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.