Dr. Kieran McQuinn:

There is a number of factors, including the lag effect, at play in the housing market at present. The Central Statistics Office, CSO, prices, which were out just yesterday, show the year-on-year increase is now 1.5%, whereas throughout a lot of last year it was up at 13% or 14%. If we take a slightly longer term perspective on house prices, it will be seen they had actually begun to ease off considerably just before Covid-19 hit. We were back down to a scenario where nominal prices were growing at near enough to 0% in late 2019, early 2020. The pandemic hit, and despite what some of us thought, it actually had a big impact on house prices because, clearly, what happened was the construction sites were shut down for a period due to the measures taken, the income levels were sustained by the compensatory payments introduced, and there was a surge in savings by people. People did not have the opportunity to spend in the way in which they usually would, so what happened was the savings rate increased substantially. There is good evidence to suggest this started to find its way into the housing market through 2021 and 2022, so we began to see a surge in house prices again, but now it is beginning to come back down.

At present, there are a number of different factors at play. There is the fact these excess savings are beginning to work their way through the system, and there are the rising impact rates, which will undoubtedly have an impact on demand, but we still have the scenario where there is this imbalance between supply and demand. The structural demand estimate at present is somewhere between 30,000 and 35,000 units per annum. My colleagues in the ESRI will be revising that late this year. There is every expectation this figure will be higher when they do revise it because of demographics and net migration trends. This means the existing imbalance between supply and demand is probably even greater than what the figures would suggest at present. That is keeping a floor on prices, if you like. It is preventing prices from falling because there is that imbalance, but obviously there is the effect of the interest rates, which will have a negative effect.