Rapidly rising house prices raise the prospect of another property bubble in Ireland, the OECD has warned.
A strong economic recovery and a shortage of housing supply have led to the cost of a home rising by more than 10 per cent over the past 12 months, the international think tank said in its latest economic outlook.
The Paris-based organisation said that property-related loans were increasing fast but that the Central Bank needed to be on call if regulatory action was needed to stop prices soaring out of control.
“Activity in the construction sector is gaining momentum but supply is expected to fall short of demand for some time,” it said in its report on Ireland.
“The sharp rise in prices and lending raises concerns that another bubble may be forming, and the authorities should stand ready to tighten prudential regulations if needed.”
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In the year to April residential property prices increased by 10.5 per cent, compared with a rise of 9.6 per cent in the 12-month period ending in March, according to the latest figures from the Central Statistics Office. Prices are still some way below their 2007 peak, however.
Prices in Dublin are 31.3 per cent lower than their high in February 2007, while properties outside the capital are about 35 per cent below their May 2007 peak. Prices have recovered rapidly since hitting a trough in 2013, rising by 52.1 per cent across the country. Homes in Dublin now cost 68.1 per cent more than they did in 2013 while those in the rest of the country are 48.9 per cent more expensive.
The number of sales fell sharply in April, down 17.8 per cent on the previous month at 2,488. The figure was 7.8 per cent lower than in April last year, when 2,698 purchases were filed.
Lorcan Sirr, a housing policy lecturer at Dublin Institute of Technology, said that the reasons for the drop-off in sales were twofold.
“Firstly, it would seem the real level of housebuilding activity is beginning to be exposed as significantly lower than what we’re being told,” he said. “Therefore there isn’t a supply in the market that one would have expected. Secondly, it may also be that some new houses are being overpriced by agents who are misaligning the sales prices they think they can achieve with potential purchasers’ ability to buy.”
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Only 204 of the 2,488 homes sold in April were new homes. The volume of new sales fell by 2.4 per cent on the same month last year. The total value of new transactions filed in March was €605 million. The average price paid for a house in April was €243,158 while the most common price paid was €200,000.
The value of mortgages taken out by homebuyers has increased by nearly 20 per cent over the past 12 months, according to the latest figures from the Banking and Payments Federation Ireland. More than half of all home loans went to first-time buyers. The number of mortgages granted over the past year increased by 11.7 per cent.
First-time buyers secured €366 million worth of mortgages last month, with a further €232 million secured by movers. Remortgaging also increased over the past year, up by 8.2 per cent on the value of mortgages.
Official government figures show that just under 15,000 new homes were built last year. The figures have been strongly disputed by some experts, however, after data from the Local Government Management Agency last month suggested that, excluding vacant properties brought back into use, the true figure was 2,076 — about 15 per cent of the official total.
Dermot O’Leary, chief economist at Goodbody, the stockbroker, warned last month that a shortage of new supply would lead to further price rises.
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“The number of new entrants to the market is substantially more than the amount of new properties that will come to the market this year, thus the obvious conclusion is that prices will continue to be bid up,” he said.