Ireland’s Housing Market Sees Significant Slowdown Amidst Rising Interest Rates



Ireland's housing market is experiencing a dramatic deceleration in price growth due to falling demand caused by rising interest rates and limited supply.

Ireland's housing market is experiencing a dramatic deceleration in price growth due to falling demand caused by rising interest rates and limited supply. According to the Central Statistics Office (CSO), the nationwide residential property price index rose by only 1.45% in July 2023 compared to the same period last year. When adjusted for inflation, residential prices actually declined by 4.11% year-on-year in July 2023.

Ireland's Housing Market Sees Significant Slowdown Amidst Rising Interest Rates

These figures indicate a sharp slowdown from previous years of double-digit price increases. Let's explore the key factors impacting Ireland's housing market.

Falling Demand

Demand for residential properties in Ireland is weakening. In the first seven months of 2023, the number of residential dwelling purchases fell by 8.2% year-on-year, compared to a 7% growth in 2022. Transaction value also declined by 2.5% over the same period, following a substantial 18.8% increase in the previous year. With rising interest rates and high inflation reducing households' purchasing power, housing demand is expected to continue slowing in the coming months.

Rising Interest Rates

The European Central Bank (ECB) has raised its key rate by 25 basis points to 4.50% in September 2023. This marks the tenth consecutive rate hike since June 2022, when the key rate was at a record low of 0%. As a result, mortgage interest rates in Ireland have noticeably increased. In August 2023, the average interest rate for new housing loans rose to 4.08%, compared to 2.7% in the same period last year. Similarly, the average interest rate for outstanding housing loans increased to 3.53% in August 2023, from 2.55% in the previous year.

Limited Supply and Construction Activity

While construction activity is still rising nationwide, there has been a decline in new dwelling completions in Dublin City. In the first half of 2023, dwelling completions in Ireland increased by 5.8% to 14,017 units compared to the same period last year. However, new dwelling completions in Dublin City plummeted by 46.4% year-on-year to 1,069 units in the first half of 2023. Limited supply contributes to the rising rents in the country.

Rising Rents

Ireland's rent index rose strongly by 10.7% year-on-year to an average monthly rent of €1,792 in Q2 2023, according to Daft.ie's Rental Price Report. The movements in rents are closely linked to supply, and while there has been an increase in available residential properties for rent nationwide, it is still significantly lower compared to previous years. In Dublin, the number of available homes for rent has increased, but it remains extremely low compared to other years.

Ireland's housing market is experiencing a significant slowdown in price growth due to falling demand caused by rising interest rates and limited supply. The weakening demand is evident in the decline in residential dwelling purchases and transaction value. The rising interest rates have led to an increase in mortgage interest rates, impacting the affordability of housing. Limited supply and declining construction activity, particularly in Dublin City, contribute to rising rents in the country. Despite these challenges, Ireland's overall economy is projected to continue expanding, albeit at a slower pace, according to the European Commission.

Ireland’s Housing Market Sees Significant Slowdown Amidst Rising Interest Rates

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