Irish Housing: Stabilisation once again

The Irish housing market entered a new phase during 2012, as the steep fall in prices of recent years began to be arrested. The latest RPPI data from the CSO show that national prices were -3.3% y/y in January 2013, which represents the slowest pace of decline since March 2008. The same release shows that prices in Dublin were in positive territory on a year-on-year basis (+2.1%) for the first time since November 2007.

However, excess supply in many areas, in particular the North and West of the country, means that Dublin and its surrounding counties should continue to outperform other areas. In this regard, it is helpful that the construction industry has effectively ‘turned off the tap’ to new developments in recent years.

A significant potential overhang for the housing market is the banks’ approach to buy-to-let properties, with the new personal insolvency regime, alongside policymakers’ calls for stronger action on arrears in that space, posing the risk of repossessed units pushing down on prices (and sentiment) at a time when the market looks to be levelling off.

On a more positive note, the gradual recovery of the domestic economy, allied to improved (albeit from a low base) credit availability, is good news for the market, though we caution that both of these are in a relatively nascent stage and remain vulnerable to adverse external developments.

In terms of the outlook for demand, while affordability has improved significantly, a number of factors may weigh on volumes, including still muted credit availability, economic uncertainty, the need to work through the oversupply problems (which impacts on sentiment) in many local markets and a possible shift in attitudes towards home ownership (the mantra that ‘rent is dead money’ went out with the Celtic Tiger).

Bringing it all together, in a new note released today, we outline that while we believe that the outlook for the Irish housing market has certainly improved since we last profiled it in detail back in May, the risks to some local markets lead us to conclude that we are still at the ‘stabilisation’ stage. In saying that, we do see scope for price appreciation this year in the Greater Dublin Region, however, the risks for pricing remain to the downside in many other areas, given the overhang of excess units.

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