Q My partner and I saved diligently for a deposit so we could buy our first home. We have a respectable sum saved, but are getting confusing messages about whether now is a good time to buy. On one hand we hear the housing market is in crisis and we should buy when we can, and on the other, prices are elevated, and we should wait until they come down. Can you offer any professional advice?


A; Great question, but what you are really asking is, can we predict what will happen in the housing market to ensure we make a sound investment … and this is crystal ball territory I’m afraid!

Most commentators surmise it is unlikely there will be a large decrease in property values in the short term, but, having paid close attention to the property market over the past 20-plus years, I think it’s plausible, for several reasons to assume prices will drop in the medium term. I will endeavour to answer both sides of the debate however to provide you with some food for thought.

Argument for no price reduction

Strong population growth has resulted in a mismatch between demand and supply. According to the recent census figures, the Irish population is growing at almost three times the rate of home supply. This creates pent-up demand and keeps pressure on house prices as well as contributing to the homelessness crisis.

We are seeing a persistent decline in the commencement of new builds because of rising building costs, making it more expensive for builders to build. This, combined with rising mortgage interest rates, makes it more expensive for buyers to buy, so unless a suite of measures is introduced to improve the viability and affordability of homebuilding, this pressure will continue.

At present, people can borrow up to four times their current salary, with stringent requirements regarding deposits. These requirements also contribute to the large number of potential buyers staying off the property ladder. And while the Central Bank is expected to announce a loosening in the mortgage lending rules soon, this could actually make the situation worse for homebuyers looking to buy in the short term. In other words, any hope of property prices falling significantly in the short term are dashed.

Despite this, Irish buyers are still unlikely to wait. This is mainly due to the intense price pressures in our rental market. The number of properties for rent is shrinking, which, in turn drives the demand for mortgages and home purchasing. This has coincided with a rapid increase in interest rates and a fall in household purchasing power due to inflation, which makes it more expensive to buy and, therefore, less attractive to build.

Despite all this, I still maintain it is cheaper to own a house than to rent.

Argument for possible price reduction

Forecasts for property price growth tend to focus primarily on demand and supply. However, the impact of rising interest rates and the ability for home owners to keep up repayments is often neglected. The housing market may be slowing, but home owners and prospective home buyers everywhere are more stretched now than at any stage over the last decade due to the unholy trinity of rising interest rates, rising rents and rising inflation, and this will likely lead to a price correction of some sort.

In a roundabout way, by driving down demand for housing and reducing the capacity of middle income households to borrow, house prices might stabilise and ultimately fall. In fact, I believe if new mortgage rates in Ireland go as high above 4.5 per cent, which is likely, it will have a bigger impact on house price movements than any expected increase in new housing supply over the next five years. Indeed, it’s hard to see how an outright fall in prices could be avoided, when we consider that until the middle of last year, a first-time buyer or mover borrowing €300,000 over 30 years could have got a mortgage rate of just 2 per cent, with a monthly repayment of €1,109 a month.

This article aims to give information, not advice. Always do your own research and/or seek out advice from a Financial Broker before acting on anything contained in this article.

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