture in modelling, and there is a risk that prices weaken more than we expect if potential buyers decide to postpone purchases given uncertainty about the outlook for inflation, employment and interest rates. On the latter we expect new mortgage rates to start to climb soon and so affordability deteriorates in 2023, to above the long run average. However, inflation is expected to slow and absent a big employment shock real household incomes will be broadly unchanged after a fall this year. On the supply side the recent commencement data points to a weaker supply total next year, and we expect completions of 25,000. This is supportive of prices but we still expect a further slowdown, with a 2% annual end-year rise expected in 2023 .New purchase mortgage lending will also slow, to €9.5bn, with the total figure ( i.e. including switching) marginally higher than 2022, at €14.5bn.

The ECB began to raise its main lending rates in July , followed by another round of increases in September with a further set expected at the October 27th meeting.The impact on Irish mortgage borrowers has not been as straight forward as many anticipated ; existing borrowers with Tracker rates have seen a significant rise but the average new mortgage rate has actually fallen this year, reflecting both specific Irish liquidity issues and an unusual set of factors affecting the pass through of ECB rates to the Euro money market as a whole.

Half of the outstanding mortgage loans of Irish banks are at a fixed rate so those borrowers will be unaffected by money market changes, at least in the short term. In terms of variable rates 60% of those borrowers (and so 30% of all borrowers) are on Tracker rates, directly linked to the ECB refinancing rate, with an average spread of 1.05%. The refinancing rate was cut to zero in 2016 , meaning that those on Tracker rates have paid extraordinarily low borrowing costs for over six years, but that has changed; the refinancing rate has risen to 1.25% and will probably hit 2% by month end, so pushing the average Tracker rate to 3.05%.

Higher ECB rates have also pushed up rates on new mortgage loans across the zone, with the average in August rising to 2.21% from 1.29% at end-2021. Irish rates actually fell over the same period, to 2.64% from 2.69%, and are now below that of Germany, illustrating that local conditions can play a significant role.

There are two specific Irish factors at work. One is the scale of excess deposits in the banking system here, reflecting a longer term upward move in the household savings ratio, the impact of the various Lockdowns on spending and the low rate of house building, with a concomitant impact on mortgage lending, the main driver of Irish bank assets. In August, Irish household deposits amounted to €147bn (from €109bn three years earlier) while in Irish headquartered banks deposits exceeded loans by €83bn (which is probably the main reason the Central Bank has eased the controls on mortgage lending)

The average interest rate on most of these deposits is virtually zero (0.02%) so domestic banks here have a significant funding advantage over the main non-bank mortgage lenders. The latter have made significant inroads in the market of late (accounting for 13% of all new mortgage lending in 2021) but are more dependent on market rates , so offering Irish banks the opportunity to regain some market share.

Ultimately higher market rates will have an impact of course but the pass through from ECB rates to money market rates is not 100%. A huge factor is the amount of excess liquidity in the euro system, which currently stands at €4,500bn, in turn reflecting the impact of ECB long term loans to EA banks (TLTRO III) and QE .Short term money market rates would therefore be determined by the ECB’s deposit facility rate, which in theory should set a floor for rates, but that is not happening; both the overnight rate (0.658%) and the one week rate (0.67%) are well below the the 0.75% deposit rate.

How to reduce that excess liquidity? For the moment the ECB is reinvesting all its maturing bond holdings under QE and so could start to reduce the amount it reinvests , as per the US Fed. Yet that might clash with their desire to prevent any further widening of the spread in long term borrowing costs between Germany and Italy or Greece. The TLTRO has a three year maturity and can be repaid earlier by banks but that too has thrown up problems for the ECB, as the terms are such that banks are unlikely to do that; the average rate paid by banks for the loans will be substantially below the rate they can earn by simply depositing the money back at the ECB (Irish banks drew down €21bn, which has been a significant boost to their profits, with French and German banks the main beneficiaries).

Modifications to the TLTRO are widely expected at the upcoming meeting, but retrospectively changing the terms of a three year loan would not be a good look for the ECB. Changing the rate charged on excess reserves may also be on the table.

The pass through from ECB rates to the market may not be 100% but its still pretty high, so further monetary tightening from Frankfurt will have an impact on retail rates. Market expectations as to the peak in rates this cycle are volatile, shifting in response to the latest inflation release (still surprising to the upside) and indicators on the real economy(pointing to a probable recession) . Longer term fixed mortgage rates will be influenced by the 5-year swap rate in the market, and although that has fallen back to 3% from 3.25% earlier this month it was below 1.5% in August. Shorter term,one-month rates are priced to rise to 3% next year. Remember that reflects expectations about the ECB deposit rate and implies a refinancing rate of 3.5% and therefore a Tracker rate of 4.55%. These market expectations may not be fulfilled of course but we probably need some short term downside surprise in the inflation figures to placate ECB hawks and not just weak economic data.

House prices in the US, the Euro Area(EA) and the UK have seen strong and persistent growth in recent years, driven by similar factors- low supply relative to past experience, very low interest rates by historical standards and significant monetary and fiscal stimuli in response to the Pandemic. Monetary policy has now changed and signs of a slowdown in the housing cycle have appeared although as yet this has precipitated a softening in price momentum rather than any significant price falls.

The latest Irish residential price index illustrates the point; prices rose by 2.3% nationally in the three months to June, but at a slower pace than seen in the same period a year earlier so the annual change in prices slowed, albeit not dramatically, to 14.1% from 15.0% in March.In Dublin price inflation slowed to 11.7% from 12.5%, while the figure excluding the capital was 16% from 17.1%.

June also saw the index climb back up to the previous cycle peak recorded in April 2007, although house prices are now 2.4% above the previous high after reaching that level in March, while apartment prices are still 14% below their 2007 peak. Prices remain supported by limited supply and a big fall in the real interest rate (nominal mortgage rates on new loans have not risen year to date while the CPI has spiked) although real incomes are falling and hence acting as a negative for house prices. Prices did rise strongly in the latter half of 2021 and that base effect alongside slower monthly increases for the rest of this year may result in and end-year house price appreciation figure of around 8%.

On supply , annual completions have been around 21,000 over the past three years and the 2022 total may well pick up to around 26,000 given that the figure for the first half of the year was over 13,000, although some analysts have paired back their initial forecasts in response to the surge in construction costs. This may dampen housebuilding in the coming year rather than impact supply already under construction however.

Transactions have also picked up this year which is consistent with an increase in completions, amounting to 32,615 in the first six months of the year, against 31,405 in the same period of 2021. For the full year we expect 72,000 from 68,000 last year and 67,000 in 2019.

The number of new mortgages relative to market transactions has risen in recent years to 59% from a low of 50% in 2015 and looks on course for a similar share this year. New lending for house purchase rose to €4.4bn in the first half of 2022, from €3.5bn in the same period last year, reflecting a strong rise (10%) in the average new mortgage, to €267,000 , and a similar percentage increase in the number of new loans for house purchase, taking that total to over 16,000. For the full year we expect the latter to rise to 34,000 with a value of €9.9bn. The headline new mortgage lending figures include tops ups and switching, and the latter has risen sharply over the past few years and we expect a figure of €2.5bn in that category this year, up from €1.6bn in 2021. Overall mortgage lending is forecast at €12.6bn from €10.5bn in 2021.

As noted above new Irish mortgage rates in June were unchanged from the end-2021 figure, at 2.68%, in contrast to experience elsewhere in the EA, where rates rose fro 1.31% to 1.94%. This reflects the high level of deposits relative to loans in Ireland, allowing the main lenders to absorb the rise seen in longer term market rates. That is unlikely to continue particularly as July saw the first of what is likely to be a series of ECB rate increases. The share of fixed rates in new lending has been well over 80% in recent years and so the share of variable rates in terms of outstanding loans has now fallen below 50% so lessening the impact of ECB actions.

Finally, rents are also rising very strongly, with the CPI in July recording a 12.9% annual increase in rents actually paid by tenants. In our view employment is the key driver for rents, alongside the housing stock, and the former will probably rise by over 100,000 this year or 5%. The housing stock per head is still falling, exacerbated by a dwindling supply of properties for rent, so it is not surprising to see double digit rental increases. Employment growth may slow somewhat in 2023 as workers are scarce and on that basis we may see some easing in rent inflation, back to single digits, but absent an employment shock rents are unlikely to slow appreciably.