Cooling housing market presents new challenges

There is no doubt that the housing market cooled a bit in the final quarter, with selling prices easing back a bit. That much is clear from surveys published during the week by and But it still remains to be seen how much of this is seasonal and what will happen in the key spring selling season which will soon be upon us.

There should be enough house-building already under way to ensure supply levels at least stay on par with last year in the months ahead – even if falling housing starts create risks of some falloff thereafter. But what about demand?

Are the increases in interest rates and the affordability squeeze finally starting to tell on the market, with some reports of asking prices being trimmed to ensure sales are finalised? This is certainly a factor in the market: the gradual rise in interest rates is bound to be hitting home.

Higher interest rates also mean that the stress tests banks must carry out to ensure borrowers can manage if borrowing costs rise will limit some applicants in the size of mortgage they can secure. On the other side the loosening of Central Bank rules meaning all new borrowers can get a loan equivalent to four times income, rather than 3.5 times.

House prices could mark time or perhaps continue to edge upwards given tight supply. But this should be taken as some kind of new equilibrium. Both sides of the market – supply and demand – are now in a bit of flux. The risk is that the market just ticks over but that transaction levels are hit as more and more potential buyers start to be priced out of the market.

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Perhaps there is enough underlying demand to avoid this. But uncertainty is now a factor for buyers as the economy slows – and some well-paid jobs in tech are under threat. Already builders and developers are nervous, worried about demand and rising building costs.

Combating this supply side uncertainty is a big issue now for Government policy. Without clarity a lot of projects will be put on ice, and by the end of the year we will be looking at a falling level of new supply.


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