The Economic and Social Research Institute has warned that Irish house prices are overvalued by up to 10 per cent – and says that the ratio of what mortgage holders must repay in contrast to their income “has risen quite sharply in recent years”.
“The continuous increase in Irish house prices since mid-2013 means that Irish house prices are, as of August 2024, now 13.4 per cent higher than the preglobal financial crisis peak back in April 2007,” their analysis explained.
They say that the pick-up in growth rates since early 2024 “has provoked some concern about the sustainability or otherwise of current price levels, and whether a sharp correction as was experienced from 2008 to 2012 is likely to occur again”.
Using model-based assessments to examine changes in house prices and vulnerability in the real estate market, the report concluded that “Irish house prices are over-valued by somewhere in the region of 8 to 10 per cent.”
“The accelerated increase in house prices experienced so far in 2024 has led to concerns in the domestic market about the sustainability of such increases and the prospect of a painful correction such as that witnessed between 2007 and 2012,” the analysis found.
The think tank also pointed to evidence that “an increasing number of Irish households are facing elevated leveraged positions in terms of the mortgaged debts they are carrying.”
“This renders these households quite vulnerable, particularly to any labour market shock, both in terms of a sudden rise in unemployment and/or a decline in real wages. It also raises question marks around the capability of certain cohorts of the population to engage in homeownership, as both the DSR and house price-to-income ratio are increasing significantly.”
“While credit growth is not as significant a factor as it was in the pre-Celtic Tiger era, there is recent evidence to suggest the growing contribution to recent house prices of changes in the loan-to-income ratio,” the report said.
The latest Quarterly Bulletin from the ESRI says that while over 49,000 commencements for housing have taken place to date this year – with just under 40,000 units expected to be completed in 2025 – the “levels remain still well below estimates of the structural demand for housing”, with a “growing pent-up demand.
“Consequently, in a supply constrained environment, property prices have continued to rise in 2024,” the think tank said.
has warned, adding that an increasing number of households are carrying “elevated” levels of mortgage debt.