An increase in housing supply has helped to moderate price rises, according to the latest Housing Market Monitor report from the Banking & Payments Federation Ireland (BPFI).
The report for Q1 2023 has found that annual housing price inflation has been declining since its peak at over 15% in March 2022.
However, it noted that affordability challenges remain with property prices nationally more than doubling from their low in early 2013.
A sign of the supply issue relieving came with the 6,716 new completions made in the first three months of this year – the most seen in any first quarter since 2011 and 36% higher than the first quarter of 2020.
Dr Ali Uğur, Chief Economist of the Banking & Payments Federation Ireland said: “A good indicator of future housing supply is the number of units commenced. In 2022, nearly 27,000 residential units were commenced. The most recent data shows that 27,542 units were commenced in the 12 months to April 2023 which is a healthy sign of the pipeline for completions.”
He added that if the current trend in construction were to continue, up to 28,000 units could be completed in 2024.
However, that would still be below official estimated requirements of around 35,000 units completed per year.
On the interest rate side, rates are continuing to climb with the European Central Bank lifting its main borrowing rate to 4% last week.
While overall activity in the mortgage market remains robust, there was a reduction in the volume of mortgage approvals in April.
Switching activity - which surged last year in anticipation of interest rate increases - fell by almost two thirds in the year.
At its peak in October last, switching accounted for about a third of mortgage approvals.
"We expect the switching approval activity to continue to fall especially in the second half of 2023, compared to 2022," Dr Uğur noted.
Overall, he concluded that increased supply should provide better affordability for potential home buyers as average prices start to moderate.
"At the same time, existing and further cost pressures, as well as the changing interest rate environment could affect the viability of some of the housing projects currently planned, particularly in the institutional investor market, which could affect output in 2024 and further," he added.
It was also noted that borrower incomes had risen.
Dr Uğur added: “As housing prices have risen so too have borrower incomes. BPFI mortgage data shows for example, that the percentage of solo first-time buyer (FTB) applicants buying or building a new home remained stable between 2019-2022, notwithstanding the fact that average property prices increased by almost 26% in the same period.
“This is mainly due to increases in the average incomes of borrowers, from €59,000 in 2019 to €67,000 in 2022 for solo FTB applicants. Similarly, increases in average prices over the period contributed to higher loan values.
“While we are seeing positive trends across the housing market, regional differences remain with average prices in Dublin 9.1% lower than the peak in 2007 but 2.5% higher in the rest of Ireland. We also see rural locations relying more on self-build units over housing schemes and apartment developments. While FTB self-build mortgages accounted for around 3% of FTB mortgage drawdowns on new properties in Dublin in 2022, in the South and Mid-West, nearly 74% of FTB drawdowns on new properties were for self builds,” he said.
