Economists warn about Irish house price inflation as the ECB looks set to cut interest rates 

Any rate cut would be the first since the ECB set out in July 2022 to hike rates in record time as inflation flared. 

Some market participants say although the ECB may be slower than once thought to cut rates, it will nonetheless cut its key deposit rate to 2.5% by the end of next year. 

Irish economists warn the prospects of rate cuts have already helped to push annual house price inflation higher, and  house prices could end the year at higher levels than once anticipated. 

Economist Simon Barry said the low point in Irish house price inflation was reached last summer but the pace of house price inflation has already picked up. The underlying economy has been performing and the population has been increasing, which has meant demand for housing has remained strong, Mr Barry said. 

Demand has also been boosted by the easing of the Central Bank mortgage lending rules that has led to increased demand in some parts of the market, he said. 

Mr Barry said although interest rate changes were only one element in determining demand, the shock to borrowers from hefty ECB rate increases had passed, and with rate cuts likely looming a major risk for borrowers had “been taken out of the equation”. 

Economist Austin Hughes said since late last year borrowers have become more comfortable with the prospects that interest rates would not rise much further and would come down. With limited housing supply, “you are in circumstances where I think the aspect of cheaper money is already feeding through to dearer house prices”, Mr Hughes said. 

“I think you will see a further acceleration,” but the rate of house price inflation would be held back nonetheless by the issue of affordability, he said, adding in an election year the risks had increased that politicians would “outbid each other to offer more incentives to buyers that will lead to higher demand and higher prices”. 

Economist Jim Power said the Irish house price inflation had held up despite a record rise in interest rates, and political pledges in an election year add to the mix of risks. 

“You have to think that house price inflation is going to accelerate given the housing shortages,” Mr Power said. The Central Bank would push back against any political pressure to ease its mortgage lending rules further, he added.   

Bank of Ireland group chief economist  Conall Mac Coille said most commentators had forecast house price inflation would slow to 3.5% to 4% by the end of the year, but its latest analysis showed people were still bidding up prices above the asking prices. 

“That suggests, given the intensity of competition in the market, that prices could rise more aggressively than 3.5% to 4% this year”, and with the risk of house price inflation through 2024, “driven in a positive way by pay rises but in a negative way by housing supply that is out there”, Mr Mac Coille said.