Auctioneers predict price 'correction' could soon affect property sales.

The rate of rise in house prices is slowing, as interest rate rises make mortgages more expensive

Rising interest rates and increased supply have contributed to a slowing of the rate of house price inflation

Though property prices have increased by almost a third in the last five years, auctioneers have noticed a significant slowdown in the market over recent months.

House prices grew by €20,000 on average in the first half of this year — but the rate of increase then slowed in May and June, according to an analysis of sales data by auctioneers and property agents.

Pat Davitt, chief executive of the Institute of Professional Auctioneers and Valuers (IPAV), predicted prices will see “a correction in some very hot areas”, where they had recently returned to or even surpassed 2007 levels.

He said price growth could dip to about 2pc for the rest of this year, and go slightly lower for the first half of 2023.

He warned that further interest rate hikes may exclude more potential buyers from the market — which wouldin turn hit prices, as fewer buyers would be able to afford a mortgage.

IPAV’s residential property price barometer, published today, shows property prices increased by an average of about 10pc in the first four months of this year, before price inflation cooled in May and June. This cooling effect brought the six-month growth figure to 6.36pc on average.

Dampened expectations have played a role, with the practice of increasing reserve prices almost disappearing from the market between May and June. Until recently, somebody who saw a neighbour achieve €400,000 at sale might have added 5pc to this amount when setting the reserve price on their own similar home. That is not always the case now, Mr Davitt said.

Concern over rising mortgage interest rates and increased supply in some areas have also been cited as factors.

“I think we have seen the last of the 12pc increases per year, until we get a better picture of what is in store for us. "I can see figures of about 2pc in the next six months, and things getting slightly flatter after that,” Mr Davitt said.

“Hot areas, where property prices are high and where people must borrow considerable money for mortgages that are going to get more expensive [due to interest rate hikes], will be the first areas we will see coming to parity. “We won’t see decreases across the market, because some areas are still doing well — but there will be some areas where inflation could stop over the next six months.”

The sales data show the average price of a two-, three- or four-bedroom home rose to €315,061 in the first half of 2022. The report measures prices achieved on completed sales in the past six months and compares them with previous periods. Year-on-year, prices grew by an average of €34,432 (12.3pc) up to the end of June. House prices have grown by more than €77,000 (32.4pc) on average since the study was first carried out in 2017.

The European Central Bank last week announced a 0.75pc interest rate hike, as it attempts to control inflation in the general economy and reduce spending. Mr Davitt said further hikes could price some buyers out of the property market.

“This may not be the only interest increase we see in the next six months — and mortgages going up by €40 or €50 per month will be enough for some people to be priced out of the market,” he said. “That leaves less
customers for less property. And that is going to make a difference to the market.”

He said parts of Dublin that have seen significant price growth over the past five years are most likely to experience the earliest price corrections. Price growth at different addresses in the capital for the first half of the
year ranged from a low of 2pc for an apartment in Dublin 15, to a high of 9.5pc for a four-bed home in the south of the county.

Dublin auctioneer Ray Cooke said prices have cooled since a peak around Easter. He said improved supply in some parts of the capital, allied to an increased desire to move out to rural counties, has eased price pressure in certain areas. “The cheaper areas are still going well, because there are more people at that level — so there are more people ready to buy up to the €350,000 mark. But once you go up over the €500,000 to €1m mark, there are not as many buyers — but there is a similar amount of properties available, so you can see prices coming down a little
bit there,” Mr Cooke said.

The most significant growth during the first half of this year was seen in the west of the country. Co Clare saw double-digit price growth for two- and three-bed homes, while four-bed homes increased by almost 10pc. A
three-bed home in Clare now costs 26pc more than it did last year.

Galway city saw the cost of a three-bedroom home rise by almost 13pc in the past six months. They now average out at €350,000 — up by more than 20pc on this time last year. However, rural areas in Galway county saw much slower growth, less than 4pc on average in the first half of the year for three- and four-bed homes.

IPAV president Gerry Coffey, an auctioneer who is based in Williamstown, Co Galway, said demand still outstripped supply — but people were taking a more cautious approach. “Demand is there, but the phones have
quietened in the last few weeks. Things have slackened a small bit,” he said.

“There is a wait-and-see approach from a lot of people.”