‘Fundamentals Of Supply And Demand Matter’

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Yesterday.

Daft.ie published its latest House Price Report for the third quarter of 2019.

From the report:

There were almost 20,000 homes built between the middle of 2018 and the middle of 2019, twice the number built during the twelve months of 2016.

Just under two thirds of that increase in building activity has been in the Greater Dublin Area and, for the moment at least, the new homes built have been concentrated in the owner-occupied sector.

But new housing supply is not the full story of what’s going on. The elephant in the room, for the Irish economy, is Brexit.

To understand how that something that has not happened yet could affect housing prices now, it is important to remember a key difference between the sale and rental segments.

Across both segments, fundamentals of supply and demand matter. If more homes are built for a particular segment, this will lower prices everything else being equal.

If incomes rise or if the numbers at work increase, this will increase prices, both sale and rental.

However, for sale properties, the purchaser is committing to hold the asset and thus they have to pay attention to its future value too.

This difference also means that credit is prevalent in the for-sale market, due to its much higher price level, but not the rental market.

Therefore, both credit conditions and expectations about future prices are key factors in converting ‘real demand’ into effective ‘on the ground’ demand in the sales market.

If Brexit, in whatever form it takes, reduces Irish employment and incomes, this will be seen in the rental market.

If Brexit is expected to affect Irish employment and incomes in the future, this will be seen in the sales market.

The report can be read in full here.

Meanwhile…

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7 thoughts on “‘Fundamentals Of Supply And Demand Matter’

  1. GiggidyGoo

    Almost 2000 homes built. Nice. How many buildings were built? In particular how many houses as distinct from apartments?

      1. GiggidyGoo

        Looks great. However the figure for apartments looks like it is private builds. ‘Schemes’ also contain apartments – there doesn’t seem to be a differentiation and the impression therefore would be that all the units in the schemes are houses, when in fact they are mixtures of both.

  2. Cian

    Note: These daft figures are asking prices.

    This is important to remember because in a rising market the sell price is generally higher than the asking price.
    In a falling market the sale price is generally below the asking price (or the property may be taken off the market unsold).

  3. Col

    Could we be reaching a bit of an “affordability ceiling”?
    The Central Bank rules are the only thing keeping a lid on house prices in this country.

  4. Qwerty123

    What is interesting in these reports is the trend, as mentioned above, asking prices are not an accurate number.
    What I like is, and I wish the CSO would replicate, the type of house price changes per area. So if we look at Dublin, we see an increase everywhere of 4 bed detached houses, and a fall in all other types.

    Interesting, maybe due to trader uppers with more kids and a backlog of demand for these from these people looking to sell their 3 beds?

  5. Christopher

    Brexit is not the thing- the global recession that every single economic indicator is pointing to is the real reason for softening of house prices in Dublin- the investors realise that we are probably at the top of the market now for the foreseeable and the inevitable job losses over the next year or two are going to put downward pressure on property. It’s not going to be a recession like 2007/2008 of course though.

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