Davy Stockbrokers have today claimed that Irish house prices will rise by 9.4% in 2015, 5.2% in 2016 and 4.5% in 2017. They also expect the Central Bank’s mortgage lending rules will anchor house price inflation to earnings so that the house price to income ratio remains close to 5x.

Furthermore, they believe that new mortgage lending will rise to €11.0bn by 2019. They have referenced Central Bank mortgage lending rules which they believe will tighten credit availability through 2015 despite exemptions for first-time buyers below €220,000. They claim that the full impact of the rules will probably not become apparent until late 2015 and that these rules should anchor house price inflation to income growth over the medium term by limiting the amount of leverage in new lending. Davy forecasts imply that the house price to income ratio will rise modestly from around 5.0x currently to 5.4x by 2019.

According to Davy stockbrokers, "Although transactions and mortgage lending have increased substantially, the Irish housing market remains exceptionally illiquid. Residential property transactions equalled just 2% of the housing stock in 2014 and mortgage lending 1%. At current rates, the average property is transacting just once every 50 years. Mortgage lending, at 1% of the housing stock, is still at its lowest level since records began in 1970.

Ireland’s illiquid housing market has reflected a range of factors – including the lack of confidence in economic prospects, stressed household finances and negative equity, and existing mortgaged households unwilling to refinance away from tracker mortgages. In addition, the lack of new home construction has held back lending to first-time buyers. Over time, however, liquidity should slowly improve. We assume mortgage lending volumes slowly rise from 1% of the housing stock currently to 2.2% by 2019, still below the long-run average of 3.2%. Together with our house price assumptions, this implies that new mortgage lending will rise to €11.0bn by 2019."

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