The risk of overheating in the Irish property market is imminent. As per the latest report of the Central Statistics Office (CSO), from February 2016 to the end of February 2017, the price of houses spiked by an average of 10.5 percent across Ireland, with an increase of up to 17.8 percent in the west of the country. This two-digit increase is noted for the first time in the two previous years, and further rises are expected.
A mismatch in demand and supply is one of the main causes
The CSO highlighted that this worrying increase in property prices could have largely been triggered by the mismatch in demand and supply of housing amidst a strong economic recovery. Other factors like the Government’s Help-to-Buy scheme and the loosening of Central Bank mortgage rules have highly contributed to deepening the gap between demand and supply.
Further rises in property prices are expected until the end of 2017
Basing themselves on the statistics of the CSO, analysts at the brokerage firm Davy warn that house prices may increase well beyond their previous expectation which was 10 percent for 2017. They qualify this increase in housing prices as a “sharp acceleration” in the inflation of property prices.
Prices are still lower than those just before the property bubble
The current property prices are approximately 30.7 percent lower than the highest level reached just before the property bubble in 2007. In Dublin, prices are presently lower by 31.3 percent than their peak in 2007, while outside the capital, prices are lower by 35.3 percent. However, the actual figures are worrying as compared to 2013, the prices of property have increased by a whopping 52.1 percent nationally. Residences in Dublin have shot up by 68.1 percent while those in the remaining part of the country have blasted off by 48.9 percent.
First-time buyers are becoming more desperate
Currently, the most expensive area to buy a house is south Co Dublin where the average house price is approximately 548,000 Euros. Co Longford is the cheapest area with the average price of the property being 116,843 Euros. As at March 2017, 20,500 houses were for sale on the property market. Compared to the same period in 2016, this figure represents a decrease of almost 4,000 properties. With the Help-to-Buy scheme and loosening of mortgage rules last year, first-time buyers could finally afford to borrow. However, they are now left in the red with the drastic increases in the prices of residential properties.
The market is risking overheating
If individuals can borrow money more easily now, such is not the case for builders and thus, the investment developers can make remains limited. Consequently, the supply response remains low. It is expected that it may take up to two more years before prices can stabilize in a positive scenario. To keep prices within a normal range, the supply response will have to be boosted. This will equally keep rents down. The Fiscal Advisory Council, acting like the economic watchdog of the country, warns against the high risk of overheating of the property market.
The fear of creating another property bubble and credit bubble
The sharp escalation in property prices has also caught the attention of the OECD. The Paris-based thinking tank warns that Ireland should be wary of another property bubble, similar to the first one in 2007, which left the countries annihilated. A new one would be an extremely harmful setback for the Irish economy. Alongside, a credit bubble may also be triggered similar to 2008, unleashing catastrophic damage. In 2008, the credit bubble led to a collapse of the financial system, entailing a 64 billion Euros recapitalisation of banks by the taxpayers.
Related articles published in Mortgage loan :
- Tips to obtain the best mortgage for a home
- Mortgage arrears remain unsolved as no quick solution announces itself
- Taking a mortgage for the purchase of a real estate
- Why you should lock into a fixed-rate mortgage now
Image : Shutterstock
