- It is probably too early to call but we genuinely believe the Irish housing market may have turned around after bottoming in June.
- In August, residential property prices in Ireland increased 0.9% m/m. This is the third month of rising house prices and the biggest monthly increase since February 2007.
- The turnaround reflects an improved economic environment, low interest rates and the absence of new supply.
- Downside risks remain. The low level of trading activity is the main worry. However, we are seeing some positive signs of a pickup in Dublin.
- A major change in banks' foreclosure policy could result in a significant amount of new supply but this looks unlikely given current government policy.
- The housing market stabilisation and our expectations of a strengthening economic recovery in Ireland are interlinked. Positive feedback effects can be expected.
- Our model for the Irish housing market suggests that house prices have undershot by 10-15%. It is difficult to assess what fair value is on the Irish housing market but we dare to expect a 0-5% increase in Irish house prices on a 12-month horizon.
Irish residential property prices increased 0.9% m/m in September and in Dublin residential property prices were up as much as 2.4% m/m. These are the biggest increases since February 2007 and August 2006 respectively. This is the third consecutive month of rising house prices. Residential property prices are down 49.6% since the peak.
The turnaround appears to be most pronounced in Dublin. House prices in Dublin jumped 2.6% on the month and thus instantly erased three months of declines, while apartments increased 0.2% in September, after 1.3% in August.
Residential property prices in Dublin are now up 0.7% in 2012, while nationally prices are down 2.6% in 2012.
Cash sales (which are not included in the official data from the Central Statistical Office) make up a substantial share of the market and thus official data should be interpreted with some caution. In recent months, cash buyers have been making up as much as 40% of the Dublin market. According to Irish broker Lisney, Dublin home prices would show bigger increases if these data were included.
The positive developments in the Irish housing market are confirmed by the bank lending survey showing an increase in demand for house loans in the third quarter and expectations of additional demand in the fourth quarter.
The turnaround reflects an improved economic environment (a fragile export driven recovery), low interest rates, pent-up demand and the absence of new supply as residential construction has almost come to a standstill. Housing completions fell from 9,899 in November 2006 to 772 in August 2012.
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