The real estate cycle has three distinct phases: boom, slump, recovery. The doldrums phase, the one we are about to enter, usually tends to be met with rejection. We will be told that prices cannot come down, not with the current demographics of demand supporting them.

We will be told that Ireland’s chronic undersupply makes it an exceptional case internationally. But these old tropes have never overshadowed the boom-and-bust dynamic.

Industry also has a vested interest in talking about the sector to attract investment. As we saw in 2007-2008, this can continue quite late in the day, in the face of clearly deteriorating measures.


The economic arguments for falling values ​​don’t make sense, not if you think housing is a simple case of supply and demand. But the property does not entirely adhere to these rules. People tend to buy, developers tend to build, when prices go up.

The reverse is true when prices fall. Perception plays a big role. More and more economists are coming to the idea that price expectations could be the main determinant of headline inflation.

Real estate is also a highly financialized asset, driven by trillions of euros in speculative cash. Much of the current development in Dublin is financed by international funds seeking returns in the build-to-let sector. And underpinning these funds is the great financial experiment of the time, quantitative easing (QE) and low interest rates.

There are, however, clear signs that the current momentum is coming to an end and that the Covid-induced price spike has reached a tipping point with higher living costs and higher interest rates now likely to hold back buyers. .

In Toronto, one of the hottest real estate markets on the planet, house prices fell for the second straight month in April.

The average price of a home in Canada’s largest city fell 6.4% to C$1.2 million (around €885,000), according to the Toronto Regional Real Estate Board.


It was the biggest monthly decline since April 2020, when the market was largely frozen due to Covid-19 lockdowns. The number of homes sold in Toronto fell by 26%. Vancouver posted similar declines.

The turnaround appears to be tied to aggressive interest rate hikes by the Bank of Canada. Since early March, the central bank has raised the benchmark interest rate from 0.25% to 1% in a bid to contain runaway inflation, and markets expect the rate to rise to at least 1%. .5% in June. New Zealand, which has seen one of the biggest spikes in housing prices during Covid, is experiencing a similar retreat, also following interest rate hikes.

The same dynamic is emerging in the United States. And remember that these countries are experiencing severe housing crises, marked by a shortage of supply and unaffordable price measures. Falling home ownership rates in New Zealand have become a major political issue.

The only thing missing here are interest rate hikes, but they are on the way. With eurozone inflation at a record high of 7.5%, almost four times the European Central Bank’s 2% target, pressure is mounting on Frankfurt to act and several policymakers are already pressing for faster “normalization”.


ECB Director Christine Lagarde and our own Central Bank Governor Gabriel Makhlouf have signaled that a streak of interest rate hikes could begin as early as July. Markets are pricing in 90 basis points of rate hikes for the rest of the year, or between three and four moves of 25 basis points by Christmas.

But there is another weave in the tapestry, one that is arguably more relevant to Ireland, which will also act as a cooling agent. After a decade of near-dormant construction, home building is taking off.

The number of new homes built in the first quarter of 2022 was the highest since the era of the Celtic Tiger.

The Central Bank expects around 25,000 new homes to be built this year, rising to 30,000 in 2023 and 35,000 in 2024. The 35,000 figure is roughly in line with the estimated level of market demand, although some maintain that it is higher. This should put further downward pressure on prices.


Most real estate agents here have not recalibrated for these new dynamics and still expect healthy price growth for the rest of the year and beyond. But they were also the ones who thought Covid would see the market tank.

Some chilling is perhaps unavoidable given the appreciation of values ​​and the fact that there are limits to affordability. The bust phase of the cycle is usually determined by the magnitude of the boom phase.

The greater the rise, the greater the fall. Despite what you might think, Ireland hasn’t had as big of a Covid bubble in property prices as other countries, so the fall may be more moderate, but it is happening.

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