The booming property market is showing no signs of abating with prices expected to rise by 10 per cent this year and rents showing upward momentum for the first time since 2003, according to the latest forecast from Bank of Ireland.
Writing in the latest review of the Irish property market released today, Bank of Ireland's chief economist Dan McLaughlin raised his forecasts for the property market as a surge in employment and higher immigration has resulted in increased demand for accommodation.
Bank of Ireland's chief economist Dan McLaughlin
This year is expected to show the strongest growth in the labour market since 2000 as 93,000 jobs were created in the 12 months up to June. In a buoyant labour market, household income acts as the key driver of mortgage demand, and this is expected to rise by around 10 per cent in 2005, according to Dr McLaughlin.
Against this positive employment backdrop, Bank of Ireland expects the number of new mortgages in 2005 to exceed 100,000 for the first time, with the average mortgage size rising to € 198,000.
However, Dr McLaughlin also predicted interest rates could increase by 1 per cent over the next year but says this will only have a moderate effect on house prices as prospective buyers bring forward their purchases in a rising market.
Dr McLaughlin also cited the young age profile of the Irish population, historically low interest rates and low overall inflation as factors that should sustain the property market in the medium term.
A sharp rise in immigration since EU enlargement has turned around the sluggish rental market.
"In the last couple of years, rents were falling nationally, but they turned up in recent months," Dr McLaughlin said.
"The average net immigration between 2001-2004 was 34,000 a year but that rose to 53,000 last year," he added.
However, Bank of Ireland expects the 150,000 houses built in the last two years to reassert downward pressure on rent prices.
The bank again played down talk of a property crash by insisting that rising houses remain affordable as price rises have been offset by income growth.
Comparing the servicing costs of a mortgage over the past 30 years the report shows that the current repayment burden is 31.5 per cent of income compared to a high of 30 per cent reached in 1982 and a low of 19 per cent reached in 1994.
Although the bank expects affordability to further deteriorate next year to 34 per cent due to higher interest rates this will not be enough to trigger a serious correction.