Irish housing market Update December 2023

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.