While the OECD has predicted the Irish economy will grow by 3 percent next year – despite an inevitable January lockdown – latest market analysis from Goodbody Stockbrokers forecasts that house prices across Ireland will fall by an average of 5 percent in 2021; compare this to the 20 percent price drops we were gearing up for last spring and early summertime that, thankfully, never materialised. Rental values are also expected to take a “modest” drop over the next 12 months of around 3 percent.
This price deflation is expected to be offset by persistent undersupply of new homes to the market and the continuing dearth of second-hand homes coming to the market. As supply improves towards the latter part of next year, that price deflation is expected to ease; however, given the current impact of the pandemic and its third wave, any market forecasts at this stage must be treated as a moveable feast.
The official figures are not yet available, but it looks like new homes completions will be in and around 20,000 for this year. While this is above the expected 16,500, it is still significantly below the 36,000 (approx.) that is objectively required each year for the next decade, at least. The latest stats show that the construction sector cooled in October, however, residential delivery remains the most robust sector of the industry. Effectively, housing output will be down a total of 8 percent in 2020, which is remarkable given the shutdown of all non-essential projects in the early stage of the pandemic, and the ongoing health and safety protocols, including social distancing on sites.There has been a lot of talk about projects moving from traditional to more modern methods of construction in an attempt to make up for lost time and momentum. Obviously this is welcome – arguably it ought to have been done years ago – but there is a cost involved that simply was not factored into earlier plans. How flexible are current contracts and agreements, and, more importantly, how cooperative are people ready to be? The phrase ‘we are all in this together’ has been bandied around this year, however, the continuation of contracts in a varied manner will be the true test of this at an industry level.
It would be foolhardy not to expect that Covid-19 will have a longer-term impact on the construction and housing market. Unemployment figures have been historically volatile and the current system of State subsidy is unsustainable, it is simply too early to say how that will impact on the mortgage market. Also, we know anecdotally that developers are taking a more cautious approach to new projects. Interestingly, first-time buyers were undeterred by the chaos and market uncertainty, with applications for private mortgages and the Rebuilding Ireland home loan scheme at unprecedentedly high levels. While it has become something of an overused phrase in market commentary, the reality is that Ireland still has demonstrable pent-up demand, with fewer homes being built than are needed. We are set for a challenging year, but it is likely that these challenges will bring opportunities for the nimble. The team here at Lotus Investment Group are up for the challenge, are you?
Lotus Investment Group