The latest Daft.ie House Price Report for Q2 2024 shows a resurgence in housing inflation across Ireland,driven by a persistent shortage in second-hand home supply. With housing prices rising nationally by an average of 3.8% in the second quarter of 2024, the average listed price now stands at €340,398, marking a 6.7% increase from the previous year and a 35% surge since the onset of the Covid-19 pandemic.

Ronan Lyons, the report’s author and economist at Trinity College Dublin, highlighted the ongoing tightness in the market, noting its inflationary effects. “The tightness in availability has put upward pressure on housing prices. As the figures show, inflation had peaked in late 2021, as that glut of savings found its way into the housing market. Inflation cooled from 13% in mid-2021 to just 2.6% in mid-2023. As of mid-2024, however, it is back to 6.7%. Where it goes next will depend on how fast second-hand supply recovers,” Lyons commented.

Regional Disparities and Supply Shortages

The report indicates broad-based increases across various regions, yet significant differences persist. In Dublin, prices rose by 4.7% year-on-year, while Cork and Waterford cities saw nearly a 10% increase. Notably, Limerick and Galway cities experienced more than a 12% hike in housing prices. Meanwhile, Leinster (excluding Dublin) witnessed a 6.1% rise, Munster a 10.4% increase, and Connacht-Ulster 6.2%. Interestingly, while most regions saw an uptick in inflation, Connacht-Ulster’s inflation showed signs of slight cooling.

Despite these regional variations, the national market remains critically undersupplied. As of June 1st, the number of second-hand homes available for purchase was just over 11,350, reflecting an 18% year-on-year decrease and less than half the 2015-2019 average of nearly 25,000. For much of 2024, the market has seen fewer than 12,000 second-hand homes available for sale, a constraint only matched by the January-May 2022 period.

Covid-19 and Its Aftermath

The report also examines the impact of the Covid-19 pandemic on the housing market. Initially, the pandemic caused significant uncertainty, with Munster, for instance, shifting from an 11% annual increase in mid-2019 to an 8% decrease by mid-2020. However, by the end of 2020, it became evident that the pandemic had disrupted supply rather than demand, with savings accumulated during lockdowns funnelling into the housing market. The availability of second-hand homes plummeted from over 20,000 in early 2020 to below 11,000 by early 2022, exacerbating the supply crunch.

Future Prospects and Economic Volatility

The current decade poses different economic challenges compared to the 2010s. With higher inflation and interest rates, coupled with geopolitical instabilities such as the Ukraine conflict, the market dynamics have shifted. Lyons pointed out that the relatively illiquid mortgage market in Ireland has further disincentivised existing homeowners from selling, contributing to the persistent supply shortage. From a low of just under 11,000 in March 2022, the number of second-hand homes available surged to over 17,500 by late 2022, only to decline again to below 11,000 by February 2024.

As Ireland struggles to address these housing market challenges, the outlook remains uncertain. Lyons emphasised the importance of second-hand supply recovery in determining future inflation trends.

“Over the past twenty years, a clear pattern has emerged in both sale and rental markets: when availability is tight, prices are pushed upwards. Availability in the sales market has been consistently tight since the start of the year and thus it is not surprising that prices nationally recorded their largest three-month increase since 2020. In part, tight availability of second-hand homes reflects the impact of significant interest rate increases. As rates come down again, and in particular as sitting homeowners come off fixed-rate mortgages, supply should improve. This, however, is likely to take time and thus tight conditions may continue for some time,” Lyons noted.