Irish house prices are overvalued by about 17%, according to a report from the Economic and Social Research Institute (ESRI). The analysis shows that this overvaluation is most severe for middle-income households, who face big affordability challenges. The report states that house prices have risen steadily since mid-2013, nearing levels seen before the financial crash.
Key Details
The ESRI's findings suggest that real house prices, which adjust for inflation, have gradually become more overvalued since 2020. This marks an increase from earlier estimates of 8% to 10% for 2024. The report links the current overvaluation to a gap between rising house prices and stagnant income growth. This issue is worsened by rising mortgage rates and a lack of housing supply to meet demand.
Unlike the 2006 crisis, which was driven by too much credit growth, the current situation is marked by affordability problems. The ESRI notes that while household debt levels are low compared to pre-crisis times, high prices hit those in the middle of the income distribution the hardest. The report warns of possible imbalances in the residential real estate market but does not predict an imminent crash.
Background
The Irish government has tried to tackle these challenges with various measures aimed at increasing housing supply. However, the report stresses that prices remain unaffordable for many. This reflects ongoing issues in both the housing and rental markets. For more context, see our article on Ireland’s Rent Inflation and the Irish Government's Budget Strain.
The overvaluation of house prices could lead to more scrutiny from investors in the real estate sector, especially in residential property funds. Rising interest rates may further reduce demand, affecting housing-related stocks and mortgage lenders. Watch for upcoming housing policy announcements from the government that may change market dynamics.
Based on reporting by: irishtimes.com