BPFI Housing Market Monitor Q2/2018

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1 BPFI Housing Market Monitor Q2/2018 With a commentary by Dr Ali Uğur Chief Economist, Banking & Payments Federation Ireland

2 OVERVIEW OF TRENDS Indicator Latest quarter One year ago % change Dwelling completions 4,419 3, % Dwelling commencements* 1,926 1, % Dwellings listed for sale 18,014 16, % Dwellings listed for rent 14,705 16, % Transactions 10,062 9, % Yr/yr change in transaction prices 12.6% 9.8% Yr/yr change in list prices 5.6% 11.7% Yr/yr change in list rents 12.4% 11.8% Mortgage approvals 12,496 11, % Mortgage drawdowns 9,339 7, % *Data includes April only

3 COMMENTARY Increased Building Activity Giving Rise to Pressures on Input Costs and on Private/ Public Ownership Balance The capacity of the residential building sector in Ireland needs to significantly expand to meet the estimated current and latent demand levels of 35,000 to 40,000 units per annum. However recent revisions to completion figures by the CSO show that, actual building activity in the sector was on average 25-30% less than previously measured. While building activity is increasing to catch up with demand, it is important to monitor developments particularly around the cost of materials and labour, as pressure points seem to be building up evidenced by forward looking survey indicators. In addition, cost of land is an important factor in residential building activity and it is likely that current land being utilised for activity were purchased at significantly discounted prices after New data on housing completions recently published by the Central Statistics Office (CSO) indicated that completion levels were much lower than previously reported by the Department of Housing, Planning and Local Government. This new source of data shows that there were 14,446 completions in 2017 as opposed to 19,271 per ESB connections data. Unfinished housing developments, reconnections and non-dwelling connections were identified as the main source of the difference between previous series and new data series by the CSO. The revisions show that the gap between the two series ranged from as low as around 25% in 2017 to the highest level of around 50% back in The average difference each month between the two series is about 380 over the seven-year period. Notwithstanding the lower level of output in residential housing than previously reported, activity has increased significantly since 2013 from its lowest annual level of 4,575 units to 14,446 units in The number of completions was 7,909 in the first half of 2018, an increase of 30.3% compared with the same period of There is also some interesting detailed regional analysis at the Eircode level from the data. For example, out of 3,011 units built in Dublin in the first half of 2018, nearly 41% were in four specific areas in Dublin, namely in Dublin 13, Dublin 15, Dublin 24 and Glenageary. Recent research by the CBI using a newly developed forecasting model utilising variables which are related to housing output show that completions are expected to number 17,500 in 2018 and 22,000 in 2019 (note that these numbers were revised down from 23,500 and 28,500 respectively for 2018 and 2019 following the publication of new figures by the CSO).

4 COMMENTARY Competition for residential housing increases Even as residential housing output increases, a significant proportion of new housing is being bought by non-households. In the twelve months ending June 2018, some 22% of market-based sales of new residential property were made to non-households. With non-households, also buying second hand properties, households face significant competition for the limited supply of new housing entering the market. Non-households include local authorities, who acquired almost 2,900 houses in the past two years and built about 1,300 properties over the same period. 15,000 7,500 Source: CSO Market-based Sales of New Residential Property - annualised 0 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Jun-18 Annualised Household Annualised Non-Household Cost pressures increasing as new building expands In previous editions of the HMM, we argued that increased activity in residential housing is likely to generate pressure points for cost inflation both in terms of labour and materials. Recent PMI figures and SCSI data show early indication of cost price inflation building up in residential housing activity. The Tender Price Index published by the Society of Chartered Surveyors Ireland (SCSI) shows that construction tender prices are continuing to rise and increased by 3.95% in the first half of It is estimated that full year increase in the index will be around 7.4% which will bring construction prices back to the level they were at in the first half of 2006 and just five index points below what they were when prices peaked in the first half of The major reasons cited by SCSI members for the continuing increase in tender prices are increasing workload coupled with skills shortages as well as increasing cost of labour and materials. The SCSI index is based on tender returns for non-residential projects during the period in question, hence we also look at the Ulster Bank Construction Purchasing Managers Index which provides details on different segments of activity within the wider construction sector. The index shows that housing was the strongest performing sub-sector in terms of increased activity with one of the highest readings observed in the latest data during the 18-year history of the index. It also shows that material shortages led to higher costs particularly for insulation, steel and transport with reports of higher staff costs, both in turn leading to the rate of input price inflation increasing in July 2018.

5 COMMENTARY H H H H H H SCSI Tender Price Index H H H H H H H H H H H H H H H The Irish mortgage market continues to support the increased residential construction activity. The latest data show that in the first half of 2018, there were 17,218 mortgage drawdowns valued at 3.7 billion resulting in an increase of around 15% and 22% in volume and value terms, respectively, compared with the first half of The number of mortgages for new properties rose by 29.5% in the second quarter of 2018 compared to the same period in 2017, with first-time buyer mortgages on new properties increasing by around 38% year-onyear during the same period. Mortgage approval activity increased in volume terms by 0.7% and 3.4% in value terms year on year in June 2018 bringing the total number of approvals in the first half of 2018 to around 22,152 with a total value of around 4.96 billion compared to 4.5 billion in the first half of Source: SCSI Dr Ali Uğur, Chief Economist, Banking & Payments Federation Ireland

6 HOUSING SUPPLY New dwellings completed Source: CSO More than 4,400 new dwellings were completed according to the Central Statistics Office (CSO)* in Q2 2018, 34.1% more than in Q Almost half the growth came in Dublin, which increased by 539 units or 42.6% year-on-year to 1,804 in Q Dublin Commuter (Kildare, Louth, Meath and Wicklow) volumes rose by 33.6% year-on-year to 870. Recent years have seen a significant increase in completions in housing schemes. These accounted for 62.5% of completions in Q2 2018, up from 17.4% in Q In Q2 2018, 2,761 scheme houses were completed (three-quarters of them in Dublin or Dublin Commuter), some 54.4% more than in Q *The Central Statistics Office publishes quarterly data new dwelling completions. 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Q1 Q2 Q3 Q4

7 HOUSING SUPPLY New dwellings commenced Source: Department of Housing There were more than 1,900 commencements in April 2018*, an increase of 18.9% on a year earlier. Cork, Dublin Commuter and the rest of Munster contributed most to the year-on-year growth, while the number of commencements in Dublin fell year-on-year, as it had in March. In the first four months of 2018, commencement volumes rose by 15% compared with the same period of 2017, increasing to 6,300. Volumes increased year-on-year by about 200 units each in Cork, Dublin Commuter, the rest of Leinster and the rest of Munster. Dublin volumes fell by 85 from the first four months of 2017 to 2,013. 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 *Data for May and June 2018 was not available at the time of publication. 1, Q1 Q2 Q3 Q4

8 HOUSING SUPPLY Properties listed for sale Source: Daft.ie The second quarter of 2018 saw just over 18,000 properties listed for sale*, an increase of 7% compared to the same period in This marks the seventh consecutive quarter where the number of properties listed for sale has grown compared to a year ago. Once again, there was growth in the number of listings in Dublin, with 24% more properties listed for sale April to June 2018 than in the same period in However, in other cities and in Connacht-Ulster, the number listed fell year-on-year (by 4% and 6% respectively). In Leinster, and in Munster outside the cities, there was growth of 6% and 3% in properties listed for sale. 18,000 16,000 14,000 12,000 10,000 8,000 6,000 *The statistics are based on properties advertised on Daft.ie for a given period and exclude any stock available for sale but not listed on the website. 4,000 2,000 Q1 Q2 Q3 Q4

9 HOUSING SUPPLY Properties listed for rent Source: Daft.ie The second quarter of 2018 saw just over 14,700 properties listed for rent* nationwide, down 12% on the same period in This is the fifth consecutive quarterly fall and the 25th time in 26 quarters that rental listings have fallen in year-on-year terms. As in the first quarter, the fall was less pronounced in Dublin, where listings were 6% lower than a year before. Elsewhere in the country, rental listings in early 2018 were between 14% and 19% lower than the same three-month period in ,000 18,000 16,000 14,000 12,000 10,000 *The statistics are based on properties advertised on Daft.ie for a given period and exclude any stock available for rent but not listed on the website. 8,000 6,000 4,000 Q1 Q2 Q3 Q4

10 HOUSING PRICES & RENTS Transaction prices Residential property prices increased by 12% year-onyear in June This was the first slowdown in price rises since June Prices in Dublin rose by 9% year-on-year, the lowest rate of increase since March Prices outside Dublin rose by 15.2%, the joint-fastest growth rate since the series began in This was the 13th consecutive quarter in which prices outside Dublin have risen faster than prices in Dublin. Residential property price inflation in the West and the Mid West including South Tipperary exceeded 15% in March and June % 14% 12% 10% 8% 6% 4% 2% 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q National Ex-Dublin Dublin Source: CSO

11 HOUSING PRICES & RENTS Listed sale prices The annual rate of inflation in listed sale prices nationwide in the second quarter of 2018 was 5.6%, down from 11.7% a year ago and the lowest rate of inflation since early Nonetheless, it marks the 19th consecutive quarter where list prices have risen in yearon-year terms. Annual inflation in Dublin list prices was 6.2% in the second quarter of the year. The rate of inflation was slightly higher in other cities (6.9%) and in Connacht- Ulster (6.3%). In Leinster, and in Munster outside the cities however, the rate of inflation was below the national average: 4.9% and 4.3% respectively. 15% 10% 5% 0% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Dublin Leinster National Munster Other cities Connacht-Ulster Source: Daft.ie

12 HOUSING PRICES & RENTS Listed rental prices The annual rate of inflation in listed rental prices in the second quarter of 2018 was 12.4%, up slightly from 11.8% a year ago. The rate of rental price inflation has now been above 10% for nine consecutive quarters. Inflation in Dublin rents was 13.4%, the highest rate since early In the four other major cities, rental inflation was even higher, at 15.4%. Elsewhere, the rate of inflation in rents varied from 12% in Leinster outside Dublin to 7.1% in Connacht-Ulster. 18% 16% 14% 12% 10% 8% 6% 4% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q Dublin Leinster National Munster Other cities Connacht-Ulster Source: Daft.ie

13 PROPERTY TRANSACTIONS & MORTGAGES Property transactions Source: CSO The number of residential properties sold in Ireland increased by 3.9% year-on-year to more than 10,000 in Q Sales grew by 8% year-on-year in Dublin to almost 3,300 and by 3% in the counties Cork/Galway/ Limerick/Waterford to more than 2,200. Sales in the Dublin Commuter region (Kildare, Louth, Meath and Wicklow) rose by only six units to almost 1,600. 3,500 3,000 2,500 2,000 1,500 1, Transaction volumes rose by 8.3% and 1.7% in the rest of Leinster and the rest of Connacht-Ulster, respectively, while they fell by 4.9% in the rest of Munster. Dublin Dublin Commuter Cork/Galway Rest of Leinster Rest of Munster Rest of Limerick/Waterford Connacht/Ulster Some 18.3% of the properties sold in the twelve months ending June 2018 were new, up from 15.1% in the twelve months ending June *This data is based on stamp duty filings reported by the CSO for purchases of residential properties by households at market prices. It excludes properties purchased at non-market prices and by non-household buyers. The data is subject to regular revision by the CSO as new data becomes available.

14 PROPERTY TRANSACTIONS & MORTGAGES Mortgage approvals Source: BPFI Mortgage approvals offer an early indicator of credit conditions in the mortgage market. Mortgage approval volumes rose by 7.7% year-on-year in Q to almost 12,500. Mortgage switching drove most of the increase with mortgages for property purchase increasing by less than 0.8%. Mortgage drawdowns Given the nature of the housing market, the volume of mortgage drawdowns generally reflects transaction levels and again offers an indicator of credit conditions. Mortgage drawdown volumes grew by 16.8% year-on-year to more than 9,300. Although switching contributed most of the increase, purchase mortgage drawdowns rose by 9.2% year-on-year. 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Approvals Drawdowns

15 MORTGAGES Median deposits The median deposit* for FTBs rose by 10.8% year-onyear to 37,500 in Q2 2018, while the median mover purchase deposit rose by 4.7% to 86,000 the lowest quarterly level since Q Customer Type FTB Mover Purchase 150K 150K 140K 140K 130K 130K 120K 120K 110K 110K Dublin continued to have by far the highest deposits: 54,389 for FTBs and 125,000 for mover purchasers. The median FTB deposit in Dublin fell by 2.6% year-onyear while it rose by 12.7% in the Dublin Commuter region. The median deposits for mover purchasers increased by 4.2% year-on-year in Dublin to 125,000 and by 12.9% in the Dublin Commuter region to 87,000. Median Deposit 100K 90K 80K 70K 60K 50K 100K 90K 80K 70K 60K 50K 40K 40K *The median deposit is derived from sample loan-level data provided by BPFI members. The analysis is subject to regular revision as new data is made available. 30K 30K 20K 20K 10K 10K 2016 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 Source: RPPR

16 MORTGAGES Median incomes Median borrower incomes (the sum of all borrower incomes) rose by 5.6% year-on-year for FTBs to more than 68,600 but fell by 3.7% for mover purchasers to about 96,500 the lowest level since Q K 120K 110K FTB Customer Type Mover Purchase 130K 120K 110K Median FTB incomes in Dublin rose by 4.9% yearon-year to almost 80,500 in Q2 2018, while mover purchase incomes fell by 5% to almost 113,000. FTB incomes in the Dublin Commuter region rose by 7.6% year-on-year to almost 71,000, while FTB incomes rose by 8.2% to almost 66,000 in the counties Cork/Galway/Limerick/Waterford. Median Total Annual Income 100K 90K 80K 70K 60K 100K 90K 80K 70K 60K 50K 50K *Median borrower incomes are derived from sample loan-level data provided by BPFI members. The analysis is subject to regular revision as new data is made available. 40K 2016 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 40K Source: BPFI

17 MORTGAGES Customer Type Median Price-to-Income ratios 4.4 FTB Mover Purchase The ratio of property purchase price to the combined incomes of borrowers (price-to-income) is a useful measure of affordability and complements the Central Bank of Ireland s loan-to-income ratio The median price-to-income (PtI) ratio rose by 2.6% year-on-year for FTBs and by 5.2% for mover purchasers in Q1 2018, to 3.72 and 3.5, respectively. These were the highest levels since the series began in The median PtI in Dublin rose on a year-on-year basis to 4.16 for FTBs and 4.07 for mover purchasers. Only in Q was the PtI for FTBs higher. Median Price-to-income ratio Following significant declines up to Q1 2014, the median PtI for both FTBs and mover purchasers has risen significantly in recent years in the countries Cork/Galway/Limerick/Waterford. *The median PtI ratio is derived from sample loan-level data provided by BPFI members. The analysis is subject to regular revision as new data is made available Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: BPFI

18 MORTGAGES Cash sales ratio Cash sales accounted for 30.4% of sales on an annualised basis in Q2 2018, down from 36.9% a year earlier. The cash sales ratio in the Dublin Commuter region fell to 19.3% but was unchanged in Dublin at 22.8%. The ratio in Dublin Commuter was lower than the ratio in Dublin for the seventh successive quarter. The ratio also fell in Cork/Galway/Limerick/Waterford, dropping to 33.5%. The cash sales ratio in the rest of Leinster dropped below 40% for the first times since the data series began in 2013, falling to 38.2% to from 48.2% in Q HMM cash sales % 55% 50% 45% 40% 35% 30% 25% 55% 50% 45% 40% 35% 30% 25% Cash sales represent all non-mortgage sales. The cash sales ratio is calculated by dividing the volume of mortgage drawdowns for house purchases by the volume of residential property purchases by households at market prices. The data is reported on an annualised basis. The cash sales ratio is derived from BPFI sample loan-level data and CSO residential property data. The analysis is subject to regular revision as new data is made available. 20% 15% 20% 15% 10% 2016 Q Q Q Q Q Q Q Q Q2 10% Source: BPFI/CSO

19 ABOUT THE REPORT The information presented here is based on a range of publicly available reports and datasets and collated with Identify Consulting for Banking & Payments Federation of Ireland. It is intended to bring together the range of housing and mortgage market data available and to constructively inform on-going analysis and assessment of the housing and mortgage market. Figures are presented by quarter and by region, where possible. Unless otherwise specified, quantities given for particular quarters (and/or regions) are totals, while prices are averages for the entire quarter. The sources used for compiling the report are as follows: the Department of Housing, Planning & Local Government [dwelling commencements] the Central Statistics Office [new dwelling completions, number of housing sales transactions, residential property price indices and transactions for cash sales estimates] Daft.ie [number of properties listed for sale and for rent; indices of listed sale and rental prices] Banking & Payments Federation of Ireland [mortgage approvals, drawdowns, median incomes, median deposits, median price-to-income ratios and estimated cash sales ratios]

20 Banking & Payments Federation Ireland, Nassau House, Nassau Street, Dublin 2, D02Y240, Ireland info@bpfi.ie Dublin Brussels Frankfurt

BPFI Housing Market Monitor Q3/2017

BPFI Housing Market Monitor Q3/2017 With a commentary by Dr Ali Uğur Chief Economist, Banking & Payments Federation Ireland OVERVIEW OF TRENDS Indicator Latest quarter One year ago % change Dwelling completions