Over the last few months, house prices have not been rising as quickly. Although national asking prices are up 3.0 per cent on a year ago, this is about half the 5.8 per cent pace of last year, meaning that sellers are adjusting down what they think they can get when they put their homes on the market.
Meanwhile, agreed sale prices are up just 0.8 per cent, the slowest in six years. This is a big shift. Another signal is that the premium that buyers were prepared to pay over the asking price has narrowed from 6.8 per cent to 2.6 per cent. Buyers are no longer being bullied into paying way over the odds because they fear being outbid by someone else. Given the role psychology plays in markets, such a change in dynamics is significant.
We forget the role of emotions in markets at our peril, because the “mood” plays a huge part in the way people see prices and bargains. Sometimes, my profession, the economists, don’t get this. When economists see a price, we see a number; when ordinary people see a price, they get a feeling. It is this feeling that makes them confident, or anxious, as the case may be. Confidence pushes people to pay the extra bit over the asking price; anxiety has the opposite effect.
We are seeing a sharp reversal of behaviour. For example, in Dublin, according to the latest Daft report (Daft Q3 2026), sale prices fell 5.2 per cent year-on-year, the largest annual fall since 2014, and this fall has accelerated over the summer, with prices dropping 2 per cent in the three months to September. Asking prices are still up 2.7 per cent, so the gap between what sellers want and what buyers will pay is wider in Dublin than in any other region in the State.
Before you go thinking the housing crisis has been solved, hold on. What we are seeing is not evidence of that. Prices nationally remain 44 per cent above pre-Covid levels. The easing we’re seeing is not driven by new supply. It reflects two developments: first, buyers are reaching the limit of what income, lending rules and support schemes allow them to pay, and second, the homes that are being built don’t match what people want.
We are still building three-bed semidetached homes in commuter towns, in a country that wants urban apartments, because the size and nature of the Irish household has changed. We are having fewer children, and more people are single and want to live alone or in a couple without necessarily wanting two extra bedrooms.
Let’s look at the first development. Prices are simply too high, and potential buyers have hit the price ceiling. The expression “the cure for high prices is high prices” is one of the oldest in economics. Eventually, very high prices fix themselves by depressing demand, because people run out of money and can’t afford to pay the higher prices. In addition, the high prices usually imply higher profits for builders and the higher prices prompt higher supply, which brings down prices in time. However, in Ireland right now, it is a simple fact that buyers are “maxed out” and can’t afford relentless rises in house prices – so they cannot play the game any longer.
Since Covid, although wages have been more or less rising in line with inflation or a small bit more, house prices across the country are up massively. In Munster, outside the cities, prices are up 72 per cent since the pandemic. They are up 62 per cent in Leinster outside Dublin; the four regional cities have seen prices rise by 57 per cent, while in Connaught/Ulster, traditionally the most moribund of housing markets, prices are up a whopping 72 per cent since Covid.
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Dublin lags behind, with prices up by 32 per cent in the same period. The current asking price for a three-bed semi is €635,000 in Dublin, €431,000 in Cork city, €424,000 in Galway city; €376,000 in Limerick City and €313,000 in Waterford city.
The font of all borrowing is income, so let’s look at these prices relative to wages and the ability to borrow, and then let’s see where prices should be. Real wages are roughly flat: earnings were up 3.9 per cent against inflation of 3.7 per cent last year. First-time buyers – half of all buyers – can borrow, at most, four times their income, with a 10 per cent deposit.
This is a numbers game – and the numbers don’t add up. We need far more apartments in our cities, and the asking prices for these apartments must fall
So take a couple in their 30s, both on average earnings of €1,046.88 a week, or €54,400 a year. This gives them €108,900 combined. Four times income in borrowings means a maximum mortgage of €435,500. When adding their 10 per cent deposit, the maximum purchase price they can afford is about €484,000.
Based on these figures, the Dublin family home is out of reach on their income alone. The couple would need a dual income of about €145,000 to afford the three-bed semi, or a cool €200,000 in cash.
In terms of getting an apartment in Dublin, the average two-bed costs €406,000, so it is within lending limits, and repayments are below 20 per cent of gross income. The challenge for this couple is saving up the €41,000 in cash for a deposit, roughly 4.5 months of combined gross pay.
This is not insurmountable if they have been saving, or can rely on family, and parents giving a house deposit to young couples is very common. But let’s say they would like to have a family in an urban setting, in, say, a three-bed apartment. At a cost of €502,000 it is about €18,000 over the couple’s maximum threshold, and it would require €66,500 in cash.
Even if taking the completely stretched first-time buying couple who’ve looked down the back of the couch to put together every cent they have, they are still well short of the needed funds in Dublin. Is it any surprise prices are adjusting in the capital?
Apologies for all the numbers in the last few paragraphs, but this is a numbers game – and the numbers don’t add up. We need far more apartments in our cities, and the asking prices for these apartments must fall. The State must fast-track building in the cities. We need to build up, because obviously the more floors in a building, the cheaper the apartments ultimately built will be – and we also need to reduce the ability of serial objectors to put spurious spanners in the works.
For now, the market has spoken – prices are adjusting downwards, because the cure for high prices is high prices.
Long may this last.
