Six Months On: What Has Been the Real Effect of COVID-19 on House Prices in Ireland 2020?
As the country continues its steps to post-pandemic recovery, we look at how COVID-19 affected house prices in Ireland and whether home buyers and sellers should expect house prices to drop in the future.
Over the last few months, we’ve written a lot about COVID-19’s effect on house prices in Ireland.
Now, as we move into the final lap of the year, it’s been nearly six months since the novel coronavirus was first reported here and the country – including the property market – came to a severe standstill.
The big question from the start was “will house prices drop?” Facts have shown that much of what we forecast remains true: house prices haven’t plummeted but housing supply has.
So, what has this meant for the housing market in Ireland and the folks on both sides of the buyer/seller property fence?
Ireland’s Housing Market Resilient in 2nd Quarter:
Reports from the second quarter and early stages of the COVID-19 lockdown in Ireland showed that the housing market remained resilient, even while the number of homes placed for sale took a sudden tumble.
Annual asking price growth slipped by 2.9% across the country, but kept more-or-less level with 2019 figures, except in areas of Leinster (outside of Dublin) where they remain 2.1% above last year’s levels.
As we noted in a look at Dublin's house prices, Leinster’s strong performance indicates that the desire for homes in Dublin’s commuter belt hasn’t decreased.
As with other major cities such as London, people may be weighing up the practical and financial benefits of larger, cheaper housing complete with more green space (and space in general) in a smaller town close to Dublin compared to more expensive housing in the city.
Signs of Price Growth:
Since then, residential property prices in Ireland have been increasing in slight but still upwardly-moving steps.
While many analysts were predicting a sluggish, unsteady recovery, recent figured from the Central Statistics Office (CSO) show that housing prices in Ireland have increased 0.3% on a monthly basis in June.
Taking Dublin out of the equation, the figures reveal that residential property prices in the rest of the country actually increased by 0.9% in the year to June, with house prices up by 1.2% and apartments down by 1.3%.
A 0.7% Downtrend in Dublin House Prices:
In Dublin, however, the CSO report noted that house prices took a year-on-year tumble of 0.7%. Of course, this downtrend would have been influenced by activity prior to the pandemic (including the Central Bank’s loan-to-income borrowing criteria).
But the added impact of COVID-19’s economic fall-out undoubtedly contributed to Dublin’s drop too.
Still, house prices in the capital remain the highest in the country with the median price in July €485,687 compared to the rest of the country where homes averaged out as a price of €301,588 for the same month.
Not all Sales Were Abandoned:
That overall prices for a house or apartment have remained relatively steady is not a big surprise to many property experts. The COVID-19 pandemic took consumers completely by surprise yet it would not have stopped all property purchasers at the time seeing through their sale.
Though many estate agents in the first weeks of the pandemic did report cancelled sales and reneging buyers many eager home-hunters just put their plans on hold during the lockdown rather than completely shelved them.
And various polls and surveys carried out over the last few months indicate that a large percentage of prospective property buyers also hope to get back on track in 2021, with many already making use of estate agencies online viewings and virtual home tours.
Sharp Drop in Number of Properties Sold:
Still, with Ireland in complete lockdown during April and May, the number of properties that were sold during this period understandably plummeted.
For example, there were 2,550 homes sold in May, which is almost 50% less than the number of properties shifted in the same month in 2019. In Dublin, the number of sales in May 2020 was even less than half of the previous year (see chart below).
Overall, according to the CSO, the value of transactions in the housing market has almost halved since the COVID-19 restrictions were put in place.
Residential property deals tipped over the €1 billion mark in March, before dropping to €658.7m in April and falling further to €535.2m in May.
There were nearly 200 fewer properties bought in July of this year than in June compared to last year when nearly 1,200 more properties were sold mid-summer than in the previous month.
In Dublin, only 851 properties were signed, sealed, and delivered in July compared to 1,664 homes handed off to new owners in the same month in 2019.
So even while some hopeful home-owners are looking towards 2021, the figures do reflect the hesitancy of potential buyers in investing in a new home right now as well as the reluctance of some sellers to place up their properties on an inactive market.
Social distancing restrictions, the looming possibility of a “second wave”, and continuing uncertainty around the country’s economic recovery all feed into these doubts.
Indeed, with forecasts indicating an expected contraction in house prices of anywhere between -4% and -20%, with anything under -10% being manageable and anything over not so much, consumer confidence will play a large part in which side of the scale we land on.
The Economic and Social Research Institute (ERSI) posited a “v-shaped recovery” – i.e. a rapid decline as experienced in the last few months followed by a bounce-back – as one of three possible scenarios for Ireland’s economy, and if that happens we may avoid property prices taking an eventual nose-dive.
However, in this scenario, much will depend on the Irish Government’s ability to overcome a couple of pressing challenges needed to encourage Ireland’s citizens to start spending again.
Challenge #1: Housing Shortage
Ireland, and Dublin in particular, was already facing a housing shortage before the chaos of COVID-19.
A housing report issued by Initiative Ireland at the height of the pandemic said it expected a 20% negative impact on housing delivery as a result of the country’s shutdown.
The Irish Government’s pre-pandemic target of new builds in 2020 was 20,000 so this is around 5,000 fewer homes.
As the 2020 target was already way below the 34,000 needed each year over the next decade to meet demand, according to the Central Bank taking out a big slice of an already small pie will invariably put pressure on house prices to rise.
But rising house prices will not convince already uncertain consumers to buy new homes and this could flip the coin so that prices eventually begin to slide.
The result would be longer-term negative growth in the housing market and an overall “sluggish recovery” according to the ERSI.
The government will need to invest in more affordable and social housing. It will also need to continue offering income support relief to those among the 591,000 Irish workers laid-off almost overnight and the 85% of businesses that also had to scale back or close as a result of the pandemic. Some of this is already underway through the Government’s €7bn stimulus package announced in July.
Challenge #2: Affordability
A second challenge is the ongoing issue of affordability.
Irish citizens were having difficulty shelling out for property long before COVID-19 arrived on these shores.
A report published by the Bank for International Settlements (BIS) in February 2020 revealed that Ireland's house prices were second-most expensive in the world relative to income (Switzerland was first).
Dealing with is issue will be a long-game, but for now the government have started implementing some relief to help prospective home-buyers keep the dream alive.
As part of the Jobs Stimulus package, the Help to Buy (HTB) incentive for first-time buyers has been temporarily increased until 31 December 2020.
Applicants can now claim back up to 10% of the property’s value instead of the original 5%, €30,000 (instead of €20,000) or the total amount of income tax or DIRT they’ve paid in the past four years, whichever is lesser.
However, first-time buyers who signed their contract prior to 23 July 2020 or, as in the case of a self-build, have already pulled down a portion of their mortgage, are not eligible for the conditions of the newly-revised scheme.
Even though COVID-19 has effectively put the brakes on the housing market, there is evidence of some continuing movement which, with the right stimulus’ and encouragement could grow.
The economic crisis caused by the pandemic is not like the recession of 2008. In financial terms, not all industries, individuals or households were negatively affected. Some businesses thrived during the pandemic or pivoted to survive the economic uncertainty.
Of course, we won’t know the full extent of the housing price impact of COVID-19 until we have all the data for the year, but we can be hopeful that the building blocks that are being laid today to help folk get back on their feet will mean that those who hoped to buy a new home this year will be living their dream soon.