House prices to rise 5.6% in the year according to Central Bank and the Society of Chartered Surveyors of Ireland

House price expectations have fallen sharply, a major report published yesterday showed, but prices are still expected to rise at rates well-above current inflation levels.

The Central Bank and the Society of Chartered Surveyors of Ireland said that prices are now expected to rise by 5% by the end of September 2016.

The survey was conducted in the weeks from late September to the middle of October.

It asked two questions of people involved in residential property: What their expectations were of future price increases and how they assessed how busy they were by the number of transactions compared with those in the previous quarter.

Participants now expect prices to rise by 5% over the next 12 months.

That’s down from the 8% increase they previously forecast.

They also forecast prices will rise by only 1% over the final three months of this year, down from the increase of 4% previously anticipated, and increase by only 10%, down from an increase of 15% they previously forecast over the next three years.

“In general, while the majority expectation across all three time horizons is that prices will increase, this view is not as widely held as it was 12 months ago,” according to the Central Bank commentary on the survey.

The Central Bank does not ascribe reasons for the slowdown in house price expectations, but many analysts believe it is due to the new lending rules the Central Bank imposed earlier this year on lenders and banks.

Stricter limits on the mortgage amounts prospective home buyers can borrow were set for both first and second-time home buyers, as well as on investors.

Banks too have to follow new controls.

On the level of transactions, the Central Bank and Surveyors also found that fewer market participants said they were ‘more active’ than in the previous quarter, with an increase in the numbers saying they were ‘less active’.

CSO figures published last week showed that prices across the State rose 7.6% in the year and increased 10.7% outside Dublin.

They were 4.5% higher than October 2014 in Dublin.

The surge in prices in Dublin in particular has slowed considerably in the past year. Average prices outside Dublin are over 36% below their boom-time peak in 2007.

The new Central Bank mortgage lending rules “are working”, said Dermot O’Leary, chief economist at Goodbody Stockbrokers.

“I believe the Central Bank will be happy that price expectations have come down since summer 2014,” he said.

After rising 5.6% this year, Goodbody forecasts house prices will rise 3.9% in 2016 and by 6.5% in 2017.

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