Many people fear that a new real estate bubble has formed and is about to burst.
Concerns of an impending crash were raised after the home price index last reached levels reached during the peak of the Celtic Tiger boom in 2007.
We asked eight home experts for their opinion.
They expect house price inflation to ease from its current rate of 14 percent and note that demand remains strong due to rising employment and a large number of reluctant young renters.
More responsible mortgage lending in recent years should ensure the market avoids the devastating collapse it experienced when the Celtic Tiger real estate bubble burst more than a decade ago.
However, the prices would fall, the experts said.
Kieran McQuinn, research professor at the Economic and Social Research Institute (ESRI), said house price increases were easing from runaway rates reported by the Central Statistics Office (CSO) last week.
The CSO said home prices have returned to levels not seen since the 2007 peak — up 14.1 percent in June on an annualized basis.
Prof McQuinn, one of his specialties is residential construction, said these price increases would ease over the next year but we would still see “robust” price growth.
He said the housing market will face opposing forces over the next year.
High inflation, uncertain international economic prospects and rising interest rates are negative for the market.
Inflation and rising construction costs mean housing supply is unlikely to grow as much this year as previously thought.
However, as supply levels will remain stubbornly below underlying demand, this means the market is unlikely to see a significant price decline.
High rental prices underscore the underlying need for housing.
Instead of collapsing, current house price inflation at 14 percent a year is more likely to give way to more modest rates of inflation in the coming year.
“With the Irish economy set to continue growing significantly over the next 12 months and the labor force experiencing particularly low unemployment rates, demand for housing will continue to experience robust growth over this period,” said Prof McQuinn.
Orla Hegarty, an assistant professor at UCD’s School of Architecture, Planning and Environmental Policy, said the outlook for the real estate market is uncertain.
She said the fall in values after 2008 caused enormous pain and worry for both individuals and the economy, but now house prices are back at Celtic Tiger levels. “An opportunity was missed to restart the market to mitigate boom-and-bust cycles and keep housing construction at levels that keep the economy competitive,” she said.
“This again leaves the system vulnerable to uncontrolled adjustment triggered by external or internal events.
“With the likelihood of a recession and rising interest rates, there is a risk of speculative investment uncertainty and a supply backlog.”
Prof Hegarty said City prices are now well out of the reach of traditional first-time homebuyers looking to start a home and make an investment that is within their own means, reasonable for a future family and with certainty in retirement.
“Something has to give. Only time will tell if it will be triggered by events or a change in government policy,” she added.
dr John McCartney, a director and head of research at BNP Paribas Real Estate, believes home price and rent inflation will slow, but he doesn’t expect prices or rents to fall.
He expects 28,000 new homes to be completed this year, although rising construction costs are weighing on production.
“But there are already enough units on the train to sustain a strong performance for the rest of this year and into 2023,” said Dr. McCartney.
He added that Ireland’s demographic profile and favorable economic outlook will continue to attract international investors.
However, rising interest rates can also affect the pricing of investment properties.
“Overall, I think the market is gradually becoming more balanced. Accordingly, house price inflation has cooled slightly and this should continue, possibly faster,” he said. “Rents have not cooled down yet, but rental trends are more likely to follow prices in the medium term.”
The co-director of the union-backed Nevin Economic Research Institute (NERI), Dr. Tom McDonnell said the housing market has been in a state of dysfunction in one form or another for nearly two decades.
“Real estate prices are now at boom levels,” he said. “High inflation is increasing input costs across the economy and will continue to put upward pressure on house prices in the near term.”
Asked if there will be a crash, he said the current dynamics are different than they were in 2007. “Households and businesses are in a much stronger position than they were then – with much less debt,” he said.
dr McDonnell said supply was unsustainably high in 2007 and is facing a major downward correction.
“I don’t expect a crash in the sense of a drop in supply. Instead, supply is likely to gradually creep up over the next few years, even if it remains below demand in the short to medium term.”
Estate agents, who are members of the Society of Chartered Surveyors Ireland (SCSI), expect the rate of house price increases to fall to an annual rate of 4 per cent over the next year.
John O’Sullivan, chair of the SCSI Practice and Policy Committee, said the 14 percent or 15 percent annual inflation rates we’ve seen recently are simply not sustainable over the long term.
When asked if the market would collapse, economist Austin Hughes said significantly higher energy and grocery bills would limit homebuyers’ ability to save for a deposit and service a large mortgage.
He added that the European Central Bank is expected to hike rates by 1 to 1.5 percentage points by early 2023, further threatening affordability.
Another big shadow is a looming global downturn that could hit Irish jobs and incomes.
Other economic and financial consequences of the invasion of Ukraine could be significant, causing some to hesitate about large and long-term financial commitments.
Although these factors can affect property prices and transactions, strong forces are working in the opposite direction.
But a severe decades-long shortage of new housing, compounded by rapid population growth, means the unmet demand is significant.
Mr Hughes said the latest crash taught him never to say never. “Although the next 12 months could be turbulent, barring a deeper than expected global slump, there should not be a significant downturn in the property sector in Ireland,” he said.
“Instead, we could – probably in a bumpy way – move towards smaller sustainable house price hikes.”
Goodbody Stockbrokers’ Shaun McDonnell said that with property prices in Ireland recently returning to their pre-global financial crisis peak, it would naturally make people wonder if we were heading for another market crash. “Ultimately, we think that’s unlikely,” he said.
He added that central bank credit limits should protect against a cyclical slowdown that could occur over the next 12 months. “Furthermore, Ireland still faces a structural housing shortage that cannot be addressed in the short term,” he added.
“At the same time, there is sufficient demand for real estate, which is unlikely to decrease despite rising mortgage interest rates.”
Mr McDonnell said this means Goodbody expects prices to continue to rise next year, albeit at a slower pace than before.
Architect Mel Reynolds said we’re more likely to see “speed bumps” than a crash.
This was because the uncertainty and negative public sentiment would mean some new housing projects could now be postponed.
https://www.independent.ie/irish-news/crash-test-as-fears-grow-of-property-bubble-bursting-eight-experts-reveal-their-predictions-41924601.html Crash test: In the face of growing fears of a real estate bubble bursting, eight experts share their predictions