Covid-19 has led to a tighter housing market

The news that asking price inflation bounced back to 5% in Q3 2020 could at face value be taken as a sign of a fresh bubble emerging in the Irish housing market. However, we would caution that Covid-19 has disrupted the usual seasonal pattern of the housing market and may have flattered the annual comparison.

Just as we thought the -3% inflation reading in Q2 2020 was an aberration, the same is likely true for the +5% recorded in Q3 2020. The truth probably lies close to the middle of these two readings. The third quarter is normally a weak one for pricing, capturing the end of the summer selling season - which has been delayed this year. Hence, asking price inflation will likely fall back in Q4. 

However, there now seems no doubt that the Covid-19 pandemic has tightened conditions in the housing market. Despite new listings rebounding close to 2019 levels, they have not compensated for the months that were lost in April and May. The stock of homes listed for sale on MyHome was 17,800 in September, still down 25% on the year. Similarly, there are fewer new homes for sale with housing completions disrupted by the pandemic.

Demand still high

At the same time, demand from homebuyers remains robust. This is revealed by the traffic on the MyHome website, up 40-60% in Q3 2020 compared with 2019 on various metrics. This adds to the evidence from Pandemic Unemployment Payment (PUP) claimant data that those who lost their jobs were more likely to be younger, lower-paid workers in the construction, hospitality and retail sectors. Homebuyers, typically with higher incomes, do not yet appear concerned that Covid-19 will present a threat to their incomes or employment.

Demand also appears to have been fuelled by buyers believing that now may be a good time to secure discounted prices due to Covid-19. In our recent sentiment survey, 53% of prospective homebuyers expected prices to fall over the next 12 months and 50% felt that now was a good time to buy property.

Earlier this year some fretted that tighter credit conditions might limit mortgage availability, particularly exemptions to the 3.5x loan-to-income limit. These fears have not come to fruition. Mortgage approvals bounced back to €670m in July and the average mortgage approval hit a fresh high of €247,000, up 4% on the year. 

Impact on the rental market

However, Covid-19 does appear to have hit the rental market, with the Consumer Price Index (CPI) private rent index showing negative inflation for the first time this cycle, down 1.8% in the year to August. The combination of working from home, demand for larger living space and the reduced attraction of Dublin during the pandemic all appear to have pushed down rents. In our recent sentiment survey, 73% of homebuyers said that Covid-19 had changed their outlook on buying property, with significant numbers saying that they would look to secure a home office (43%), garden/playroom (40%) and look further afield (23%).

For more information on the residential property market, download a full version of the Q3 2020 myHome report.