Increased supply and interest rate hike to cool property market

House price inflation will moderate later this year as increased supply and a probable interest rate hike cool the market, Sherry FitzGerald has said.

The State’s largest estate agent said “moderating forces” will begin to take effect as the year progresses, tapering house price inflation.

The company's chief economist Eoin Lynch said it was increasingly likely that the European Central Bank will begin to raise interest rates later this year, which will increase borrowing costs, dampening demand in the process.

“Additionally, new listings in the second-hand market are recovering towards their pre-pandemic levels and the heightened level of commencement activity over the past 12 months should help see some improvements in the level of supply currently available,” he said.

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“All these factors have the potential to coalesce to reduce the current heightened rates of inflation,” Mr Lynch said.

In it latest quarterly assessment, Sherry FitzGerald, however, said heightened levels of price growth are now prevalent across the State and would persist for much of 2022 as supply shortages and pandemic-related factors, such as remote working and increased savings, continue to stoke prices.

Based on a basket of listed properties, the company said headline inflation was running at 11.1 per cent year on year in the first quarter and at 9.6 per cent in Dublin.

Supply horizon

Lower valued properties have recorded the largest increases in the rate of growth, albeit sustained price inflation is an almost ubiquitous trend nationally at present, it said. It forecast price growth would average at 8 per cent this year.

“It must be noted, however, that the supply horizon is much more favourable in Dublin at present, both in terms of commencements and granted planning permissions, notwithstanding the potential effects of judicial reviews,” Mr Lynch said.

“This will likely lead to a continued divergence in price and rental growth in and outside the capital, as witnessed in recent times,” he said.

In its report, Sherry FitzGerald noted that housing sales last year almost fully recovered to their pre-pandemic levels, with the secondhand market at its most active in over a decade.

Excluding block sales and new homes acquired for social housing, there were more than 54,600 housing transactions in 2021 according to the Government’s Property Price Register. This was 18.1 per cent higher than 2020 although still 1.2 per cent lower than 2019.

Managing director Marian Finnegan said the start of the new year has seen no let-up in the exodus of landlords from the rental market. "Without action, there will be further deterioration of an already dismal situation," she said.