It’s hard to justify talking about slowing home prices or a cooling housing market when inflation is still running at a runaway 13 percent. Nonetheless, a pattern of slowdown related to cost-of-living issues and higher interest rates can be discerned, even if the affordability constraint for buyers has not changed.
Headline inflation hit a cyclical high of 15.1% in February/March before falling to 14.5% in April, 14.1% in May and 14% in June, with the latest figures for July pointing to a year-on-year increase of 13 percent. Anecdotally, real estate agents report that there is more stock on the market, resulting in longer sales times and a leveling off of asking prices.
“There was a notable change in the months of May and June where price increases slowed down. We see this trend continuing,” said Pat Davitt, executive director of the Institute of Professional Auctioneers and Appraisers (IPAV), in response to the latest house price figures.
Most likely, we are witnessing the end of the pandemic phase when prices were boosted by factors such as rising savings and remote work and the beginning of a new cost of living/interest rate phase. higher with the result of a decrease in demand. But will it lead to a price correction?
One forecast sees annual house price inflation fall to 8-10 percent in December, lower in Dublin. Higher interest rates (the European Central Bank is planning a sequence of increases to combat inflation) will almost certainly reduce the rate of increase next year, but acceleration in population growth (one of the traditional drivers of housing demand) combined with the current and perennial labor supply theme in the other direction, underpinning demand.
The ever-optimistic industry professionals therefore do not believe that the current slowdown will translate into a drop in prices (in general), but admit that some areas of high demand and high prices may see a correction.
Industry forecasts rarely come to pass, unforeseen dynamics often set in and Ireland has one of the most volatile real estate markets in the world. It had the fastest growth in home prices in the run-up to the 2008 crash, the biggest post-crisis collapse in property values, and the fastest recovery thereafter.
The industry did not notice any of these trends until they were well established. He predicted that the pandemic would lead to a drop in prices, the opposite happened.
The general trend is a confluence of forces, so it is difficult to predict.
Housing has become one of the most divisive issues on the planet, with low- and middle-income people squeezed out of urban markets from here to New Zealand.
The uniform nature of the problem in industrialized countries with different local problems (supply is the main one here) has led many to speculate about the link between property prices and the great financial experiment of the age, quantitative easing (QE). ) and low interest rates. .
QE effectively increases the amount of money in the economy, which means banks can lend cheaper, which means mortgages get cheaper too. Whether it is the main driver of the global housing problem is still debated, but the link is indisputable.
“When the bank buys government bonds of a certain maturity, its price goes up. This, in turn, lowers the interest rate the bond pays its holders. When the interest rate on government bonds is lower, this is passed on to other interest rates, such as those on mortgages and corporate loans,” Bank of Canada Deputy Governor Paul Beaudry said recently.
Massive cash injections into the global financial system by central banks in the post-2008 era and more recently as a result of the pandemic have pegged rates and sent investors further and further afield to find yields. , creating asset price bubbles in various sectors, but most obviously in real estate. Will the reversal of these policies change the dynamic?
Canadian house prices fell for the sixth straight month in August amid a sequence of aggressive interest rate hikes by the Central Bank. Some regions only saw small drops, but prices in other regions have fallen sharply.
A report by BNP Paribas predicts that house price growth in Europe will slow significantly in 2022, “triggered by considerable price increases in recent years and the substantial increase in mortgage rates”.
“Rising mortgage rates will lock many households out of homeownership and could negatively affect indebted households that have variable rates, as well as those that have to refinance their mortgage,” he says. The report notes that “affordability appears to be overstretched” in most European markets and rising mortgage rates will continue to worsen housing affordability and cause a slowdown in the private housing market.
All we can say for now is that house price growth is slowing. The course of the trend depends on a series of factors, among which the current inflationary dynamic stands out.