HOUSE PRICES IN Ireland were around 17% higher than they should be as of Q3 last year, according to a new report released by the Economic and Social Research Institute (ESRI). 

The report found a “significant degree of overvaluation” in the Irish residential property market, which it attributes largely to an “affordability” issue. 

This can be contrasted to the peak of overvaluation at the end of 2006, when prices were 45% higher than they should have been.

Now, however, overvaluation is “structurally different in nature”, and can be attributed more to imbalances in housing supply as opposed to high levels of borrowing.

Demand for houses is higher than the number being built, with prices significantly higher than people’s incomes. 

Middle-income households are the hardest hit as house prices are typically much higher than income, and incomes have not kept pace with the rate of increase of house prices.  

Dr 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.”

While house prices have been steadily climbing since mid-2013, Irish households on the whole are carrying less debt and borrowing more cautiously than they did before the 2008 crash.

High house prices were previously driven by excessive credit growth and loose lending standards, but now high prices are not accompanied by excessive levels of credit, indicating a financial system that is in a stronger position than it was during the financial crash.

However, rising interest rates are pushing up monthly repayments and squeezing how much people can afford to borrow or repay.