A slight decline is not a description often applied to Ireland’s continually contentious, vexing, unfair and undersupplied property market, but it is where it stands according to the latest figures from the Central Statistics Office.
This week, the CSO released its monthly house price index which showed residential property prices rose on an annual basis by 10.8% in September.
This was a reduction from the annual rate of 11.9% recorded in August and a reduction from its maximum rate of increase in February and March of just over 15%.
Warnings about downturns, recessions, inflation and the prospect of a steady stream of interest rate hikes have done little to lift a feather from the restless business of trying to buy a home.
But even gentle inclines can turn into treacherous descents when the weather changes, as any hiker could tell you.
Timing is very important here. September was only two months ago, but since then a lot has happened.
The European Commission has predicted that the EU will be in recession until spring. There has been a wobble in the tech industry of unknown proportions, a key industry for Ireland. And inflation in the eurozone has swung into the double digits and spread beyond energy, likely guaranteeing that the ECB will continue its interest rate hikes well into next year.
Residential real estate markets in several eurozone countries have looked a bit “booming” over the past year.
According to Eurostat, in the second quarter of this year (the last for EU-wide comparison figures), residential property prices in the euro area were 9.3% higher than in it. a year ago, a rate slightly lower than in the first quarter.
In Germany, this annual figure was 10.2%; in the Netherlands, 18.2%; and in Estonia, 27.4%.
Residential property prices in 24 EU countries have been rising faster than inflation since 2016.
From 2010 to the second quarter of this year, house prices in the EU far exceeded rent increases.
Ireland is one of the notable exceptions to this trend, with rents up just over 82% over this period. In the EU as a whole, rents increased by 18%, while house prices increased by 48%.
House price increases range from a gargantuan jump of 196.3% in Estonia and 121% in Austria… to just under 100% in Germany.
Ireland’s rise over the period was modest compared to prices up 54% – the lingering impact of the crash tempered our trend.
All this residential jitters led the ECB to warn in its Financial Stability Review this week that strong house price growth across Europe has led “to increasingly stretched valuations in some euro zone, with real estate price dynamics outpacing fundamentals”.
He warns that house prices have fallen in some national markets since the summer. His concern relates to the impact of this situation on the financial system of the euro zone, a subject about which we know a lot in this country.
In September, the ECB raised its interest rates by 0.75%. He did it again in October. These rate increases were not passed on to the mortgage market in September.
Indeed, it is only very recently that Irish banks have raised rates on their mortgage products, and even these measures have not fully reflected the ECB’s hikes.
In the other eurozone countries, the impact on the mortgage market was much faster.
This will change. Time will catch up with us. The cost of borrowing will increase, which could dampen the growth of real estate prices.
The other change that is coming is the expansion of mortgage limits that will come into effect in the new year. This will allow first-time buyers to borrow more relative to their income, although it will also cost them more if interest rates continue to rise, which they will.
Conversely, this movement will increase house prices in the long term, even if prices stop or fall temporarily for broader economic reasons.
And then there is our population, which continues to grow, driving up the demographic demand for housing.
If the Central Bank has done its job and households and banks are better able to weather a cyclical downturn – they are very fond of using the word “resilient” – then overall the decline in the growth rate of real estate prices could indeed continue to be kind.
We’ll have a better idea when the Bank releases its Financial Stability Review next week.