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Economist: buyers ‘will need €90,000 income by 2023’ as average Irish house price soars to €343,729

The average home buyer in Ireland ‘will need €90,000 income by 2023’, according to Goodbody chief economist Dermot O’Leary. In new forecasts, O’Leary has increased his projections, forecasting an average Irish house price of €343,729. The economist has predicted that house prices will soar by 12.5 per cent this year and by 5 per cent in 2022, despite a ‘rapid increase in new homes’ being built.

In the forecasts, O’Leary has increased his home projections and estimates 27,000 units being completed in 2022, an increase from an earlier forecast of 23,000 units. In 2023, he projects that 31,000 homes will be built for the first time. Despite the increase in new builds, price pressures will continue to be felt in the wider private housing market due to a significant number of new apartments and public housing being built also.

O’Leary is forecasting continued sharp price growth not just in 2021 but in the years to come. With a 12.5 per cent and 5 per cent price rise, respectively, this year and in 2022, house prices are set to rise 4 per cent in 2023, O’Leary predicts in his latest report on the Irish housing market.

Such projections would mean that the cost of an average Irish home would rise by 22.5 per cent, adding an additional cost of €63,366 to the price tag on an average home, increasing it to €343,729 by 2023, up from €280,363 at the close of 2020.

The forecast would mean that for a first-time buyer, an average deposit would cost an additional €6,336. Further, this would mean that to secure an average home on the market, a potential buyer would require their salary to increase significantly to reach an income of almost €88,387 based on the Central Bank of Ireland’s multiple of 3.5 times income. This means that to buy an average house in Ireland, you will need a salary of nearly €90,000, as well as a deposit of at least €34,300.

However, O’Leary’s forecast remains just that – a forecast, and it could be wrong. His price estimates are, however, based on an acute increase in supply. To the dismay of prospective buyers who might say that the simple answer is to wait it out to get on the property ladder, O’Leary’s report does not indicate a drop in prices, but rather, a decline in growth.

Last year, for instance, a total of 20,535 homes were built. By autumn 2023, he forecasts an annual outturn of 30,752, a growth of 22 per cent regardless of “clear cost pressures” facing the housing sector.

“While there are clear cost pressures in the sector due to labour and materials, demand conditions remain strong, home prices continue to rise, and government policy is supportive through homeowner supports and increased public housing output,” he writes.

He adds that “Demand conditions remain strong, home prices continue to rise, and Government policy is supportive through homeowner supports and increased public housing output.”

Demand continues to be high and “a surge in mortgage approvals and a structural shift in geographical demand” are aiding further acceleration of house prices. Mr O’Leary also anticipates that mortgage lending will increase to €11.8bn in 2022 and then to €13bn in 2023.

Although supply is likely to reduce the pressure on price growth, it doesn’t appear to be of any benefit to those hoping for prices not just to stop increasing but to actually drop down to a level which is realistic.

The forecast comes as various reports state that first time buyers are being pushed out of the market for new housing, with cash-rich buyers and cuckoo funds securing half the available new homes. Recent figures from the Banking and Payments Federation of Ireland (BPFI) indicate that although first time buyers constitute the majority of mortgage buyers, they are more than twice as likely to purchase second-hand as opposed to new builds.

This is despite the fact they can qualify for tax relief and up to €30,000 in state support for Help to Buy if they choose a newly built home. Industry experts state that inflated prices, overall lack of supply and fierce competition from wealthy corporate buyers leaves first time buyers with reduced access to new housing, pushing them towards the second hand-market.

The most recent Banking and Payments Federation Ireland (BPFI) data on mortgage drawdowns in the third quarter of this year show less than one-third of FTB mortgages (1,867 in total) were to buy new homes. In contrast, “The value of FTB and mover-purchaser mortgages on second-hand properties both reached their highest Q3 levels since 2006”, BPFI CEO Brian Hayes told The Independent.

The data also shows that in total, 11,479 new mortgages with a value of €2.8bn were drawn down in the third quarter, an increase of 40.9 per cent in volume and 42.3 per cent in value compared to the same period last year.

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