Irish property prices are 17% overvalued, a new report from the Economic and Social Research Institute (ESRI) has found.
The organisation measured house prices against a range of economic fundamentals including incomes, interest rates and demographics.
The ESRI said while there was “a significant degree of overvaluation” but added it was “materially lower, and structurally different in nature, than the levels observed prior to the global financial crisis”.
It said the current situation represented an increase in the level of overvaluation since the most recent analysis using similar methods which was published by the ESRI in December 2024.
The ESRI added: “Unlike the pre-crisis period, which was driven by excessive credit growth and loose lending standards, the current episode of overvaluation appears to be primarily an affordability issue.”
It said house prices have risen faster than incomes, mortgage rates have increased and not enough homes were being built to meet demand.
It added that household debt and the wider credit market remain well below the levels seen before the financial crisis which it said suggested the financial system is “considerably stronger” than before the financial crisis in 2008.
The report said the current valuation pressures warranted “continued monitoring”.
It added that current conditions are better characterised as reflecting “structural imbalances in housing supply rather than the emergence of a systemic credit-driven housing bubble”.
The report’s author Paul Egan of the ESRI said: “Our analysis shows that Irish house prices are significantly above what economic fundamentals would suggest, driven by prices rising faster than incomes and higher mortgage rates, with middle-income households bearing the greatest burden.”