Bank of Ireland Predicts House Prices will Increase by a Further 6% During 2004

Bank of Ireland's quarterly Irish Property Review confirms that house price inflation for the year 2003 will reach 12%, as previously predicted, and suggests that 2004 will see a decelerated rate of increase - 6% in 2004. The final Review of 2003, which was published today (Monday, 10th November), identified a number of salient trends that have emerged during the current year, including the fact that homes in Dublin now cost 37% more than the national average and that second hand homes are appreciating faster than new homes.

According to Bank of Ireland's Chief Economist and author of the Irish Property Review, Dr. Dan McLaughlin, house prices increased in 2003 more than most commentators envisaged at the beginning of the year. The average house in Ireland today costs €267,600 - an 11% rise on the end 2002 figure. This is expected to rise another 1% by the end of the year.

The predicted moderation of house price inflation to 6% in 2004 is due to two main factors. Supply is the first and it is expected that the strong supply of 65,000 new homes in 2003 will go a large way to meet demand. Considering the strong supply of recent years, the Review predicts that the Irish market will eventually restore supply / demand equilibrium by 2005. The second factor relates to affordability (annual cost of servicing a new mortgage) which, although not excessively stretched at 32.2% of manufacturing earnings, is not at levels that would imply further acceleration in house price growth.

Despite the increased supply of housing, Dr. Dan McLaughlin maintains it is unlikely to result in a fall in prices: "We continue to expect a move to equilibrium in the housing market, implying a deceleration in house price inflation over the next 12 to 18 months. However, we doubt that this will be the catalyst for a fall in house prices as periods of relative weakness in housing usually give rise to a fall in transactions rather than prices."

Although house prices in Dublin have traditionally been higher than the rest of the country, the Irish Property Review reveals that the disparity has widened appreciably in 2003. Joe Larkin, Managing Director of Bank of Ireland Mortgages explains: "House prices in Dublin rose by 13.7% in the second quarter of 2003 - the highest quarterly gain on record and are now a full 37% higher than the national average, against a 32% gap at end 2002. The price of an existing house in Dublin is now over €367,000, compared to the €268,000 nationally".

A second major trend in the residential property market during 2003 is that second hand houses are appreciating faster than new homes. "This trend was highlighted by Bank of Ireland in our June Irish Property Review when we suggested that buyers were willing to pay a premium for a location with good transport links and proximity to the city centre. This proposition is supported by the latest data, which indicates that new homes nationally rose by 13.0% in the year to the second quarter, lower than the 17.9% increase for all homes" according to Mr.Larkin.

The Irish Property Review also gives some insight into the changing landscape of the Irish property scene. The 2003 new house completions, which will add almost 5% to the total housing stock in the Republic of Ireland, paint an interesting picture of the composition of new Irish housing.

The most striking feature is the decline in relative and absolute terms of detached houses which only represent 18% of supply. There has been a notable increase in semi-detached houses, rising from 28% to 35% at the end of the first half of 2003. Terraced houses account for 12% of completions while apartments have remained broadly constant at around 20% of completions over recent years.

On the issue of interest rates, the Review suggests that Irish mortgage holders are unlikely to see an increase in rates until Spring 2004 ensuring that variable mortgage rates will stay unchanged until then. Dr. McLaughlin gives his forecast for interest rates in 2004.

"Although interest rates have reached the lowest they are likely to, mortgage holders should not see a rise in variable rates until the first half of 2004. We feel any interest rate increase will be mild and will be set against a backdrop of rising incomes and employment, ensuring a continuation of current affordability levels."

The Bank of Ireland's Irish Property Review, which is published by Bank of Ireland Mortgages and the Economic Research Unit of Bank of Ireland Group, led by Dr Dan McLaughlin, is the only publicly available property market report compiled from the Department of the Environment, utilising data from all lending institutions.

Olive Moran
Marketing Manager
Bank of Ireland Mortgages
Tel:6113525 /086 6622333

Anne Mathews
Media Relations Manager
Bank of Ireland Group
Tel:6043836 /087 246 0358