Why is the property market cooling down?

This time two years ago property prices were accelerating at a breakneck speed of 10% annually, but the rate of increase has now slowed to 5%.

So what is happening?

Prices are still rising and there is no sign of them falling at present.

Instead, the Irish property market appears to be transitioning to a period of more moderate growth.

Chief Economist at Bank of Ireland Conall Mac Coille said: "We are looking at house price inflation of 3% to 4%."

He calls it a "chink of light" for people hoping to buy a home.

Prices have been steadily rising since 2013 when the market reached rock bottom after the financial crisis.

It means the cost of buying a home has shot up 185% over 13 years.

Many of those who want to buy a home simply cannot afford it.

Prices are almost eight times average salaries, according to the latest report for property site MyHome by Bank of Ireland.

Central Bank rules prohibit banks from lending more than four times a buyers’ income as part of restrictions to prevent another credit-fueled property crash.

The median or mid-point price of a property in Ireland is now €400,000, according to the Central Statistics Office.

It means those getting on the property ladder are frequently a couple with a joint income in excess of €95,000 and a deposit of €40,000 or more.

Saving a deposit of that size during a cost-of-living crisis when inflation is 4% and rents are expensive is a significant challenge for many.

But it is not all bad news.

There has been an improvement in the supply of secondhand homes going on the market after four years of falling sales.

There has also been a pickup in the number of new units being built which is now running at 38,000 yearly.

Mr Mac Coille said the level of house building is enough to accommodate 100,000 people and sufficient to cater for population growth.

However, housebuilding at this level is still far short of what is needed to meet pent-up demand which has been caused by years of output falling far short of requirements.

Trinity College Economist Ronan Lyons, who is the author of 'Brittle’, a non-fiction account of the housing crisis, said "every year of less than 50,000 homes being built has resulted in the backlog growing".

By examining population growth since 2011, he estimates that the pent-up demand for housing has reached 340,000 units.

They are people renting or living with parents who want to purchase accommodation but cannot afford to do so.

He added that many of the homes being built are not sold to owner-occupiers but instead are snapped up by large build-to-rent corporations, particularly in the capital.

Mr Lyons said one of the reasons behind the slower growth in house prices is weaker demand as recruitment eases in financial and technology sectors, both of which are huge employers in the capital.

The other factor is that interest rates are increasing as the European Central Bank battles inflation.

The bank has increased interest rates from 2% to 2.5% this year, with potential for another hike before the end of the year and possibly more in 2027.

Higher interest rates are used as a handbrake to slow the growth in consumer prices but usually dampen price inflation in property too, as mortgages become more expensive.

The overall picture is that the housing market is entering a different phase.

But it has not suddenly become easier to buy a home.