WHILE HOUSE PRICES are rising significantly and show no signs of slowing down in the near future, there is no bubble in the property market.
That’s according to new research from independent think-tank the ESRI, which examined the jump in house prices since the trough of the recession.
The study analysed the fall in house prices from 2007 and 2013, and the subsequent rise since then.
It found that, between 2017-2020, house prices “could rise by 20% if projections for strong economic growth over the period are realised and if the slow rate of housing supply continues”.
At the moment, house prices are rising at a rate of about 10% each year, although the Residential Property Price Index is still about a third lower than the peak it hit during the height of the property bubble in 2007.
Despite the prediction of a continued increase in house prices, the ESRI said that there is not a property bubble.
“Overall, the results of the econometric models suggest that house prices are still explained by fundamental factors within the Irish economy,” it said.
“Indeed, some of the cross-country indicators would actually suggest that the Irish market is still undervalued.”
The group said that it examined a variety of indicators, such as estimating “fundamental prices” and cross-country comparisons of housing affordability.
“The results are unambiguous; the Irish market does not yet display any signs of overheating,” it said.
“While the absence, currently, of a bubble in house prices is somewhat reassuring, it is worth noting that house prices can vary significantly due to changes in fundamental variables.”
House prices are expected to rise “significantly” over the medium-term, according to the ESRI.
“This is mainly due to the expected strong growth envisaged in the Irish economy over this period and the continued likely accommodative nature of euro area monetary policy,” it said.
“Both of these developments will fuel increased levels of affordability amongst prospective homeowners, in turn leading to greater demand.
“Given the strong price growth envisaged, any government policy applied to the Irish market clearly needs to focus on increasing housing supply.”
The think-tank said that Ireland needs to ensure that credit is not made too freely available, a common problem during the boom when people borrowed too much money and couldn’t pay it back.
ESRI research professor Kieran McQuinn said: “As economic growth continues and the banking sector recovers, it will be critical to monitor credit provision to avoid fuelling house price inflation.”