House prices 2007, Current Housing Market Summary

It has been well documented that house prices deflated somewhat in the first half of 2007. The thriving rental market is being driven primarily by the large influx of Eastern European workers to Ireland, since EU expansion. However, these demographic factors may not have the same positive effects on the housing market. The large majority of these workers are on the lower end of the wage scale. As a result of this, they may not be in a position to afford to purchase housing here, with the average asking price for a property in Ireland reportedly at just over €370,000. It is thought that a basic estimate of the average amount that consumers can afford to spend on property today is in the region of €380,000 – €400,000, which stands above the current average asking price of a house. Most of these workers are working in the greater Dublin area where the average price of a 3 bed unit stands at approximately €501,500. These workers are consequently being kept within the constraints of the rental market, having been priced out of the housing market.

House prices experienced a shallow decrease in the first half of 2007, with average house prices in Ireland falling by 1.6%. Many feel that the initial hesitation of buyers was caused by intense speculation about stamp duty reforms in the lead up to the general election in May of this year. However, once introduced, these reforms principally served first time buyers (FTBs) and failed to incite confidence in the prospects of the housing market as hoped.

The 20% fall in supply of houses to the rental market was no doubt caused by anxious investors hastening to sell up their investment properties amidst conjecture about depreciation. This in turn increased the supply of houses to the open market at a time when demand was declining and resulted in falling prices. However, this isn’t expected to last, as with such a large number of properties currently on the market, it is taking much longer to sell and so a lessening number of sellers are being encouraged to the market.

Typically, the primary drivers of house prices are income levels and rates of interest, which ultimately determine the sums that borrowers can receive from lenders. The central bank reported an increase in the number of non-mortgage lending that took place in June and a consequent decrease in the number of new mortgage applications. This is due in part to rising interest rates, but also to speculation about the safety of investing in the housing market and so consumers are holding back on capital investment and increasing day-to-day spending instead.

There is some difference between the May average figures for new and second-hand properties. Prices of new houses decreased in the month of May this year by approximately 1% in comparison with the 0.8% decrease in prices of second hand housing. However, prices received for new houses increased by 3.3% on average in the twelve months between May of 2006 and 2007, with second hand house prices rising at a level of 2.4%. The mean price paid for a new house in May 2007 was €301,128 with the average second hand house costing €305,290.

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