15 Aug 2019

Irish Economy: Residential prices trending slowly higher

The latest data on residential property prices from the CSO show a further moderation in annual price inflation to 2.0% in the year to June.

This is the 14th successive month in which price growth has decelerated following the recent peak of 13.3% in April of last year, and there may be further downward pressure on the annual growth rate in the coming months given robust price growth in Q3 last year (prices grew by 2.2% q/q in that period). That said, the latest couple of releases from the CSO suggest that residential prices are relatively stable at present and trending marginally higher – price growth has been positive m/m in each of the last four months and the 0.4% m/m increase in June was the largest monthly increase since last September. Prices were also 0.9% higher q/q in Q2 following a 0.6% q/q decline in Q1. 

Looking at regional trends, prices in Dublin were +0.2% m/m in June, +0.4% q/q in Q2 and the annual rate of change was marginally in positive territory at +0.1%. However we would not be surprised to see Dublin prices lower on a y/y basis in the coming months given the challenging base effects brought about by strong growth in Q3 last year (prices were +2.8% q/q in Q318) before rebounding towards the end of the year. Prices outside of the capital were +0.5% m/m in June, +1.3% q/q in Q2 and +3.9% in the past year.

Given that the undersupply in new housing is likely to persist (and the latest data in this regard is not encouraging) and domestic employment and earnings growth remain strong, we expect property prices to continue to trend higher. However, the Central Bank’s mortgage lending restrictions are likely to constrain this growth, while Brexit and other international macro uncertainties are also likely to temper the rate of increase, particularly in higher priced segments. 

Corbyn appeals to other parties to topple Boris

Labour leader Jeremy Corbyn has written a letter urging other opposition parties and rebel Tories to back him in a vote of no confidence against the government and to support him as a ‘time-limited’ caretaker PM, in an attempt to prevent a no deal Brexit. Under the Fixed Term Parliaments Act, a successful vote of no confidence would result in the Queen having up to a fortnight to put together a government that could command the confidence of the Commons, which would avoid the need for a snap general election.

We doubt that Mr Corbyn’s plans will get far off the ground. Lib Dem leader Jo Swinson has already called the idea ‘nonsense’, while we doubt that any potential Conservative dissidents would be impressed either. However, it is symptomatic of the degree of uncertainty surrounding the course of Brexit as well as the fragility of the arithmetic in Parliament, where the Conservative/DUP overall effective majority stands at one. 

Yield curve inversion spooks market

Yesterday, saw the US Treasury yield curve ‘invert’ for the first time since 2007 after the yield on the 10-year benchmark slipped below that offered by the 2-year. Such an inversion has typically been taken as a signal of an impending recession after having preceded almost every US recession of the past 50 years. This has prompted a renewed market selloff, with the S&P 500 falling 2.9% while the Dow dropped 800 points. Asian equities have subsequently come under pressure, with the Topix declining by 1.0%. 

Safe-haven currencies have also come into vogue; EUR:CHF now trades at 1.086. However, the selloff looks to have settled somewhat, with the Shanghai Composite up almost 0.25% after having been off as much as 1.8%, while e-mini futures pointing to the S&P 500 clawing back 0.5% at the Thursday open. Acknowledging the risk of ignoring the inversion at our peril, we also note that it is important to recognise that there are reasons to recognise this may not be the harbinger it once was.

Economic data

09.30 UK Retail Sales

13.30 US Retail Sales

13.30 US Philadelphia Fed Manufacturing Index

14.15 US Industrial Productions