Grim picture for homebuyers

Our latest MyHome report shows asking price inflation accelerating to 9.7% in Q4 2021, a 1.2% rise on the quarter – an uncharacteristically sharp increase during the normally quiet winter months. Asking price inflation in Dublin is weaker but still rose to 7.4%. 

The summer was a very frothy period, showing a degree of panic in the housing market, with homebuyers bidding up well above asking prices. The unwelcome message from this quarter’s MyHome report is that there is little sign of conditions easing. Some catch-up in new listings occurred in the final months of 2021, a welcome development, but was met by more than ample demand. 

There are just 11,300 homes listed for sale on MyHome, the lowest on record and down 21% on 2020, with the shortage of residential property for sale most acute outside Dublin. The same is true in the rental market. Rents rose by 11% outside the capital in the year to Q2 but by just 4% in Dublin, according to the Residential Tenancies Board (RTB). Notably, the average time to sale agreed fell to a fresh record low of just three months in Q4 2021, indicative of the tight market. 

The lack of housing supply is well understood, but the role Ireland’s strong labour market performance has played in stoking housing demand is not fully appreciated. The average mortgage approval rose to a fresh cyclical high of €269,000 in November, up 8% on 2020. The average mover drawdown was €284,000 in Q3 2021 – rising above Celtic Tiger era peak levels for the first time. 

Given that banks are adhering to the Central Bank rules, higher mortgage debt levels are being driven by income growth rather than leverage. Average pay growth is now running at 5.4%. Buoyant conditions are especially clear among natural homebuyer segments in the higher paid professions such as the multinational sector, evident in the 22% growth of income taxes in 2021. The key point here is that the recent surge in house price inflation also reflects stronger demand and not only weak supply. 

Our analysis shows that house prices are now 7x average incomes. This is up from 6.7x in 2020 but is still well below Celtic Tiger era levels, similar to the late 1990s and slightly below the UK. Indeed, Central Bank of Ireland and Economic and Social Research Institute (ESRI) estimates suggest that the mortgage lending rules have stopped house prices rising by an additional 10-25% over and above existing levels. This view is bolstered by still high rental yields close to 5%, illustrating the strong incentive to buy over renting. 

We had forecast that Irish RPPI inflation would fall back from 11% through 2021 to 4.5% in 2022. However, the latest MyHome report suggests the froth in the housing market continued into the final months of last year and that early 2022 should see further strong price inflation. Our forecast for just 4.5% RPPI inflation may therefore be too conservative, and we may be forced to revise it upwards in time.

For more information on the residential property market, download a full version of the Q4 2021 MyHome report.