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back down to earth

Here is why double-digit house price increases are a thing of the past

This week the Sales Report showed that we can expect the housing market to calm down a little bit.

THE MOST RECENT house price report released earlier this week showed that asking prices for houses had risen strongly in the first three months of this year.

While this was a change from the decreases seen at the tail end of 2014 – it does not mean that the Irish property market can expect to see the dramatic double-digit increases that characterised the start of last year.

The reason for this is simple – property prices are now tied to a person’s income. It has become the case that house prices can now only expect to change as quickly as incomes do.

This is down to the new rules from the Central Bank introduced in January that prevent anyone borrowing more than three-and-a-half times their income.

Here is economist Ronan Lyons speaking to earlier this week about the introduction of these new rules:

Video / YouTube

So, with this new structure in place – how much variability can we expect from prices going forward?

Recent figures from the CSO indicate that incomes around the country have risen a small amount recently.

How much have incomes changed in recent times?

According to the CSO – while average income has gone up and down – it has never been as dramatically affected as the housing market.

The fourth quarter of last year saw average weekly income hit €704.34 – the highest it has been since the fourth quarter of 2009. Despite this it has not changed by more than €40 since 2008 and shows no clear indication of an overall upwards or downwards trend.

The most recent figures for average annual earnings look at 2013 – when income was €35,830. This fell by 0.7% from the year before when average earnings were €36,079.

These changes in income – along which lines house prices are predicted to shift going forward – are in marked contrast to the 15% increase house prices experienced in the first nine months of 2014.

Speaking in the new Sales Report, Lyons states that:

With the new mortgage rules, house prices in the aggregate can in the future only grow as fast as incomes are growing, thus it is incredibly unlikely Dublin in particular will see a return to double-digit price increases.

It is also suggested that the loan-to-income caps will help to shift demand away from Dublin and out around the rest of the country.

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