Revising 2020 Irish Property Market Predictions in a Post-COVID-19 World
As Ireland lays out its plans to ease the lockdown, we revise our January predictions for the 2020 Irish property market.
Read on to see how we think it’s likely to fare throughout the rest of the year.
Our January predictions for the 2020 Irish property market included recovering house prices, more new builds, and a ‘Brexit Bounce’ benefit to the Irish economy.
In February, the data was showing we were right on track with a continued stabilisation in the market. But that confidence was soon quashed with the arrival of coronavirus to Irish shores.
Mid-March saw the government introducing several restrictions set to contain COVID-19, including stay-at-home orders that have remained in place for close to two months and left the Irish economy reeling in an unprecedented amount of uncertainty.
One of the hardest-hit sectors has been the property market.
Examining the damage done and the influences that will help or hinder recovery, we look back on our January predictions to see what we should now expect in Ireland’s post-COVID-19 property market.
Our first prediction for the Irish housing market in 2020 was that property prices would rise, though not by much.
Currently, prices seem to be holding steady. Nationally, they’ve increased by 83.1% from 2013’s low but are still 17.9% lower than their 2007 peak.
However, several factors influence the rise and fall of a new pad’s price tag. We took a deep dive into all of them here, but most prominently it’s dependent on two factors - supply and demand.
Activity in Property Sector Contracts
Fewer houses will be built in Ireland this year than previously estimated, which will lower the supply. But the likelihood is that there will be less demand for them anyway.
Some estate agents have attempted to adapt to remote working arrangements and virtual viewings to keep the sector functioning. But even with these creative solutions, the Central Statistics Office (CSO) claim activities in the Irish property sector could contract by as much as 28% in 2020.
Consumer Confidence Will Take Time
Certainly, this is possible if strict lockdown restrictions stay in situ and household incomes continue decreasing.
Even if property industry restrictions are relaxed in the coming months, Davy Stockbrokers chief economist Conall MacCoille highlighted recently that it’ll take some time for consumers to regain their confidence.
Many of those who had planned to go on the house-hunt this year may now be reluctant to enter the market until the economy has fully stabilised, while others will be holding out for a good post-virus deal.
People who were planning on putting their house on sale may also hold back from doing so until they can be satisfied they’ll get their asking price.
With both supply and demand in free fall, it seems quite likely that prices will take a tumble.
By how much? Economists are reluctant to put absolute figures on the table just yet. As with so many other issues related to COVID-19, it’s a matter of ‘wait and see.’
According to figures released from Construction Information Services (CIS) in April, Covid-19 has halted the building of almost 60,000 new homes in various stages of commencement or construction across the island of Ireland.
In Dublin alone, up to 183 sites downed tools while work across the Republic stopped on 33,000 new houses and 17,000 apartments.
Construction Workers Back at Work
That said, construction workers, including builders, roofers, and landscapers, have been one of the first groups allowed back to work in the first phase of the restarting the economy, which gets underway this month (May) and already some sites have reopened.
However, the Construction Industry Federation (CIF) has warned that the new COVID-19-busting measures that will have to be adapted will inevitably increase costs and slow projects.
And with social housing, civil engineering, as well as projects for the multinationals earmarked as the first activities to be restarted, it may still be a while before work on residential properties is picked up again.
Ireland Lagging on Number of Houses Needed
The country was already lagging on the Central Bank’s summation that 34,000 new homes per annum are needed in the Republic for the next 10 years to meet demands of the growing market.
Now this current interruption will set the State back even more, leaving it with a longer road out of the current housing crisis.
It may seem that the now-predicted drop in housing prices would cancel out our forecast of an ongoing affordability problem in the Irish property market, particularly for first-time buyers.
But this may not be the case. After all, affordability is not just predicated on the actual property price, but on whether the buyer can afford the repayments too.
Irish Unemployment Rate Trebled
Unfortunately, the economic cost of closing the country for business has resulted in the unemployment rate trebling to 16.5%.
This rate may be temporary. But even with the lockdown easing, several restrictions are set to stay in place until mid-summer and the Central Bank has estimated that unemployment could reach 25% before falling back to 12.6% by the end of the year.
Mass unemployment and the fact the Central Bank is unlikely to shift its decision to continue capping mortgage lending at three-and-a-half times annual salary - at least until the market had stabilised again – means affordability will remain a hot issue in the post-pandemic months to come.
Be honest, do you long for the days when Brexit was the watercooler conversation du jour?
After two months in lockdown, Brexit may seem like a very distant memory. But at the start of the year economists were predicting a return consumer confidence precisely because the UK’s process of withdrawing from the EU was finally coming to a close.
The arrival of the novel coronavirus scuppered that. And rather than the predicted 2.4% rise, in a recent update for Brussels, the Irish Finance Minister stated that the Irish economy is expected to contract more than 10% this year as a result of a pandemic-causing recession.
Hopes Economy Starts to recover in Year Second Half
Though there’s some hope that the economy will gradually begin to recover in the second half of the year and continue to rise in 2021, much is dependent on the successful containment of the virus.
In addition, the UK is continuing post-Brexit talks with the EU with video-conference meetings scheduled for mid-May and early June.
The Brexit deadline is the end of the year, though with practically all energies focused on fighting the pandemic it can be extended for another two years according to the terms of the divorce. This means, that Ireland is not out of the Brexit boat yet.
And waiting for a resolution to trade negotiations between the UK and EU, alongside the uncertainty of a post-COVID-19 world is a double-whammy of uncertainty likely to curb confidence and prompt people to start spending less.
Of course, these are only forecasts, and as COVID-19 has already shown – any forecast can be turned on its head with the arrival of the unexpected.
Positive Elements to Take into Account
Equally, some positive elements may help prop up a quick recovery of the property market.
The first is the fact that Ireland’s economy was in a relatively healthy position when the outbreak occurred.
Thanks to Brexit uncertainty, many SMEs were reluctant to draw down credit with the result that over half of Irish SMEs now have no bank debt whatsoever compared to 25% in 2012. Similarly, bank lending to SMEs has declined from €60 billion to €20 billion over the past ten years.
Therefore, lack of debt and the wage subsidies that the Irish government were quick to roll out at the start of the country’s lockdown, may leave small businesses with fewer battle scars than might be expected.
Irish Household Debt Has Fallen
Secondly, with the Central Bank’s strict mortgage lending rules in place, Irish household debt has fallen from a peak of €203 billion in 2008 to €135 billion.
Mortgage moratoriums and other financial aid put in place at the start of the coronavirus outbreak have also been cited as stopping many households freefalling into major debt.
Both of these points, along with fact that pre-pandemic unemployment levels were at a nine-year low of 4.8% places Ireland in a strong position to bounce back relatively quickly if the virus is successfully contained and an effective stimulus package is set in place.
Of course, as with our earlier predictions for the Irish property market in 2020, unforeseen influences can send everyone back to the drawing board.
But in a post-pandemic Ireland, we predict:
- The housing market has been adversely affected by the country-wide lockdown but the negative impact could be relatively short provided the outbreak is brought under control in a reasonable timeframe, which in turn could bolster consumer confidence
- House prices will drop - but by how much will be determined by Ireland's recovery strategy
- We’re not out of Brexit’s shadow yet, but our years of living with uncertainty may have helped cushion the economic impact of COVID-19 as fewer debts were incurred by SMEs and private households in general
- Affordability will remain an issue, not because property prices are expected to rise but because incomes have currently plummeted
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