House-price growth in Ireland is expected to outperform global trends over the next two years because of the underlying strength of the economy.
The Economist magazine predicts that by 2023 Ireland will be the top performer of 16 global housing markets it has analysed, including the United States, UK, Australia, France and Germany. It expects Irish annual house-price growth of about 2.5 per cent as housing markets shake off the impact of the pandemic and return to their fundamentals. By comparison, price growth will fall to 1.2 per cent in France and 1.6 per cent in Germany that year, and will stall at globally at about 0.7 per cent.
Citing Ireland’s “healthy numbers on jobs and income”, the Economist also points to the relatively low level of household credit in Ireland, which is far below the rich-world average, “implying that borrowers have room to increase borrowing”, as a factor behind its forecast.
Although the magazine notes that Irish homeowners may still be “scarred by their losses” during the financial crisis more than a decade ago, it believes the strength of the economic data suggests that “the Celtic Tiger looks poised to reawaken”.
Across the 16 countries, the Economist found that, adjusted for inflation, house prices rose by 5.4 per cent in the 12 months to January 2021, up from 2.2 per cent a year earlier. While price growth was lower in Ireland, at 2.2 per cent for 2020, it started to take off towards the end of the year, and this trend has continued in 2021.
In the year to February, prices rose by 3 per cent, the latest figures from the Central Statistics Office show. Much of this growth was outside the capital, with prices up by 4.7 per cent compared with growth of 1.2 per cent in Dublin.
As in Ireland, where the supply of second-hand homes was at its lowest level in more than a decade in the first quarter, global price growth took off during the pandemic against a background of tight supply. Now, however, the Economist says that with economies starting to open up, the pandemic effect will lessen, and “the factors that have historically preceded rising or falling house prices should regain their predictive power”.
Applying this approach, and taking into consideration factors such as changes in household income, construction levels, interest rates and unemployment, it expects that, although house prices will not decline, the rally will stall.
Noting that “a global bust is unlikely”, it nonetheless expects price growth to fall to 3.4 per cent this year, and to 0.7 per cent by 2023, largely driven by deceleration in both the United States and Britain. In Spain, which faces a mix of “deflation, high unemployment and stagnant incomes”, prices will “eke out paltry gains in 2021 and then turn south”.
In 2003 the Economist predicted, to the disbelief of many, that Irish house prices would fall by 20 per cent. They ultimately fell by a multiple of that, and remain below their Celtic Tiger highs.
