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House price inflation negative for the first time

28th June, 2020

The standout feature of this quarter’s MyHome report is that asking price inflation has moved into negative territory for the first time since the last recession. Asking prices fell by 1.5% in Q2 2020, down 2.9% on the year. Asking prices in Dublin declined by 2.1%, down 2.6% on the year. The message here is that vendors in Q2 2020 put properties on the market at slightly lower prices because of COVID-19. 


However, it is worth bearing in mind that our price measure is based on just 3,700 new properties listed for sale over the past three months, down 64% from 10,200 one year ago. Observed prices were therefore clearly biased towards those vendors willing to put their homes on the market despite the enormous uncertainty of the COVID-19 outbreak. 


Consumer confidence on the rise

During April and May, new instructions to sell were down circa 85% from normal levels but have surged to just 20% below in recent weeks as estate agents have started to re-open. This broader swathe of vendors suggests that there is now greater confidence in the housing market as the economy has started to re-open. Similarly, traffic through the MyHome website, having been depressed early on, is now 20% up on 2019, indicating that home buyers are now once again searching for properties.  

 

Resilience of house prices

Our own forecast was for a 5% decline in house prices through 2020. Certainly, the drop in asking prices in Q2 2020 is consistent with that view; however, as we have indicated, it may be giving us a poor steer of likely developments. Our forecast was in fact relatively optimistic, with other forecasts based off statistical models linking house prices to GDP and unemployment pointing to double-digit declines. 


However, there are several reasons why house prices may be more resilient this time around. First, the surge in unemployment has been biased towards younger, low-paid workers in the retail, hospitality and tourism sectors where home ownership is lower. Second, leverage in the housing market is now substantially lower than in the Celtic Tiger years. Third, homebuilding is still at its lowest levels since the early 1990s and well below demand.  

Outlook still uncertain

The outlook remains highly uncertain, not least given the threat of a second outbreak, and the negative impact of COVID-19 could still have a more slow burn impact on the Irish housing market than many participants anticipate. That said, the clear anecdotal evidence is that activity in the housing market is returning to normal levels and with greater confidence than estate agents had expected.  

 

For more information on the residential property market, download a full version of the Q2 2020 myHome report here.

 

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