The Daily Star Ireland
Irish property prices are currently overvalued by approximately 8% to 10%, according to the latest Quarterly Economic Commentary from the Economic and Social Research Institute (ESRI). The ESRI’s analysis considered several factors including property prices, disposable incomes, interest rates, housing supply, and the demographic ratio of people aged 25 to 44, who are key house purchasers.
The institute highlighted that a growing number of households are burdened with high levels of mortgage debt, making them vulnerable if there is an increase in unemployment or a decrease in wages. The report noted the rapid rise in house prices in 2024, sparking concerns about the sustainability of such increases and the potential for a market correction similar to the one experienced from 2007 to 2012.
While the growth in credit is not as significant as it was before the last crash, the ESRI emphasized that the Central Bank must be vigilant and prudent in its review of mortgage lending rules. Over the past year, property prices have increased by 10% and are now 14% higher than their peak in 2007, as reported by the Central Statistics Office.
The ESRI also expressed concerns about the possible introduction of tariffs if Donald Trump returns to the White House, which could force the Government to reduce planned spending next year. The institute warned that US tariffs could lead to a 3.2% decline in global economic growth next year, impacting the Irish economy directly. Additionally, any pullback by US multinationals could affect wages, corporate taxes, and overall economic output.
Despite these concerns, the ESRI remains optimistic about Ireland’s economic prospects, forecasting a 3.2% growth in the domestic economy this year and 4% next year. The employment market is expected to remain strong, with real wages (adjusted for inflation) anticipated to rise by 4% next year. The ESRI described Budget 2025 as “broadly progressive,” noting that households in the lowest 20% income bracket would see minor increases in disposable income.
Kieran McQuinn, a Research Professor at the ESRI, stated that the situation with Irish property prices and household debt levels warrants consideration. He highlighted that the current trends in house prices are unsustainable in the long term. High house prices are consuming an increasing share of people’s incomes through mortgage repayments or rent. McQuinn suggested that policy measures should aim to reduce house prices and costs over the long term, although he acknowledged that current prices are justified by economic fundamentals.
McQuinn also noted that while Ireland’s economy is robust, it remains highly susceptible to global trade dynamics, and any negative changes in this area could adversely affect the Irish economy.
