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HOUSEHOLDS ARE SPENDING almost as much of their incomes on mortgage repayments as they were in the latter stages of the Celtic Tiger, according to new economic analysis.
The ESRI warned that homeowners spending a high proportion of their income on mortgage repayments are vulnerable to risks such as any fall in real wages or increase in unemployment.
The new report has also warned that house prices may be overvalued by as much as 10%, posing a risk to homeowners in the event of another economic crash.
On average, households spent 33% of their disposable income on mortgage repayments between July and October this year. It’s the highest share of spending on mortgages that Ireland has seen since 2007 and early 2008.
For example, for a household with a net income of €40,000, spending 33% of disposable income on mortgages repayments would equate to €13,010 per year or €1,100 per month. For a household with a net income of €65,000, it would be €21,450 per year or €1,787.50 per month.
The immediate outlook isn’t great for prospective homeowners either, with the number of homes completed in the first six months of this year lower than in the same period of 2023 (although the completion rate picked up after that).
Overall, the outlook for the Irish economy for next year is good, the ESRI said as it released its latest quarterly economic commentary.
However, policy changes proposed by incoming US president Donald Trump pose risk to Ireland’s prosperity.
Continuous increases in house prices over the last 11 years mean that as of August 2024, Irish house prices are 13.4% higher now than they were in April 2007, before the global financial crisis.
The year-on-year growth in property prices reached as high as 10% in the months of August and September this year.
The report estimates that house prices are overvalued in the region of 8% to 10%, which means that householders are particularly vulnerable to a “painful correction” of prices like that which was seen between 2007 and 2012.
Researchers also said the issue raises question marks around the capability of certain cohorts of the population to own homes, given a rise in price-to-income ratios and the ability of households to meet repayments.
A crucial measure to alleviate housing pressures is increasing the availability of supply, but expectations for new housing this year and next year are still falling short. There were 20,000 homes completed in the first nine months of the year.
Seasonal patterns typically show an increase in house completions in the final three months of the year – but it’s unlikely that home completions will exceed 33,000 by the end of this month. As a result, the ESRI is maintaining its forecast that just over 33,000 units will be completed in 2024.
That is well short of the 52,000 homes needed per year to address the supply issue, according to the Central Bank.
The State’s tax income has increased compared with 2023, even if the income from Apple losing its case at the Court of Justice of the European Union is excluded.
However, the ESRI is cautioning that the outlook for future corporation tax receipts is uncertain in the face of the incoming US administration.
Donald Trump is due to return to the White House in January after winning the US’s presidential election in November.
Trump made promises during his campaign about certain policies that could affect Ireland, such as lowering the US’s corporate tax rate to 15%, which would match the rate here. This could make Ireland a less competitive location for multinational companies in the future.
The ESRI believes “aggressive US trade policy could affect decision-making in large multinationals”. It noted that Ireland’s corporation tax receipts are heavily dependent on a small number of firms and that the tech and pharmaceutical sectors are particularly vulnerable.
“In these sectors, there may be a higher risk of relocation because firms with complex, globalised manufacturing processes could be liable for transatlantic tariffs more than once for a given product,” the ESRI warned.
The ESRI also noted another Trump policy could also affect Irish public finances.
“The Trump campaign signalled its intention to reshore to the US profits arising from intellectual property that is located in Ireland. If this were done, it could have a significant impact on future corporation tax receipts,” the ESRI said.
Nevertheless, the think tank expects that GDP will fall by 1.1% in 2024 but rebound in 2025 to a growth rate of 4.5% due to higher exports and investment.
Modified domestic demand, which is considered to be an accurate measure of underlying Irish economic performance, is expected to grow by 3.2% in 2024 and 4.1% in 2025.
Inflation has been falling, dropping to a year-on-year rate of 0.7% as of October, which is lower than the EU average. It’s a large drop since January, when the rate of inflation stood at 4.1%. Overall, the average inflation in 2024 is expected to work out to be about 2.1%.
Unemployment remains low, standing at 4.1% as of November.
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But, but Darragh will sort it, won’t he not..
@Paul Gorry: if he can get the SUV’s out of the driveways, he might stand a chance. Ah but the 2 wagons are only costing us about a grand plus per month. Changing my name to Jones. Everybody please keep up. 10 of us living in a Corpo/council house, close to me Ma. Please keep up with the Jones’s
@Sean O’Callaghan: Ahhh ok sean that makes perfect sense. Can’t understand how i missed it???
@Paul Gorry: in fairness he’s done more than FG did between 2011 and 2018. Housing budget is 7/8 billion per year now and has been massive since 2019. It was only a fraction of that under FG rule who did nothing to get it going again after the crash…… Maybe by design to get out of negative equity themselves, maybe to get the banks creaming it in again with massive mortgages, maybe to sort our REITs and developer cronies holding on to large land banks…… It’s backfired massively
@Paul Gorry: not
and people have voted for the tradesmen party, so it will go worth… same party that was here in 2008
@Paul Gorry: The people have spoken we voted for the same government, no pont in moaning about it for about another 5 years
@Sean O’Callaghan: Pushing that idiom hard aren’t ya!
@Allo Allo: yea, say nothin, no criticism if their doing a crap job yet again…shur let’s get rid of the opposition parties aswell for the next 5 years..Jesus wept!
@Paul Gorry: Luckily, most houses and apartments are being bought for social housing by government funded NGOs, local authorities, and investment funds, so it’s only abstract numbers on a balance sheet to them.
Private buyers have long since been kicked out of the market.
At least the anti build your own Greens have been kicked out of government, but they are still embedded in local authorities to make life difficult for anyone with the cheek of wanting to build their own
@another one? what’s going on is the semi state sec: how do you get a housing market up and running when the country was bankrupt, ya thick
Ya the younger ones may not have experienced the highs and eventually the lows of the tiger and if they buy property at this high prices eventually they will get burned cause what goes up always goes down,
@Ned: Not necessarily. Houses always rebound in price. They are at Celtic tiger levels after the biggest crash in 80 years. Houses will not crash, because the demand is too high. It’s way higher than it was in the early 2000s. People’s savings are also at the highest level in the history of the state. If you go on daft.ie there is a scarcity of listings all over the country. Construction industry will keep booming for the foreseeable.
@I’m a robot Robot: The scarcity of listings comes from the scarcity of houses you absolute tart. Do you think there is people trying to sell them via newspaper or radio? Derelict houses are also at the lowest number they have been in 30 years.
@Maximilian Kolbe: it happens when the economy crashes and it takes house prices dawn with it, it has happened before and sooner or later it will happen again.
@Maximilian Kolbe: The price can still fall in the event that there is a shock to the economy. Something always comes up to pop the bubble. There is a well established property cycle that always repeats eventually. Yes when things hit rock bottom after the distress phase the gearing phase begins again to repeat the cycle all over again. It’s all a question of timing and for some people the timing can be catastrophic.
@Maximilian Kolbe: savings levels are a red Herring. when you analyze the actual data at a granular level its primarily propped up by the significant savings and cash pension pots of the sizeable baby boomer generation. when you extrapolate this segment you’ll see the real data, highest levels of private debt, highest levels of global government debt. the global economy that we’ve created is no longer an economy in the sense of the movement and circulation and exchange of existing money, but it is an economy more akin to a ponzi scheme that can only survive with the continuous creation and printing of money by central banks. only have to analyze M1/M2 money data for the past decade to see this. but eventually the printing press has to stop. we’ve now created a global economy where there isn’t even enough wealth or money generated each year, to pay off the debts. fascinating really.
@Maximilian Kolbe: houses will crash. This is an artificial bubble. It’s happened all over the world. During the Celtic bertie told David McWilliams he should kill himself because he warned about the poverty scam. He’s now claiming the same thing will happen again even though the environment is slightly different. We heading for a massive adjustment & it will take lots of young people with it.
@Mic JHintl: not any time soon, unless there’s a catastrophic world event to drive up interest rates, otherwise the supply/demand ratio will keep inflating house prices here.
The country is awash with money what could possibly go wrong?
If the isralis and the yanks get their wish for ww111 were all toast
@Vincent Hickey: Have you looked at what Russia, Iran and China are doing and be thankful that American is there and indirectly pumping money into our overinflated economy as well as protecting us from the type of medieval zealots that we so willingly welcome into our country.
If you voted for the fianna gael cartel, $u€k it up.
@Michael o connor: I voted for them and I am getting on great.
@Maximilian Kolbe: Oh, that pedestal.
@I’m a robot Robot: that’s homophobic
10% …. more like 30% over valued
@Shimo F: … or way more. Seeing the build quality, in a “normal” market these houses would sell for half their current price
@Shimo F: in the last recession, houses priced in the half million bracket fell between 60 to 80 thousand. Houses are only worth what people are willing to pay. The only difference between then and now is less cash to guarantee. All those card payments, instant cut-offs, and the number of people doing reconational coke etc has increase 10 fold. The next recession will be 10 times worse for the generation who were never told No.
@Colette Byrne: fell to 60 to 80 thousand not by. Correction.
The “celtic tiger ” that was nearly 20 years ago .. sooner or later everything is going to surpass tiger levels
@frank dowling: Yes, but they said it would never happen again. They learned the lessons, and we had the bill to prove it.
And you only have to look around at the big houses on the market, once they are selling up you know what’s coming.
And under the same crowd again, sure what can go wrong.
@Colette Byrne: keep living in fear
They all voted FFG back in again and expect a different result
2 years left out off 22 year tracker Mortgage…it flew by ..house prices are off the scale good for those selling but a nightmare to buy…can’t win !
What’s the choice for first time buyers? I feel we know we are paying well over the odds but supply is so low we don’t have much off a choice if we want to get off the rental market
@Maniac 2000: Although the draconian regulations have decimated the rental supply landlords fleeing housing provision have been a once off source of supply for owner occupiers. But this badly thought out left wing intervention has not increased by one the actual number of homes just changed occupiers.
@thomas molloy: Your landlords “fleeing the rental market” is a good thing, or at least not a bad thing, for house prices.
Any additional house that comes up for sale, that adds to the home for sale market, in any given year helps keep home prices lower than they would otherwise be, more affordable than they would otherwise be.
Thereby increasing the number of home owners, and reducing the number of involuntary renters.
That ERSI is full of pure geniuses, where would we be without them.
@martin lawlor: I have long wondered what it the point of this group.
Their reports are really no different from all those document that we are forced to translate into “Irish” that nobody pays any attention to anyway.
10%? Try 50% unless you are going to increase all wages across the economy by 6 or 7 times what they are that’s where we are at. I’ve never treated the esri as a serious organization but now with this suggestion of over valuation I can seriously I was correct in my analysis of them.
3 problems in Ireland:
#1: Our insatiable desire to own a property with our own front door and garden front and back.
#2: The lack of long term and SECURE leases on quality apartments (ie 10 year lease or more with no eviction if there is no fault).
#3: Local Government have removed themselves from the property market. Councils should invest in quality rental property, using the proceeds to invest in further property.
@Me Me: Owning your own home is the only security people have.
It is essential.
@ItWasLikeThatWhenIGotHere: 35 years paying a bank before you own it. investing far more to eventually own it than it will ever actually be worth.
Gov need to start insulating houses quickly if they are to reduce the upcoming fine of around £20 billion.The cost will surely be a fraction of that.
@Willie Marty: sorry that was for previous article.
Well there’s a surprise, not! Doomed to make the same mistakes over and over, thanks FFFG
hmmmm whatever happened to the celtic tiger?? I know most FFG supporters have severe dementia and amnesia and in the case of MM actual brain damager cos he descided to completely deny a certain event that happened when the last time this country let itself get cooked financially cos of the housing market
But dont worry, the me feinners and grey vote will be fine if another crash happens cos sure its great if another generation emigrate, sure we have plenty of cheap labour residing in hotels to take any jobs they leave behind like
@Patrick Newell: already emigrated, and the cheap labour you speak of, will also go.
It’s 33% of income, not disposable income..
Bought in 2019, we had quite a bit done on the house, got it insulated, solar panels, roof repaired, etc. However, houses on our street now selling 120k more than what we paid and they are in the state we bought ours back then! A terraced house with north facing garden and no insulation went for 480k, Jesus wept….
Does history repeat itself?
@Brian Hunt: When we keep electing the same people, then yes.
Simple economics – u can’t have a booming economy with everyone at work and the one thing people want as a reward for working is a house. Prices are only going up.
ECB rate cuts will allow people to borrow more
…it’s by a lot more than 10%……..
It is a hard one to workout, between the inflation, the materials issues, the global pandemic and the wars… are we comparing apples with oranges to use a figure from 2013?
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